-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GYr3xVc64dR/fxf1+nXQSgcghC4w+2gpxQRrDahGLJJ4voxQU72tViDekK9iIHcW mj6jxfFF9ZwL3R2R1jO6Bw== 0000950117-96-000931.txt : 19960819 0000950117-96-000931.hdr.sgml : 19960819 ACCESSION NUMBER: 0000950117-96-000931 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 REFERENCES 429: 033-96500 FILED AS OF DATE: 19960816 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCESS FINANCIAL LENDING CORP CENTRAL INDEX KEY: 0001018147 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 411768416 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-07837 FILM NUMBER: 96617115 BUSINESS ADDRESS: STREET 1: 400 SOUTH HIGHWAY 169 SOUTH SUITE 400 STREET 2: PO BOX 26365 CITY: ST LOUIS PARK STATE: MN ZIP: 55426-0365 BUSINESS PHONE: 6125426632 MAIL ADDRESS: STREET 1: 400 SOUTH HIGHWAY 169 STREET 2: SUITE 400 CITY: ST LOUIS PARK STATE: MN ZIP: 55426-0365 S-3/A 1 ACCESS FINANCIAL LENDING CORP. S-3/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1996 REGISTRATION STATEMENT NO. 333-07837 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ PRE-EFFECTIVE AMENDMENT NO. 2 ON FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ ACCESS FINANCIAL LENDING CORP. (Exact name of registrant as specified in charter) 400 HIGHWAY 169 SOUTH, SUITE 400 POST OFFICE BOX 26365 ST. LOUIS PARK, MINNESOTA 55426-0365 (Address, including zip code, and telephone number, including area code, of agent for service) Delaware 41-1768416 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) JAMES G. RAY 400 HIGHWAY 169 SOUTH, SUITE 400 POST OFFICE BOX 26365 ST. LOUIS PARK, MINNESOTA 55426-0365 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPY TO: CHRIS DIANGELO, ESQ. DEWEY BALLANTINE 1301 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.|_| If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.|X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.|_| If this Form is filed as a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.|_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE ================================================================================================================================== Proposed Amount Proposed maximum maximum Amount of to be aggregate price aggregate registration Title of each class of securities to be registered registered per unit(1) offering price(1) fee(2) - ---------------------------------------------------------------------------------------------------------------------------------- Asset Backed Certificates Asset Backed Notes Asset Backed Securities $1,000,000 100% $1,000,000 $345 ==================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee. (2) In accordance with Rule 429 under the Securities Act of 1933, the Prospectus included herein is a combined prospectus which also relates to the Registration Statement on Form S-3, File No. 33-96500 (the "Prior Registration Statement"). The amount of securities eligible to be sold under the Prior Registration Statement ($174,000,000 as of June 1, 1996) shall be carried forward to this Registration Statement. A filing fee in the amount of $344,827.59 was paid with the Prior Registration Statement. __________________________ The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine.
CROSS REFERENCE SHEET TO FORM S-3 CAPTION OR LOCATION ITEM AND CAPTION IN FORM S-3 IN PROSPECTUS - ---------------------------- ------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus....................................................Forepart of Registration Statement; Outside Front Cover Page** 2. Inside Front and Outside Back Cover Pages of Prospectus.............................................................Inside Front Cover Page**; Outside Back Cover Page** 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges.............................................Summary of Prospectus**; Risk Factors**;* 4. Use of Proceeds.....................................................................Use of Proceeds 5. Determination of Offering Price.............................................. * 6. Dilution..................................................................... * 7. Selling Security Holders..................................................... * 8. Plan of Distribution......................................................... Methods of Distribution** 9. Description of Securities to be Registered..............................Outside Front Cover Page**; Summary of Prospectus**; Description of the Securities**; Federal Income Tax Consequences** 10. Interests of Named Experts and Counsel....................................... * 11. Material Changes............................................................. * 12. Incorporation of Certain Information by Reference........................Inside Front Cover Page**; Incorporation of Certain Documents by Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.....................................See page II-3
- ------------ * Not applicable or answer is negative. ** To be completed from time to time by Prospectus Supplement. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED AUGUST 16, 1996 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. Asset Backed Securities, issuable in Series Access Financial Lending Corp. Company This Prospectus describes certain Asset Backed Securities (the " Securities") that may be issued from time to time in series and certain classes of which may be offered hereby from time to time as described in the related Prospectus Supplement. Each series of Securities will be issued by a separate trust (each, a "Trust"). The primary assets of each Trust will consist of a segregated pool (a "Loan Pool") of (A) (i) conventional one- to four-family residential mortgage loans, (ii) multi-family residential mortgage loans, (iii) mortgage loans secured by mortgages on small properties used primarily for residential purposes but also commercial purposes (the "Mixed Use Loans"), (iv) cooperative apartment loans secured by security interests in shares issued by a cooperative housing corporation or (v) home improvement loans each of which is secured by a "dwelling or mixed residential and commercial structure" within the meaning of Section 3(a)(41)(A)(i) of the Securities Exchange Act of 1934, as amended (collectively, the "Mortgage Loans") or (B) contracts for manufactured homes (the "Contracts") (the Mortgage Loans and the Contracts together, the "Loans"), to be acquired by such Trust from Access Financial Lending Corp. ("AFL") or one or more subsidiaries or other affiliated institutions of AFL (together, the "Company"). The Company will originate the Loans or acquire the Loans from one or more affiliated or unaffiliated dealers, brokers, or other financial institutions (the " Originators"). See "The Loan Pools." The Loans in each Loan Pool and certain other assets described herein and in the related Prospectus Supplement (collectively with respect to each Trust, the "Trust Estate") will be held by the related Trust for the benefit of the holders of the related series of Securities (the " Securityholders") pursuant to a Pooling and Servicing Agreement to the extent and as more fully described herein and in the related Prospectus Supplement. Each Loan Pool will consist of one or more of the various types of Loans described under "The Loan Pools." Each series of Securities will include one or more classes. The Securities of any particular class may represent beneficial ownership interests in the related Loans held by the related Trust, or may represent debt secured by such Loans, as described herein and in the related Prospectus Supplement. A series may include one or more classes of Securities entitled to principal distributions, with disproportionate, nominal or no interest distributions, or to interest distributions, with disproportionate, nominal or no principal distributions. The rights of one or more classes of Securities of any series may be senior or subordinate to the rights of one or more of the other classes of Securities. A series may include two or more classes of Securities which differ as to the timing, sequential order, priority of payment, interest rate or amount of distributions of principal or interest or both. Information regarding each class of Securities of a series, and certain characteristics of the Loans to be evidenced by such Securities, will be set forth in the related Prospectus Supplement. (cover continued on next page) _____________ THE ASSETS OF THE TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE RELATED SECURITIES. THE SECURITIES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE SERVICER OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. NEITHER THE SECURITIES NOR THE UNDERLYING LOANS WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE SERVICER OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. SEE ALSO "RISK FACTORS" ON PAGE 15 HEREOF. _____________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. _____________ Retain this Prospectus for future reference. This Prospectus may not be used to consummate sales of securities offered hereby unless accompanied by a Prospectus Supplement. The date of this Prospectus is August ___, 1996. (continued from previous page) The Company's only obligations with respect to a series of Securities will be pursuant to certain representations and warranties made by the Company, except as otherwise described in the related Prospectus Supplement. The Prospectus Supplement for each series of Securities will name one or more servicers (the "Servicer(s)") which will act directly or through one or more sub-servicers (the "Sub-Servicer(s)"). The principal obligations of the Servicer will be pursuant to its contractual servicing obligations (which may include a limited obligation to make certain advances in the event of delinquencies in payments on the Loans and interest shortfalls due to prepayment of Loans). See "Description of the Securities." If so specified in the related Prospectus Supplement, the Trust Estate for a series of Securities may include any combination of a mortgage pool insurance policy, letter of credit, financial guaranty insurance policy, bankruptcy bond, special hazard insurance policy, reserve fund or other form of credit enhancement (collectively, "Credit Enhancement"). In addition to or in lieu of the foregoing, Credit Enhancement with respect to certain classes of Securities of any series may be provided by means of subordination, cross-support among Loans or over-collateralization. See "Description of Credit Enhancement." The rate of payment of principal of each class of Securities entitled to principal payments will depend on the priority of payment of such class and the rate of payment (including prepayments, defaults, liquidations and repurchases of Loans) of the related Loans. A rate of principal payment lower or higher than that anticipated may affect the yield on each class of Securities in the manner described herein and in the related Prospectus Supplement. The various types of Securities, the different classes of such Securities and certain types of Loans in a given Loan Pool may have different prepayment risks and credit risks. The Prospectus Supplement for a series of Securities or the related Current Report on Form 8-K will contain information as to (i) types, maturities and certain statistical information relating to credit risks of the Loans in the related Loan Pool, (ii) the effect of certain rates of prepayment, based upon certain specified assumptions for a series of Securities and (iii) priority of payment and maturity dates of the Securities. An investor should carefully review the information in the related Prospectus Supplement concerning the different consequences of the risks associated with the different types and classes of Securities. See "Yield Considerations." A Trust may be subject to early termination under the circumstances described herein and in the related Prospectus Supplement. One or more separate elections may be made to treat a Trust, or one or more segregated pools of assets held by such Trust, as a real estate mortgage investment conduit ("REMIC") for federal income tax purposes. If applicable, the Prospectus Supplement for a series of Securities will specify which class or classes of the related series of Securities will be considered to be regular interests in a REMIC and which classes of Securities or other interests will be designated as the residual interest in a REMIC. Alternatively, a Trust may be treated as a grantor trust or as a partnership for federal income tax purposes, or may be treated for federal income tax purposes as a mere security device which constitutes a collateral arrangement for the issuance of secured debt. See " Federal Income Tax Considerations". Offers of the Securities may be made through one or more different methods, including offerings through underwriters, as more fully described under "Methods of Distribution" and in the related Prospectus Supplement. There will be no secondary market for any series of Securities prior to the offering thereof. There can be no assurance that a secondary market for any of the Securities will develop or, if it does develop, that it will offer sufficient liquidity of investment or will continue. 2 No dealer, salesman, or any other person has been authorized to give any information, or to make any representations, other than those contained in this Prospectus or the related Prospectus Supplement, and, if given or made, such information must not be relied upon as having been authorized by the Company or any dealer, salesman, or any other person. Neither the delivery of this Prospectus or the related Prospectus Supplement nor any sale made hereunder or thereunder shall under any circumstances create an implication that there has been no change in the information herein or therein since the date hereof. This Prospectus and the related Prospectus Supplement are not an offer to sell or a solicitation of an offer to buy any security in any jurisdiction in which it is unlawful to make such offer or solicitation. TABLE OF CONTENTS Caption Page - ------- ---- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................... 5 SUMMARY OF PROSPECTUS...................................................... 6 RISK FACTORS............................................................... 15 Risks Associated with the Securities.................................... 15 Risks associated with the Loans......................................... 16 Risks associated with the Mortgage Loans................................ 16 Risks Associated with the Contracts..................................... 18 Legal Considerations.................................................... 19 THE TRUSTS................................................................. 21 THE LOAN POOLS............................................................. 27 General................................................................. 27 The Loan Pools.......................................................... 28 UNDERWRITING PROGRAM..................................................... 30 General............................................................... 30 Mortgage Loan Program................................................. 31 Manufactured Housing Contract Program................................... 32 DESCRIPTION OF THE SECURITIES.............................................. 33 General................................................................. 33 Form of Securities...................................................... 35 Assignment of Loans..................................................... 37 Forward Commitments; Pre-Funding........................................ 38 Payments on Loans; Deposits to Distribution Account..................... 39 Withdrawals from the Principal and Interest Account..................... 42 Distributions......................................................... 43 Principal and Interest on the Securities................................ 43 Advances................................................................ 44 Reports to Securityholders.............................................. 45 Collection and Other Servicing Procedures............................... 46 Realization Upon Defaulted Loans...................................... 48 Master Servicer......................................................... 48 Sub-Servicing......................................................... 49 SUBORDINATION.............................................................. 50 DESCRIPTION OF CREDIT ENHANCEMENT.......................................... 51 HAZARD INSURANCE; CLAIMS THEREUNDER........................................ 56 Hazard Insurance Policies............................................... 56 THE COMPANY................................................................ 57 THE SERVICER............................................................... 57 Caption Page - ------- ---- THE POOLING AND SERVICING AGREEMENT........................................ 57 Servicing and Other Compensation and Payment of Expenses............................................... 58 Evidence as to Compliance............................................... 58 Removal and Resignation of the Servicer............................... 59 Resignation of the Master Servicer.................................... 60 Amendments............................................................ 60 Termination; Retirement of Securities................................... 60 THE TRUSTEE.............................................................. 61 YIELD CONSIDERATIONS....................................................... 63 MATURITY AND PREPAYMENT CONSIDERATIONS.......................................................... 65 CERTAIN LEGAL ASPECTS OF THE LOANS AND RELATED MATTERS................................................... 67 Mortgage Loans........................................................ 67 Manufactured Housing Contracts.......................................... 74 FEDERAL INCOME TAX CONSIDERATIONS...................................... 80 General............................................................... 80 Grantor Trust Securities.............................................. 80 REMIC Securities...................................................... 82 Debt Securities....................................................... 88 Discount and Premium.................................................. 89 Backup Withholding.................................................... 92 Foreign Investors..................................................... 92 Taxation of the Securities Classified as Partnership Interests.............................................. 93 STATE TAX CONSIDERATIONS................................................. 93 ERISA CONSIDERATIONS..................................................... 93 LEGAL INVESTMENT MATTERS................................................. 96 USE OF PROCEEDS.......................................................... 97 METHODS OF DISTRIBUTION.................................................. 97 LEGAL MATTERS............................................................ 98 ADDITIONAL INFORMATION................................................... 98 INDEX OF PRINCIPAL DEFINITIONS........................................... 99 3 Until 90 days after the date of each Prospectus Supplement, all dealers effecting transactions in the related Securities, whether or not participating in the distribution thereof, may be required to deliver this Prospectus and the related Prospectus Supplement. This delivery requirement is in addition to the obligation of dealers to deliver a Prospectus Supplement and Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 4 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE All documents filed by each respective Trust pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Securities of such Trust offered hereby shall be deemed to be incorporated by reference into this Prospectus when delivered with respect to such Trust. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Any person receiving a copy of this Prospectus may obtain, without charge, upon written or oral request, a copy of any of the documents incorporated by reference herein, except for the exhibits to such documents (other than the documents expressly incorporated therein by reference). Requests should be directed to Access Financial Lending Corp., 400 Highway 169 South, Suite 400, Post Office Box 26365, St. Louis Park, Minnesota 55426-0365, Attention: Corporate Compliance (telephone number 612-542-6500). 5 SUMMARY OF PROSPECTUS The following summary of certain pertinent information is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus and by reference to the information with respect to each series of Securities contained in the Prospectus Supplement to be prepared and delivered in connection with the offering of such series. Capitalized terms used in this summary that are not otherwise defined shall have the meanings ascribed thereto in this Prospectus. An index indicating where certain terms used herein are defined appears at the end of this Prospectus. Securities Offered....... Asset Backed Securities (the " Securities"). Company.................. Access Financial Lending Corp., together with one or more subsidiaries and affiliated institutions from which any Trust may acquire Loans. Servicer................. One or more servicers for each series of Securities will be specified in the related Prospectus Supplement. The Company may act as Servicer. Master Servicer.......... A master servicer (the "Master Servicer") may be specified in the related Prospectus Supplement for the related series of Securities. The Company may act as Master Servicer. See "Loan Program -- Master Servicer." Sub-Servicers............ The Servicer may service the Loans directly or through one or more sub-servicers (each, a "Sub-Servicer") (any servicer, Sub-Servicer and Master Servicer, collectively the "Servicer") pursuant to one or more sub-servicing agreements. See "Loan Program--Sub-Servicers." Trustee.................. The trustee (the "Trustee") for each series of Securities will be specified in the related Prospectus Supplement. The Securities........... Issuance of Securities. Each series of Securities will be issued at the direction of the Company by a separate Trust (each, a "Trust"). The primary assets of each Trust will consist of a segregated pool (each, a "Loan Pool") of (A) (i) conventional one- to four-family residential mortgage loans, (ii) multi-family residential mortgage loans, (iii) mixed use mortgage loans, (iv) cooperative apartment loans secured by security interests in shares issued by a cooperative housing corporation, or (v) home improvement loans (collectively, the "Mortgage Loans"), (B) installment loan contracts and installment loan agreements for manufactured homes (the "Contracts") or (C) certificates of interest or participation therein (the Mortgage Loans and the Contracts together, the "Loans") or certificates of interest or participation therein, acquired by such Trust from the Company. The Company will originate the Loans or acquire the Loans from one or more originators. The Securities issued by any Trust may represent beneficial ownership interests in the related Loans held by the related Trust, or may represent debt secured by such Loans, as described herein and in the related Prospectus Supplement. Securities which represent beneficial ownership interests in the related Trust will be referred to as "Certificates" in the related Prospectus Supplement; Securities which represent debt issued by the related Trust will be referred to as "Notes" in the related Prospectus Supplement. Each Trust will be established pursuant to an agreement (each, a "Trust Agreement") by and between the Company and the Trustee named 6 therein. Each Trust Agreement will describe the related pool of assets to be held in trust (each such asset pool, the "Trust Estate"), which will include the related Loans and, if so specified in the related Prospectus Supplement, may include any combination of a mortgage pool insurance policy, letter of credit, financial guaranty insurance policy, special hazard policy, reserve fund or other form of Credit Enhancement. The Loans held by each Trust will be serviced by the Servicer pursuant to a servicing agreement (each, a "Servicing Agreement") by and among the Company, the related Servicer and the related Trustee. With respect to Securities that represent debt issued by the related Trust, the related Trust will enter into an indenture (each, an "Indenture") by and between such Trust and the trustee named on such Indenture (the "Indenture Trustee"), as set forth in the related Prospectus Supplement. Securities that represent beneficial ownership interests in the related Trust will be issued pursuant to the related Trust Agreement. In the case of any individual Trust, the contractual arrangements relating to the establishment of the Trust, the servicing of the related Loans and the issuance of the related Securities may be contained in a single agreement, or in several agreements which combine certain aspects of the Trust Agreement, the Servicing Agreement and the Indenture described above (for example, a pooling and servicing agreement, or a servicing and collateral management agreement). For purposes of this Prospectus, the term "Pooling and Servicing Agreement" as used with respect to a Trust means, collectively, and except as otherwise specified, any and all agreements relating to the establishment of the related Trust, the servicing of the related Loans and the issuance of the related Securities. Securities Will Be Recourse to the Assets of the Related Trust Only. The sole source of payment for any series of Securities will be the assets of the related Trust (i.e., the related Trust Estate). The Securities will not be obligations, either recourse or non-recourse (except for certain non-recourse debt described under " Federal Income Tax Considerations"), of the Company, the Servicer, any Sub-Servicer or any Person other than the related Trust. In the case of Securities that represent beneficial ownership interest in the related Trust Estate, such Securities will represent the ownership of such Trust Estate; with respect to Securities that represent debt issued by the related Trust, such Securities will be secured by the related Trust Estate. Notwithstanding the foregoing, and as to be described in the related Prospectus Supplement, certain types of Credit Enhancement, such as a financial guaranty insurance policy or a letter of credit, may constitute a full recourse obligation of the issuer of such Credit Enhancement. General Nature of the Securities as Investments. The Securities will consist of two basic types: (i) Securities of the fixed-income type (" Fixed-Income Securities") and (ii) Securities of the equity participation type ("Equity Securities"). No Class of Equity Securities will be offered pursuant to this Prospectus or any Prospectus Supplement related hereto. Fixed-Income Securities will generally be styled as debt instruments, having a principal balance and a specified interest rate ("Interest Rate"). Fixed-Income Securities may be either beneficial ownership interests in the related Loans held by the related Trust, or may represent debt 7 secured by such Loans. Each series or class of Fixed-Income Securities may have a different Interest Rate, which may be a fixed or adjustable Interest Rate. The related Prospectus Supplement will specify the Interest Rate for each series or class of Fixed-Income Securities, or the initial Interest Rate and the method for determining subsequent changes to the Interest Rate. A series may include one or more classes of Fixed-Income Securities ("Strip Securities") entitled (i) to principal distributions, with disproportionate, nominal or no interest distributions, or (ii) to interest distributions, with disproportionate, nominal or no principal distributions. In addition, a series may include two or more classes of Fixed-Income Securities that differ as to timing, sequential order, priority of payment, Interest Rate or amount of distributions of principal or interest or both, or as to which distributions of principal or interest or both on any class may be made upon the occurrence of specified events, in accordance with a schedule or formula, or on the basis of collections from designated portions of the related Loan Pool, which series may include one or more classes of Fixed-Income Securities ("Accrual Securities"), as to which certain accrued interest will not be distributed but rather will be added to the principal balance (or nominal principal balance, in the case of Accrual Securities which are also Strip Securities) thereof on each Payment Date, as hereinafter defined and in the manner described in the related Prospectus Supplement. If so provided in the related Prospectus Supplement, a series of Securities may include one or more other classes of Fixed-Income Securities (collectively, the "Senior Securities") that are senior to one or more other classes of Fixed-Income Securities (collectively, the "Subordinate Securities") in respect of certain distributions of principal and interest and allocations of losses on Loans. In addition, certain classes of Senior (or Subordinate) Securities may be senior to other classes of Senior (or Subordinate) Securities in respect of such distributions or losses. Equity Securities will represent the right to receive the proceeds of the related Trust Estate after all required payments have been made to the Securityholders of the related Fixed-Income Securities (both Senior Securities and Subordinate Securities), and following any required deposits to any reserve account which may be established for the benefit of the Fixed-Income Securities. Equity Securities may constitute what are commonly referred to as the "residual interest", "seller's interest" or the "general partnership interest", depending upon the treatment of the related Trust for federal income tax purposes. As distinguished from the Fixed-Income Securities, the Equity Securities will not be styled as having principal and interest components. Any losses suffered by the related Trust will first be absorbed by the related class of Equity Securities, as described herein and in the related Prospectus Supplement. No Class of Equity Securities will be offered pursuant to this Prospectus or any Prospectus Supplement related hereto. Equity Securities may be offered on a private placement basis or pursuant to a separate Registration Statement to be filed by the Company. In addition, the Company may initially or permanently hold any Equity Securities issued by any Trust. 8 General Payment Terms of Securities. As provided in the related Pooling and Servicing Agreement and as described in the related Prospectus Supplement, Securityholders will be entitled to receive payments on their Securities on specified dates (each, a "Payment Date"). Payment Dates with respect to Fixed-Income Securities will occur monthly, quarterly or semi-annually, as described in the related Prospectus Supplement; Payment Dates with respect to Equity Securities will occur as described in the related Prospectus Supplement. The related Prospectus Supplement will describe a date (the "Record Date") preceding such Payment Date, as of which the Trustee or its paying agent will fix the identity of the Securityholders for the purpose of receiving payments on the next succeeding Payment Date. Each Pooling and Servicing Agreement will describe a period (each, a " Remittance Period") antecedent to each Payment Date (for example, in the case of monthly-pay Securities, the calendar month preceding the month in which a Payment Date occurs or such other specified period). Collections received on or with respect to the related Loans during a Remittance Period will be required to be remitted by the Servicer to the related Trustee prior to the related Payment Date and will be used to fund payments to Securityholders on such Payment Date. As may be described in the related Prospectus Supplement, the related Pooling and Servicing Agreement may provide that all or a portion of the principal collected on or with respect to the related Loans may be applied by the related Trustee to the acquisition of additional Loans during a specified period (rather than be used to fund payments of principal to Securityholders during such period) with the result that the related securities will possess an interest-only period, also commonly referred to as a revolving period, which will be followed by an amortization period. Any such interest-only or revolving period may, upon the occurrence of certain events to be described in the related Prospectus Supplement, terminate prior to the end of the specified period and result in the earlier than expected amortization of the related Securities. In addition, and as may be described in the related Prospectus Supplement, the related Pooling and Servicing Agreement may provide that all or a portion of such collected principal may be retained by the Trustee (and held in certain temporary investments, including Loans) for a specified period prior to being used to fund payments of principal to Securityholders. The result of such retention and temporary investment by the Trustee of such principal would be to slow the amortization rate of the related Securities relative to the amortization rate of the related Loans, or to attempt to match the amortization rate of the related Securities to an amortization schedule established at the time such Securities are issued. Any such feature applicable to any Securities may terminate upon the occurrence of events to be described in the related Prospectus Supplement, resulting in the current distribution of principal payments to the specified Securityholders and an acceleration of the amortization of such Securities. Neither the Securities nor the underlying Loans will be guaranteed or insured by any governmental agency or instrumentality or the Company, 9 the Servicer, any Master Servicer, any Sub-Servicer or any of their affiliates. No Investment Companies.. Neither the Company nor any Trust will register as an "investment company" under the Investment Company Act of 1940, as amended (the "Investment Company Act"). Cross-Collateralization.. The source of payment for Securities of each series will be the assets of the related Trust Estate only. However, as may be described in the related Prospectus Supplement, a Trust Estate may include the right to receive moneys from a common pool of Credit Enhancement which may be available for more than one series of Securities, such as a master reserve account or a master insurance policy. Notwithstanding the foregoing, no collections on any Loans held by any Trust may be applied to the payment of Securities issued by any other Trust (except to the limited extent that certain collections in excess of amounts needed to pay the related Securities may be deposited in a common, master reserve account that provides Credit Enhancement for more than one series of Securities). The Loan Pools........... Each Trust Estate will consist primarily of Loans secured by liens on one-to four-family residential properties, multi-family residential properties, mixed use properties, cooperative apartments or installment loan contracts and installment loan agreements for manufactured homes (such liens, the "Mortgages", and such property, the "Property"), located in any one of the fifty states, the District of Columbia, Puerto Rico or any other Territories of the United States. All Loans will have been acquired by the related Trust from the Company or at the Company's direction from one or more originators. All Loans will have been originated either by (i) one or more institutions affiliated with the Company, (ii) one or more institutions unaffiliated with the Company or (iii) the Company. In addition, the Loans may be purchased by the Company as bulk acquisitions ("Bulk Acquisitions") or on a "spot" or negotiated basis ("Negotiated Transactions"). The Loans generally will have been originated pursuant to the Company's underwriting guidelines in effect as of the date on which the Loan was submitted to the Company pursuant to the Company's Loan Program (as defined herein). See "Loan Program." For a description of the types of Loans that may be included in the Loan Pools, see "The Loan Pools--The Loans." If specified in the related Prospectus Supplement, Loans that are converted from an adjustable rate to a fixed rate will be repurchased by the Company or purchased by the applicable Sub-Servicer, Servicer or another party, or a designated remarketing agent will use its best efforts to arrange the sale thereof as further described herein. A Current Report on Form 8-K will be available to purchasers or underwriters of the related series of Securities and will generally be filed, together with the related Pooling and Servicing Agreement, with the Securities and Exchange Commission within fifteen days after the initial issuance of such series. 10 Forward Commitments; Pre-Funding............ A Trust may enter into an agreement (each, a "Forward Purchase Agreement") with the Company whereby the Company will agree to transfer additional Loans (the " Subsequent Loans") to such Trust from time to time during the time period specified in the related Prospectus Supplement (the "Funding Period"). Any Forward Purchase Agreement will require that any Loans so transferred to a Trust conform to the requirements specified in such Forward Purchase Agreement, this Prospectus and the related Prospectus Supplement. In addition, the Forward Purchase Agreement will state that the Company shall only transfer the Subsequent Loans upon the satisfaction of certain conditions, including that the Company shall have delivered opinions of counsel (including bankruptcy, corporate and tax opinions) with respect to the transfer of the Subsequent Loans to the Certificate Insurer, the Rating Agencies and the Trustee. If a Forward Purchase Agreement is to be utilized, the related Trustee will be required to deposit in a segregated account (each, a "Pre-Funding Account") a portion of the proceeds received by the Trustee in connection with the sale of one or more classes of Securities of the related series (such amount, the "Pre-Funded Amount"). Prior to the investment of the Pre-Funded Amount in additional Loans, such Pre-Funded Amount will be invested in one or more Eligible Investments. Any Eligible Investment must mature no later than the Business Day prior to the next Distribution Date. During any Funding Period, the Company will be obligated (subject only to the availability thereof) to transfer to the related Trust Fund, additional Loans from time to time during such Funding Period. Such additional Loans will be required to satisfy certain eligibility criteria more fully set forth in the related Prospectus Supplement which eligibility criteria will be consistent with the eligibility criteria of the Loans included in the Trust Fund as of the Closing Date subject to such exceptions as are expressly stated in such Prospectus Supplement. Although the specific parameters of the Pre-Funding Account with respect to any issuance of Securities will be specified in the related Prospectus Supplement, it is anticipated that: (a) the Funding Period will not exceed 120 days from the related Closing Date, (b) that the additional Loans to be acquired during the Funding Period will be subject to the same representations and warranties as the Loans included in the related Trust Fund on the Closing Date (although additional criteria may also be required to be satisfied, as described in the related Prospectus Supplement) and (c) that the Pre-Funded Amount will not exceed 25% of the principal amount of the Securities issued pursuant to a particular offering . Credit Enhancement....... If so specified in the Prospectus Supplement, the Trust Estate with respect to any series of Securities may include any one or any combination of a letter of credit, mortgage pool insurance policy, special hazard insurance policy, bankruptcy bond, financial guaranty insurance policy, reserve fund or other type of Credit Enhancement to provide full or partial coverage for certain defaults and losses relating to the Loans. Credit support also may be provided in the form of the related class of Equity Securities, and/or by subordination of one or more classes of 11 Fixed-Income Securities in a series under which losses in excess of those absorbed by any related class of Equity Securities are first allocated to any Subordinate Securities up to a specified limit, cross-support among groups of Loans or overcollateralization. Any mortgage pool insurance policy will have certain exclusions from coverage thereunder, which will be described in the related Prospectus Supplement, which may be accompanied by one or more separate Credit Enhancements that may be obtained to cover certain of such exclusions. To the extent not set forth herein, the amount and types of coverage, the identification of any entity providing the coverage, the terms of any subordination and related information will be set forth in the Prospectus Supplement relating to a series of Securities. See "Description of Credit Enhancement" and "Subordination." Advances................. As to be described in the related Prospectus Supplement, the Servicer may be obligated to make certain advances with respect to payments of delinquent scheduled interest and/or principal on the Loans, but only to the extent that the Servicer believes that such amounts will be recoverable by it. Any such advance made by the Servicer with respect to a Loan is recoverable by it as provided herein under "Description of the Securities--Advances" either from recoveries on the specific Loan or, with respect to any such advance subsequently determined to be nonrecoverable, out of funds otherwise distributable to the holders of the related series of Securities, which may include the holders of any Senior Securities of such series. As to be described in the related Prospectus Supplement, the Servicer may be required to advance Compensating Interest as defined hereafter under "Description of the Securities--Advances." In addition, the Servicer will be required to pay all "out of pocket" costs and expenses incurred in the performance of its servicing obligations, but only to the extent that the Servicer reasonably believes that such amounts will increase Net Liquidation Proceeds on the related Loan. See "Description of the Securities--Advances." Optional Termination..... The Servicer, the Company, or, if specified in the related Prospectus Supplement, the holders of the related class of Equity Securities or the Credit Enhancer may at their respective option effect early retirement of a series of Securities through the purchase of the Loans and other assets in the related Trust Estate under the circumstances and in the manner set forth herein under "The Pooling and Servicing Agreement--Termination; Retirement of Securities" and in the related Prospectus Supplement. Generally such parties will have the repurchase option only after the aggregate Pool principal balance has declined to ten percent or a percentage to be set forth in the related Prospectus Supplement of the initial Pool principal balance. Mandatory Termination; Auction Sale........... The Trustee, the Servicer or certain other entities specified in the related Prospectus Supplement may be required to effect early retirement of a series of Securities by soliciting competitive bids for the purchase of the related Trust Estate or otherwise, under other circumstances and in the manner specified in "The Pooling and Servicing 12 Agreement--Termination; Retirement of Securities" and in the related Prospectus Supplement. If set forth in the related Prospectus Supplement, the mandatory termination may take the form of an auction sale. Within a certain period following the first Remittance Date as of which the aggregate Pool principal balance is less than 10% or a percentage set forth in the related Prospectus Supplement of the initial aggregate Pool principal balance, if the optional termination right has not been exercised by the parties having such right by such date, the Trustee shall solicit bids for the purchase of all Loans remaining in the Trust. In the event that satisfactory bids are received as described in the related Pooling and Servicing Agreement, the net sale proceeds will be distributed to Certificateholders, in the same order of priority as collections received in respect of the Loans. If satisfactory bids are not received, the Trustee shall decline to sell the Loans and shall not be under any obligation to solicit any further bids or otherwise negotiate any further sale of the Loans. Such sale and consequent termination of the Trust must constitute a "qualified liquidation" of each REMIC established by the Trust under Section 860F of the Internal Revenue Code of 1986, as amended, including, without limitation, the requirement that the qualified liquidation takes place over a period not to exceed 90 days. Legal Investment......... Not all of the Loans in a particular Loan Pool may represent first liens. Accordingly, as disclosed in the related Prospectus Supplement, certain classes of Securities offered hereby and by the related Prospectus Supplement may not constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") and, if so, will not be legal investments for certain types of institutional investors under SMMEA. Institutions whose investment activities are subject to legal investment laws and regulations or to review by certain regulatory authorities may be subject to additional restrictions on investment in certain classes of Securities. Any such institution should consult its own legal advisors in determining whether and to what extent a class of Securities constitutes legal investments for such investors. See "Legal Investment" herein. ERISA Considerations..... A fiduciary of an employee benefit plan and certain other retirement plans and arrangements, including individual retirement accounts and annuities, Keogh plans, and collective investment funds and separate accounts in which such plans, accounts, annuities or arrangements are invested, that is subject to the Employee Retirement Income Security Act of 1974, as amended (" ERISA"), or Section 4975 of the Code (each such entity, a "Plan") should carefully review with its legal advisors whether the purchase or holding of Securities could give rise to a transaction that is prohibited or is not otherwise permissible either under ERISA or Section 4975 of the Code. Investors are advised to consult their counsel and to review "ERISA Considerations" herein and in the Prospectus Supplement. 13 Federal Income Tax Considerations......... Securities of each series offered hereby will, for federal income tax purposes, constitute either (i) interests ("Grantor Trust Securities") in a Trust treated as a grantor trust under applicable provisions of the Code, (ii) "regular interests" ("REMIC Regular Securities") or "residual interests" ("REMIC Residual Securities") in a Trust treated as a REMIC (or, in certain instances, containing one or more REMIC's) under Sections 860A through 860G of the Code, (iii) debt issued by a Trust ("Debt Securities") or (iv) interests in a Trust which is treated as a partnership (" Partnership Interests"). The Securities offered hereby generally will be treated as debt instruments in the hands of the Securityholders, regardless of which technical type of securities are being offered. Investors are advised to consult their tax advisors and to review " Federal Income Tax Considerations" herein and in the related Prospectus Supplement. Registration of Securities............. Securities may be represented by global securities registered in the name of Cede & Co. ("Cede"), as nominee of The Depository Trust Company ("DTC"), or another nominee as specified in the related Prospectus Supplement. In such case, Securityholders will not be entitled to receive definitive securities representing such Securityholders' interests, except in certain circumstances described in the related Prospectus Supplement. See "Description of the Securities--Form of Securities" herein. Ratings.................. Each class of Fixed-Income Securities offered pursuant to the related Prospectus Supplement will be rated in one of the four highest rating categories by one or more "national statistical rating organizations", as defined in the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and commonly referred to as "Rating Agencies". Such ratings will address, in the opinion of such Rating Agencies, the likelihood that the related Trust will be able to make timely payment of all amounts due on the related Fixed-Income Securities in accordance with the terms thereof. Such ratings will neither address any prepayment or yield considerations applicable to any Securities nor constitute a recommendation to buy, sell or hold any Securities. Equity Securities generally will not be rated, but if such Securities are rated, they likely will be rated below investment grade. The ratings expected to be received with respect to any Securities will be set forth in the related Prospectus Supplement. Risk Factors............. For a discussion of certain factors that should be considered by prospective investors in the Securities, see "Risk Factors" herein and in the related Prospectus Supplement. 14 RISK FACTORS Investors should consider, among other things, the following factors in connection with the purchase of the Securities. Risks Associated with the Securities The assets of the Trust Fund, as well as any applicable Credit Enhancement, will be limited and, if such assets and/or Credit Enhancement becomes insufficient to service the related Securities, losses may result . The Securities will not represent an interest in or obligation, either recourse or non-recourse (except for certain non-recourse debt described under " Federal Income Tax Considerations"), of the Company, the Servicer, the Master Servicer, if any, or any person other than the related Trust. The only obligations of the foregoing entities with respect to the Securities or the Loans will be the obligations (if any) of the Company, the Servicer and the Master Servicer, if any, pursuant to certain limited representations and warranties made with respect to the Loans, the Servicer's servicing obligations under the related Pooling and Servicing Agreement (including its limited obligation, if any, to make certain advances in the event of delinquencies on the Loans, but only to the extent deemed recoverable) and, if and to the extent expressly described in the related Prospectus Supplement, certain limited obligations of the Company, Servicer, applicable Sub-Servicer, or another party in connection with a purchase obligation ("Purchase Obligation") or an agreement to purchase or act as remarketing agent with respect to a Convertible Loan (as defined herein) upon conversion to a fixed rate. Notwithstanding the foregoing, and as to be described in the related Prospectus Supplement, certain types of Credit Enhancement, such as a financial guaranty insurance policy or a letter of credit, may constitute a full recourse obligation of the issuer of such Credit Enhancement. Except as described in the related Prospectus Supplement, neither the Securities nor the underlying Loans will be guaranteed or insured by any governmental agency or instrumentality, or by the Company, the Trustee, the Servicer, the Master Servicer, if any, any Sub-Servicer or any of their affiliates. Proceeds of the assets included in the related Trust Estate for each series of Securities (including the Loans and any form of Credit Enhancement) will be the sole source of payments on the Securities, and there will be no recourse to the Company or any other entity in the event that such proceeds are insufficient or otherwise unavailable to make all payments provided for under the Securities. An investment in any Security may be an Illiquid Investment, which may result in the Securityholder holding such investment to maturity. There can be no assurance that a secondary market for the Securities of any series or class will develop or, if it does develop, that it will provide Securityholders with liquidity of investment or that it will continue for the life of the Securities of any series. The Prospectus Supplement for any series of Securities may indicate that an underwriter specified therein intends to establish a secondary market in such Securities; however, no underwriter will be obligated to do so. The Securities will not be listed on any securities exchange. Credit Enhancement will be limited in amount and scope of coverage and may not be sufficient to cover losses. With respect to each series of Securities, Credit Enhancement will be provided in limited amounts to cover certain types of losses on the underlying Loans. Credit Enhancement will be provided in one or more of the forms referred to herein, including, but not limited to: a letter of credit; a Purchase Obligation; a mortgage pool insurance policy; a special hazard insurance policy; a bankruptcy bond; a reserve fund; a financial guaranty insurance policy or other type of Credit Enhancement to provide partial coverage for certain defaults and losses relating to the Loans. Credit Enhancement also may be provided in the form of the related class of Equity Securities, subordination of one or more classes of Fixed-Income Securities in a series under which losses in excess of those absorbed by any related class of Equity Securities are first allocated to any Subordinate Securities up to a specified limit, cross-support among groups of Loans and/or overcollateralization. In addition, Credit Enhancement may take the form of a master reserve account, into which certain collections in excess of amounts needed to pay the related Securities may be deposited, which provides support for more than one series of Securities. See "Subordination" and "Description of Credit Enhancement" herein. Regardless of the form of Credit Enhancement provided, the coverage will be limited in amount and in most cases will be subject to periodic reduction in accordance with a schedule or formula. Furthermore, such Credit Enhancements may provide only very limited coverage as to certain types of losses, and may provide no coverage as to certain other 15 types of losses. Generally, Credit Enhancements do not directly or indirectly guarantee to the investors any specified rate of prepayments. To the extent not set forth herein, the amount and types of coverage, the identification of any entity providing the coverage, the terms of any subordination and related information will be set forth in the Prospectus Supplement relating to a series of Securities. See "Description of Credit Enhancement" and "Subordination." Risks associated with the Loans Bankruptcy of Obligors may cause losses. General economic conditions have an impact on the ability of an obligor of a Loan (an "Obligor") to repay the Loan. Loss of earnings, illness and other similar factors also may lead to an increase in delinquencies and bankruptcy filings by Obligors. In the event of personal bankruptcy of an Obligor, it is possible that a Trust could experience a loss with respect to such Obligor's Loan. In conjunction with an Obligor's bankruptcy, a bankruptcy court may suspend or reduce the payments of principal and interest to be paid with respect to such Loan or permanently reduce the principal balance of such Loan thereby either delaying or permanently limiting the amount received by the Trust with respect to such Loan. Moreover, in the event a bankruptcy court prevents the transfer of the related Property to a Trust, any remaining balance on such Loan may not be recoverable. Certain Loans may be originated or structured in "non-traditional" ways, which could increase risk. The Company's underwriting standards consider, among other things, an obligor's credit history, repayment ability and debt service-to-income ratio, as well as the value of the property; however, the Company's Loan Program (as hereinafter defined) generally provides for the origination of Loans relating to non-conforming credits. Certain of the types of loans that may be included in the Loan Pools may involve additional uncertainties not present in traditional types of loans. For example, certain of the Loans may provide for escalating or variable payments by the borrower under the Loan, as to which the Obligor is generally qualified on the basis of the initial payment amount. In some instances the Obligors' income may not be sufficient to enable them to continue to make their loan payments as such payments increase and thus the likelihood of default will increase. For a more detailed discussion, see "Loan Program." Certain risks relating to differing underwriting criteria. The Loans used in a particular Trust Fund may have been purchased by the Company from one or more originators, and may, to the extent described in the related Prospectus Supplement, have been originated using underwriting criteria different from that of the Company. However, the Loans included in a particular Trust Fund will satisfy the criteria set forth in the related Prospectus Supplement. Risks associated with the Mortgage Loans Junior Liens may experience higher rates of delinquencies and losses. Certain of the Mortgage Loans will be secured by junior liens subordinate to the rights of the mortgagee or beneficiary under each related senior mortgage or deed of trust. As a result, the proceeds from any liquidation, insurance or condemnation proceedings will be available to satisfy the principal balance of a mortgage loan only to the extent that the claims, if any, of each such senior mortgagee or beneficiary are satisfied in full, including any related foreclosure costs. In addition, a mortgagee secured by a junior lien may not foreclose on the related mortgaged property unless it forecloses subject to the related senior mortgage or mortgages, in which case it must either pay the entire amount of each senior mortgage to the applicable mortgagee at or prior to the foreclosure sale or undertake the obligation to make payments on each senior mortgage in the event of default thereunder. In servicing junior lien loans, a Servicer generally would satisfy each such senior mortgage at or prior to the foreclosure sale only to the extent that it determines any amounts so paid will be recoverable from future payments and collections on such junior lien loans or otherwise. The Trusts will not have any source of funds to satisfy any such senior mortgage or make payments due to any senior mortgagee. See "Certain Legal Aspects of the Loans and Related Matters--Foreclosure." Property values may decline, leading to higher losses . An investment in securities such as the Securities that generally represent beneficial ownership interests in the Mortgage Loans or debt secured by 16 such Mortgage Loans may be affected by, among other things, a decline in real estate values and changes in the borrowers' financial condition. No assurance can be given that values of the Properties have remained or will remain at their levels on the dates of origination of the related Mortgage Loans. If the residential real estate market should experience an overall decline in property values such that the outstanding balances of any senior liens, the Mortgage Loans and any secondary financing on the Properties in a particular Loan Pool become equal to or greater than the value of the Properties, the actual rates of delinquencies, foreclosures and losses could be higher than those now generally experienced in the nonconforming credit mortgage lending industry. Such a decline could extinguish the interest of the related Trust in the Properties before having any effect on the interest of the related senior mortgagee. In addition, in the case of Mortgage Loans that are subject to negative amortization, due to the addition to principal balance of deferred interest ("Deferred Interest"), the principal balances of such Mortgage Loans could be increased to an amount equal to or in excess of the value of the underlying Properties, thereby increasing the likelihood of default. To the extent that such losses are not covered by the applicable Credit Enhancement, holders of Securities of the series evidencing interests in the related Loan Pool will bear all risk of loss resulting from default by Obligors and will have to look primarily to the value of the Properties for recovery of the outstanding principal and unpaid interest on the defaulted Mortgage Loans. Balloon Loans may experience higher rates of delinquencies and losses. Certain of the Mortgage Loans may constitute " Balloon Loans." Balloon Loans are originated with a stated maturity of less than the period of time of the corresponding amortization schedule. Consequently, upon the maturity of a Balloon Loan, the Obligor will be required to make a "balloon" payment that will be significantly larger than such Obligor's previous monthly payments. The ability of such a Obligor to repay a Balloon Loan at maturity frequently will depend on such Obligor's ability to refinance the Mortgage Loan. The ability of a Obligor to refinance such a Mortgage Loan will be affected by a number of factors, including the level of available mortgage rates at the time, the value of the related Property, the Obligor's equity in the related Property, the financial condition of the Obligor, the tax laws and general economic conditions at the time. Although a low interest rate environment may facilitate the refinancing of a balloon payment, the receipt and reinvestment by Securityholders of the proceeds in such an environment may produce a lower return than that previously received in respect of the related Mortgage Loan. Conversely, a high interest rate environment may make it more difficult for the Obligor to accomplish a refinancing and may result in delinquencies or defaults. None of the Company, the Servicer, the Master Servicer, if any, any Sub-Servicer or the Trustee will be obligated to provide funds to refinance any Mortgage Loan, including Balloon Loans. Foreclosure of Properties may be subject to substantial delay, resulting in longer maturity securities as well as higher losses. Even assuming that the Properties provide adequate security for the Mortgage Loans, substantial delays could be encountered in connection with the liquidation of defaulted Mortgage Loans and corresponding delays in the receipt of related proceeds by the Securityholders could occur. An action to foreclose on a Property securing a Mortgage Loan is regulated by state statutes, rules and judicial decisions and is subject to many of the delays and expenses of other lawsuits if defenses or counterclaims are interposed, sometimes requiring several years to complete. Furthermore, in some states an action to obtain a deficiency judgment is not permitted following a nonjudicial sale of a Property. In the event of a default by a Obligor, these restrictions, among other things, may impede the ability of the Servicer to foreclose on or sell the Property or to obtain liquidation proceeds (net of expenses) ("Liquidation Proceeds") sufficient to repay all amounts due on the related Mortgage Loan. The Servicer will be entitled to deduct from Liquidation Proceeds all expenses reasonably incurred in attempting to recover amounts due on the related liquidated Mortgage Loan (" Liquidated Mortgage Loan") and not yet repaid, including payments to prior lienholders, accrued Servicing Fees, legal fees and costs of legal action, real estate taxes, and maintenance and preservation expenses. In the event that any Properties fail to provide adequate security for the related Mortgage Loans and insufficient funds are available from any applicable Credit Enhancement, Securityholders could experience a loss on their investment. Liquidation expenses with respect to defaulted Mortgage Loans do not vary directly with the outstanding principal balance of the Mortgage Loan at the time of default. Therefore, assuming that a servicer takes the same steps in realizing upon a defaulted Mortgage Loan having a small remaining principal balance as it would in the case of a defaulted Mortgage Loan having a larger principal balance, the amount realized after expenses of 17 liquidation would be less as a percentage of the outstanding principal balance of the smaller principal balance Mortgage Loan than would be the case with a larger principal balance Mortgage Loan. Under environmental legislation and judicial decisions applicable in various states, a secured party that takes a deed in lieu of foreclosure, or acquires at a foreclosure sale a Property that, prior to foreclosure, has been involved in decisions or actions which may lead to contamination of a Property, may be liable for the costs of cleaning up the purportedly contaminated site. Although such costs could be substantial, it is unclear whether they would be imposed on a holder of a mortgage Note (such as a Trust) which, under the terms of the Pooling and Servicing Agreement, is not required to take an active role in operating the Properties. See "Certain Legal Aspects of Loans and Related Matters--Environmental Legislation." Certain of the Properties relating to Mortgage Loans may not be owner occupied. It is possible that the rate of delinquencies, foreclosures and losses on Mortgage Loans secured by non-owner occupied properties could be higher than for loans secured by the primary residence of the Obligor. Geographic Concentration of Properties may result in higher losses, if particular regions experience downturns. Certain geographic regions from time to time will experience weaker regional economic conditions and housing markets than will other regions, and, consequently, will experience higher rates of loss and delinquency on mortgage loans generally. The Mortgage Loans underlying certain series of Securities may be concentrated in such regions, and such concentrations may present risk considerations in addition to those generally present for similar mortgage loan asset-backed securities without such concentrations. Information with respect to geographic concentration of Properties will be specified in the related Prospectus Supplement or related Current Report on Form 8-K. Risks Associated with the Contracts Security Interests in the Manufactured Homes may not be perfected and the Trust may not realize upon the full amount due under the related Contract. Each Contract is secured by a security interest in a Manufactured Home together with, in the case of land secured contracts, the real estate on which the related Manufactured home is located (such Contracts, the "Land Secured Contracts"). Perfection of security interests in the Manufactured Homes and enforcement of rights to realize upon the value of the Manufactured Homes as collateral for the Contracts are subject to a number of federal and state laws, including the Uniform Commercial Code (the "UCC") as adopted in the states in which the Manufactured Homes are located and such states' certificate of title statutes, but generally not their real estate laws. Under such federal and state laws, a number of factors may limit the ability of a holder of a perfected security interest in Manufactured Homes to realize upon such Manufactured Homes or may limit the amount realized to less than the amount due under the related Contract. See "Certain Legal Aspects of the Loans -- Contracts." In addition, because of the expense and administrative inconvenience involved, the Company will not amend any certificates of title related to any Manufactured Home to change the lienholder specified therein to the Trustee, and will not execute any transfer instrument (including, among other instruments, UCC-3 assignments) relating to any Manufactured Home in favor of the Trustee or note thereon the Trustee's interest. Such amendment would require, consistent with the law of the related State, filings at the state or county level for each Contract. The Company believes it is industry practice not to make such amendments, and does not do so for its own benefit. As a result, the Company will remain the lienholder on the certificate of title relating to the Manufactured Home. In some states, in the absence of such an amendment, execution or notation, the assignment to the Trustee of the security interest in the Manufactured Homes located therein may not be effective or such security interest may not be perfected. If any otherwise effectively assigned security interest in favor of the Trustee is not perfected, such assignment of the security interest to the Trustee may not be effective against creditors of the Company to the extent it continues to be specified as lienholder on any certificate of title or as secured party on any UCC filing, or against a trustee in bankruptcy of the Company. Each Contract (other than a Land Secured Contract) will be "chattel paper" as defined in the UCC in effect in Minnesota (where the Company's executive office is currently located), and the jurisdiction in which 18 the related Manufactured Home was located at origination. Under the UCC as in effect in each such jurisdiction, the sale of chattel paper is treated in a manner similar to perfection of a security interest in chattel paper. Under the Pooling and Servicing Agreement, the Trustee will have possession of the Contracts. In addition, the Company will make appropriate filings of UCC-1 financing statements in the office of the Secretary of State of the state where its principal place of business is located to give notice of the Trustee's ownership of the Contracts. The Trustee's interest in the Contracts could, through the fraud or negligence of the Trustee, be defeated if a subsequent purchaser were able to take physical possession of the Contracts without notice of such assignment. Further, because of the expenses and administrative inconvenience involved, the assignment of mortgages or deeds of trust to the Trustee will not be recorded with respect to the mortgages or deeds of trust (each, a "Mortgage") securing each Land Secured Contract. Recordation of such assignments would require the Company to retain counsel in the respective state, and make the appropriate filing at the local level. The Company believes the industry practice not to make such filings, and does not do so for its own benefit. The failure to record the assignments to the Trustee of the Mortgage securing Land Secured Contracts may result in the sale of such Contracts or the Trustee's rights in the land secured by the Mortgage being ineffective against creditors of the Company or against a trustee in bankruptcy of the Company or against a subsequent purchaser of such Contracts from the Company, without notice of the sale to the Trustee. See "The Loan Pool" herein for a description of the programs under which Contracts are originated or purchased by the Company. Legal Considerations Bankruptcy of the Company could prevent timely payment of amounts due to the Trust. In the event of the bankruptcy of the Company at a time when it holds an Equity Security, a trustee in bankruptcy of the Company, or its creditors could attempt to recharacterize the sale of the Loans to the related Trust as a borrowing by the Company, with the result, if such recharacterization is upheld, that the Securityholders would be deemed creditors of the Company, secured by a pledge of the Loans. In such a case, a bankruptcy court may suspend or reduce the payment of principal and interest to the Securityholders or permanently reduce the principal balance of the Securities, thereby delaying or permanently limiting the amounts received by the Securityholders. In addition, if the Company is the Servicer, a bankruptcy of the Company may disrupt servicing of the Loans, causing losses or a delay in timely payment of amounts due the Securityholders. The Pooling and Servicing Agreement will provide that bankruptcy of the Servicer is an event of default and the Back-up Servicer may take over servicing in such a case. However, a bankruptcy court may hold that such provision is unenforceable as an executory contract triggered only by the bankruptcy of the contracting party. Prepayments and repurchases may adversely affect the yield to maturity of the Securities. The yield to maturity of the Securities of each series will depend on the rate of payment of principal (including prepayments, liquidations due to defaults, and repurchases due to conversion of adjustable-rate mortgage loans ("ARM Loans") to fixed-rate loans or breaches of representations and warranties) on the Loans and the price paid by Securityholders. Such yield may be adversely affected by a higher or lower than anticipated rate of prepayments on the related Loans. The yield to maturity on Strip Securities or Securities purchased at premiums or discounted to par will be extremely sensitive to the rate of prepayments on the related Loans. In addition, the yield to maturity on certain other types of classes of Securities, including Accrual Securities or certain other classes in a series including more than one class of Securities, may be relatively more sensitive to the rate of prepayment on the related Loans than other classes of Securities. The Loans may be prepaid in full or in part at any time; however, a prepayment penalty or premium may be imposed in connection therewith. Such penalties will not be property of the related Trust. The rate of prepayments of the Loans cannot be predicted and is influenced by a wide variety of economic, social, and other factors, including prevailing mortgage market interest rates, the availability of alternative financing, local and regional economic conditions and homeowner mobility. Therefore, no assurance can be given as to the level of prepayments that a Trust will experience. 19 Prepayments may result from mandatory prepayments relating to unused moneys held in Pre-Funding Accounts, if any, voluntary early payments by Obligors (including payments in connection with refinancings of the related senior Loan or Loans), sales of Properties subject to "due-on-sale" provisions and liquidations due to default, as well as the receipt of proceeds from physical damage, credit life and disability insurance policies. In addition, repurchases or purchases from a Trust of Loans or substitution adjustments required to be made under the Pooling and Servicing Agreement will have the same effect on the Securityholders as a prepayment of such Loans. All of the Loans contain "due-on-sale" provisions, and the Servicer will be required to enforce such provisions unless (i) the "due-on-sale" clause, in the reasonable belief of the Servicer, is not enforceable under applicable law or (ii) the Servicer reasonably believes that to permit an assumption of the Loan would not materially and adversely affect the interests of the Securityholders or of the related Credit Enhancer, if any. See "The Pooling and Servicing Agreement" in the related Prospectus Supplement. Collections on the Loans may vary due to the level of incidence of delinquent payments and of prepayments. Collections on the Loans may also vary due to seasonal purchasing and payment habits of Obligors. Co-mingling of collections with the Servicer's general funds could cause losses to the Trust. To the extent that the ratings, if any, then assigned to the unsecured debt of the Servicer or of the Servicer's corporate parent are satisfactory to the Rating Agencies, the Servicer may be permitted to co-mingle Loan payments and collections with the Servicer's general funds rather than be required to deposit such amounts in a segregated Principal and Interest Account. In the event of fraud or mistake, the Servicer may utilize amounts due the Trust for its own purposes, resulting in a delay in payment or losses to the Securityholders. State Credit Protection Laws May Limit Collection of Principal and Interest on the Loans. Applicable state laws generally regulate interest rates and other charges, require certain disclosures, and require licensing of the originators, the Trustee, the Servicer and Sub-Servicers. In addition, most states have other laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and practices that may apply to the origination, servicing and collection of the Loans. Depending on the provisions of the applicable law and the specific facts and circumstances involved, violations of these laws, policies and principles may limit the ability of the Servicer to collect all or part of the principal of or interest on the Loans, may entitle the Obligor to a refund of amounts previously paid and, in addition, could subject the Servicer to damages and administrative sanctions. See "Certain Legal Aspects of Loans and Related Matters." Federal Credit Protection Laws May Limit Collection of Principal and Interest on the Loans. The Loans may also be subject to federal laws, including: (i) the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder and the Real Estate Settlement Procedures Act and Regulation X promulgated thereunder, which require certain disclosures to the borrowers regarding the terms of the Loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit; and (iii) the Fair Credit Reporting Act, which regulates the use and reporting of information related to the Obligor's credit experience. Depending on the provisions of the applicable law and the specific facts and circumstances involved, violations of these laws, policies and general principles of equity may limit the ability of the Servicer to collect all or part of the principal of or interest on the Loans, may entitle the Obligor to rescind the loan or to a refund of amounts previously paid and, in addition, could subject the Servicer to damages and administrative sanctions. If the Servicer is unable to collect all or part of the principal or interest on the Loans because of a violation of the aforementioned laws, public policies or general principles of equity then the Trust may be delayed or unable to repay all amounts owed to the Securityholders. Furthermore, depending upon whether damages and sanctions are assessed against the Servicer or the Company, such violations may materially impact the financial ability of the Servicer to continue to act as Servicer or the ability of the Company to repurchase or replace Loans if such violation breaches a representation or warranty contained in a Pooling and Servicing Agreement. 20 Certain additional provisions under the Federal Truth-in-Lending Act become effective on October 1, 1995. These provisions apply to certain types of mortgage loans, generally as a result of such loan's coupon rate being 10% or more greater than the yield on United States Treasury Securities of comparable maturity, or if the "total points and fees" payable by the obligor exceed a specified level. If the requirements are triggered, certain additional disclosures are required to be made to the obligor and certain other restrictions on the loan and its terms apply (e.g., restrictions relating to prepayment penalties and balloon maturities.) These provisions further require persons who sell or assign mortgages which are subject to these requirements to furnish a notice to such effect to the purchaser or assignee. Such purchasers or assignees may under certain circumstances be liable for the failure of the originating lender to provide the required disclosures or for the inclusion in the loan of any prohibited terms. Book-Entry registration may limit the liquidity of the Securities, the ability of Securityholders to pledge the Securities, and may delay Securityholders' receipt of distributions. Issuance of the Securities in book-entry form may reduce the liquidity of such Securities in the secondary trading market since investors may be unwilling to purchase Securities for which they cannot obtain definitive physical securities representing such Securityholders' interests, except in certain circumstances described in the related Prospectus Supplement. Since transactions in Securities will, in most cases, be able to be effected only through DTC, direct or indirect participants in DTC's book-entry system ("Direct or Indirect Participants") and certain banks, the ability of a Securityholder to pledge a Security to persons or entities that do not participate in the DTC system, or otherwise to take actions in respect of such Securities, may be limited due to lack of a physical security representing the Securities. Securityholders may experience some delay in their receipt of distributions of interest on and principal of the Securities since distributions may be required to be forwarded by the Trustee to DTC and, in such a case, DTC will be required to credit such distributions to the accounts of its Participants which thereafter will be required to credit them to the accounts of the applicable class of Securityholders either directly or indirectly through Indirect Participants. See "Description of the Securities--Form of Securities." The Soldiers' and Sailors' Civil Relief Act of 1940 could limit or delay collection of amounts due under certain Loans . Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), or similar state legislation, an Obligor who enters military service after the origination of the related Loan (including an Obligor who is a member of the National Guard or is in reserve status at the time of the origination of the Loan and is later called to active duty) may not be charged interest (including fees and charges) above an annual rate of 6% during the period of such Obligor's active duty status, unless a court orders otherwise upon application of the lender. It is possible that such action could have an effect, for an indeterminate period of time, on the ability of the Servicer to collect full amounts of interest on certain of the Loans. In addition, the Relief Act imposes limitations that would impair the ability of the Servicer to foreclose on an affected Loan during the Obligor's period of active duty status. Thus, in the event that such a Loan goes into default, there may be delays and losses occasioned by the inability of the Servicer to realize upon the Property in a timely fashion. Reduction in the rating of any credit enhancer would likely cause the reduction in the rating of the Securities. The rating of Securities credit enhanced through external Credit Enhancement such as a letter of credit, financial guaranty insurance policy or mortgage pool insurance will depend primarily on the creditworthiness of the issuer of such external Credit Enhancement device (a "Credit Enhancer"). Any reduction in the rating assigned to the claims-paying ability of the related Credit Enhancer below the rating initially given to the Securities would likely result in a reduction in the rating of the Securities. See "Ratings" in the Prospectus Supplement. 21 THE TRUSTS A Trust for any series of Securities will consist of a segregated pool (a "Loan Pool") comprised of (A) (i) conventional one-to-four-family residential mortgage loans (" Single Family Loans"), (ii) multi-family residential mortgage loans ("Multi-family Loans"), (iii) mortgage loans secured by mortgages on small properties used primarily for residential purposes but also used for commercial purposes (the "Mixed Use Loans"), (iv) cooperative apartment loans secured by security interests in shares issued by a cooperative housing corporation ("Cooperative Loans") or (v) home improvement loans ("Home Improvement Loans") each of which is secured by a mortgage on a "dwelling or mixed residential and commercial structure" within the meaning of Section 3(a)(41)(A)(i) of the Securities Exchange Act of 1934, as amended (collectively, the "Mortgage Loans") or (B) contracts for manufactured homes ("Contracts") , in each case, as specified in the related Prospectus Supplement (the Mortgage Loans and the Contracts together, the "Loans"), together with payments with respect to the Loans and certain other accounts, obligations or agreements, in each case, as specified in the related Prospectus Supplement. The Securities will be entitled to payment only from the assets of the related Trust (i.e. the related Trust Estate) and will not be entitled to payments in respect of the assets of any other related Trust Estate established by the Company. If specified in the related Prospectus Supplement, certain Securities will evidence the entire fractional undivided ownership interest in the related Loans held by the related Trust or may represent debt secured by the related Loans. The following is a brief description of the Loans expected to be included in the related Trusts. If specific information respecting the Loans is not known at the time the related series of Securities initially is offered, information of the nature described below will be provided in the Prospectus Supplement, and specific information will be set forth in a report on Form 8-K to be filed with the Commission within fifteen days after the initial issuance of such Securities (the "Detailed Description"). A copy of the Pooling and Servicing Agreement with respect to each Series of Securities will be attached to the Form 8-K and will be available for inspection at the corporate trust office of the Trustee specified in the related Prospectus Supplement. A schedule of the Loans relating to such Series (the "Loan Schedule") will be attached to the Pooling and Servicing Agreement delivered to the Trustee upon delivery of the Securities. The Loans--General The real properties, interests in a Cooperative (as defined herein) and Manufactured Homes (as defined herein), as the case may be, that secure repayment of the Loans (the "Properties") may be located in any one of the fifty states, the District of Columbia, Puerto Rico or any other Territories of the United States. The Mortgage Loans will be "Conventional Loans" (i.e., loans that are not insured or guaranteed by any governmental agency). Loans will not be covered wholly or partially by primary mortgage insurance policies. All of the Loans will be covered by standard hazard insurance policies providing for fire and extended coverage with a generally acceptable carrier (which may be in the form of a blanket or forced placed hazard insurance policy) generally in an amount not less than the lesser of (i) the outstanding principal loan balance, (ii) the minimum amount required to compensate for losses on a replacement cost basis and (iii) the insurable value of the Property. The existence, extent and duration of any such coverage will be described in the applicable Prospectus Supplement. The Loans will not be guaranteed or insured by any government agency or other insurer. All of the Loans in a Loan Pool will provide for payments to be made monthly ("monthly pay") or bi-weekly. The payment terms of the Loans to be included in a Trust will be described in the related Prospectus Supplement and may include any of the following features or combination thereof or other features described in the related Prospectus Supplement: (a) Interest may be payable at a Fixed Rate, or an Adjustable Rate (i.e., a rate that is adjustable from time to time in relation to an index, a rate that is fixed for period of time and under certain circumstances is followed by an adjustable rate, a rate that otherwise varies from time to time, 22 or a rate that is convertible from an adjustable rate to a fixed rate). The specified rate of interest on a Loan is its "Loan Rate." Changes to an Adjustable Rate may be subject to periodic limitations, maximum rates, minimum rates or a combination of such limitations. Accrued interest may be deferred and added to the principal of a Loan for such periods and under such circumstances as may be specified in the related Prospectus Supplement. If provided for in the Prospectus Supplement, certain Loans may be subject to temporary buydown plans (" Buydown Loans") pursuant to which the monthly payments made by the Obligor during the early years of the Loan (the " Buydown Period") will be less than the scheduled monthly payments on the Loan, and the amount of any difference may be contributed from (i) an amount (such amount, exclusive of investment earnings thereon, being hereinafter referred to as "Buydown Funds") funded by the originator of the Loan or another source (including the Servicer or the builder of the Property) and placed in a custodial account (the "Buydown Account") and (ii) if the Buydown Funds are contributed on a present value basis, investment earnings on such Buydown Funds. (b) Principal may be payable on a level debt service basis to fully amortize the Loan over its term, may be calculated on the basis of an assumed amortization schedule that is significantly longer than the original term to maturity or on an interest rate that is different from the Loan Rate, or may not be amortized during all or a portion of the original term. Payment of all or a substantial portion of the principal may be due on maturity ("balloon" payments). Principal may include interest that has been deferred and added to the principal balance of the Loan. (c) Monthly payments of principal and interest may be fixed for the life of the Loan, may increase over a specified period of time ("graduated payments") or may change from period to period. Loans may include limits on periodic increases or decreases in the amount of monthly payments and may include maximum or minimum amounts of monthly payments. Loans having graduated payment provisions may provide for deferred payment of a portion of the interest due monthly during a specified period, and recoup the deferred interest through negative amortization during such period whereby the difference between the interest paid during such period and interest accrued during such period is added monthly to the outstanding principal balance. Other Loans sometimes referred to as "growing equity" loans may provide for periodic scheduled payment increases for a specified period with the full amount of such increases being applied to principal. (d) Prepayments of principal may be subject to a prepayment fee, if allowed by state or applicable law, which may be fixed for the life of the Loan or may decline over time, and may be prohibited for the life of the Loan or for certain periods ("lockout periods"). Certain Loans may permit prepayments after expiration of the applicable lockout period and may require the payment of a prepayment fee in connection therewith. Other Loans may permit prepayments without payment of a fee unless the prepayment occurs during specified time periods. The Loans may include due-on-sale clauses which permit the mortgagee to demand payment of the entire Loan in connection with the sale or certain transfers of the related Property. Other Loans may be assumable by persons meeting the then applicable underwriting standards of the Servicer and/or the Company. Except as otherwise described in the related Prospectus Supplement or in the related Current Report on Form 8-K, interest will be calculated on each Loan pursuant to one of three methods: Date of Payment Loans. Date of Payment Loans provide that interest is charged to the Obligor at the applicable Loan Rate on the outstanding principal balance of such Note and calculated based on the number of days elapsed between receipt of the Obligor's last payment through receipt of the Obligor's most current payment. Such interest is deducted from the Obligor's payment amount and the remainder, if any, of the payment is applied as a reduction to the outstanding principal balance of such Note. Although the Obligor is required to remit equal monthly payments on a specified monthly payment date that would reduce the outstanding principal balance of such Note to zero at such Note's maturity date, payments that are made by the Obligor after the due date therefor would cause the outstanding principal balance of such Note not to be reduced to zero. In such a case, the Obligor would be required to make an additional principal payment at the maturity date for such Note. On the other hand, if an Obligor makes a payment (other than a prepayment) before the due date therefor, the reduction in the 23 outstanding principal balance of such Note would occur over a shorter period of time than it would have occurred had it been based on the original amortization schedule of such Note. Actuarial Loans. Actuarial Loans provide that interest is charged to the Obligor thereunder, and payments are due from such Obligor, as of a scheduled day of each month which is fixed at the time of origination. Scheduled monthly payments made by the Obligors on the Actuarial Loans either earlier or later than the scheduled due dates thereof will not affect the amortization schedule or the relative application of such payments to principal and interest. Rule of 78's Loans. A Rule of 78's Loan provides for the payment by the related Obligor of a specified total amount of payments, payable in equal monthly installments on each due date, which total represents the principal amount financed and add-on interest in an amount calculated on the basis of the stated Loan Rate for the term of the Loan. The rate at which such amount of add-on interest is earned and, correspondingly, the amount of each fixed monthly payment allocated to reduction of the outstanding principal are calculated in accordance with the "Rule of 78's". Under a Rule of 78's Loan, the amount of a payment allocable to interest is determined by multiplying the total amount of add-on interest payable over the term of the loan by a fraction derived as described below. The fraction used in the calculation of add-on interest earned each month under a Rule of 78's Loan has as it denominator a number equal to the sum of a series of numbers. The series of numbers begins with one and ends with the number of monthly payments due under the loan. For example, with a loan providing for 12 payments, the denominator of each month's fraction will be 78, the sum of the series of numbers from 1 to 12. The numerator of the fraction for a given month is the number of original payments to stated maturity less the number of payments made up to but not including the current month. Accordingly, in the example of a twelve-month loan, the fraction for the first payment is 12/78, for the second payment 11/78, for the third party 10/78, and so on through the final payment, for which the fraction is 1/78. The applicable fraction is then multiplied by the total add-on interest payable over the entire term of the loan, and the resulting amount is the amount of add-on interest "earned" that month. The difference between the amount of the monthly payment by the obligor and the amount of earned add-on interest calculated for the month is applied to principal reduction. Rule of 78's Loans are non-level yield instruments. The yield in the initial months of a Rule of 78's Loans is somewhat higher than the stated Loan Rate (computed on an actuarial basis) and the yield in the later months of the loan is somewhat less than such stated Loan Rate. The Prospectus Supplement for each series of Securities or the Current Report on Form 8-K will contain certain information with respect to the Loans (or a sample thereof) contained in the related Loan Pool; such information, insofar as it may relate to statistical information relating to such Loans will be presented as of a date certain (the "Statistic Calculation Date") which may also be the related cut-off date (the "Cut-Off Date"). Such information will include to the extent applicable to the particular Loan Pool (in all cases as of the Cut-Off Date) (i) the aggregate outstanding principal balance and the average outstanding principal balance of the Loans, (ii) the largest principal balance and the smallest principal balance of any of the Loans, (iii) the types of Property securing the Loans (e.g., one- to four-family houses, vacation and second homes, Manufactured Homes, multifamily apartments or other real property), (iv) the original terms to stated maturity of the Loans, (v) the weighted average remaining term to maturity of the Loans and the range of the remaining terms to maturity; (vi) the earliest origination date and latest maturity date of any of the Loans, (vii) the weighted average CLTV and the range of CLTV's of the Loans at origination, (viii) the weighted average Loan Rate or annual percentage rate (as determined under Regulation Z) (the "APR") and ranges of Loan Rates or APRs borne by the Loans, (ix) in the case of Loans having adjustable rates, the weighted average of the adjustable rates and indices, if any; (x) the aggregate outstanding principal balance, if any, of Buy-Down Loans and Loans having graduated payment provisions; (xi) the amount of any mortgage pool insurance policy, special hazard insurance policy or bankruptcy bond to be maintained with respect to such Loan Pool; (xii) a description of any standard hazard insurance required to be maintained with respect to each Loan; (xiii) a description of any Credit Enhancement to be provided with respect to all or any Loans or the Loan Pool; and (xiv) the geographical distribution of the Loans on a state-by-state basis. In addition, preliminary or more general information of the nature described above may be provided in the Prospectus Supplement, and specific or final information may be set forth in a Current Report 24 on Form 8-K, together with the related Pooling and Servicing Agreement, which will be filed with the Securities and Exchange Commission and will be made available to holders of the related series of Securities within fifteen days after the initial issuance of such Securities. The loan-to-value ratio (the "LTV") of a Loan is equal to the ratio (expressed as a percentage) of the original principal balance of such Loan to appraised value of the related Property (less the amount, if any, of the premium for any credit life insurance) at the time of origination of the Loan or, in the case where the Loan represents a purchase money instrument, the lesser of (a) the appraised value or (b) the purchase price. The combined loan-to-value ratio (the "CLTV") of a Loan at any given time is the ratio, expressed as a percentage, determined by dividing (x) the sum of the original principal balance of such Loan (less the amount,if any, of the premium for any credit life insurance) plus the then-current principal balance of all mortgage loans (each, a "Senior Lien") secured by liens on the related Property having priorities senior to that of the lien which secures such Loan, by (y) the value of the related Property, based upon the appraisal or valuation (which may in certain instances include estimated increases in value as a result of certain home improvements to be financed with the proceeds of such Loan) made at the time of origination of the Loan. If the related Obligor will use the proceeds of the Loan to refinance an existing Loan which is being serviced directly or indirectly by the Servicer, the requirement of an appraisal or other valuation at the time the new Loan is made may be waived. For purposes of calculating the CLTV of a Contract relating to a new Manufactured Home, the value of such Manufactured Home will be no greater than the sum of a fixed percentage of the list price of the unit actually billed by the manufacturer to the dealer (exclusive of freight to the dealer site) including "accessories" identified in the invoice (the " Manufacturer's Invoice Price"), plus the actual cost of any accessories purchased from the dealer, a delivery and set-up allowance, depending on the size of the unit, and the cost of state and local taxes, filing fees and up to three years prepaid hazard insurance premiums. The value of a used Manufactured Home will be the least of the sales price, appraised value, and National Automobile Dealer's Association book value plus prepaid taxes and hazard insurance premiums. The appraised value of a Manufactured Home will be based upon the age and condition of the manufactured housing unit and the quality and condition of the mobile home park in which it is situated, if applicable. No assurance can be given that values of the Properties have remained or will remain at their levels on the dates of origination of the related Mortgage Loans. If the residential real estate market should experience an overall decline in property values such that the outstanding principal balances of the Mortgage Loans (plus any additional financing by other lenders on the same Properties) in a particular Pool become equal to or greater than the value of such Properties, the actual rates of delinquencies, foreclosures and losses could be higher than those now generally experienced in the non-conforming credit mortgage lending industry. An overall decline in the market value of residential real estate, the general condition of a Property, or other factors, could adversely affect the values of the Properties such that the outstanding balances of the Mortgage Loans, together with any additional liens on the Properties, equal or exceed the value of the Properties. Under such circumstances, the actual rates of delinquencies, foreclosures and losses could be higher than those now generally experienced in the non-conforming credit mortgage lending industry. Certain Loans may be secured by junior liens ("Junior Lien Loans") subordinate to the rights of the obligee under any related Senior Liens. The proceeds from any liquidation, insurance or condemnation of Properties relating to Junior Lien Loans in a Loan Pool will be available to satisfy the principal balance of such Junior Lien Loans only to the extent that the claims, if any, of all related senior obligees, including any related foreclosure costs, are satisfied in full. In addition, the Servicer may not foreclose on a Property relating to a Junior Lien Loan unless it forecloses subject to the related senior lien or liens, in which case it must either pay the entire amount of each senior lien to the applicable obligee at or prior to the foreclosure sale or undertake the obligation to make payments on each Senior Lien in the event of default thereunder. Generally, in servicing Junior Lien Loans, it is standard practice for a Servicer to satisfy each Senior Lien at or prior to a foreclosure sale only to the extent that it determines any amounts so paid will be recoverable from future payments and collections on the Loans or otherwise. The Trusts will not have any source of funds to satisfy any such senior lien or make payments due to any senior obligee. See "Certain Legal Aspects of Loans and Related Matters--Foreclosure." 25 Other factors affecting obligors' ability to repay Loans include excessive building resulting in an oversupply of housing stock or a decrease in employment reducing the demand for units in an area; federal, state or local regulations and controls affecting rents; prices of goods and energy; environmental restrictions; increasing labor and material costs; and the relative attractiveness of the Properties. To the extent that losses on the Loans are not covered by Credit Enhancements, such losses will be borne, at least in part, by the Securityholders of the related series. The Company will cause the Loans comprising each Loan Pool to be assigned to the Trustee named in the related Prospectus Supplement for the benefit of the Securityholders of the related series. The Servicer will service the Loans, either directly or through Sub-Servicers, pursuant to the Pooling and Servicing Agreement and will receive a fee for such services. See "Loan Program" and "The Pooling and Servicing Agreement." With respect to Loans serviced through a Sub-Servicer, the Servicer will remain liable for its servicing obligations under the related Pooling and Servicing Agreement as if the Servicer alone were servicing such Loans. The only obligations of the Company with respect to a series of Securities will be to provide (or, where the Company acquired a Loan from another originator, obtain from such originator) certain representations and warranties concerning the Loans and to assign to the Trustee for such series of Securities such Company's rights with respect to such representations and warranties. See "The Pooling and Servicing Agreement." The obligations of the Servicer with respect to the Loans will consist principally of its contractual servicing obligations under the related Pooling and Servicing Agreement and its obligation, as described in the related Prospectus Supplement, to make certain cash advances in the event of delinquencies in payments on, or prepayments received with respect to, the Loans in the amounts described herein under "Description of the Securities--Advances." The obligations of a Servicer to make advances may be subject to limitations, to the extent provided herein and in the related Prospectus Supplement. Single Family and Mixed Use Loans Single Family Loans will consist of mortgage loans, deeds of trust or participation or other beneficial interests therein, secured by first or junior liens on one-to four-family properties. The Properties relating to Single Family Loans will consist of detached or semi-detached one-family dwelling units, two- to four-family dwelling units, townhouses, rowhouses, individual condominium units in condominium developments, individual units in planned unit developments, and certain other dwelling units. Such Mortgage Properties may include owner-occupied (which includes vacation and second homes) and non-owner occupied investment properties. If so specified, the Single Family Loans may include loans or participations therein secured by mortgages or deeds of trust on condominium units in low- or high-rise condominium developments together with such condominium units' appurtenant interests in the common elements of such condominium developments. Mixed Use Loans will consist of mortgage loans, deeds of trust or participation or other beneficial interests therein, secured by first or junior mortgages on small properties used primarily for residential purposes but also for commercial purposes. Multi-family and Cooperative Loans Multi-family Loans will consist of mortgage loans, deeds of trust or participation or other beneficial interests therein, secured by first or junior liens on rental apartment buildings or projects containing five or more residential units. Cooperative Loans will be secured by security interests in or similar liens on stock, shares or membership certificates issued by private cooperative housing corporations (" Cooperative") in the related proprietary leases or occupancy agreements granting exclusive rights to occupy specific dwelling units in such Cooperatives' buildings. Properties that secure Multi-family Loans may include high-rise, mid-rise and garden apartments. Certain of the Multi-family Loans may be secured by apartment buildings owned by Cooperatives. In such cases, 26 the Cooperative owns all the apartment units in the building and all common areas. The Cooperative is owned by tenant-stockholders who, through ownership of stock, shares or membership certificates in the corporation, receive proprietary leases or occupancy agreements that confer exclusive rights to occupy specific apartments or units. Generally, a tenant-stockholder of a Cooperative must make a monthly payment to the Cooperative representing such tenant-stockholder's pro rata share of the Cooperative's payments for its mortgage loan, real property taxes, maintenance expenses and other capital or ordinary expenses. Those payments are in addition to any payments of principal and interest the tenant-stockholder must make on any loans to the tenant-stockholder secured by its shares in the Cooperative. The Cooperative will be directly responsible for building management and, in most cases, payment of real estate taxes and hazard and liability insurance. A Cooperative's ability to meet debt service obligations on a Multi-family Loan, as well as all other operating expenses, will be dependent in large part on the receipt of maintenance payments from the tenant-stockholders, as well as any rental income from units or commercial areas the Cooperative might control. Unanticipated expenditures may in some cases have to be paid by special assessments on the tenant-stockholders. Home Improvement Loans Home Improvement Loans may be secured by first or junior liens on conventional one-to four-family residential properties and multi-family residential properties. Home Improvement Loans generally will be conventional, or if specified in the related Prospectus Supplement, may be partially insured by the Federal Housing Administration ("FHA") or another federal or state agency. The loan proceeds from such Home Improvement Loans are typically disbursed to an escrow agent which, according to the Company's Guidelines, Approved Guidelines or Bulk Guidelines, releases such proceeds to the contractor upon completion of the improvements or in draws as the work on the improvements progresses. Costs incurred by the Obligor for loan origination including origination points and appraisal, legal and title fees, are often included in the amount financed. In addition, Home Improvement Loans generally provide additional security to a first or junior mortgage loan because home improvements typically retain or increase the value of a property. Contracts Contracts will consist of manufactured housing conditional sales contracts and installment sales or loan agreements each secured by a Manufactured Home. Contracts may be conventional, insured partially by the FHA or partially guaranteed by the Veterans Administration, as specified in the related Prospectus Supplement. Each Contract will be fully amortizing and will bear interest at its APR. The "Manufactured Homes" securing the Contracts will consist of manufactured homes within the meaning of 42 United States Code, Section 5402(6), which defines a "manufactured home" as "a structure, transportable in one or more sections, which in the traveling mode, is eight body feet or more in width or forty body feet or more in length, or, when erected on site, is three hundred twenty or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air conditioning, and electrical systems contained therein; except that such term shall include any structure which meets all the requirements of [this] paragraph except the size requirements and with respect to which the manufacturer voluntarily files a certification required by the Secretary of Housing and Urban Development and complies with the standards established under [this] chapter." The related Prospectus Supplement will specify for the Contracts contained in the related Trust, among other things, the date of origination of the Contracts; the APRs on the Contracts; the Contract Loan-to-Value Ratios; the minimum and maximum outstanding principal balances as of the Cut-Off Date and the average outstanding principal balance; the outstanding principal balances of the Contracts included in the related Trust; and the original maturities of the Contracts and the last maturity date of any Contract. 27 THE LOAN POOLS General Each Loan Pool will consist primarily of (i) Loans, minus any other interest retained by the Company evidenced by promissory notes (the "Notes") secured by mortgages or deeds of trust or other similar security instruments creating a lien on, or security interest in, (a) one- to four-family residential properties, (b) multi-family residential properties, (c) mixed use properties, (d) apartment units in a Cooperative or (e) Manufactured Homes or (ii) certificates of interest or participations in such Mortgage Notes. The Properties will consist primarily of attached or detached one-family dwelling units, two- to four-family dwelling units, condominiums, townhouses, row houses, individual units in planned-unit developments, mixed use properties and certain other dwelling units, and the fee, leasehold or other interests in the underlying real property. The Properties may also consist of apartment units in Cooperatives and Manufactured Homes. The Properties may be owner-occupied (which includes second and vacation homes) and non-owner occupied investment properties. If specified in the related Prospectus Supplement relating to a series of Securities, a Loan Pool may contain Cooperative Loans evidenced by promissory notes ("Cooperative Notes") secured by security interests in shares issued by Cooperatives and in the related proprietary leases or occupancy agreements granting exclusive rights to occupy specific dwelling units in the related buildings. As used herein, unless the context indicates otherwise, "Loans" include Cooperative Loans, "Properties" include shares in the related cooperative and the related proprietary leases or occupancy agreements securing Cooperative Notes, "Notes" include Cooperative Notes and "Loans" include security agreements with respect to Cooperative Notes. Each Loan will be selected by the Company for inclusion in a Loan Pool from among loans originated by the Company or one or more originators, including banks, savings and loan associations, mortgage bankers, mortgage brokers, investment banking firms, the FDIC and other mortgage loan originators or purchasers not affiliated with the Company, all as described below under "Loan Program." The characteristics of the Loans will be described in the related Prospectus Supplement. Other loans available for acquisition by a Trust may have characteristics that would make them eligible for inclusion in a Loan Pool but may not be selected by the Company for inclusion in such Loan Pool. Each Security will evidence an interest in only the related Loan Pool and corresponding Trust Estate, and not in any other Loan Pool or any other Trust Estate (except in those situations whereby certain collections on any Loans in a related Loan Pool in excess of amounts needed to pay the related securities may be deposited in a common, master reserve account that provides Credit Enhancement for more than one series of Securities). The Loan Pools All of the Loans in a Loan Pool will (i) have payments that are due monthly or bi-weekly, (ii) be secured by Properties located in any of the fifty states, the District of Columbia, Puerto Rico or any other Territories of the United States and (iii) consist of one or more of the following types of loans: (1) Fixed-rate, fully-amortizing loans (which may include loans converted from adjustable-rate loans or otherwise modified) providing for level monthly payments of principal and interest and terms at origination or modification of generally not more than 30 years; (2) ARM Loans having original or modified terms to maturity of generally not more than 30 years with a related Loan Rate that adjusts periodically, at the intervals described in the related Prospectus Supplement (which may have adjustments in the amount of monthly payments at periodic intervals) over the term of the loan to equal the sum of a fixed percentage set forth in the related Mortgage Note (the "Note Margin") and an index (the "Index") to be specified in the related Prospectus Supplement, such as, by way of example: (i) U.S. Treasury securities of a specified constant maturity, (ii) weekly auction average investment yield of U.S. Treasury bills of specified maturities, (iii) the daily Bank Prime Loan rate made available by the Federal Reserve Board or as quoted by one or more specified lending institutions, (iv) the cost of funds of member institutions for the Federal Home Loan 28 Bank of San Francisco, or (v) the interbank offered rates for U.S. dollar deposits in the London Markets, each calculated as of a date prior to each scheduled interest rate adjustment date that will be specified in the related Prospectus Supplement. The related Prospectus Supplement will set forth the relevant Index, and the related Prospectus Supplement or the related Current Report on Form 8-K will indicate the highest, lowest and weighted-average Note Margin with respect to the ARM Loans in the related Loan Pool. If specified in the related Prospectus Supplement, an ARM Loan may include a provision that allows the Obligor to convert the adjustable Loan Rate to a fixed rate at some point during the term of such ARM Loan subsequent to the initial payment date; (3) Fixed-rate, graduated payment loans having original or modified terms to maturity of generally not more than 30 years with monthly payments during the first year calculated on the basis of an assumed interest rate that will be lower than the Loan Rate applicable to such loan in subsequent years. Deferred Interest, if any, will be added to the principal balance of such loans; (4) Balloon loans ("Balloon Loans"), which are loans having original or modified terms to maturity of generally 5 to 15 years as described in the related Prospectus Supplement, which may have level monthly payments of principal and interest based generally on a 10- to 30-year amortization schedule. The amount of the monthly payment may remain constant until the maturity date, upon which date the full outstanding principal balance on such Balloon Loan will be due and payable (such amount, the "Balloon Amount"); or (5) Modified loans ("Modified Loans"), which are fixed or adjustable-rate loans providing for terms at the time of modification of generally not more than 30 years. Modified Loans may be loans which have been consolidated and/or have had various terms changed, loans which have been converted from adjustable rate loans to fixed rate loans, or construction loans which have been converted to permanent loans. If provided for in the related Prospectus Supplement, a Loan Pool may contain ARM Loans which allow the Obligors to convert the adjustable rates on such Loans to a fixed rate at some point during the life of such Loans (each such Loan, a " Convertible Loan"). If specified in the related Prospectus Supplement, upon any conversion, the Company will repurchase or the Servicer, the applicable Sub-Servicer, or a third party will purchase the converted Loan as and to the extent set forth in the related Prospectus Supplement. Alternatively, if specified in the related Prospectus Supplement, the Company or the Servicer (or another party specified therein) may agree to act as remarketing agent with respect to such converted Loans and, in such capacity, to use its best efforts to arrange for the sale of converted Loans under specific conditions. Upon the failure of any party so obligated to purchase any such converted Loan, the inability of any remarketing agent to so arrange for the sale of the converted Loan and the unwillingness of the remarketing agent to exercise any election to purchase the converted Loan for its own account, the related Loan Pool will thereafter include both fixed rate and adjustable rate Loans. If provided for in the related Prospectus Supplement, certain of the Loans may be Buydown Loans pursuant to which the monthly payments made by the Obligor during the Buydown Period will be less than the scheduled monthly payments on the Loan, the resulting difference to be made up from (i) Buydown Funds funded by the originator of the Loan or another source (including the Servicer, the Company or the related originator) and placed in the Buydown Account and (ii) if the Buydown Funds are contributed on a present value basis, investment earnings on such Buydown Funds. See "Description of the Securities--Payments on Loans; Deposits to Distribution Account." The terms of the Buydown Loans, if such loans are included in a Trust, will be as set forth in the related Prospectus Supplement. The Company will cause the Loans constituting each Loan Pool to be assigned to the Trustee named in the related Prospectus Supplement, for the benefit of the holders of all of the Securities of a series and such Trustee will receive a fee for its services. The Servicer named in the related Prospectus Supplement will service the Loans, either directly or through other mortgage servicing institutions (Sub-Servicers), pursuant to a Pooling and Servicing Agreement and will receive a fee for such services. See "Loan Program" and "Description of the 29 Securities." With respect to those Loans serviced by the Servicer through a Sub-Servicer, the Servicer will remain liable for its servicing obligations under the related Pooling and Servicing Agreement as if the Servicer alone were servicing such Loans. As described in the related Prospectus Supplement, the Company may make certain representations and warranties regarding the Loans, but the assignment of the Loans to the Trustee will be without recourse. See "Description of the Securities--Assignment of Loans." The Servicer's obligations with respect to the Loans will consist principally of its contractual servicing obligations under the related Pooling and Servicing Agreement (including its obligation to enforce certain purchase and other obligations of the Company, as more fully described herein under "Loan Program--Representations" and "Description of the Securities--Assignment of Loans," and its obligation, if any, to make certain cash advances in the event of delinquencies in payments on or with respect to the Loans and interest shortfalls due to prepayment of Loans, in amounts described herein under "Description of the Securities--Advances"). Generally, the obligation of the Servicer to make delinquency advances will be limited to amounts which the Servicer believes ultimately would be reimbursable out of the proceeds of liquidation of the Loans. See "Description of the Securities--Advances." UNDERWRITING PROGRAM General The Company's finance programs consist of a Mortgage Loan Program and a Manufactured Housing Program, each of which is described below. Loans originated or purchased by originators and acquired by the Company generally will have been originated in accordance with the Company's guidelines (the "Guidelines"). Management permits deviations from the specific criteria of the Company's Guidelines to reflect local economic trends, real estate valuations, and credit factors specific to each Loan. The Company generally will review or cause to be reviewed all of the Loans in any delivery of Loans from originators for conformity with the Company's Guidelines. The Company will make representations and warranties with respect to the Loans sold to the Trust pursuant to the Pooling and Servicing Agreement. The Company may be obligated to repurchase the Loans in respect of which a breach of representation or warranty has occurred. Representations. The Company will make representations and warranties in respect of the Loans sold by the Company to the Trust and evidenced by a series of Securities. Such representations and warranties generally include, among other things, that at the time of the sale to the Trust of each Loan: (i) the information with respect to each Loan set forth in the Schedule of Loans is true and correct; (ii) all real estate appraisals have been performed in accordance with industry standards; (iii) no Loan is in violation of any applicable state or federal law or regulation; (iv) each Loan had, at the time of origination, either an attorney's certification of title or a title search or title policy; (v) as of the related settlement date, each Loan is secured by a valid and subsisting lien of record on the Property having the priority indicated in the related Loan file subject in all cases to exceptions to title set forth in the title insurance policy, if any, with respect to the related Loan; (vi) the Company held good and indefeasible title to, and was the sole owner of, each Loan conveyed by it; and (vii) each Loan was originated in accordance with law and is the valid, legal and binding obligation of the related Obligor. If the Company cannot cure a breach of any representation or warranty made by it in respect of a Loan that materially and adversely affects the interests of the Securityholders in such Loan within a time period specified in the related Pooling and Servicing Agreement, the Company will be obligated to purchase from the related Trust such Loan at a price (the "Loan Purchase Price") set forth in the related Pooling and Servicing Agreement which Loan Purchase Price will be equal to the principal balance thereof as of the date of purchase plus one month's interest at the Loan Rate less the amount, expressed as a percentage per annum, payable in respect of servicing compensation, Trustee compensation and REMIC reporting compensation, as applicable, together with, without duplication, the aggregate amount of all delinquent interest, if any. 30 As to any such Loan required to be purchased by the Company, as provided above, rather than repurchase the Loan, the Servicer may, at its sole option, remove such Loan (a " Deleted Loan") from the related Trust and cause the Company to substitute in its place another Loan of like kind (a "Qualified Replacement Loan" as such term is defined in the related Pooling and Servicing Agreement). With respect to a Trust for which a REMIC election is to be made, except as otherwise provided in the Prospectus Supplement relating to a series of Securities, such substitution of a defective Loan must be effected within two years of the date of the initial issuance of the Securities, and may not be made if such substitution would cause the Trust to not qualify as a REMIC or result in a prohibited transaction tax under the Code. The Company generally will have no option to substitute for a Loan that it is obligated to repurchase in connection with a breach of a representation and warranty. The Servicer will be required under the applicable Pooling and Servicing Agreement to enforce such purchase or substitution obligations for the benefit of the Trustee and the Securityholders, following the practices it would employ in its good faith business judgment if it were the owner of such Mortgage Loan; provided, however, that this purchase or substitution obligation will in no event become an obligation of the Servicer in the event the Company fails to honor such obligation. The foregoing will constitute the sole remedy available to Securityholders or the Trustee for a breach of representation by the Company. Mortgage Loan Program The Mortgage Loans will be originated by the Company or acquired by the Company from originators. All of the Mortgage Loans will be originated or acquired by originators generally in accordance with underwriting criteria satisfactory to the Company. As more fully described below and as may also be described in greater detail in the related Prospectus Supplement, under the Company's Loan Program, the Company will originate Loans or purchase Loans from originators: (1) in accordance with its loan program (the "Company's Loan Program") described in the Company's Seller's Guide, as modified from time to time (the " Company's Seller's Guide"), (2) on a "spot" or negotiated basis ("Negotiated Transactions"), and (3) as bulk acquisitions ("Bulk Acquisitions"). The Company's Loan Program, Negotiated Transactions, Bulk Acquisitions and the respective underwriting guidelines relating thereto are described below. The Company's Guidelines provide that each borrower is required to provide, and any originator is generally required to verify, personal financial information. The borrower's total monthly obligations (including principal and interest on each mortgage, tax assessments, other loans, charge accounts and all other scheduled indebtedness) should not exceed 60% of the borrower's monthly income. Borrowers who are salaried employees must provide current employment information, in addition to recent employment history. The Originator verifies this information for salaried borrowers based on a current pay stub and either (i) a written verification of income signed by their employer or (ii) two years' W-2 forms. A self-employed applicant is generally required to be successfully self-employed in the same field for a minimum of two years. A self-employed borrower is generally required to provide financial statements and signed copies of federal income tax returns (including schedules) filed for the most recent two years. The borrower's debt-to-income ratio is calculated based on income as generally verified by the Originator and must be reasonable. The Mortgage Loans will be underwritten pursuant to the Company's "Full Documentation Program," "Alternative Income Documentation Program" and "Stated Income Program," as set forth in the Company's Guidelines. Under each of the programs, the originator reviews the loan applicant's source of income, calculates the amount of income from sources indicated on the loan application or similar documentation, reviews the credit history of the applicant, calculates the debt service-to-income ratio to determine the applicant's ability to repay the loan, reviews the type and use of the property being financed and reviews the property for compliance with its standards. In determining the ability of the applicant to repay an adjustable rate Mortgage Loan, the originators use a rate (the "Qualifying Rate") that generally is a rate equal to the fully-indexed Mortgage interest rate for such adjustable rate Mortgage Loan. The Company's Guidelines are applied in a standardized procedure that complies with applicable federal and state laws and regulations. 31 Under the Full Documentation Program, the income of each applicant and the source of funds (if any) required to be deposited by an applicant into a bank account will be verified by the Originators. Applicants are generally required to submit a current pay stub and either (i) a written verification of income signed by their employer or (ii) two years' W-2 forms. Under the Alternative Income Documentation Program, a self-employed applicant is required to provide the applicant's business' profit and loss statement, and bank account statements supporting such statement for the prior calendar year and any completed calendar quarter of the current year and a current copy of a business license. Both the Alternative Income Program and the Stated Income Program generally require (i) that the applicant's income be reasonable for its business/profession, (ii) that the business has been in existence for three years or more and (iii) that the loan-to-value ratio be reduced. In addition, the Mortgage Loan will generally improve the applicant's cash flow. Verification of the source of funds (if any) required to be deposited by the applicant into a bank account is generally required under all documentation programs in the form of a standard verification of deposit or two months' consecutive bank statements or other acceptable documentation. Twelve months' mortgage payment or rental history is generally required to be verified by the applicant's current lender or landlord. If appropriate compensating factors exist, the originators and the Company may waive certain documentation requirements for individual applicants. Negotiated Transactions. The Company may acquire or may cause a Trust to acquire Mortgage Loans from originators on a "spot" basis or in Negotiated Transactions, and such Negotiated Transactions may be governed by agreements ("Master Commitments") relating to ongoing acquisitions of Mortgage Loans by the Company, from originators who will represent that the Mortgage Loans have been originated in accordance with underwriting guidelines agreed to by the Company. Certain other Mortgage Loans will be acquired from originators that will represent that the Mortgage Loans were originated pursuant to underwriting guidelines determined by a mortgage insurance company acceptable to the Company. The Company will accept a certification from such insurance company as to a Mortgage Loan's insurability in a Loan Pool as of the date of certification as evidence of a Mortgage Loan conforming to applicable underwriting standards. Such certifications likely will have been issued before the purchase of the Mortgage Loan by the Company. The Company only will perform random quality assurance reviews on Mortgage Loans delivered with such certifications. The underwriting standards utilized in Negotiated Transactions and the underwriting standards of insurance companies may vary substantially from the Company's Guidelines described herein. All of the underwriting guidelines will provide an underwriter with information to evaluate either the security for the related Mortgage Loan, which security consists primarily of the borrower's repayment ability or the adequacy of the Property as collateral, or a combination of both. Due to the variety of underwriting guidelines and review procedures that may be applicable to the Mortgage Loans included in any Loan Pool, the related Prospectus Supplement will not distinguish among the various underwriting guidelines applicable to the Mortgage Loans nor describe any review for compliance with applicable underwriting guidelines performed by the Company. Moreover, there can be no assurance that every Mortgage Loan was originated in conformity with the underwriting guidelines related thereto in all material respects, or that the quality or performance of Mortgage Loans underwritten pursuant to varying guidelines as described above will be equivalent under all circumstances. Bulk Acquisitions. Bulk portfolios of Mortgage Loans may be originated by a variety of originators under several different underwriting guidelines. Mortgage Loans that conform to the related underwriting guidelines of the originator of the portfolio of such Mortgage Loans acquired by the Company in a Bulk Acquisition may not conform to the requirements of the Company's Guidelines. Bulk Acquisition portfolios may be purchased servicing released or retained. If servicing is retained, the Company may require the Originator to meet certain minimum requirements with respect to the servicing of such Mortgage Loans. The Company generally will cause the Mortgage Loans acquired in a Bulk Acquisition to be re-underwritten on a sample basis. Such re-underwriting may be performed by the Company or by a third party acting at the direction of the Company. 32 Manufactured Housing Contract Program General. All manufactured housing contracts that are purchased by the Company from dealers or originated by the Company through a broker are written on forms provided by the Company and are purchased or underwritten, as the case may be, on an individually approved basis. With respect to each retail manufactured housing contract to be purchased from a dealer or submitted by a broker and underwritten, as the case be, the Company's general practice is to have the dealer or broker submit the customer's credit application, manufacturer's invoice (if the contract is for a new home) and certain other information relating to the contract to the applicable regional office of the Company. Personnel at the regional office make an analysis of the creditworthiness of the obligor and of other aspects of the proposed transaction. If the credit worthiness of the obligor and other aspects of the transaction are approved by the regional office, the Company purchases the contract after the manufactured home is delivered and set up. Because manufactured homes generally depreciate in value, the Company's management believes that the creditworthiness of a potential obligor under a manufactured housing contract should be the most important criterion in determining whether to approve the purchase or origination of such manufactured housing contract. In this regard, the Company uses an underwriting guideline matrix based upon each applicant's credit history, residence history, employment history, debt-to-income ratio and down payment percentage. Although, with respect to certain of these criteria, the Company has minimum requirements, the Company management does not believe that these minimum requirements are themselves generally sufficient to warrant a credit approval of an applicant. Thus, there were and are no requirements on the basis of which, if they are met, credit is routinely approved, and if they are not met, credit is routinely denied. Rather, if an applicant has a low rating with respect to one of the criteria mentioned above, there generally must be a compensating higher rating with respect to other items in order for such applicant to be approved. In addition, in certain cases, credit applications are approved even if certain of the minimum criteria are not met. The ultimate decision to approve or reject a credit application is thus the result of a judgment made by either regional management or the Company's senior management. The Company's policy is to approve or reject each credit application within 72 hours of receipt. Thus, there is generally less time for credit investigation than is the case, for instance, with loans for site-built homes. Although the Company's management believes that the 72 hour period for approval or rejection of each credit application is in line with industry practice, no assurance can be given that any credit application that was approved in 72 hours would have been approved if a longer period had been provided for credit investigation. The qualifications of all regional office personnel authorized to approve or reject credit applications are reviewed by the President and/or the Chief Executive Office of the Company. All such personnel have certain lending limits applicable to their approval authority. The Company has no set qualifications for any employees to whom authority to approve or reject credit applications may be delegated. The credit review and approval practices of each regional office are subject to internal reviews and audits that, through sampling, examine the nature of the verification of credit histories, residence histories, employment histories and debt-to-income ratios of the applicants and evaluate the credit risks associated with the contracts purchased through such regional office by rating the obligors on such contracts according to their credit histories, residence histories, employment histories, debt-to-income ratios and down payment percentages. Selection of underwriting files for review is generally made by the personnel performing the examination, without prior knowledge on the part of the regional office personnel of the files to be selected for review. However, the Company has no requirement that any specific random selection procedures be followed, and no assurance can be given that the files reviewed in any examination process are representative of the contract originations in the related regional office. In addition, no statistical analysis is performed on the results of any such examination of underwriting files. Underwriting policies for the Company's origination or purchase on an individual basis of manufactured housing contracts are established by the Company's senior management and are applicable to all regional offices in the Company's manufactured housing regional office system. 33 DESCRIPTION OF THE SECURITIES General The Securities will be issued in series. Each series of Securities (or, in certain instances, two or more series of Securities) will be issued pursuant to a Pooling and Servicing Agreement. The following (together with additional summaries under "The Pooling and Servicing Agreement" below) describes all material terms and provisions relating to the Securities common to each Pooling and Servicing Agreement. The following does not purport to be complete and are subject to, and is qualified in their entirety by reference to, all of the provisions of the Pooling and Servicing Agreement for the related Trust and the related Prospectus Supplement. The Securities will consist of two basic types: (i) Securities of the fixed-income type ("Fixed-Income Securities") and (ii) Securities of the equity participation type ("Equity Securities"). No Class of Equity Securities will be offered pursuant to this Prospectus or any Prospectus Supplement related hereto. Fixed-Income Securities generally will be styled as debt instruments, having a principal balance and a specified interest rate ("Interest Rate"). Fixed-Income Securities may be either beneficial ownership interests in the related Loans held by the related Trust, or may represent debt secured by such Loans. Each series or class of Fixed-Income Securities may have a different Interest Rate, which may be a fixed, variable or adjustable Interest Rate. The related Prospectus Supplement will specify the Interest Rate for each series or class of Fixed-Income Securities, or the initial Interest Rate and the method for determining subsequent changes to the Interest Rate. A series may include one or more classes of Fixed-Income Securities ("Strip Securities") entitled to (i) principal distributions, with disproportionate, nominal or no interest distributions, or (ii) interest distributions, with disproportionate, nominal or no principal distributions. In addition, a series may include two or more classes of Fixed-Income Securities that differ as to timing, sequential order, priority of payment, Interest Rate or amount of distributions of principal or interest or both, or as to which distributions of principal or interest or both on any class may be made upon the occurrence of specified events, in accordance with a schedule or formula, or on the basis of collections from designated portions of the related Loan Pool, which series may include one or more classes of Fixed-Income Securities ("Accrual Securities"), as to which certain accrued interest will not be distributed but rather will be added to the principal balance (or nominal principal balance in the case of Accrual Securities which are also Strip Securities) thereof on each Payment Date, as hereinafter defined and in the manner described in the related Prospectus Supplement. If so provided in the related Prospectus Supplement, a series of Securities may include one or more classes of Fixed-Income Securities (collectively, the "Senior Securities") that are senior to one or more classes of Fixed-Income Securities (collectively, the "Subordinate Securities") in respect of certain distributions of principal and interest and allocations of losses on Loans. In addition, certain classes of Senior (or Subordinate) Securities may be senior to other classes of Senior (or Subordinate) Securities in respect of such distributions or losses. Equity Securities will represent the right to receive the proceeds of the related Trust Estate after all required payments have been made to the Securityholders of the related Fixed-Income Securities (both Senior Securities and Subordinate Securities), and following any required deposits to any reserve account that may be established for the benefit of the Fixed-Income Securities. Equity Securities may constitute what are commonly referred to as the "residual interest", "seller's interest" or the "general partnership interest", depending upon the treatment of the related Trust for federal income tax purposes. As distinguished from the Fixed-Income Securities, the Equity Securities will not be styled as having principal and interest components. Any losses suffered by the related Trust first will be absorbed by the related class of Equity Securities, as described herein and in the related Prospectus Supplement. No Class of Equity Securities will be offered pursuant to this Prospectus or any Prospectus Supplement related hereto. Equity Securities may be offered on a private placement basis or pursuant to a separate 34 Registration Statement to be filed by the Company. In addition, the Company and its affiliates may initially or permanently hold any Equity Securities issued by any Trust. General Payment Terms of Securities. As provided in the related Pooling and Servicing Agreement and as described in the related Prospectus Supplement, Securityholders will be entitled to receive payments on their Securities on specified dates ("Payment Dates"). Payment Dates with respect to Fixed-Income Securities will occur monthly, quarterly or semi-annually, as described in the related Prospectus Supplement; Payment Dates with respect to Equity Securities will occur as described in the related Prospectus Supplement. The related Prospectus Supplement will describe a date (the "Record Date") preceding such Payment Date, as of which the Trustee or its paying agent will fix the identity of the Securityholders for the purpose of receiving payments on the next succeeding Payment Date. The related Prospectus Supplement and the Pooling and Servicing Agreement will describe a period (a "Remittance Period") antecedent to each Payment Date (for example, in the case of monthly-pay Securities, the calendar month preceding the month in which a Payment Date occurs or such other specified period). Collections received on or with respect to the related Loans during a Remittance Period will be required to be remitted by the Servicer to the related Trustee prior to the related Payment Date and will be used to distribute payments to Securityholders on such Payment Date. As may be described in the related Prospectus Supplement, the related Pooling and Servicing Agreement may provide that all or a portion of the principal collected on or with respect to the related Loans may be applied by the related Trustee to the acquisition of additional Loans during a specified period (rather than used to distribute payments of principal to Securityholders during such period) with the result that the related Securities possess an interest-only period, also commonly referred to as a revolving period, which will be followed by an amortization period. Any such interest-only or revolving period may, upon the occurrence of certain events to be described in the related Prospectus Supplement, terminate prior to the end of the specified period and result in the earlier than expected amortization of the related Securities. In addition, and as may be described in the related Prospectus Supplement, the related Pooling and Servicing Agreement may provide that all or a portion of such collected principal may be retained by the Trustee (and held in certain temporary investments, including Loans) for a specified period prior to being used to distribute payments of principal to Securityholders. The result of such retention and temporary investment by the Trustee of such principal would be to slow the amortization rate of the related Securities relative to the amortization rate of the related Loans, or to attempt to match the amortization rate of the related Securities to an amortization schedule established at the time such Securities are issued. Any such feature applicable to any Securities may terminate upon the occurrence of events to be described in the related Prospectus Supplement, resulting in the current funding of principal payments to the related Securityholders and an acceleration of the amortization of such Securities. Neither the Securities nor the underlying Loans will be guaranteed or insured by any governmental agency or instrumentality or the Company, the Servicer, the Master Servicer, if any, any Sub-Servicer, any Originator or any of their affiliates. Securities of each series covered by a particular Pooling and Servicing Agreement will evidence specified beneficial ownership interest in a separate Trust Estate created pursuant to such Pooling and Servicing Agreement. A Trust Estate will consist of, to the extent provided in the Pooling and Servicing Agreement: (i) a pool of Loans (and the related Loan documents) or certificates of interest or participations therein underlying a particular series of Securities as from time to time are subject to the Pooling and Servicing Agreement, exclusive of, if specified in the related Prospectus Supplement, any interest retained by the related Originator, the Company or any of their affiliates with respect to each such Loan; (ii) payments and collections in respect of the Loans due, accrued or received, as described in the related Prospectus Supplement, on and after the related Cut-Off Date, as from time to time are identified as deposited in respect thereof in the Principal and Interest Account and in the related Distribution Account; (iii) property acquired by foreclosure of the Loans or deed in lieu of foreclosure; (iv) hazard and flood insurance policies and primary mortgage insurance policies, if any, and 35 certain proceeds thereof; and (v) any combination, as specified in the related Prospectus Supplement, of a letter of credit, financial guaranty insurance policy, purchase obligation, mortgage pool insurance policy, special hazard insurance policy, bankruptcy bond, reserve fund or other type of Credit Enhancement as described under "Description of Credit Enhancement." To the extent that any Trust Estate includes certificates of interest or participations in Loans, the related Prospectus Supplement will describe the material terms and conditions of such certificates or participations. Form of Securities The Securities of each series will be issued as physical certificates ("Physical Certificates") in fully registered form only in the denominations specified in the related Prospectus Supplement, and will be transferable and exchangeable at the corporate trust office of the registrar of the Securities (the "Security Registrar") named in the related Prospectus Supplement. No service charge will be made for any registration of exchange or transfer of Securities, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge. If so specified in the related Prospectus Supplement, specified classes of a series of Securities will be issued in uncertificated book-entry form ("Book-Entry Securities"), and will be registered in the name of Cede, the nominee of DTC. DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code ("UCC") and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created to hold securities for its participating organizations (" Participants") and facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes in their accounts, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations. Indirect access to the DTC system also is available to others such as brokers, dealers, banks and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("Indirect Participant"). Under a book-entry format, Securityholders that are not Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of Securities registered in the name of Cede, as nominee of DTC, may do so only through Participants and Indirect Participants. In addition, such Securityholders will receive all distributions of principal of and interest on the Securities from the Trustee through DTC and its Participants. Under a book-entry format, Securityholders will receive payments after the related Payment Date because, while payments are required to be forwarded to Cede, as nominee for DTC, on each such date, DTC will forward such payments to its Participants, which thereafter will be required to forward such payments to Indirect Participants or Securityholders. Unless and until Physical Securities are issued, it is anticipated that the only Securityholder will be Cede, as nominee of DTC, and that the beneficial holders of Securities will not be recognized by the Trustee as Securityholders under the Pooling and Servicing Agreement. The beneficial holders of such Securities will only be permitted to exercise the rights of Securityholders under the Pooling and Servicing Agreement indirectly through DTC and its Participants who in turn will exercise their rights through DTC. Under the rules, regulations and procedures creating and affecting DTC and its operations, DTC is required to make book-entry transfers among Participants on whose behalf it acts with respect to the Securities and is required to receive and transmit payments of principal of and interest on the Securities. Participants and Indirect Participants with which Securityholders have accounts with respect to their Securities similarly are required to make book-entry transfers and receive and transmit such payments on behalf of their respective Securityholders. Accordingly, although Securityholders will not possess Securities, the rules provide a mechanism by which Securityholders will receive distributions and will be able to transfer their interests. Unless and until Physical Certificates are issued, Securityholders who are not Participants may transfer ownership of Securities only through Participants by instructing such Participants to transfer Securities, by book-entry transfer, through DTC for the account of the purchasers of such Securities, which account is maintained with their respective Participants. Under the Rules and in accordance with DTC's normal procedures, 36 transfers of ownership of Securities will be executed through DTC and the accounts of the respective Participants at DTC will be debited and credited. Similarly, the respective Participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing Securityholders. Because DTC can only act on behalf of Participants, who in turn act on behalf of Indirect Participants and certain banks, the ability of a Securityholder to pledge Securities to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such Securities may be limited due to the lack of a Physical Certificate for such Securities. DTC in general advises that it will take any action permitted to be taken by a Securityholder under a Pooling and Servicing Agreement only at the direction of one or more Participants to whose account with DTC the related Securities are credited. Additionally, DTC in general advises that it will take such actions with respect to specified percentages of the Securityholders only at the direction of and on behalf of Participants whose holdings include current principal amounts of outstanding Securities that satisfy such specified percentages. DTC may take conflicting actions with respect to other current principal amounts of outstanding Securities to the extent that such actions are taken on behalf of Participants whose holdings include such current principal amounts of outstanding Securities. Any Securities initially registered in the name of Cede, as nominee of DTC, will be issued in fully registered, certificated form to Securityholders or their nominees ("Physical Certificates"), rather than to DTC or its nominee only under the events specified in the related Pooling and Servicing Agreement and described in the related Prospectus Supplement. Upon the occurrence of any of the events specified in the related Pooling and Servicing Agreement and the Prospectus Supplement, DTC will be required to notify all Participants of the availability through DTC of Physical Certificates. Upon surrender by DTC of the securities representing the Securities and instruction for re-registration, the Trustee will issue the Securities in the form of Physical Certificates, and thereafter the Trustee will recognize the holders of such Physical Certificates as Securityholders. Thereafter, payments of principal of and interest on the Securities will be made by the Trustee directly to Securityholders in accordance with the procedures set forth herein and in the Pooling and Servicing Agreement. The final distribution of any Security (whether Physical Certificates or Securities registered in the name of Cede), however, will be made only upon presentation and surrender of such Securities on the final Payment Date at such office or agency as is specified in the notice of final payment to Securityholders. Assignment of Loans At the time of issuance of a series of Securities, the Company will cause the Loans being included in the related Trust Estate to be assigned to the Trustee together with all payments and collections in respect of the Loans due, accrued or received, as described in the related Prospectus Supplement on or after the related Cut-Off Date. The Trustee will, concurrently with such assignment, deliver a series of Securities to the Company in exchange for the Loans. Each Loan will be identified in a schedule appearing as an exhibit to the related Pooling and Servicing Agreement. Such schedule will include, among other things, information as to the principal balance of each Loan as of the Cut-Off Date, as well as information regarding the Loan Rate, the currently scheduled monthly payment of principal and interest and the maturity of the Note. A typical provision relating to document delivery requirements would provide that the Company deliver to the Trustee a file consisting of (i) the original Notes or certified copies thereof, endorsed in blank or to the order of the holder, (ii) originals of all intervening assignments, showing a complete chain of title from origination to the applicable Originators, if any, including warehousing assignments, with evidence of recording thereon, (iii) originals of all assumption and modification agreements, if any, and, unless such Loan is covered by a counsel's opinion as described in the next paragraph, (iv) either: (a) the original Loan, with evidence of recording thereon, (b) a true and accurate copy of the Loan where the original has been transmitted for recording, until such time as the original is returned by the public recording office or (c) a copy of the Loan certified by the public recording office in those instances where the original recorded Loan has been lost. To the extent that such a file containing all or a portion of such items has been delivered to the Trustee, the Trustee will generally be required, for the benefit of the Securityholders, to review each such file within a specified period, generally 37 not exceeding 90 days, to ascertain that all required documents (or certified copies of documents) have been executed and received. Generally, transfer documentation from the Originators to the Company will have been prepared and filed prior to the execution and delivery of the Pooling and Servicing Agreement. A typical provision relating to the preparation and filing of transfer documentation will require the Company to cause to be prepared and recorded, within a specified period, generally not exceeding 75 business days of the execution and delivery of the applicable Pooling and Servicing Agreement (or, if original recording information is unavailable, within such later period as is permitted by the Pooling and Servicing Agreement) assignments of the Mortgages from the Company to the Trustee, in the appropriate jurisdictions in which such recordation is necessary to perfect the lien thereof as against creditors of or purchasers from the Company, to the Trustee; provided, however, that if the Company furnishes to the Trustee an opinion of counsel to the effect that no such recording is necessary to perfect the Trustee's interests in the Mortgages with respect to one or more jurisdictions, then such recording will not be required with respect to such jurisdictions. If any such document is found to be missing or defective in any material respect, the Trustee (or such custodian) shall promptly so notify the Company, which may notify the related Sub-Servicer or Originator, as the case may be. If the Company or the Originator does not cure the omission or defect within a specified period, generally not exceeding 60 days after notice is given to the Company or Originator, as the case may be, the Company or such Originator will be obligated to purchase on the next succeeding Remittance Date the related Loan from the Trustee at its Loan Purchase Price (or, if specified in the related Prospectus Supplement, will be permitted to substitute for such Loan under the conditions specified in the related Prospectus Supplement). The Servicer will be obligated to enforce this obligation of the Originator, as the case may be, to the extent described above under "Underwriting Program--Representations." Neither the Servicer nor the Company will, however, be obligated to purchase or substitute for such Loan if the Originator defaults on its obligation to do so, and there can be no assurance that an Originator, as the case may be, will carry out any such obligation. Such purchase obligation constitutes the sole remedy available to the Securityholders or the Trustee for omission of, or a material defect in, a constituent document. The Trustee will be authorized at any time to appoint a custodian pursuant to a custodial agreement to maintain possession of and, if applicable, to review the documents relating to the Loans as the agent of the Trustee. The identity of any such custodian to be appointed on the date of initial issuance of the Securities will be set forth in the related Prospectus Supplement. Pursuant to each Pooling and Servicing Agreement, the Servicer, either directly or through Sub-Servicers, will service and administer the Loans assigned to the Trustee as more fully set forth below. Forward Commitments; Pre-Funding A Trust may enter into an agreement (each, a "Forward Purchase Agreement") with the Company whereby the Company will agree to transfer additional Loans to such Trust following the date on which such Trust is established and the related Securities are issued. The Trust may enter into Forward Purchase Agreements to permit the acquisition of additional Loans (the "Subsequent Loans") that could not be delivered by the Company or have not formally completed the origination process, in each case prior to the date on which the Securities are delivered to the Securityholders (the "Closing Date"). Any Forward Purchase Agreement will require that any Loans so transferred to a Trust conform to the requirements specified in such Forward Purchase Agreement, this Prospectus and the related Prospectus Supplement. In addition, the Forward Purchase Agreement will state that the Company shall only transfer the Subsequent Loans upon the satisfaction of certain conditions, including that the Company shall have delivered opinions of counsel (including bankruptcy, corporate and tax opinions) with respect to the transfer of the Subsequent Loans to the Certificate Insurer, if any, the Rating Agencies, the Servicer and the Trustee. If a Forward Purchase Agreement is to be utilized, the related Trustee will be required to deposit in a segregated account (each, a "Pre-Funding Account") a portion of the net proceeds received by the Trustee 38 in connection with the sale of one or more classes of Securities of the related series (such amount, the "Pre-Funded Amount"); the additional Loans will be transferred to the related Trust in exchange for money released to the Company from the related Pre-Funding Account. Each Forward Purchase Agreement will set a specified period (the " Funding Period") during which any such transfers must occur The Forward Purchase Agreement or the related Pooling and Servicing Agreement will require that if all moneys originally deposited to such Pre-Funding Account are not so used by the end of the related Funding Period, then any remaining moneys will be applied as a mandatory prepayment of the related class or classes of Securities as specified in the related Prospectus Supplement. During the Funding Period, the moneys deposited to the Pre-Funding Account will either (i) be held uninvested or (ii) will be invested in one or more Eligible Investments. On payment dates that occur during the Funding Period, the Trustee will transfer any earnings on the moneys in the Pre-Funding Account to the Certificate Account for distribution to the Securityholders. Although the specific parameters of the Pre-Funding Account with respect to any issuance of Securities will be specified in the related Prospectus Supplement, it is anticipated that: (a) the Funding Period will not exceed 120 days from the related Closing Date, (b) that the Additional Loans to be acquired during the Funding Period will be subject to the same representations and warranties as the Loans included in the related Trust Fund on the Closing Date (although additional criteria may also be required to be satisfied, as described in the related Prospectus Supplement) and (c) that the Pre-Funded Amount will not exceed 25% of the principal amount of the Securities issued pursuant to a particular offering. The Pre-Funding Account will be maintained by a Trustee, which must be a bank having combined capital and surplus, generally, of a least $100,000,000, long-term, unsecured debt rated at least investment grade and a long-term deposit rating of at least investment grade. Payments on Loans; Deposits to Distribution Account Each Sub-Servicer servicing a Loan pursuant to a Sub-Servicing Agreement will establish and maintain an account (the "Sub-Servicing Account") that is acceptable to the Servicer. A Sub-Servicing Account must be established with a Federal Home Loan Bank or with a depository institution (including the Sub-Servicer itself) whose accounts are insured by the National Credit Union Share Insurance Fund or the FDIC. Except as otherwise permitted by the applicable Rating Agencies, a Sub-Servicing Account must be segregated and may not be established as a general ledger account. A Sub-Servicer is required to deposit into its Sub-Servicing Account on a daily basis all amounts that are received by it in respect of the Loans, less its servicing or other compensation. On or before the date specified in the Sub-Servicing Agreement (which date may be no later than the business day prior to the Determination Date referred to below or, if such day is not a business day, the preceding business day), the Sub-Servicer must remit or cause to be remitted to the Servicer all funds held in the Sub-Servicing Account with respect to Loans that are required to be so remitted. A Sub-Servicer may also be required to make such Servicing Advances and Delinquency Advances and to pay Compensating Interest as set forth in the related Sub-Servicing Agreement. The Servicer will deposit or will cause to be deposited into the Principal and Interest Account on a daily basis certain payments and collections due, accrued or received, as described in the related Prospectus Supplement on or after to the Cut-Off Date, as specifically set forth in the related Pooling and Servicing Agreement, such as the following except as otherwise provided therein: (i) all payments on account of principal, including principal payments received in advance of the date on which the related monthly payment is due (the "Due Date") (" Principal Prepayments"), on the Loans comprising a Trust Estate; 39 (ii) all payments on account of interest on the Loans comprising such Trust Estate, net of the portion of each payment thereof retained by the Sub-Servicer, if any, as its servicing or other compensation; (iii) all amounts (net of unreimbursed liquidation expenses and insured expenses incurred, and unreimbursed advances made, by the related Sub-Servicer) received and retained, if any, in connection with the liquidation of any defaulted Loan, by foreclosure, deed in lieu of foreclosure or otherwise ("Liquidation Proceeds"), including all proceeds of any special hazard insurance policy, bankruptcy bond, mortgage pool insurance policy, financial guaranty insurance policy and any title, hazard or other insurance policy covering any Loan in such Loan Pool (together with any payments under any letter of credit, "Insurance Proceeds") or proceeds from any alternative arrangements established in lieu of any such insurance and described in the applicable Prospectus Supplement, other than proceeds to be applied to the restoration of the related property or released to the Obligor in accordance with the Servicer's normal servicing procedures (such amounts, net of related unreimbursed expenses and advances of the Servicer, "Net Liquidation Proceeds"); (iv) any Buydown Funds (and, if applicable, investment earnings thereon) required to be paid to Securityholders, as described below; (v) all proceeds of any Loan in such Trust Estate purchased (or, in the case of a substitution, certain amounts representing a principal adjustment) by the Servicer, the Company, any Sub-Servicer or Originator or any other person pursuant to the terms of the Pooling and Servicing Agreement. See "Underwriting Program--Representations," "--Assignment of Loans" above; (vi) any amounts required to be deposited by the Servicer in connection with losses realized on investments of funds held in the Principal and Interest Account, as described below; (vii) any amounts required to be deposited in connection with the liquidation of the related Trust; and (viii) any amounts required to be transferred from the Distribution Account to the Principal and Interest Account. In addition to the Principal and Interest Account, the Trustee will establish and maintain, at the corporate trust office of the Trustee, in the name of the Trust for the benefit of the holders of each series of Securities, an account for the disbursement of payments on the Loans evidenced by each series of Securities (the "Distribution Account"). The Principal and Interest Account and the Distribution Account each must be maintained with a Designated Depository Institution. A " Designated Depository Institution" is an institution whose deposits are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC, the long-term deposits of which have a rating satisfactory to the Rating Agencies and the related Credit Enhancer, if any, and which is any of the following: (i) a federal savings and loan association duly organized, validly existing and in good standing under the federal banking laws, (ii) an institution duly organized, validly existing and in good standing under the applicable banking laws of any state, (iii) a national banking association duly organized, validly existing and in good standing under the federal banking laws, (iv) a principal subsidiary of a bank holding company, or (v) approved in writing by the related Credit Enhancer, if any, each Rating Agency and, in each case acting or designated by the Servicer as the depository institution for the Principal and Interest Account; provided, however, that any such institution or association will generally be required to have combined capital, surplus and undivided profits of at least $100,000,000. Notwithstanding the foregoing, the Principal and Interest Account may be held by an institution otherwise meeting the preceding requirements except that the only applicable rating requirement shall be that the unsecured and uncollateralized debt obligations thereof shall be rated at a level satisfactory to one or more Rating Agencies if such institution has trust powers and the Principal and Interest Account is held by such institution in its trust capacity and not in its commercial capacity. The Distribution Account, the Principal and Interest Account and other accounts described in the related Prospectus Supplement are collectively referred to as "Accounts." All funds in the Distribution Account shall be invested and reinvested 40 by the Trustee for the benefit of the Securityholders and the related Credit Enhancer, if any, as directed by the Servicer, in one or more Eligible Investments. An "Eligible Investment" is any of the following, in each case as determined at the time of the investment or contractual commitment to invest therein (to the extent such investments would not require registration of the Trust Fund as an investment company pursuant to the Investment Company Act of 1940): (a) negotiable instruments or securities represented by instruments in bearer or registered or book-entry form which evidence: (i) obligations which have the benefit of the full faith and credit of the United States of America, including depository receipts issued by a bank as custodian with respect to any such instrument or security held by the custodian for the benefit of the holder of such depository receipt, (ii) demand deposits or time deposits in, or bankers' acceptances issued by, any depository institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by Federal or state banking or depository institution authorities; provided that at the time of the Trustee's investment or contractual commitment to invest therein, the certificates of deposit or short-term depositors (if any) or long-term unsecured debt obligations (other than such obligations whose rating is based on collateral or on the credit of a Person other than such institution or trust company) of such depository institution or trust company has a credit rating in the highest category from each Rating Agency, (iii) certificates of deposit having a rating in the highest rating category by the Rating Agencies, or (iv) investments in money market funds which are (or which are composed of instruments or other investments which are) rated in the highest rating category from each Rating Agency; (b) demand deposits in the name of the Trustee in any depository institution or trust company referred to in clause (a)(ii) above; (c) commercial paper (having original or remaining maturities of no more than 270 days) having a credit rating in the highest rating category from each Rating Agency; (d) Eurodollar time deposits that are obligations of institutions whose time deposits carry a credit rating in the highest rating category from each Rating Agency; (e) repurchase agreements involving any Eligible Investment described in any of clauses (a)(i), (a)(iii) or (d) above, so long as the other party to the repurchase agreement has its long-term unsecured debt obligations rated in the highest rating category from each Rating Agency; and (f) any other investment with respect to which each Rating Agency rating such Securities indicates will not result in the reduction or withdrawal of its then-existing rating of the Securities. Any Eligible Investment must mature not later than the Business Day prior to the next Distribution Date. The Principal and Interest Account may contain funds relating to more than one series of Securities as well as payments received on other loans serviced or master serviced by it that have been deposited into the Principal and Interest Account. All funds in the Principal and Interest Account will be required to be held (i) uninvested, up to limits insured by the FDIC or (ii) invested in Eligible Investments. The Servicer will be entitled to any interest or other income or gain realized with respect to the funds on deposit in the Principal and Interest Account. To the extent that the ratings, if any, then assigned to the unsecured debt of the Servicer or of the Servicer's corporate parent are satisfactory to the Rating Agencies, the Servicer may be permitted to co-mingle Loan payments and collections with the Servicer's general funds rather than be required to deposit such amounts into a segregated Principal and Interest Account. On the day seven days preceding each Payment Date (the " Remittance Date"), the Servicer will withdraw from the Principal and Interest Account and remit to the Trustee for deposit in the applicable Distribution Account, in immediately available funds, the amount to be distributed therefrom to Securityholders on such Payment Date. The Servicer will remit to the Trustee for deposit into the Distribution Account the amount of any advances made by the Servicer as described herein under "--Advances," any amounts required to be transferred to the Distribution Account from a Reserve Fund, as described under "Credit Enhancement" below, any amounts required to be paid by the Servicer out of its own funds due to the operation of a deductible clause in any blanket policy maintained by the Servicer to cover hazard losses on the Loans as described under "Hazard Insurance; Claims Thereunder--Hazard Insurance Policies" below and any other amounts as specifically set forth in the related Pooling and Servicing Agreement. The Trustee will cause all payments received by it from any Credit Enhancer to be deposited in the Distribution Account not later than the related Payment Date. Funds on deposit in the Principal and Interest Account attributable to Loans underlying a series of Securities may be invested in Eligible Investments maturing in general not later than the business day preceding 41 the next Payment Date. All income and gain realized from any such investment will be for the account of the Servicer. Funds on deposit in the related Distribution Account may be invested in Eligible Investments maturing, in general, no later than the business day preceding the next Payment Date. With respect to each Buydown Loan, the Servicer will deposit the related Buydown Funds provided to it in a Buydown Account. The terms of all Buydown Loans provide for the contribution of Buydown Funds in an amount equal to or exceeding either (i) the total payments to be made from such funds pursuant to the related buydown plan or (ii) if such Buydown Funds are to be deposited on a discounted basis, that amount of Buydown Funds which, together with investment earnings thereon at a rate as set forth by the Company from time to time, will support the scheduled level of payments due under the Buydown Loan. Neither the Servicer nor the Company will be obligated to add to any such discounted Buydown Funds any of its own funds should investment earnings prove insufficient to maintain the scheduled level of payments. To the extent that any such insufficiency is not recoverable from the Obligor or, in an appropriate case, from the related Originator or the related Servicer, distributions to Securityholders may be affected. With respect to each Buydown Loan, the Servicer will withdraw from the Buydown Account and deposit into the Principal and Interest Account on or before the date specified in the Pooling and Servicing Agreement the amount, if any, of the Buydown Funds (and, if applicable, investment earnings thereon) for each Buydown Loan that, when added to the amount due from the Obligor on such Buydown Loan, equals the full monthly payment which would be due on the Buydown Loan if it were not subject to the buydown plan. If the Obligor on a Buydown Loan prepays such Loan in its entirety during the Buydown Period, the Servicer will withdraw from the Buydown Account and remit to the Obligor or such other designated party in accordance with the related buydown plan any Buydown Funds remaining in the Buydown Account. If a prepayment by an Obligor during the Buydown Period together with Buydown Funds will result in full prepayment of a Buydown Loan, the Servicer will generally be required to withdraw from the Buydown Account and deposit into the Principal and Interest Account the Buydown Funds and investment earnings thereon, if any, which together with such prepayment will result in a prepayment in full; provided that Buydown Funds may not be available to cover a prepayment under certain Loan programs. Any Buydown Funds relating to a prepayment described in the preceding sentence will be deemed to reduce the amount that would be required to be paid by the Obligor to repay fully the related Loan if the Loan were not subject to the buydown plan. Any investment earnings remaining in the Buydown Account after prepayment or after termination of the Buydown Period will be remitted to the related Obligor or such other designated party pursuant to the agreement relating to each Buydown Loan (the "Buydown Agreement"). If the Obligor defaults during the Buydown Period with respect to a Buydown Loan and the property securing such Buydown Loan is sold in liquidation (either by the Servicer, the primary insurer, the insurer under the mortgage pool insurance policy (the "Credit Enhancer") or any other insurer), the Servicer will be required to withdraw from the Buydown Account the Buydown Funds and all investment earnings thereon, if any, and pay the same to the primary insurer or the Credit Enhancer, as the case may be, if the Property is transferred to such insurer and such insurer pays all of the loss incurred in respect of such default. Withdrawals from the Principal and Interest Account The Servicer may, from time to time, make withdrawals from the Principal and Interest Account for certain purposes, as specifically set forth in the related Pooling and Servicing Agreement, which generally will include the following except as otherwise provided therein: (i) to effect the timely remittance to the Trustee for deposit to the Distribution Account in the amounts and in the manner provided in the Pooling and Servicing Agreement and described in "--Payments on Loans; Deposits to Distribution Account" above; (ii) to reimburse itself or any Sub-Servicer for Delinquency Advances and Servicing Advances as to any Property, out of late payments or collections on the related Loan with respect to which such Delinquency Advances or Servicing Advances were made; 42 (iii) to withdraw investment earnings on amounts on deposit in the Principal and Interest Account; (iv) to withdraw amounts that have been deposited in the Principal and Interest Account in error; (v) to clear and terminate the Principal and Interest Account in connection with the termination of the Trust Estate pursuant to the Pooling and Servicing Agreement, as described in "The Pooling and Servicing Agreement--Termination, Retirement of Securities;" and (vi) to invest in Eligible Investments. Distributions Beginning on the Payment Date in the month following the month (or, in the case of quarterly-pay Securities, the third month following such month and each third month thereafter or, in the case of semi-annually-pay Securities, the sixth month following such month and each sixth month thereafter) in which the Cut-Off Date occurs (or such other date as may be set forth in the related Prospectus Supplement) for a series of Securities, distributions of principal and interest (or, where applicable, of principal only or interest only) on each class of Securities entitled thereto will be made either by the Trustee or a paying agent appointed by the Trustee (the "Paying Agent"), to the persons who are registered as Securityholders at the close of business on the Record Date in proportion to their respective Percentage Interests. Interest that accrues and is not payable on a class of Securities will be added to the principal balance of each Security of such class in proportion to its Percentage Interest. The undivided percentage interest (the "Percentage Interest") represented by a Security of a particular class will be equal to the percentage obtained by dividing the initial principal balance or notional amount of such Security by the aggregate initial amount or notional balance of all the Securities of such class. Distributions will be made in immediately available funds (by wire transfer or otherwise) to the account of a Securityholder at a bank or other entity having appropriate facilities therefor, if such Securityholder has so notified the Trustee or the Paying Agent, as the case may be, and the applicable Pooling and Servicing Agreement provides for such form of payment, or by check mailed to the address of the person entitled thereto as it appears on the Security Register; provided, however, that the final distribution in retirement of the Securities (other than any Book-Entry Securities) will be made only upon presentation and surrender of the Securities at the office or agency of the Trustee specified in the notice to Securityholders of such final distribution. Principal and Interest on the Securities The method of determining, and the amount of, distributions of principal and interest (or, where applicable, of principal only or interest only) on a particular series of Securities will be described in the related Prospectus Supplement. Each class of Securities (other than certain classes of Strip Securities) may bear interest at a different interest rate (the "Pass-Through Rate"), which may be a fixed or adjustable Pass-Through Rate. The related Prospectus Supplement will specify the Pass-Through Rate for each class, or in the case of an adjustable Pass-Through Rate, the initial Pass-Through Rate and the method for determining the Pass-Through Rate. Interest on the Securities will be calculated on the basis of a 360-day year consisting of twelve 30-day months. On each Payment Date for a series of Securities, the Trustee will distribute or cause the Paying Agent to distribute, as the case may be, to each holder of record on the Record Date of a class of Securities, an amount equal to the Percentage Interest represented by the Security held by such holder multiplied by such class' Distribution Amount. The Distribution Amount for a class of Securities for any Payment Date will be the portion, if any, of the principal distribution amount (as defined in the related Prospectus Supplement) allocable to such class for such Payment Date, as described in the related Prospectus Supplement, plus, if such class is entitled to payments of interest on such Payment Date, the interest accrued at the applicable Pass-Through Rate on the principal balance or notional amount of such class, as specified in the applicable Prospectus Supplement, less the amount of any Deferred Interest added to the principal balance of the Loans and/or the outstanding 43 balance of one or more classes of Securities on the related Due Date and any other interest shortfalls allocable to Securityholders which are not covered by advances or the applicable Credit Enhancement, in each case in such amount that is allocated to such class on the basis set forth in the Prospectus Supplement. As may be described in the related Prospectus Supplement, the related Pooling and Servicing Agreement may provide that all or a portion of the principal collected on or with respect to the related Loans may be applied by the related Trustee to the acquisition of additional Loans during a specified period (rather than used to fund payments of principal to Securityholders during such period) with the result that the related securities will possess an interest-only period, also commonly referred to as a revolving period, which will be followed by an amortization period. Any such interest-only or revolving period may, upon the occurrence of certain events to be described in the related Prospectus Supplement, terminate prior to the end of the specified period and result in the earlier than expected amortization of the related Securities. In addition, and as may be described in the related Prospectus Supplement, the related Pooling and Servicing Agreement may provide that all or a portion of such collected principal may be retained by the Trustee (and held in certain temporary investments, including Loans) for a specified period prior to being used to fund payments of principal to Securityholders. In the case of a series of Securities that includes two or more classes of Securities, the timing, sequential order, priority of payment or amount of distributions in respect of principal, and any schedule or formula or other provisions applicable to the determination thereof (including distributions among multiple classes of Senior Securities or Subordinate Securities) of each such class shall be as provided in the related Prospectus Supplement. Distributions in respect of principal of any class of Securities will be made on a pro rata basis among all of the Securities of such class. Except as otherwise provided in the related Pooling and Servicing Agreement, on or prior to the third business day next preceding the Payment Date (or such earlier day as shall be agreed by the related Credit Enhancer, if any, and the Trustee) of the month of distribution (the "Determination Date"), the Trustee will determine the amounts of principal and interest which will be passed through to Securityholders on the immediately succeeding Payment Date. If the amount in the Distribution Account is insufficient to cover the amount to be passed through to Securityholders, the Trustee will be required to notify the related Credit Enhancer, if any, pursuant to the related Pooling and Servicing Agreement for the purpose of funding such deficiency. Advances The Servicer will be required, not later than each Remittance Date, to deposit into the Principal and Interest Account an amount equal to the sum of the principal and interest portions (net of the Servicing Fees) due, but not collected, with respect to delinquent Loans directly serviced by the Servicer during the prior Remittance Period, but only if, in its good faith business judgment, the Servicer believes that such amount will ultimately be recovered from the related Loan. As may be described in the related Prospectus Supplement, the Servicer may also be required to advance delinquent payments of principal. Any such amounts so advanced are "Delinquency Advances". The Servicer will be permitted to fund its payment of Delinquency Advances on any Remittance Date from collections on any Loan deposited to the Principal and Interest Account subsequent to the related Remittance Period, and will be required to deposit into the Principal and Interest Account with respect thereto (i) collections from the Obligor whose delinquency gave rise to the shortfall which resulted in such Delinquency Advance and (ii) Net Liquidation Proceeds recovered on account of the related Loan to the extent of the amount of aggregate Delinquency Advances related thereto. A Sub-Servicer will be permitted to fund its payment of Delinquency Advances as set forth in the related Sub-Servicing Agreement. A Loan is "delinquent" if any payment due thereon is not made by the close of business on the day such payment is scheduled to be due. 44 On or prior to each Remittance Date, the Servicer will be required to deposit in the Principal and Interest Account with respect to any full prepayment received on a Loan directly serviced by the Servicer during the related Remittance Period out of its own funds without any right of reimbursement therefor, an amount equal to the difference between (x) 30 days' interest at the Loan's Loan Rate (less the related Base Servicing Fees) on the principal balance of such Loan as of the first day of the related Remittance Period and (y) to the extent not previously advanced, the interest (less the Servicing Fee) paid by the Obligor with respect to the Loan during such Remittance Period (any such amount paid by the Servicer, "Compensating Interest"). The Servicer shall not be required to pay Compensating Interest with respect to any Remittance Period in an amount in excess of the aggregate related Base Servicing Fees received by the Servicer with respect to all Loans directly serviced by such Servicer for such Remittance Period. The Servicer will be required to pay all "out of pocket" costs and expenses incurred in the performance of its servicing obligations, but only to the extent that the Servicer reasonably believes that such amounts will increase Net Liquidation Proceeds on the related Loan. Each such amount so paid will constitute a "Servicing Advance". The Servicer may recover Servicing Advances to the extent permitted by the Loans or, if not theretofore recovered from the Obligor on whose behalf such Servicing Advance was made, from Liquidation Proceeds realized upon the liquidation of the related Loan or, in certain cases, from excess cash flow otherwise payable to the holders of the related Equity Securities. Notwithstanding the foregoing, if the Servicer exercises its option, if any, to purchase the assets of a Trust Estate as described under "The Pooling and Servicing Agreement--Termination; Retirement of Securities" below, the Servicer will be deemed to have been reimbursed for all related advances previously made by it and not theretofore reimbursed to it. The Servicer's obligation to make advances may be supported by Credit Enhancement as described in the related Pooling and Servicing Agreement. In the event that the Credit Enhancer is downgraded by a Rating Agency rating the related Securities or if the collateral supporting such obligation is not performing or is removed pursuant to the terms of any agreement described in the related Prospectus Supplement, the Securities may also be downgraded. Reports to Securityholders With each distribution to Securityholders of a particular class the Trustee will forward or cause to be forwarded to each holder of record of such class of Securities a statement or statements with respect to the related Trust setting forth the information specifically described in the related Pooling and Servicing Agreement, which generally will include the following as applicable except as otherwise provided therein: (i) the amount of the distribution with respect to each class of Securities; (ii) the amount of such distribution allocable to principal, separately identifying the aggregate amount of any prepayments or other recoveries of principal included therein; (iii) the amount of such distribution allocable to interest; (iv) the aggregate unpaid Principal Balance of the Loans after giving effect to the distribution of principal on such Payment Date; (v) with respect to a series consisting of two or more classes, the outstanding principal balance or notional amount of each class after giving effect to the distribution of principal on such Payment Date; (vi) the amount of coverage under any letter of credit, mortgage pool insurance policy or other form of Credit Enhancement covering default risk as of the close of business on the applicable Determination Date and a description of any Credit Enhancement substituted therefor; 45 (vii) information furnished by the Company pursuant to section 6049(d)(7)(C) of the Code and the regulations promulgated thereunder to assist Securityholders in computing their market discount; (viii) the total of any substitution amounts and any Loan Purchase Price amounts included in such distribution; and (ix) a number with respect to each class (the "Pool Factor") computed by dividing the principal balance of all Securities in such class (after giving effect to any distribution of principal to be made on such Payment Date) by the original principal balance of the Securities of such class on the Closing Date. Items (i) through (iii) above shall, with respect to each class of Securities, be presented on the basis of a certificate having a $1,000 denomination. In addition, by January 31 of each calendar year during which Securities are outstanding, the Trustee shall furnish a report to each Securityholder at any time during each calendar year as to the aggregate amounts reported pursuant to (i), (ii) and (iii) with respect to the Securities for such calendar year. If a class of Securities are in book-entry form, DTC will supply such reports to the Securityholders in accordance with its procedures. In addition, on each Payment Date the Trustee will forward or cause to be forwarded additional information, as of the close of business on the last day of the prior calendar month, as more specifically described in the related Pooling and Servicing Agreement, which generally will include the following as applicable except as otherwise provided therein: (i) the total number of Loans and the aggregate principal balances thereof, together with the number, percentage (based on the then-outstanding principal balances) and aggregate principal balances of Loans (a) 30-59 days delinquent, (b) 60-89 days delinquent and (c) 90 or more days delinquent; (ii) the number, percentage (based on the then-outstanding principal balances), aggregate Loan balances and status of all Loans in foreclosure proceedings (and whether any such Loans are also included in any of the statistics described in the foregoing clause (i)); (iii) the number, percentage (based on the then-outstanding principal balances) and aggregate Loan balances of all Loans relating to Obligors in bankruptcy proceedings (and whether any such Loans are also included in any of the statistics described in the foregoing clause (i)); (iv) the number, percentage (based on the then-outstanding principal balances) and aggregate Loan balances of all Loans relating to the status of any Properties as to which title has been taken in the name of, or on behalf of the Trustee (and whether any such Loans are also included in any of the statistics described in the foregoing clause (i)); and (v) the book value of any Property acquired through foreclosure or grant of a deed in lieu of foreclosure. Collection and Other Servicing Procedures Acting directly or through one or more Sub-Servicers as provided in the related Pooling and Servicing Agreement, the Servicer, is required to service and administer the Loans in accordance with the Pooling and Servicing Agreement and with reasonable care, and using that degree of skill and attention that the Servicer exercises with respect to comparable mortgage loans that it services for itself or others. The duties of the Servicer include collecting and posting of all payments, responding to inquiries of Obligors or by federal, state or local government authorities with respect to the Loans, investigating delinquencies, reporting tax information to Obligors in accordance with its customary practices and accounting for collections and furnishing monthly and annual statements to the Trustee with respect to distributions and making Delinquency Advances and Servicing Advances to the extent described in the related Prospectus 46 Supplement and the related Pooling and Servicing Agreement. The Servicer is required to follow its customary standards, policies and procedures in performing its duties as Servicer. The Servicer (i) is authorized and empowered to execute and deliver, on behalf of itself, the Securityholders and the Trustee or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge and all other comparable instruments, with respect to the Loans and with respect to the related Properties; (ii) may consent to any modification of the terms of any Note not expressly prohibited by the Pooling and Servicing Agreement if the effect of any such modification (x) will not materially and adversely affect the security afforded by the related Property or the timing of receipt of any payments required thereunder (in each case other than as permitted by the related Pooling and Servicing Agreement); and (y) will not cause a Trust which is a REMIC to fail to qualify as a REMIC. The related Pooling and Servicing Agreement will require the Servicer to follow such collection procedures as it follows from time to time with respect to mortgage loans in its servicing portfolio that are comparable to the Loans; provided that the Servicer is required always at least to follow collection procedures that are consistent with or better than standard industry practices. The Servicer may in its discretion (i) waive any assumption fees, late payment charges, charges for checks returned for insufficient funds, if any, or the fees which may be collected in the ordinary course of servicing the Loans, (ii) if an Obligor is in default or about to be in default because of an Obligor's financial condition, arrange with the Obligor a schedule for the payment of delinquent payments due on the related Loan; provided, however, the Servicer shall generally not be permitted to reschedule the payment of delinquent payments more than one time in any twelve consecutive months with respect to any Obligor or (iii) modify payments of monthly principal and interest on any Loan becoming subject to the terms of the Relief Act in accordance with the Servicer's general policies of the comparable loans subject to such Relief Act. When a Property (other than Manufactured Housing or Property subject to an ARM Loan) has been or is about to be conveyed by the Obligor, the Servicer will be required, to the extent it has knowledge of such conveyance or prospective conveyance, to exercise its rights to accelerate the maturity of the related Loan under any "due-on-sale" clause contained in the related Mortgage or Note; provided, however, that the Servicer will not be required to exercise any such right if (i) the "due-on-sale" clause, in the reasonable belief of the Servicer, is not enforceable under applicable law or (ii) the Servicer reasonably believes that to permit an assumption of the Loan would not materially and adversely affect the interests of Securityholders or the related Credit Enhancer or jeopardize coverage under any primary insurance policy or applicable Credit Enhancement arrangements. In such event, the Servicer will be required to enter into an assumption and modification agreement with the person to whom such Property has been or is about to be conveyed, pursuant to which such person becomes liable under the Mortgage Note and, unless prohibited by applicable law or the related documents, the Obligor remains liable thereon. If the foregoing is not permitted under applicable law, the Servicer will be authorized to enter into a substitution of liability agreement with such person, pursuant to which the original Obligor is released from liability and such person is substituted as Obligor and becomes liable under the Mortgage Note. The assumed Loan must conform in all respects to the requirements, representations and warranties of the Pooling and Servicing Agreement. An ARM Loan may be assumed if such ARM Loan is by its terms assumable and if, in the reasonable judgment of the Servicer or the Sub-Servicer, the proposed transferee of the related Property establishes its ability to repay the loan and the security for such ARM Loan would not be impaired by the assumption. If a Obligor transfers the Property subject to an ARM Loan without consent, such ARM Loan may be declared due and payable. Any fee collected by the Servicer or Sub-Servicer for entering into an assumption or substitution of liability agreement will be retained by the Servicer or Sub-Servicer as additional servicing compensation . See "Certain Legal Aspects of Loans and Related Matters--Enforceability of Certain Provisions" herein. The Servicer will have the right under the Pooling and Servicing Agreement to approve applications of Obligors seeking consent for (i) partial releases of Liens, (ii) alterations and (iii) removal, demolition or division of Properties. No application for consent may be approved by the Servicer unless: (i) the provisions of the related Note and Lien have been complied with; (ii) the credit profile of the related Loan after any release is 47 consistent with the underwriting guidelines then applicable to such Loan; and (iii) the lien priority of the related Lien is not reduced. Realization Upon Defaulted Loans The Servicer shall foreclose upon or otherwise comparably effect the ownership of Properties relating to defaulted Mortgage Loans as to which no satisfactory arrangements can be made for collection of delinquent payments and which the Servicer has not purchased pursuant to the related Pooling and Servicing Agreement (such Mortgage Loans, "REO Property"). In connection with such foreclosure or other conversion, the Servicer shall exercise such of the rights and powers vested in it, and use the same degree of care and skill in their exercise or use, as prudent mortgage lenders would exercise or use under the circumstances in the conduct of their own affairs, including, but not limited to, making Servicing Advances for the payment of taxes, amounts due with respect to Senior Liens, and insurance premiums. The Servicer shall sell any REO Property within 23 months of its acquisition by the Trust. The Pooling and Servicing Agreements generally will permit the Servicer to cease further collection and foreclosure activity if the Servicer reasonably determines that such further activity would not increase collections or recoveries to be received by the related Trust with respect to the related Loan. In addition, any required Delinquency Advancing may be permitted to cease at this point. Notwithstanding the generality of the foregoing provisions, the Servicer will be required to manage, conserve, protect and operate each REO Property for the Securityholders solely for the purpose of its prompt disposition and sale as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code or result in the receipt by the Trust of any "income from non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code or any "net income from foreclosure property" which is subject to taxation under the REMIC Provisions. Pursuant to its efforts to sell such REO Property, the Servicer shall either itself or through an agent selected by the Servicer protect and conserve such REO Property in the same manner and to such extent as is customary in the locality where such REO Property is located and may, incident to its conservation and protection of the interests of the Securityholders, rent the same, or any part thereof, as the Servicer deems to be in the best interest of the Securityholders for the period prior to the sale of such REO Property. The Servicer shall take into account the existence of any hazardous substances, hazardous wastes or solid wastes, as such terms are defined in the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation and Recovery Act of 1976, or other federal, state or local environmental legislation, on a Property in determining whether to foreclose upon or otherwise comparably convert the ownership of such Property. The Servicer shall determine, with respect to each defaulted Loan, when it has recovered, whether through trustee's sale, foreclosure sale or otherwise, all amounts it expects to recover from or on account of such defaulted Loan, whereupon such Loan shall become a Liquidated Loan. A Loan which is "charged-off", i.e., as to which the Servicer ceases further collection and/or foreclosure activity as a result of a determination that such further actions will not increase collections or recoveries to be received by the related Trust is also a "Liquidated Loan". If a loss is realized on a defaulted Loan or REO Property upon the final liquidation thereof that is not covered by any applicable form of Credit Enhancement or other insurance, the Securityholders will bear such loss. However, if a gain results from the final liquidation of an REO Property that is not required by law to be remitted to the related Obligor, the Servicer will be entitled to retain such gain as additional servicing compensation . For a description of the Servicer's obligations to maintain and make claims under applicable forms of Credit Enhancement and insurance relating to the Loans, see "Description of Credit Enhancement" and "Hazard Insurance; Claims Thereunder; Hazard Insurance Policies." Master Servicer A Master Servicer may be specified in the related Prospectus Supplement for the related series of Securities. Customary servicing functions with respect to Loans constituting the Loan Pool in the Trust Estate will be provided by the Servicer directly or through one or more Sub-Servicers subject to supervision by the Master Servicer. If the Master Servicer is not directly servicing the Loans, then the Master Servicer will (i) 48 administer and supervise the performance by the Servicer of its servicing responsibilities under the Pooling and Servicing Agreement with the Master Servicer, (ii) review monthly servicing reports and data relating to the Loan Pool for discrepancies and errors, and (iii) act as back-up Servicer during the term of the transaction unless the Servicer is terminated or resigns, in such case the Master Servicer shall assume the obligations of the Servicer. The Master Servicer will be a party to the Pooling and Servicing Agreement for any Series for which Loans comprise the Trust Estate. The Master Servicer will be required to meet the requirements set forth in the related Pooling and Servicing Agreement and, in the case of FHA Loans, approved by HUD as an FHA mortgagee. The Master Servicer will be compensated for the performance of its services and duties under each Pooling and Servicing Agreement as specified in the related Prospectus Supplement. Sub-Servicing The Servicer may assign its servicing duties to designated Sub-Servicers and enter into Sub-Servicing Agreements with Sub-Servicers that may include affiliates of the Company. While such a Sub-Servicing Agreement will be a contract solely between the Servicer and the Sub-Servicer, the Pooling and Servicing Agreement pursuant to which a series of Securities is issued will provide that, if for any reason the Servicer for such series of Securities is no longer the Servicer of the related Loans, the Trustee or any successor Servicer must recognize the Sub-Servicer's rights and obligations under such Sub-Servicing Agreement. With the approval of the Servicer, a Sub-Servicer may delegate its servicing obligations to third-party servicers, but such Sub-Servicer will remain obligated under the related Sub-Servicing Agreement. Each Sub-Servicer will be required to perform the customary functions of a servicer, including collection of payments from Obligors and remittance of such collections to the Servicer; maintenance of hazard insurance and flood insurance, if applicable, and filing and settlement of claims thereunder, subject in certain cases to the right of the Servicer to approve in advance any such settlement; maintenance of escrow or impound accounts of Obligors for payment of taxes, insurance and other items required to be paid by the Obligor pursuant to the Loan; processing of assumptions or substitutions; attempting to cure delinquencies; supervising foreclosures; inspecting and managing Properties under certain circumstances; and maintaining accounting records relating to the Loans. A Sub-Servicer also may be obligated to make advances to the Servicer in respect of delinquent installments of principal and/or interest (net of any sub-servicing or other compensation) on Loans, as described more fully under "Description of the Securities--Advances," and in respect of certain taxes and insurance premiums not paid on a timely basis by Obligors. A Sub-Servicer may also be obligated to deposit amounts in respect of Compensating Interest to the related Principal and Interest Account in connection with prepayments of principal received and applied to reduce the outstanding principal balance of a Loan. No assurance can be given that the Sub-Servicers will carry out their advance or payment obligations, if any, with respect to the Loans. As compensation for its servicing duties, the Sub-Servicer may be entitled to a Base Servicing Fee. The Sub-Servicer may also be entitled to collect and retain, as part of its servicing compensation, any late charges or prepayment penalties provided in the Note or related instruments. The Sub-Servicer will be entitled to reimbursement for certain expenditures that it makes, generally to the same extent that the Servicer would be reimbursed under the applicable Pooling and Servicing Agreement. See "The Pooling and Servicing Agreement--Servicing and Other Compensation and Payment of Expenses." Each Sub-Servicer will be required to agree to indemnify the Servicer for any liability or obligation sustained by the Servicer in connection with any act or failure to act by the Sub-Servicer in its servicing capacity. Each Sub-Servicer is required to maintain a fidelity bond and an errors and omission policy with respect to its officers, employees and other persons acting on its behalf or on behalf of the Servicer. Each Sub-Servicer will be required to service each Loan pursuant to the terms of the Sub-Servicing Agreement for the entire term of such Loan, unless the Sub-Servicing Agreement is terminated earlier by the Servicer or unless servicing is released to the Servicer. The Servicer generally may terminate a Sub-Servicing Agreement immediately upon the giving of notice upon certain stated events, including the violation of such Sub-Servicing Agreement by the Sub-Servicer, or following a specified period after notice to the Sub-Servicer 49 without cause upon payment of an amount equal to a specified termination fee calculated as a specified percentage of the aggregate outstanding principal balance of all loans, including the Loans serviced by such Sub-Servicer pursuant to a Sub-Servicing Agreement and certain transfer fees. The Servicer may agree with a Sub-Servicer to amend a Sub-Servicing Agreement. Upon termination of a Sub-Servicing Agreement, the Servicer may act as servicer of the related Loans or enter into one or more new Sub-Servicing Agreements. If the Servicer acts as servicer, it will not assume liability for the representations and warranties of the Sub-Servicer that it replaces. If the Servicer enters into a new Sub-Servicing Agreement, each new Sub-Servicer must have such servicing experience that is otherwise satisfactory to the Servicer. The Servicer may make reasonable efforts to have the new Sub-Servicer assume liability for the representations and warranties of the terminated Sub-Servicer, but no assurance can be given that such an assumption will occur and, in any event, if the new Sub-Servicer is an affiliate of the Servicer, the liability for such representations and warranties will not be assumed by such new Sub-Servicer. In the event of such an assumption, the Servicer may in the exercise of its business judgment release the terminated Sub-Servicer from liability in respect of such representations and warranties. Any amendments to a Sub-Servicing Agreement or to a new Sub-Servicing Agreement may contain provisions different from those described above that are in effect in the original Sub-Servicing Agreements. However, the Pooling and Servicing Agreement for each Trust Estate will provide that any such amendment or new agreement may not be inconsistent with such Pooling and Servicing Agreement to the extent that it would materially and adversely affect the interests of the Securityholders. SUBORDINATION A Senior/Subordinate Series of Securities will consist of one or more classes of Senior Securities and one or more classes of Subordinate Securities, as specified in the related Prospectus Supplement. Only the Senior Securities will be offered hereby. Subordination of the Subordinate Securities of any Senior/Subordinate Series of Securities will be effected by the following method. In addition, certain classes of Senior (or Subordinate) Securities may be senior to other classes of Senior (or Subordinate) Securities, as specified in the related Prospectus Supplement, in which case the following discussion is qualified in its entirety by reference to the related Prospectus Supplement with respect to the various priorities and other rights as among the various classes of Senior Securities or Subordinate Securities, as the case may be. With respect to any Senior/Subordinate Series of Securities, the total amount available for distribution on each Payment Date, as well as the method for allocating such amount among the various classes of Securities included in such series, will be as set forth in the related Prospectus Supplement. Generally, the amount available for contribution will be allocated first to interest on the Senior Securities of such series, and then to principal of the Senior Securities up to the amounts determined as specified in the related Prospectus Supplement, prior to allocation to the Subordinate Securities of such series. In the event of any Realized Losses (as defined below) on Loans not in excess of the limitations described below, other than Extraordinary Losses, the rights of the Subordinate Securityholders to receive distributions with respect to the Loans will be subordinate to the rights of the Senior Securityholders. With respect to any defaulted Loan that becomes a Liquidated Loan, through foreclosure sale, disposition of the related Property if acquired by deed in lieu of foreclosure, "charged-off" or otherwise, the amount of loss realized, if any (as more fully described in the related Pooling and Servicing Agreement, a "Realized Loss"), will equal the portion of the stated principal balance remaining, after application of all amounts recovered (net of amounts reimbursable to the Servicer for related advances and expenses) towards interest and principal owing on the Loan. With respect to a Loan the principal balance of which has been reduced in connection with bankruptcy proceedings, the amount of such reduction will be treated as a Realized Loss. Except as noted below, all Realized Losses will be allocated to the Subordinate Securities of the related series, until the Principal Balance (as defined in the related Prospectus Supplement) of such Subordinate Securities thereof has been reduced to zero. Any additional Realized Losses will be allocated to the Senior Securities (or, if such series includes more than one class of Senior Securities, either on a pro-rata basis among all of the Senior 50 Securities in proportion to their respective outstanding Principal Balances or as otherwise provided in the related Prospectus Supplement). With respect to certain Realized Losses resulting from physical damage to Properties that are generally of the same type as are covered under a special hazard insurance policy, the amount thereof that may be allocated to the Subordinate Securities of the related series may be limited to an amount (the "Special Hazard Amount") specified in the related Prospectus Supplement. See "Description of Credit Enhancement--Special Hazard Insurance Policies." If so, any Special Hazard Losses in excess of the Special Hazard Amount will be allocated among all outstanding classes of Securities of the related series, either on a pro-rata basis in proportion to their outstanding Security Principal Balances, regardless of whether any Subordinate Securities remain outstanding, or as otherwise provided in the related Prospectus Supplement. The respective amounts of other specified types of losses (including Fraud Losses and Bankruptcy Losses) that may be borne solely by the Subordinate Securities may be similarly limited to an amount (with respect to Fraud Losses, the "Fraud Loss Amount" and with respect to Bankruptcy Losses, the " Bankruptcy Loss Amount"), and the Subordinate Securities may provide no coverage with respect to certain other specified types of losses, as described in the related Prospectus Supplement, in which case such losses would be allocated on a pro-rata basis among all outstanding classes of Securities. Any allocation of a Realized Loss (including a Special Hazard Loss) to a Security in a Senior/Subordinate Series will be made by reducing the Security Principal Balance thereof as of the Payment Date following the calendar month in which such Realized Loss was incurred. In lieu of the foregoing provisions, subordination may be effected in the following manner, or in any other manner described in the related Prospectus Supplement. The rights of the holders of Subordinate Securities to receive any or a specified portion of distributions with respect to the Loans may be subordinated to the extent of the amount set forth in the related Prospectus Supplement (the "Subordinate Amount"). As specified in the related Prospectus Supplement, the Subordinate Amount may be subject to reduction based upon the amount of losses borne by the holders of the Subordinate Securities as a result of such subordination, a specified schedule or such other method of reduction as such Prospectus Supplement may specify. If so specified in the related Prospectus Supplement, additional credit support for this form of subordination may be provided by the establishment of a reserve fund for the benefit of the holders of the Senior Securities (which may, if such Prospectus Supplement so provides, initially be funded by a cash deposit by the Originator) into which certain distributions otherwise allocable to the holders of the Subordinate Securities may be placed; such funds would thereafter be available to cure shortfalls in distributions to holders of the Senior Securities. DESCRIPTION OF CREDIT ENHANCEMENT Each series of Securities may have credit support comprised of one or more of the following components. Each component will have a monetary limit and will provide coverage with respect to Realized Losses that are (i) attributable to the Obligor's failure to make any payment of principal or interest as required under the Mortgage Note, but not including Special Hazard Losses, Extraordinary Losses or other losses resulting from damage to a Property, Bankruptcy Losses or Fraud Losses (any such loss, a "Defaulted Mortgage Loss"); (ii) of a type generally covered by a special hazard insurance policy (as defined below) (any such loss, a "Special Hazard Loss"); (iii) attributable to certain actions which may be taken by a bankruptcy court in connection with a Loan, including a reduction by a bankruptcy court of the principal balance of or the Loan Rate on a Loan or an extension of its maturity (any such loss, a "Bankruptcy Loss"); and (iv) incurred on defaulted Loans as to which there was fraud in the origination of such Loans (any such loss, a "Fraud Loss"). Losses occasioned by war, civil insurrection, certain governmental actions, nuclear reaction and certain other risks ("Extraordinary Losses") will not be covered . To the extent that the Credit Enhancement for any series of Securities is exhausted, the Securityholders will bear all further risks of loss not otherwise insured against. As set forth below and in the applicable Prospectus Supplement, Credit Enhancement may be provided with respect to one or more classes of a series of Securities or with respect to the Loans in the related Trust. Credit Enhancement may be in the form of (i) the subordination of one or more classes of Subordinate Securities 51 to provide credit support to one or more classes of Senior Securities as described under "Subordination," (ii) the use of a mortgage pool insurance policy, special hazard insurance policy, bankruptcy bond, reserve fund, letter of credit, financial guaranty insurance policy, other third party guarantees, another method of Credit Enhancement described in the related Prospectus Supplement, or the use of a cross-support feature or overcollateralization, or (iii) any combination of the foregoing. Any Credit Enhancement will not provide protection against all risks of loss and will not guarantee repayment of the entire principal balance of the Securities and interest thereon. If losses occur that exceed the amount covered by Credit Enhancement or are not covered by the Credit Enhancement, holders of one or more classes of Securities will bear their allocable share of deficiencies. If a form of Credit Enhancement applies to several classes of Securities, and if principal payments equal to the aggregate principal balances of certain classes will be distributed prior to such distributions to the classes, the classes that receive such distributions at a later time are more likely to bear any losses that exceed the amount covered by Credit Enhancement. The amounts and type of Credit Enhancement arrangement as well as the provider thereof, if applicable, with respect to each series of Securities will be set forth in the related Prospectus Supplement. To the extent provided in the applicable Prospectus Supplement and the Pooling and Servicing Agreement, the Credit Enhancement arrangements may be periodically modified, reduced and substituted for based on the aggregate outstanding principal balance of the Loans covered thereby. See "Description of Credit Enhancement--Reduction or Substitution of Credit Enhancement." If specified in the applicable Prospectus Supplement, Credit Enhancement for a series of Securities may cover one or more other series of Securities. The descriptions of any insurance policies or bonds described in this Prospectus or any Prospectus Supplement and the coverage thereunder do not purport to be complete and are qualified in their entirety by reference to the actual forms of such policies, copies of which are available upon request. Letter of Credit. If any component of Credit Enhancement as to any series of Securities is to be provided by a letter of credit (the "Letter of Credit"), a bank (the "Letter of Credit Bank") will deliver to the Trustee an irrevocable Letter of Credit. The Letter of Credit may provide direct coverage with respect to the related Securities or, if specified in the related Prospectus Supplement, support the Company' or any other person's obligation pursuant to a Purchase Obligation to make certain payments to the Trustee with respect to one or more components of Credit Enhancement. The Letter of Credit Bank, as well as the amount available under the Letter of Credit with respect to each component of Credit Enhancement, will be specified in the applicable Prospectus Supplement. The Letter of Credit will expire on the expiration date set forth in the related Prospectus Supplement, unless earlier terminated or extended in accordance with its terms. On or before each Payment Date, either the Letter of Credit Bank or the Trustee (or other obligor under a Purchase Obligation) will be required to make the payments specified in the related Prospectus Supplement after notification from the Trustee, to be deposited in the related Distribution Account, if and to the extent covered, under the applicable Letter of Credit. Pool Insurance Policies. Any pool insurance policy ("Pool Insurance Policy") obtained by the Company for each related Trust Estate will be issued by the Credit Enhancer named in the related Prospectus Supplement. Each Pool Insurance Policy will, subject to limitations specified in the related Prospectus Supplement described below, cover Defaulted Losses in an amount equal to a percentage specified in the related Prospectus Supplement (or in a Current Report on Form 8-K) of the aggregate principal balance of the Loans on the Cut-Off Date. As set forth under "Maintenance of Credit Enhancement," the Servicer will use reasonable efforts to maintain the Pool Insurance Policy and to present claims thereunder to the Credit Enhancer on behalf of itself, the Trustee and the Securityholders. The Pool Insurance Policies, however, are not blanket policies against loss (typically, such policies do not cover Special Hazard Losses, Fraud Losses and Bankruptcy Losses), since claims thereunder may only be made respecting particular defaulted Loans and only upon satisfaction of certain conditions precedent described below due to a failure to pay irrespective of the reason therefor. 52 Special Hazard Insurance Policies. Any insurance policy covering Special Hazard Losses (a "Special Hazard Insurance Policy") obtained by the Company for a Trust Estate will be issued by the insurer named in the related Prospectus Supplement. Each Special Hazard Insurance Policy will, subject to limitations described in the related Prospectus Supplement, protect holders of the related series of Securities from (i) losses due to direct physical damage to a Property other than any loss of a type covered by a hazard insurance policy or a flood insurance policy, if applicable, and (ii) losses from partial damage caused by reason of the application of the co-insurance clauses contained in hazard insurance policies. See "Hazard Insurance; Claims Thereunder." A Special Hazard Insurance Policy will not cover Extraordinary Losses. Aggregate claims under a Special Hazard Insurance Policy will be limited to a maximum amount of coverage, as set forth in the related Prospectus Supplement or in a Current Report on Form 8-K. A Special Hazard Insurance Policy will provide that no claim may be paid unless hazard and, if applicable, flood insurance on the Property securing the Loan has been kept in force and other protection and preservation expenses have been paid by the Servicer. Subject to the foregoing limitations, in general a Special Hazard Insurance Policy will provide that, where there has been damage to property securing a foreclosed Loan (title to which has been acquired by the insured) and to the extent such damage is not covered by the hazard insurance policy or flood insurance policy, if any, maintained by the Obligor or the Servicer or the Sub-Servicer, the insurer will pay the lesser of (i) the cost of repair or replacement of such property or (ii) upon transfer of the property to the insurer, the unpaid principal balance of such Mortgage Loan at the time of acquisition of such property by foreclosure or deed in lieu of foreclosure, plus accrued interest at the Loan Rate to the date of claim settlement and certain expenses incurred by the Servicer or the Sub-Servicer with respect to such property. If the property is transferred to a third party in a sale approved by the issuer of the Special Hazard Insurance Policy (the " Special Hazard Insurer"), the amount that the Special Hazard Insurer will pay will be the amount under (ii) above reduced by the net proceeds of the sale of the property. As indicated under "Description of the Securities--Assignment of Loans" above and to the extent set forth in the related Prospectus Supplement, coverage in respect of Special Hazard Losses for a series of Securities may be provided, in whole or in part by a type of special hazard instrument other than a Special Hazard Insurance Policy or by means of the special hazard representation of the Company. Bankruptcy Bonds. In the event of a personal bankruptcy of a Obligor, it is possible that the bankruptcy court may establish the value of the Property of such Obligor at an amount less than the then-outstanding, principal balance of the Loan secured by such Property (a "Deficient Valuation"). The amount of the secured debt then could be reduced to such value, and, thus, the holder of such Loan would become an unsecured creditor to the extent the outstanding principal balance of such Loan exceeds the value assigned to the Property by the bankruptcy court. In addition, certain other modifications of the terms of a Loan can result from a bankruptcy proceeding, including a reduction in the amount of the monthly payment on the related Mortgage Loan or a reduction in the mortgage interest rate (a "Debt Service Reduction"; Debt Service Reductions and Deficient Valuations, collectively referred to herein as "Bankruptcy Losses"). See "Certain Legal Aspects of Loans and Related Matters--Anti-Deficiency Legislation and Other Limitations on Lenders." Any bankruptcy bond (" Bankruptcy Bond") to provide coverage for Bankruptcy Losses for proceedings under the federal Bankruptcy Code obtained by the Company for a Trust Estate will be issued by an insurer named in the related Prospectus Supplement. The level of coverage under each Bankruptcy Bond will be set forth in the applicable Prospectus Supplement or in a Current Report on Form 8-K. Reserve Funds. If so provided in the related Prospectus Supplement, the Company will deposit or cause to be deposited in an account (a "Reserve Fund") any combination of cash, one or more irrevocable letters of credit or one or more Eligible Investments in specified amounts, amounts otherwise distributable to Subordinate Securityholders, or any other instrument satisfactory to the Rating Agency or Agencies, which will be applied and maintained in the manner and under the conditions specified in such Prospectus Supplement. In addition, with respect to any series of Securities as to which Credit Enhancement includes a Letter of Credit, if so specified in the related Prospectus Supplement, under certain circumstances the remaining amount of the Letter of Credit may be drawn by the Trustee and deposited in a Reserve Fund. Amounts in a Reserve Fund may be distributed to Securityholders, or applied to reimburse the Servicer for outstanding advances or may be used for other 53 purposes, in the manner and to the extent specified in the related Prospectus Supplement. A Trust Estate may contain more than one Reserve Fund, each of which may apply only to a specified class of Securities or to specified Loans. Financial Guaranty Insurance Policies. If so specified in the related Prospectus Supplement, a financial guaranty insurance policy or surety bond ("Financial Guaranty Insurance Policy") may be obtained and maintained for each class or series of Securities. The issuer of any Financial Guaranty Insurance Policy (a "Financial Guaranty Insurer") will be described in the related Prospectus Supplement. A copy of any such Financial Guaranty Insurance Policy will be attached as an exhibit to the related Prospectus Supplement. A Financial Guaranty Insurance Policy will unconditionally and irrevocably guarantee to Securityholders that an amount equal to each full and complete insured payment will be received by an agent of the Trustee (an "Insurance Paying Agent") on behalf of Securityholders, for distribution by the Trustee to each Securityholder. The "insured payment" will be defined in the related Prospectus Supplement, and will generally equal the full amount of the distributions of principal and interest to which Securityholders are entitled under the related Pooling and Servicing Agreement plus any other amounts specified therein or in the related Prospectus Supplement (the "Insured Payment"). Financial Guaranty Insurance Policies may apply only to certain specified classes, or may apply at the Property level and only to specified Loans. The specific terms of any Financial Guaranty Insurance Policy will be as set forth in the related Prospectus Supplement. Financial Guaranty Insurance Policies may have limitations including (but not limited to) limitations on the insurer's obligation to guarantee the obligations of the Company to repurchase or substitute for any Loans, Financial Guaranty Insurance Policies will not guarantee any specified rate of prepayments and/or to provide funds to redeem Securities on any specified date. Subject to the terms of the related Pooling and Servicing Agreement, the Financial Guaranty Insurer may be subrogated to the rights of each Securityholder to receive payments under the Securities to the extent of any payment by such Financial Guaranty Insurer under the related Financial Guaranty Insurance Policy. Other Insurance, Guarantees and Similar Instruments or Agreements. If specified in the related Prospectus Supplement, a Trust may include in lieu of some or all of the foregoing or in addition thereto third party guarantees, and other arrangements for maintaining timely payments or providing additional protection against losses on all or any specified portion of the assets included in such Trust, paying administrative expenses, or accomplishing such other purpose as may be described in the Prospectus Supplement. The Trust may include a guaranteed investment contract or reinvestment agreement pursuant to which funds held in one or more accounts will be invested at a specified rate. If any class of Securities has a floating interest rate, or if any of the Loans bears interest at a floating interest rate, the Trust may include an interest rate swap contract, an interest rate cap agreement or similar contract providing limited protection against interest rate risks. Cross Support. If specified in the Prospectus Supplement, the beneficial ownership of separate groups of assets included in a Trust may be evidenced by separate classes of the related series of Securities. In such case, credit support may be provided by a cross-support feature which requires that distributions be made with respect to one class of Securities may be made from excess amounts available from other asset groups within the same Trust which support other classes of Securities. The Prospectus Supplement for a series that includes a cross-support feature will describe the manner and conditions for applying such cross-support feature. If specified in the Prospectus Supplement, the coverage provided by one or more forms of credit support may apply concurrently to two or more separate Trusts. If applicable, the Prospectus Supplement will identify the Trusts to which such credit support relates and the manner of determining the amount of the coverage provided thereby and of the application of such coverage to the identified Trusts. 54 Overcollateralization. If specified in the Prospectus Supplement, subordination provisions of a Trust may be used to accelerate to a limited extent the amortization of one or more classes of Securities relative to the amortization of the related Loans. The accelerated amortization is achieved by the application of certain excess interest to the payment of principal of one or more classes of Securities. This acceleration feature creates, with respect to the Loans or groups thereof, overcollateralization which results from the excess of the aggregate principal balance of the related Loans, or a group thereof, over the principal balance of the related class of Securities. Such acceleration may continue for the life of the related Security, or may be limited. In the case of limited acceleration, once the required level of overcollateralization is reached, and subject to certain provisions specified in the related Prospectus Supplement, such limited acceleration feature may cease, unless necessary to maintain the required level of overcollateralization. Maintenance of Credit Enhancement. To the extent that the applicable Prospectus Supplement does not expressly provide for Credit Enhancement arrangements in lieu of some or all of the arrangements mentioned below, the following paragraphs shall apply. If a form of Credit Enhancement has been obtained for a series of Securities, the Company will be obligated to exercise its best reasonable efforts to keep or cause to be kept such form of credit support in full force and effect throughout the term of the applicable Pooling and Servicing Agreement, unless coverage thereunder has been exhausted through payment of claims or otherwise, or substitution therefor is made as described below under "Reduction or Substitution of Credit Enhancement." In lieu of the Company's obligation to maintain a particular form of Credit Enhancement, the Company may obtain a substitute or alternate form of Credit Enhancement. If the Servicer obtains such a substitute form of Credit Enhancement, it will maintain and keep such form of Credit Enhancement in full force and effect as provided herein. Prior to its obtaining any substitute or alternate form of Credit Enhancement, the Company will obtain written confirmation from the Rating Agency or Agencies that rated the related series of Securities that the substitution or alternate form of Credit Enhancement for the existing Credit Enhancement will not adversely affect the then- current ratings assigned to such Securities by such Rating Agency or Agencies. The Servicer, on behalf of itself, the Trustee and Securityholders, will provide the Trustee information required for the Trustee to draw under a Letter of Credit or Financial Guaranty Insurance Policy, will present claims to each Credit Enhancer, to the issuer of each Special Hazard Insurance Policy or other special hazard instrument, to the issuer of each Bankruptcy Bond and will take such reasonable steps as are necessary to permit recovery under such Letter of Credit, Financial Guaranty Insurance Policy, Purchase Obligation, insurance policies or comparable coverage respecting defaulted Loans or Loans which are the subject of a bankruptcy proceeding. Additionally, the Servicer will present such claims and take such steps as are reasonably necessary to provide for the performance by another party of its Purchase Obligation. As set forth above, all collections by the Servicer under any Purchase Obligation, any Pool Insurance Policy, or any Bankruptcy Bond and, where the related property has not been restored, any Special Hazard Insurance Policy, are to be deposited initially in the Principal and Interest Account and ultimately in the Distribution Account, subject to withdrawal as described above. All draws under any Letter of Credit or Financial Guaranty Insurance Policy will be deposited directly in the Distribution Account. If any Property securing a defaulted Loan is damaged and proceeds, if any, from the related hazard insurance policy or any applicable Special Hazard Instrument are insufficient to restore the damaged property to a condition sufficient to permit recovery under any applicable form of Credit Enhancement, the Servicer is not required to expend its own funds to restore the damaged property unless it determines (i) that such restoration will increase the proceeds to one or more classes of Securityholders on liquidation of the Loan after reimbursement of the Servicer for its expenses and (ii) that such expenses will be recoverable by it through Liquidation Proceeds or Insurance Proceeds. If recovery under any applicable form of Credit Enhancement is not available because the Servicer has been unable to make the above determinations, has made such determinations incorrectly or recovery is not available for any other reason, the Servicer is nevertheless obligated to follow such normal practices and procedures (subject to the preceding sentence) as it deems necessary or 55 advisable to realize upon the defaulted Loan and in the event such determination has been incorrectly made, is entitled to reimbursement of its expenses in connection with such restoration. Reduction or Substitution of Credit Enhancement. The amount of credit support provided pursuant to any of the Credit Enhancements (including, without limitation, a Pool Insurance Policy, Financial Guaranty Insurance Policy, Special Hazard Insurance Policy, Bankruptcy Bond, Letter of Credit, or any alterative form of Credit Enhancement) may be reduced under certain specified circumstances. In addition, if so described in the related Prospectus Supplement, any formula used in calculating the amount or degree of Credit Enhancement may be changed without the consent of the Securityholders upon written confirmation from each Rating Agency then rating the Securities that such change will not adversely affect the then-current rating or ratings assigned to the Securities. In most cases, the amount available pursuant to any Credit Enhancement will be subject to periodic reduction in accordance with a schedule or formula on a nondiscretionary basis pursuant to the terms of the related Pooling and Servicing Agreement as the aggregate outstanding principal balance of the Loans declines. Additionally, in certain cases, such credit support (and any replacements therefor) may be replaced, reduced or terminated upon the written assurance from each applicable Rating Agency that the then current rating of the related series of Securities will not be adversely affected. Furthermore, in the event that the credit rating of any obligor under any applicable Credit Enhancement is downgraded, the credit rating of the related Securities may be downgraded to a corresponding level, and the Company thereafter will not be obligated to obtain replacement credit support in order to restore the rating of the Securities, and also will be permitted to replace such credit support with other Credit Enhancement instruments issued by obligors whose credit ratings are equivalent to such downgraded level and in lower amounts which would satisfy such downgraded level, provided that the then-current, albeit downgraded, rating of the related series of Securities is maintained. Where the credit support is in the form of a Reserve Fund, a permitted reduction in the amount of Credit Enhancement will result in a release of all or a portion of the assets in the Reserve Fund to the Company, the Servicer or such other person that is entitled thereto. Any assets so released will not be available to fund distribution obligations in future periods. HAZARD INSURANCE; CLAIMS THEREUNDER Each Loan will be required to be covered by a hazard insurance policy (as described below). The following is only a brief description of certain insurance policies and does not purport to summarize or describe all of the provisions of these policies. Such insurance is subject to underwriting and approval of individual Loans by the respective insurers. The descriptions of any insurance policies described in the Prospectus or any Prospectus Supplement and the coverage thereunder do not purport to be complete and are qualified in their entirety by reference to such forms of policies, sample copies of which are available from the Trustee upon request. Hazard Insurance Policies The terms of the Loans require each Obligor to maintain a hazard insurance policy for the Loan. Additionally, the Pooling and Servicing Agreement will require the Servicer to cause to be maintained with respect to each Loan a hazard insurance policy with a generally acceptable carrier that provides for fire and extended coverage relating to such Loan in an amount not less than the least of (i) the outstanding principal balance of the Loan, (ii) the minimum amount required to compensate for damage or loss on a replacement cost basis or (iii) the full insurable value of the premises. If a Mortgage Loan relates to a Property in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, the Servicer will be required or cause to be required to maintain with respect thereto a flood insurance policy in a form meeting the requirements of the then-current guidelines of the Federal Insurance Administration with a generally acceptable carrier in an amount representing coverage, and which provides for recovery by the Servicer on behalf of the Trust of insurance proceeds relating to such Mortgage Loan of not less than the least of (i) the outstanding principal balance of the Mortgage Loan, (ii) the minimum amount required to compensate for damage or loss on a replacement cost basis, 56 (iii) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973, as amended. Pursuant to the related Pooling and Servicing Agreement, the Servicer will be required to indemnify the Trust out of the Servicer's own funds for any loss to the Trust resulting from the Servicer's failure to maintain such flood insurance. In the event that the Servicer obtains and maintains a blanket policy insuring against fire with extended coverage and against flood hazards on all of the Mortgage Loans, then, to the extent such policy names the Servicer as loss payee and provides coverage in an amount equal to the aggregate unpaid principal balance on the Mortgage Loans without co-insurance, and otherwise complies with the requirements of the Pooling and Servicing Agreement, the Servicer shall be deemed conclusively to have satisfied its obligations with respect to fire and hazard insurance coverage under the Pooling and Servicing Agreement. Such blanket policy may contain a deductible clause, in which case the Servicer will be required, in the event that there shall not have been maintained on the related Property a policy complying with the Pooling and Servicing Agreement, and there shall have been a loss that would have been covered by such policy, to deposit in the Principal and Interest Account from the Servicer's own funds the difference, if any, between the amount that would have been payable under a policy complying with the Pooling and Servicing Agreement and the amount paid under such blanket policy. While the Servicer does not actively monitor the maintenance of hazard insurance by borrowers (other than borrowers for Manufactured Housing), it responds to the notices of cancellation or expiration as joint-loss payee by requiring verification of replacement coverage. THE COMPANY Access Financial Lending Corp. ("AFL" or the "Company"), a Delaware corporation, provides housing finance programs to consumers throughout the United States through its Mortgage Lending and Manufactured Housing Programs. The Company is the successor by merger of Access Financial Lending Corp., a Delaware corporation (formerly Equicon Corporation), whose principal business was the purchase of non-conforming mortgages, and Access Financial Corp., whose principal business was the retail financing of manufactured housing. The merger occurred on July 1, 1996. The Company is a wholly-owned subsidiary of Access Financial Holdings Corp. ("AFH"), which is a Delaware corporation and wholly-owned subsidiary of Cargill Financial Services Corporation. AFH was formed in January 1996 to facilitate the continued growth of the housing finance business. The Company maintains its principal offices at 400 Highway 169 South, Suite 400, St. Louis Park, Minnesota 55426-0365. THE SERVICER The Servicer for each series of Securities will be specified in the related Prospectus Supplement. THE POOLING AND SERVICING AGREEMENT As described above under "Description of the Securities--General," each series of Securities will be issued pursuant to a Pooling and Servicing Agreement as described in that section. The following describes certain additional provisions common to each Pooling and Servicing Agreement. 57 Servicing and Other Compensation and Payment of Expenses Each servicer, whether the Servicer, any Sub-Servicer and any Master Servicer (either the Servicer or any Sub-Servicer or any Master Servicer being a "Servicer"), will retain a fee in connection with its servicing activities for each series of Securities equal to the percentage per annum specified in the related Prospectus Supplement (the "Base Servicing Fee"), generally payable monthly with respect to each Loan directly serviced by such Servicer at one-twelfth the annual rate, of the then-outstanding principal amount of each such Loan as of the first day of each calendar month. The Master Servicer acting as master servicer with respect to Loans being serviced directly by a Sub-Servicer will retain a fee equal to the percentage per annum specified in the related Prospectus Supplement or Current Report on Form 8-K ("Master Servicing Fee"), generally payable monthly on one-twelfth the annual rate, of the then-outstanding principal amount of each such Loan as of the first day of each calendar month. The Base Servicing Fees and the Master Servicing Fee are collectively referred to as the "Servicing Fee." In addition to the Base Servicing Fee, each Servicer will generally be entitled under the Pooling and Servicing Agreement to retain additional servicing compensation in the form of release fees, bad check charges, assumption fees, late payment charges, or any other servicing-related fees, Net Liquidation Proceeds not required to be deposited in the Principal and Interest Account pursuant to the Pooling and Servicing agreement, and similar items. The Master Servicer will pay or cause to be paid certain ongoing expenses associated with each Trust Estate and incurred by it in connection with its responsibilities under the Pooling and Servicing Agreement, including, without limitation, payment of any fee or other amount payable in respect of any alternative Credit Enhancement arrangements, payment of the fees and disbursements of the Master Servicer, the Trustee or accountant, any custodian appointed by the Trustee, the Security Registrar and any Paying Agent, and payment of expenses incurred in enforcing the obligations of Sub-Servicers and Originators. The Master Servicer may be entitled to reimbursement of expenses incurred in enforcing the obligations of Sub-Servicers and Originators under certain limited circumstances. In addition, as indicated in the preceding section, the Master Servicer will be entitled to reimbursements for certain expenses incurred by it in connection with Liquidated Loans and in connection with the restoration of Properties, such right of reimbursement being prior to the rights of Securityholders to receive any related Liquidation Proceeds (including Insurance Proceeds). The Prospectus Supplement for a series of Securities will specify if there was any stripped portion of the interest payments due under the related Note that was retained by the originator or broker (the "Originator's Retained Yield"). Any such Originator's Retained Yield will be a specified portion of the interest payable on each Loan in a Loan Pool. Any such Originator's Retained Yield will be established on a loan-by-loan basis and the amount thereof with respect to each Loan in a Loan Pool will be specified on an exhibit to the related Pooling and Servicing Agreement. Any Originator's Retained Yield in respect of a Loan will represent a specified portion of the interest payable thereon and will not be part of the related Trust Estate. Any partial recovery of interest in respect of a Loan will be allocated between the owners of any Originator's Retained Yield and the holders of classes of Securities entitled to payments of interest as provided in the Prospectus Supplement and the applicable Pooling and Servicing Agreement. Evidence as to Compliance Each Pooling and Servicing Agreement will require the Servicer to deliver annually to the Trustee and any Credit Enhancer, an officers' certificate stating, as to each signer thereof, that (i) a review of the activities of the Servicer during such preceding year and of performance under the related Pooling and Servicing Agreement has been made under such officers' supervision, and (ii) to the best of such officers' knowledge, based on such review, the Servicer has fulfilled all its obligations under the related Pooling and Servicing Agreement for such year, or, if there has been a default in the fulfillment of any such obligations, specifying each such default known to such officers and the nature and status thereof including the steps being taken by the Servicer to remedy such defaults. 58 Each Pooling and Servicing Agreement will require the Servicer to cause to be delivered to the Trustee and any Credit Enhancer a letter or letters of a firm of independent, nationally recognized certified public accountants reasonably acceptable to the Credit Enhancer, if applicable, stating that such firm has, with respect to the Servicer's overall servicing operations (i) performed applicable tests in accordance with the compliance testing procedures as set forth in Appendix 3 of the Audit Guide for Audits of HUD Approved Nonsupervised Mortgagees or (ii) examined such operations in accordance with the requirements of the Uniform Single Audit Program for Mortgage Bankers, and in either case stating such firm's conclusions relating thereto. Copies of the annual accountants' statement and the annual statement of officers of the Servicer may be obtained by Securityholders without charge upon written request to the Servicer. Removal and Resignation of the Servicer Each Pooling and Servicing Agreement will provide that the Servicer may not resign from its obligations and duties thereunder, except in connection with a permitted transfer of servicing, unless such duties and obligations are no longer permissible under applicable law or are in material conflict by reason of applicable law with any other activities of a type and nature presently carried on by it or subject to the consent of the Master Servicer and the Trustee. No such resignation will become effective until the Trustee, the Master Servicer or a Successor Servicer has assumed the Servicer's obligations and duties under the Pooling and Servicing Agreement. The Trustee, the Master Servicer, the Securityholders or a Credit Enhancer, if applicable, will have the right, pursuant to the related Pooling and Servicing Agreement, to remove the Servicer upon the occurrence of any of (a) certain events of insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings regarding the Servicer and certain actions by the Servicer indicating its insolvency or inability to pay its obligations; (b) the failure of the Servicer to perform any one or more of its material obligations under the Pooling and Servicing Agreement as to which the Servicer shall continue in default with respect thereto for a specified period, generally of sixty (60) days, after notice by the Trustee, the Master Servicer or any Credit Enhancer (if required by the Pooling and Servicing Agreement) of said failure; or (c) the failure of the Servicer to cure any breach of any of its representations and warranties set forth in the Pooling and Servicing Agreement which materially and adversely affects the interests of the Securityholders or any Credit Enhancer, for a specified period, generally of thirty (30) days after the Servicer's discovery or receipt of notice thereof. The Pooling and Servicing Agreement may also provide that the Company or the related Credit Enhancer may remove the Servicer upon the occurrence of any of certain events including: (i) with respect to any Payment Date, if the total available funds with respect to the Loans Group will be less than the related distribution amount on the class of credit-enhanced securities in respect of such Payment Date; (ii) the failure by the Servicer to make any required Servicing Advance; (iii) the failure of the Servicer to perform one or more of its material obligations under the Pooling and Servicing Agreement; (iv) the failure by the Servicer to make any required Delinquency Advance or to pay any Compensating Interest; or (v) without cause on the part of the Servicer; provided that the Certificate Insurer consents to such removal; provided, however, that prior to any removal of the Servicer by the Company, or the related Credit Enhancer pursuant to clauses (i), (ii) or (iii) above the Servicer shall first have been given by the Company or the related Credit Enhancer notice of the occurrence of one or more of the events set forth in clauses (i) or (ii) above and the Servicer shall not have remedied, or shall not have taken action satisfactory to the Company or such Credit Enhancer to remedy, such event or events within a specified period, generally 30 days (60 days with respect to 59 clause (iii)) after the Servicer's receipt of such notice; and provided, further that in the event of the refusal or inability of the Servicer to make any required Delinquency Advance or to pay any Compensating Interest as described in clause (iv) above, such removal shall be effective (without the requirement of any action on the part of the Company or such Credit Enhancer or of the Trustee) not later than a shorter specified period, generally not in excess of five business days, following the day on which the Trustee notifies an authorized officer of the Servicer that a required Delinquency Advance or to pay any Compensating Interest has not been received by the Trustee. Resignation of the Master Servicer Each Pooling and Servicing Agreement provides that the Master Servicer, if any, may not resign from its obligations and duties thereunder, unless such duties and obligations are no longer permissible under applicable law. No such resignation is acceptable until a successor Master Servicer assumes such duties and obligations. Amendments The Company, the Servicer, the Master Servicer and the Trustee may at any time and from time to time, with the prior approval of the related Credit Enhancer, if required, but without the giving of notice to or the receipt of the consent of the Securityholders, amend a Pooling and Servicing Agreement, and the Trustee will be required to consent to such amendment, for the purposes of (x) (i) curing any ambiguity, or correcting or supplementing any provision of such Pooling and Servicing Agreement which may be inconsistent with any other provision of the Pooling and Servicing Agreement, (ii) in connection with a Trust making REMIC elections, if accompanied by an approving opinion of counsel experienced in federal income tax matters, removing the restriction against the transfer of a REMIC residual security to a Disqualified Organization (as such term is defined in the Code) or (iii) complying with the requirements of the Code and the regulations proposed or promulgated thereunder; provided, however, that such action shall not, as evidenced by an opinion of counsel delivered to the Trustee, materially and adversely affect the interests of any Securityholder (without its written consent) or (y) such other purposes set forth in the related Pooling and Servicing Agreement. Each Pooling and Servicing Agreement may also be amended by the Trustee, the Company, the Servicer and the Master Servicer at any time and from time to time, with the prior written approval of the related Credit Enhancer, if required, and not less than a majority of the Percentage Interest represented by each related class of Securities then outstanding, for the purpose of adding any provisions or changing in any manner or eliminating any of the provisions of such Pooling and Servicing Agreement or of modifying in any manner the rights of the Securityholders thereunder; provided, however, that no such amendment shall (a) change in any manner the amount of, or delay the timing of, payments which are required to be distributed to any Securityholders without the consent of the holder of such Security or (b) change the aforesaid percentages of Percentage Interest which are required to consent to any such amendments, without the consent of the holders of all Securities of the class or classes affected then outstanding. Termination; Retirement of Securities Each Pooling and Servicing Agreement will provide that a Trust will terminate upon the earlier of (i) the payment to the Securityholders of all Securities issued by the Trust from amounts other than those available under, if applicable, the related Credit Enhancement of all amounts required to be paid to such Securityholders upon the later to occur of (a) the final payment or other liquidation (or any advance made with respect thereto) of the last Loan in the Trust Estate or (b) the disposition of all property acquired in respect of any Loan remaining in the Trust Estate, (ii) any time when a Qualified Liquidation (as defined in the Code) of the Trust Estate (if the related Trust is a REMIC) is effected. In no event, however, will the trust created by the Pooling and Servicing Agreement continue beyond the expiration of 21 years from the death of the survivor of certain persons named in such Pooling and Servicing Agreement. Written notice of termination of the Pooling and Servicing Agreement will be given to each Securityholder, and the final distribution will be made only upon surrender and cancellation of the Securities at an office or agency appointed by the Trustee that will be specified in the notice of termination. If the Securityholders are permitted to terminate the trust under the applicable 60 Pooling and Servicing Agreement, a penalty may be imposed upon the Securityholders based upon the fee that would be foregone by the Servicer because of such termination. Any purchase of Loans and property acquired in respect of Loans evidenced by a series of Securities shall be made at the option of the Servicer, the Company or, if applicable, the holder of the REMIC Residual Securities at the price specified in the related Prospectus Supplement. The exercise of such right will effect earlier than expected retirement of the Securities of that series, but the right of the Servicer, the Company or, if applicable, such holder to so purchase is subject to the aggregate principal balance of the Loans for that series as of any Remittance Date being less than ten percent or a percentage set forth in the related Prospectus Supplement of the aggregate principal balance of the Loans at the Cut-Off Date for that series. The Prospectus Supplement for each series of Securities will set forth the amounts that the holders of such Securities will be entitled to receive upon such earlier than expected retirement. If a REMIC election has been made, the termination of the related Trust Estate will be effected in a manner consistent with applicable federal income tax regulations and its status as a REMIC. If set forth in the related Prospectus Supplement, termination of the Trust may be effected by an auction sale. Within a period following a Remittance Date as of which the aggregate Pool principal balance is less than 10% of the initial aggregate Pool principal balance, if the optional termination rights have not been exercised by the parties having such rights by such date, the Trustee shall solicit bids for the purchase of all Loans remaining in the Trust. In the event that satisfactory bids are received as described in the Agreement, the net sale proceeds will be distributed to Certificateholders, in the same order of priority as collections received in respect of the Loans. The Trustee, however, will not accept any bid for the Loans unless certain requirements are met. The sale of the Loans must be for an amount no less than fair market value. If satisfactory bids are not received, the Trustee shall decline to sell the Loans and shall not be under any obligation to solicit any further bids or otherwise negotiate any further sale of the Loans. Such sale and consequent termination of the Trust must constitute a "qualified liquidation" of each REMIC established by the Trust under Section 860F of the Internal Revenue Code of 1986, as amended, including, without limitation, the requirement that the qualified liquidation takes place over a period not to exceed 90 days. THE TRUSTEE The Trustee under each Pooling and Servicing Agreement will be named in the related Prospectus Supplement. Each Pooling and Servicing Agreement will provide that the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Pooling and Servicing Agreement at the request or direction of any of the Securityholders, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. The Trustee may execute any of the trusts or powers granted by each Pooling and Servicing Agreement or perform any duties thereunder either directly or by or through agents or attorneys, and the Trustee will not be responsible for any misconduct or negligence on the part of any agent or attorney appointed and supervised with due care by it thereunder. Pursuant to each Pooling and Servicing Agreement, the Trustee will not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized by an authorized officer of any person or within its rights or powers under the Pooling and Servicing Agreement. Each Pooling and Servicing Agreement will permit the removal of the Trustee upon the occurrence and continuance of one of the following events: 61 (1) the Trustee shall fail to distribute to the Securityholders entitled thereto on any Payment Date amounts available for distribution in accordance with the terms of the Pooling and Servicing Agreement; or (2) the Trustee shall default in the performance of, or breach, any covenant or agreement of the Trustee in the Pooling and Servicing Agreement, or if any representation or warranty of the Trustee made in the Pooling and Servicing Agreement or in any certificate or other writing delivered pursuant thereto or in connection therewith shall prove to be incorrect in any material respect as of the time when the same shall have been made, and such default or breach shall continue or not be cured for the period then specified in the related Pooling and Servicing Agreement after the Trustee shall have received notice specifying such default or breach and requiring it to be remedied; or (3) a decree or order of a court or agency or supervisory authority having jurisdiction for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Trustee, and such decree or order shall have remained in force undischarged or unstayed for the period then specified in the related Pooling and Servicing Agreement; or (4) a conservator or receiver or liquidator or sequestrator or custodian of the property of the Trustee is appointed in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Trustee or relating to all or substantially all of its property; or (5) the Trustee shall become insolvent (however insolvency is evidenced), generally fail to pay its debts as they come due, file or consent to the filing of a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, voluntarily suspend payment of its obligations, or take corporate action for the purpose of any of the foregoing. If an event described above occurs and is continuing, then, and in every such case (i) the Company, (ii) the Securityholders (on the terms set forth in the related Pooling and Servicing Agreement), or (iii) if there is a Credit Enhancer, such Credit Enhancer may, whether or not the Trustee has resigned, immediately, concurrently with the giving of notice to the Trustee, and without delay, appoint a successor Trustee pursuant to the terms of the Pooling and Servicing Agreement. No Securityholder will have any right to institute any proceeding, judicial or otherwise, with respect to a Pooling and Servicing Agreement or any Credit Enhancement, if applicable, or for the appointment of a receiver or trustee, or for any other remedy under the Pooling and Servicing Agreement, unless: (1) such Securityholder has previously given written notice to the Company and the Trustee of such Securityholder's intention to institute such proceeding; (2) the Securityholders of not less than 25% of the Percentage Interests represented by certain specified classes of Securities then outstanding shall have made written request to the Trustee to institute such proceeding; (3) such Securityholder or Securityholders have offered to the Trustee reasonable indemnity, against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for the period specified in the related Pooling and Servicing Agreement, generally not in excess of 60 days after receipt of such notice, request and offer of indemnity, has failed to institute such proceeding; (5) as long as such action affects any credit-enhanced class of Securities outstanding, the related Credit Enhancer has consented in writing thereto; and 62 (6) no direction inconsistent with such written request has been given to the Trustee during such specified period by the Securityholders of a majority of the Percentage Interests represented by certain specified classes of Securities; No one or more Securityholders will have any right in any manner whatever by virtue of, or by availing themselves of, any provision of the Pooling and Servicing Agreement to affect, disturb or prejudice the rights of any other Securityholder of the same class or to obtain or to seek to obtain priority or preference over any other Securityholder of the same class or to enforce any right under the Pooling and Servicing Agreement, except in the manner provided in the Pooling and Servicing Agreement and for the equal and ratable benefit of all of the Securityholders of the same class. In the event the Trustee receives conflicting or inconsistent requests and indemnity from two or more groups of Securityholders, each representing less than a majority of the applicable class of Securities, the Trustee in its sole discretion may determine what action, if any, shall be taken, notwithstanding any other provision of the Pooling and Servicing Agreement. Notwithstanding any other provision in the Pooling and Servicing Agreement, the Securityholder of any Security has the right, which is absolute and unconditional, to receive distributions to the extent provided in the Pooling and Servicing Agreement with respect to such Security or to institute suit for the enforcement of any such distribution, and such right shall not be impaired without the consent of such Security. Either (i) the Securityholders of a majority of the Percentage Interests represented by certain specified classes of Securities then outstanding or (ii) if there is a Credit Enhancer, such Credit Enhancer may direct the time, method and place of conducting any proceeding for any remedy available to the Company with respect to the Certificates or exercising any trust or power conferred on the Trustee with respect to such Certificates; provided that: (1) such direction shall not be in conflict with any rule of law or with a Pooling and Servicing Agreement; (2) the Company or the Trustee, as the case may be, shall have been provided with indemnity satisfactory to them; and (3) the Company or the Trustee, as the case may be, may take any other action deemed proper by the Trustee which is not inconsistent with such direction; provided, however, that the Company or the Trustee, as the case may be, need not take any action which they determine might involve them in liability or may be unjustly prejudicial to the Securityholders not so directing. The Trustee will be liable under the Pooling and Servicing Agreement only to the extent of the obligations specifically imposed upon and undertaken by the Trustee therein. Neither the Trustee nor any of the directors, officers, employees or agents of the Trustee will be under any liability on any Security or otherwise to any Account, the Company, the Servicer, the Master Servicer or any Securityholder for any action taken or for refraining from the taking of any action in good faith under a Pooling and Servicing Agreement, or for errors in judgment; provided, however, that such provision shall not protect the Trustee or any such person against any liability which would otherwise be imposed by reason of negligent action, negligent failure to act or willful misconduct in the performance of duties or by reason of reckless disregard of obligations and duties thereunder. YIELD CONSIDERATIONS The yield to maturity of a Security will depend on the price paid by the holder for such Security, the Pass-Through Rate on any such Security entitled to payments of interest (which Pass-Through Rate may vary if so specified in the related Prospectus Supplement) and the rate of payment of principal on such Security (or the 63 rate at which the notional amount thereof is reduced if such Security is not entitled to payments of principal) and other factors. Each month the interest payable on an actuarial type of Loan will be calculated as one-twelfth of the applicable Loan Rate multiplied by the principal balance of such Loan outstanding as of a specified day, usually the first day of the month prior to the month in which the Payment Date for the related series of Securities occurs, after giving effect to the payment of principal due on such day, subject to any Deferred Interest. With respect to date of payment Loans, interest is charged to the Obligor at the Loan Rate on the outstanding principal balance of such Note and calculated based on the number of days elapsed between receipt of the Obligor's last payment through receipt of the Obligor's most current payments. The amount of such payments with respect to each Loan distributed (or accrued in the case of Deferred Interest or Accrual Securities) either monthly, quarterly or semi-annually to holders of a class of Securities entitled to payments of interest will be similarly calculated on the basis of such class' specified percentage of each such payment of interest (or accrual in the case of Accrual Securities) and will be expressed as a fixed, adjustable or variable Pass-Through Loan Rate payable on the outstanding principal balance or notional amount of such Security, calculated as described herein and in the related Prospectus Supplement. Holders of Strip Securities or a class of Securities having a fixed Pass-Through Rate that varies based on the weighted average Loan Rate of the underlying Loans will be affected by disproportionate prepayments and repurchases of Loans having higher Net Loan Rates or rates applicable to the Strip Securities, as applicable. The effective yield to maturity to each holder of fixed-rate Securities entitled to payments of interest will be below that otherwise produced by the applicable Pass-Through Rate and purchase price of such Security because, while interest will accrue on each Loan from the first day of each month, the distribution of such interest will be made once a month on the date set forth in the related Prospectus Supplement (the " Interest Payment Date") or, in the case of quarterly-pay Securities, on the Interest Payment Date of every third month or, in the case of semi-annual-pay Securities, on the Interest Payment Date of every sixth month following the month or months of accrual. A class of Securities may be entitled to payments of interest at a fixed Pass-Through Rate specified in the related Prospectus Supplement, a variable Pass-Through Rate or adjustable Pass-Through Rate calculated based on the weighted average of the Loan Rates (net of Servicing Fees (each, a "Net Loan Rate")) of the related Loans for the designated periods preceding the Payment Date if so specified in the related Prospectus Supplement, or at such other variable rate as may be specified in the related Prospectus Supplement. As will be described in the related Prospectus Supplement, the aggregate payments of interest on a class of Securities, and the yield to maturity thereon, will be affected by the rate of payment of principal on the Securities (or the rate of reduction in the notional balance of Securities entitled only to payments of interest) and, in the case of Securities evidencing interests in ARM Loans, by changes in the Net Loan Rates on the ARM Loans. See "Maturity and Prepayment Considerations" below. The yield on the Securities also will be affected by liquidations of Loans following Obligor defaults and by purchases of Loans required by the Pooling and Servicing Agreement in the event of breaches of representations made in respect of such Loans by the Company, the Originators, the Servicer and others, or repurchases due to conversions of ARM Loans to a fixed interest rate. See "Underwriting Program--Representations" and "Descriptions of the Securities--Assignment of Loans" above. In general, if a class of Securities is purchased at initial issuance at a premium and payments of principal on the related Loans occur at a rate faster than anticipated at the time of purchase, the purchaser's actual yield to maturity will be lower than that assumed at the time of purchase. Conversely, if a class of Securities is purchased at initial issuance at a discount and payments of principal on the related Loans occur at a rate slower than that assumed at the time of purchase, the purchaser's actual yield to maturity will be lower than that originally anticipated. The effect of principal prepayments, liquidations and purchases on yield will be particularly significant in the case of a series of Securities having a class entitled to payments of interest only or to payments of interest that are disproportionately high relative to the principal payments to which such class is entitled. Such a class likely will be sold at a substantial premium to its principal balance, if any, and any faster than anticipated rate of prepayments will adversely affect the yield to holders thereof. In certain circumstances, rapid prepayments may result in the failure of such holders to recoup their original investment. In addition, the yield to maturity 64 on certain other types of classes of Securities, including Accrual Securities or certain other classes in a series including more than one class of Securities, may be relatively more sensitive to the rate of prepayment on the related Loans than other classes of Securities. The timing of changes in the rate of principal payments on or repurchases of the Loans may significantly affect an investor's actual yield to maturity, even if the average rate of principal payments experienced over time is consistent with an investor's expectation. In general, the earlier a prepayment of principal on the underlying Loans or a repurchase thereof, the greater will be the effect on an investor's yield to maturity. As a result, the effect on an investor's yield of principal payments and repurchases occurring at a rate higher (or lower) than the rate anticipated by the investor during the period immediately following the issuance of a series of Securities would not be fully offset by a subsequent like reduction (or increase) in the rate of principal payments. The Loan Rates on certain ARM Loans subject to negative amortization adjust monthly and their amortization schedules adjust less frequently. During a period of rising interest rates as well as immediately after origination (initial Loan Rates are generally lower than the sum of the Indices applicable at origination and the related Note Margins) the amount of interest accruing on the principal balance of such Loans may exceed the amount of the minimum scheduled monthly payment thereon. As a result, a portion of the accrued interest on negatively amortizing Loans may become Deferred Interest that will be added to the principal balance thereof and will bear interest at the applicable Loan Rate. The addition of any such Deferred Interest to the principal balance will lengthen the weighted average life of the Securities evidencing interests in such Loans and may adversely affect yield to holders thereof depending upon the price at which such Securities were purchased. In addition, with respect to certain ARM Loans subject to negative amortization, during a period of declining interest rates, it might be expected that each minimum scheduled monthly payment on such a Loan would exceed the amount of scheduled principal and accrued interest on the principal balance thereof, and since such excess will be applied to reduce such principal balance, the weighted average life of such Securities will be reduced and may adversely affect yield to holders thereof depending upon the price at which such Securities were purchased. For each Loan Pool, if all necessary advances are made and if there is no unrecoverable loss on any Loan and if the related Credit Enhancer is not in default under its obligations or other Credit Enhancement has not been exhausted, the net effect of each distribution respecting interest will be to pass-through to each holder of a class of Securities entitled to payments of interest an amount which is equal to one month's interest (or, in the case of quarterly-pay Securities, three month's interest or, in the case of semi-annually-pay Securities, six month's interest) at the applicable Pass-Through Rate on such class' principal balance or notional balance, as adjusted downward to reflect any decrease in interest caused by any principal prepayments and the addition of any Deferred Interest to the principal balance of any Loan. "Description of the Securities--Principal and Interest on the Securities." With respect to certain of the ARM Loans, the Loan Rate at origination may be below the rate that would result if the index and margin relating thereto were applied at origination. Under typical underwriting standards, the Obligor under each Loan will be qualified on the basis of the Loan Rate in effect at origination. The repayment of any such Loan may thus be dependent on the ability of the Obligor to make larger level monthly payments following the adjustment of the Loan Rate. MATURITY AND PREPAYMENT CONSIDERATIONS As indicated above under "The Loan Pools," the original terms to maturity of the Loans in a given Loan Pool will vary depending upon the type of Loans included in such Loan Pool. The Prospectus Supplement for a series of Securities will contain information with respect to the types and maturities of the Loans in the related Loan Pool. The prepayment experience with respect to the Loans in a Loan Pool will affect the maturity, average life and yield of the related series of Securities. With respect to Balloon Loans, payment of the Balloon Amount (which, based on the amortization schedule of such Loans, may be a substantial amount) will generally depend on the Obligor's ability to obtain 65 refinancing of such Loan or to sell the Property prior to the maturity of the Balloon Loan. The ability to obtain refinancing will depend on a number of factors prevailing at the time refinancing or sale is required, including, without limitation, real estate values, the Obligor's financial situation, prevailing mortgage loan interest rates, the Obligor's equity in the related Property, tax laws and prevailing general economic conditions. Neither the Company, the Servicer, the Master Servicer, nor any of their affiliates will be obligated to refinance or repurchase any Loan or to sell the Property. A number of factors, including obligor mobility, economic conditions, enforceability of due-on-sale clauses, loan market interest rates and the availability of funds, affect prepayment experience. The Loans will generally contain due-on-sale provisions permitting the obligee to accelerate the maturity of the Loan upon sale or certain transfers by the Obligor of the underlying Property. The Servicer will generally enforce any due-on-sale clause to the extent it has knowledge of the conveyance or proposed conveyance of the underlying Property and it is entitled to do so under applicable law; provided, however, that the Servicer will not take any action in relation to the enforcement of any due-on-sale provision which would adversely affect or jeopardize coverage under any applicable insurance policy. Certain ARM Loans may be assumable under certain conditions if the proposed transferee of the related Property establishes its ability to repay the Loan and, in the reasonable judgment of the Servicer, the Master Servicer or the related Sub-Servicer, the security for the ARM Loan would not be impaired or might be improved by the assumption. The extent to which ARM Loans are assumed by purchasers of the Properties rather than prepaid by the related Obligors in connection with the sales of the Properties will affect the weighted average life of the related series of Securities. See "Description of the Securities--Collection and Other Servicing Procedures" and "Certain Legal Aspects of the Loans and Related Matters--Enforceability of Certain Provisions" for a description of certain provisions of the Pooling and Servicing Agreement and certain legal developments that may affect the prepayment experience on the Loans. There can be no assurance as to the rate of prepayment of the Loans. The Company is not aware of any reliable, publicly available statistics relating to the principal prepayment experience of diverse portfolios of loans such as the Loans over an extended period of time. All statistics known to the Company that have been compiled with respect to prepayment experience on loans indicates that while some loans may remain outstanding until their stated maturities, a substantial number will be paid prior to their respective stated maturities. Although the Loan Rates on ARM Loans will be subject to periodic adjustments, such adjustments will (i) not increase or decrease such Loan Rates by more than a fixed percentage amount on each adjustment date, (ii) not increase such Loan Rates over a fixed percentage amount during the life of any ARM Loan and (iii) be based on an index (which may not rise and fall consistently with interest rates) plus the related Note Margin (which may be different from margins being used at the time for newly originated adjustable rate loans). As a result, the Loan Rates on the ARM Loans in a Loan Pool at any time may not equal the prevailing rates for similar, newly originated adjustable rate loans. In certain rate environments, the prevailing rates on fixed-rate loans may be sufficiently low in relation to the then-current Loan Rates on ARM Loans that the rate of prepayment may increase as a result of refinancings. There can be no certainty as to the rate of prepayments on the Loans during any period or over the life of any series of Securities. As may be described in the related Prospectus Supplement, the related Pooling and Servicing Agreement may provide that all or a portion of the principal collected on or with respect to the related Loans may be applied by the related Trustee to the acquisition of additional Loans during a specified period (rather than used to fund payments of principal to Securityholders during such period) with the result that the related securities possess an interest-only period, also commonly referred to as a revolving period, which will be followed by an amortization period. Any such interest-only or revolving period may, upon the occurrence of certain events to be described in the related Prospectus Supplement, terminate prior to the end of the specified period and result in the earlier than expected amortization of the related Securities. In addition, and as may be described in the related Prospectus Supplement, the related Pooling and Servicing Agreement may provide that all or a portion of such collected principal may be retained by the Trustee (and held in certain temporary investments, including Loans) for a specified period prior to being used to fund payments of principal to Securityholders. 66 The result of such retention and temporary investment by the Trustee of such principal would be to slow the amortization rate of the related Securities relative to the amortization rate of the related Loans, or to attempt to match the amortization rate of the related Securities to an amortization schedule established at the time such Securities are issued. Any such feature applicable to any Securities may terminate upon the occurrence of events to be described in the related Prospectus Supplement, resulting in the current funding of principal payments to the related Securityholders and an acceleration of the amortization of such Securities. Under certain circumstances, the Servicer, the Company or, if specified in the related Prospectus Supplement, the holders of the REMIC Residual Securities or the Credit Enhancer may have the option to purchase the Loans in a Trust Estate. See "The Pooling and Servicing Agreement--Termination; Retirement of Securities." CERTAIN LEGAL ASPECTS OF THE LOANS AND RELATED MATTERS Mortgage Loans The following discussion contains certain legal aspects of mortgage loans that are general in nature. Because such legal aspects are governed in part by applicable state law (which laws may differ substantially), the following does not purport to be complete nor to reflect the laws of any particular state nor to encompass the laws of all states in which the Properties may be situated. In the event that a particular Trust Fund contains mortgage loans with a concentration in a particular state, and such state's laws vary materially from the general discussion below, the related Prospectus Supplement will elaborate on the relevant laws of such state. The following is qualified in its entirety by reference to the applicable federal and state laws governing the Mortgage Loans. Any particular legal matters related to specific types of Mortgage Loans will be set forth in the related Prospectus Supplement. General The Mortgage Loans will be secured by either deeds of trust or mortgages, depending upon the prevailing practice in the state in which the Property subject to a Mortgage Loan is located. In some states, a mortgage creates a lien upon the real property encumbered by the mortgage. In other states, the mortgage conveys legal title to the property to the mortgagee subject to a condition subsequent (i.e., the payment of the indebtedness secured thereby). The mortgage is not prior to the lien for real estate taxes and assessments and other charges imposed under governmental police powers. Priority between mortgages depends on their terms in some cases or on the terms of separate subordination or intercreditor agreements, and generally on the order of recordation of the mortgage in the appropriate recording office. There are two parties to a mortgage, the mortgagor, who is the obligor and homeowner, and the mortgagee, who is the lender. Under the mortgage instrument, the mortgagor delivers to the mortgagee a note or bond and the mortgage. In the case of a land trust, there are three parties because title to the property is held by a land trustee under a land trust agreement of which the obligor is the beneficiary; at origination of a mortgage loan, the obligor executes a separate undertaking to make payments on the mortgage note. Although a deed of trust is similar to a mortgage, a deed of trust has three parties; the obligor-homeowner called the trustor (similar to a mortgagor), a lender (similar to a mortgagee) called the beneficiary, and a third-party grantee called the trustee. Under a deed of trust, the obligor grants the property, irrevocably until the debt is paid, in trust, generally with a power of sale, to the trustee to secure payment of the obligation. The trustee's authority under a deed of trust and the mortgagee's authority under a mortgage are governed by law, the express provisions of the deed of trust or mortgage, and, in some cases, the directions of the beneficiary. 67 Cooperative Loans If specified in the Prospectus Supplement relating to a series of Securities, the Mortgage Loans also may consist of Cooperative Loans evidenced by Cooperative Notes secured by security interests in shares issued by cooperatives, which are private corporations that are entitled to be treated as housing cooperatives under federal tax law, and in the related proprietary leases or occupancy agreements granting exclusive rights to occupy specific dwelling units in the cooperatives' buildings. The security agreement will create a lien upon, or grant a title interest in, the property which it covers, the priority of which will depend on the terms of the particular security agreement as well as the order of recordation of the agreement in the appropriate recording office. Such a lien or title interest is not prior to the lien for real estate taxes and assessments and other charges imposed under governmental police powers. Each cooperative share owns in fee or has a leasehold interest in all the real property and owns in fee or leases the building and all separate dwelling units therein. The cooperative is directly responsible for property management and, in most cases, payment of real estate taxes, other governmental impositions and hazard and liability insurance. If there is a blanket mortgage or mortgages on the cooperative buildings or underlying land, as is generally the case, or an underlying lease of the land, as is the case in some instances, the cooperative, as property mortgagor, or lessee, as the case may be, also is responsible for meeting these mortgage or rental obligations. A blanket mortgage is ordinarily incurred by the cooperative in connection with either the construction or purchase of the cooperative's buildings or the obtaining of capital by the cooperative. The interest of the occupant under proprietary leases or occupancy agreements as to which that cooperative is the landlord generally is subordinate to the interest of the holder of a blanket mortgage and to the interest of the holder of a land lease. If the cooperative is unable to meet the payment obligations (i) arising under a blanket mortgage, the mortgagee holding a blanket mortgage could foreclose on that mortgage and terminate all subordinate proprietary leases and occupancy agreements or (ii) arising under its land lease, the holder of the landlord's interest under the land lease could terminate it and all subordinate proprietary leases and occupancy agreements. Also, a blanket mortgage on a cooperative may provide financing in the form of a mortgage that does not fully amortize, with a significant portion of principal being due in one final payment at maturity. The inability of the cooperative to refinance a mortgage and its consequent inability to make such final payment could lead to foreclosure by the mortgagee. Similarly, a land lease has an expiration date and the inability of the cooperative to extend its term or, in the alterative, to purchase the land could lead to termination of the cooperative's interest in the property and termination of all proprietary leases and occupancy agreements. In either event, a foreclosure by the holder of a blanket mortgage or the termination of the underlying lease could eliminate or significantly diminish the value of any collateral held by the lender who financed the purchase by an individual tenant-stockholder of cooperative shares or, in the case of the Loans, the collateral securing the Cooperative Loans. The cooperative is owned by tenant-stockholders who, through ownership of stock or shares in the corporation, receive proprietary leases or occupancy agreements that confer exclusive rights to occupy specific units. Generally, a tenant-stockholder of a cooperative must make a monthly payment to the cooperative representing such tenant-stockholder's pro rata share of the cooperative's payments for its blanket mortgage, real property taxes, maintenance expenses and other capital or ordinary expenses. An ownership interest in a cooperative and accompanying occupancy rights are financed through a cooperative share loan evidenced by a promissory note and secured by an assignment of and a security interest in the occupancy agreement or proprietary lease and a security interest in the related cooperative shares. The lender generally takes possession of the share certificate and a counterpart of the proprietary lease or occupancy agreement and a financing statement covering the proprietary lease or occupancy agreement and the cooperative shares is filed in the appropriate state and local offices to perfect the lender's interest in its collateral. Subject to the limitations discussed below, upon default of the tenant-stockholder, the lender may sue for judgment on the promissory note, dispose of the collateral at a public or private sale or otherwise proceed against the collateral or tenant-stockholder as an individual as provided in the security agreement covering the assignment of the proprietary lease or occupancy agreement and the pledge of cooperative shares. See "Foreclosure on Shares of Cooperatives" below. 68 Foreclosure Foreclosure of a deed of trust is generally accomplished by a non-judicial trustee's sale (private sale) under a specific provision in the deed of trust and state laws which authorize the trustee to sell the property upon any default by the borrower under the terms of the note or deed of trust. Beside the non-judicial remedy, a deed of trust may be judicially foreclosed. In addition to any notice requirements contained in a deed of trust, in some states, the trustee must record a notice of default and within a certain period of time send a copy to the borrower trustor and to any person who has recorded a request for a copy of notice of default and notice of sale. In addition, the trustee must provide notice in some states to any other individual having an interest of record in the real property, including any junior lienholders. If the deed of trust is not reinstated within a specified period, a notice of sale must be posted in a public place and, in most states, published for a specific period of time in one or more local newspapers. In addition, some state laws require that a copy of the notice of sale be posted on the property and sent to all parties having an interest of record in the real property. Foreclosure of a mortgage is generally accomplished by judicial action. Generally, the action is initiated by the service of legal pleadings upon all parties having an interest of record in the real property. Delays in completion of the foreclosure may occasionally result from difficulties in locating necessary parties. Judicial foreclosure proceedings are often not contested by any of the applicable parties. If the mortgagee's right to foreclose is contested, the legal proceedings necessary to resolve the issue can be time-consuming. In some states, the borrower-trustor has the right to reinstate the loan at any time following default until shortly before the trustee's sale. In general, in such states, the borrower, or any other person having a junior encumbrance on the real estate, may, during a reinstatement period, cure the default by paying the entire amount in arrears plus the costs and expenses incurred in enforcing the obligation. In the case of foreclosure under either a mortgage or a deed of trust, the sale by the referee or other designated officer or by the trustee is a public sale. However, because of the difficulty a potential buyer at the sale would have in determining the exact status of title and because the physical condition of the property may have deteriorated during the foreclosure proceedings, it is uncommon for a third party to purchase the property at a foreclosure sale unless there is a great deal of economic incentive for the new purchaser to purchase the subject property at the sale. Rather, it is common for the lender to purchase the property from the trustee or referee for a credit bid less than or equal to the unpaid principal amount of the mortgage or deed of trust, accrued and unpaid interest and the expense of foreclosure. Generally, state law controls the amount of foreclosure costs and expenses, including attorneys' fees, which may be recovered by a lender. Thereafter, subject to the right of the borrower in some states to remain in possession during the redemption period, the lender will assume the burdens of ownership, including obtaining hazard insurance and making such repairs at its own expense as are necessary to render the property suitable for sale. The lender will commonly obtain the services of a real estate broker and pay the broker's commission in connection with the sale of the property. Depending upon market conditions, the ultimate proceeds of the sale of the property may not equal the lender's investment in the property and, in some states, the lender may be entitled to a deficiency judgment. Any loss may be reduced by the receipt of any mortgage insurance proceeds. Foreclosure on Shares of Cooperatives The cooperative shares and proprietary lease or occupancy agreement owned by the tenant-stockholder and pledged to the lender are, in almost all cases, subject to restrictions on transfer as set forth in the cooperative's certificate of incorporation and by-laws, as well as in the proprietary lease or occupancy agreement. The proprietary lease or occupancy agreement, even while pledged, may be cancelled by the cooperative for failure by the tenant stockholder to pay rent or other obligations or charges owed by such tenant-stockholder, including mechanics' liens against the cooperative buildings incurred by such tenant-stockholder. Commonly, rent and other obligations and charges arising under a proprietary lease or occupancy agreement that are owed to the cooperative are made liens upon the shares to which the proprietary lease or occupancy agreement relates. In addition, the proprietary lease or occupancy agreement generally permits the cooperative to terminate such lease or agreement in the event the borrower defaults in the performance of covenants thereunder. Typically, the 69 lender and the cooperative enter into a recognition agreement that, together with any lender protection provisions contained in the proprietary lease, establishes the rights and obligations of both parties in the event of a default by the tenant-stockholder on its obligations under the proprietary lease or occupancy agreement. A default by the tenant-stockholder under the proprietary lease or occupancy agreement usually will constitute a default under the security agreement between the lender and the tenant-stockholder. The recognition agreement generally provides that, in the event that the tenant-stockholder has defaulted under the proprietary lease or occupancy agreement, the cooperative will take no action to terminate such lease or agreement until the lender has been provided with notice of and an opportunity to cure the default. The recognition agreement typically provides that if the proprietary lease or occupancy agreement is terminated, the cooperative will recognize the lender's lien against proceeds from a sale of the cooperative apartment, subject, however, to the cooperative's right to sums due under such proprietary lease or occupancy agreement or sums that have become liens on the shares relating to the proprietary lease or occupancy agreement. The total amount owed to the cooperative by the tenant-stockholder, which the lender generally cannot restrict and does not monitor, could reduce the amount realized upon a sale of the collateral below the outstanding principal balance of the Cooperative Loan and accrued and unpaid interest thereon. Recognition agreements generally also provide that in the event of a foreclosure on a Cooperative Loan, the lender must obtain the approval or consent of the cooperative as required by the proprietary lease before transferring the cooperative shares or assigning the proprietary lease. Generally, the lender is not limited in any rights it may have to dispossess the tenant-stockholder. In New York, foreclosure on the cooperative shares is accomplished by public sale in accordance with the provisions of Article 9 of the UCC and the security agreement relating to those shares. Article 9 of the UCC requires that a sale be conducted in a "commercially reasonable" manner. Whether a sale has been conducted in a "commercially reasonable" manner will depend on the facts in each case. In determining commercial reasonableness, a court will look to the notice given the debtor and the method, manner, time, place and terms of the sale and the sale price. Generally, a sale conducted according to the usual practice of banks selling similar collateral will be considered reasonably conducted. Article 9 of the UCC provides that the proceeds of the sale will be applied first to pay the costs and expenses of the sale and then to satisfy the indebtedness secured by the lender's security interest. The recognition agreement, however, generally provides that the lender's right to reimbursement is subject to the right of the cooperative corporation to receive sums due under the proprietary lease or occupancy agreement. If there are proceeds remaining, the lender must account to the tenant-stockholder for the surplus. Conversely, if a portion of the indebtedness remains unpaid, the tenant-stockholder is generally responsible for the deficiency. See "Anti-Deficiency Legislation and Other Limitations on Lenders" below. Rights of Redemption In some states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the borrower and foreclosed junior obligors or other parties are given a statutory period in which to redeem the property from the foreclosure sale. In some states, redemption may occur only upon payment of the entire principal balance of the loan, accrued interest and expenses of foreclosure. In other states, redemption may be authorized if the former borrower pays only a portion of the sums due. The effect of a statutory right of redemption is to diminish the ability of the lender to sell the foreclosed property. The rights of redemption would defeat the title of any purchaser subsequent to foreclosure or sale under a deed of trust. Consequently, the practical effect of the redemption right is to force the lender to maintain the property and pay the expenses of ownership until the redemption period has expired. In some states, there is no right to redeem property after a trustee's sale under a deed of trust. 70 Anti-Deficiency Legislation and Other Limitations on Lenders Certain states have imposed statutory prohibitions that limit the remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some states statutes limit the right of the beneficiary or mortgagee to obtain a deficiency judgment against the borrower following foreclosure. A deficiency judgment is a personal judgment against the former borrower equal in most cases to the difference between the amount due to the lender and the net amount realized upon the public sale of the real property. In the case of a Loan secured by a property owned by a trust where the Mortgage Note is executed on behalf of the trust, a deficiency judgment against the trust following foreclosure or sale under a deed of trust, even if obtainable under applicable law, may be of little value to the mortgagee or beneficiary if there are no trust assets against which such deficiency judgment may be executed. Other statutes require the beneficiary or mortgagee to exhaust the security afforded under a deed of trust or mortgage by foreclosure in an attempt to satisfy the full debt before bringing a personal action against the borrower. In certain other states, the lender has the option of bringing a personal action against the borrower on the debt without first exhausting such security; however, in some of these states the lender, following judgment on such personal action, may be deemed to have elected a remedy and may be precluded from exercising remedies with respect to the security. Consequently, the practical effect of the election requirement, in those states permitting such election, is that lenders will usually proceed against the security first rather than bringing a personal action against the borrower. Finally, in certain other states, statutory provisions limit any deficiency judgment against the former borrower following a foreclosure to the excess of the outstanding debt over the fair value of the property at the time of the public sale. The purpose of these statutes is generally to prevent a beneficiary or mortgagee from obtaining a large deficiency judgment against the former borrower as a result of low or no bids at the judicial sale. In addition to laws limiting or prohibiting deficiency judgments, numerous other federal and state statutory provisions, including the federal bankruptcy laws and state laws affording relief to debtors, may interfere with or affect the ability of the secured mortgage lender to realize upon collateral or enforce a deficiency judgment. For example, with respect to federal bankruptcy law, a court with federal bankruptcy jurisdiction may permit a debtor through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in respect of a mortgage loan on a debtor's residence by paying arrearages within a reasonable time period and reinstating the original mortgage loan payment schedule even though the lender accelerated the mortgage loan and final judgment of foreclosure had been entered in state court (provided no sale of the residence had yet occurred) prior to the filing of the debtor's petition. Some courts with federal bankruptcy jurisdiction have approved plans, based on the particular facts of the reorganization case, that effected the curing of a mortgage loan default by paying arrearages over a number of years. Courts with federal bankruptcy jurisdiction also have indicated that the terms of a mortgage loan secured by property of the debtor may be modified. These courts have allowed modifications that include reducing the amount of each monthly payment, changing the rate of interest, altering the repayment schedule, forgiving all or a portion of the debt and reducing the lender's security interest to the value of the residence, thus leaving the lender a general unsecured creditor for the difference between the value of the residence and the outstanding balance of the loan. Certain states have imposed general equitable principles upon judicial foreclosure. These equitable principles are generally designed to relieve the borrower from the legal effect of the borrower's default under the related loan documents. Examples of judicial remedies that have been fashioned include judicial requirements that the lender undertake affirmative and expensive actions to determine the causes for the borrower's default and the likelihood that the borrower will be able to reinstate the loan. In some cases, lenders have been required to reinstate loans or recast payment schedules in order to accommodate borrowers who are suffering from temporary financial disabilities. In other cases, such courts have limited the right of the lender to foreclose if the default under the loan is not monetary, such as the borrower failing to adequately maintain the property or the borrower executing a second deed of trust affecting the property. Certain tax liens arising under the Internal Revenue Code of 1986, as amended, may in certain circumstances provide priority over the lien of a mortgage or deed of trust. In addition, substantive requirements 71 are imposed upon mortgage lenders in connection with the origination and the servicing of mortgage loans by numerous federal and some state consumer protection laws. These laws include, by example, the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and related statutes and the California Fair Debt Collection Practices Act. These laws and regulations impose specific statutory liabilities upon lenders who originate mortgage loans and fail to comply with the provisions of the law. In some cases, this liability may affect assignees of the mortgage loans. Environmental Legislation Certain states impose a statutory lien for associated costs on property that is the subject of a cleanup action by the state on account of hazardous wastes or hazardous substances released or disposed of on the property. Such a lien generally will have priority over all subsequent liens on the property and, in certain of these states, will have priority over prior recorded liens including the lien of a mortgage. In some states, however, such a lien will not have priority over prior recorded liens of a deed of trust. In addition, under federal environmental legislation and under state law in a number of states, a secured party which takes a deed in lieu of foreclosure or acquires a mortgaged property at a foreclosure sale or assumes active control over the operation or management of a property so as to be deemed an "owner" or "operator" of the property may be liable for the costs of cleaning up a contaminated site. Although such costs could be substantial, it is unclear whether they would be imposed on a lender (such as a Trust Estate) secured by residential real property. In the event that title to a Property securing a Mortgage Loan in a Trust Estate was acquired by the Trust and cleanup costs were incurred in respect of the Property, the holders of the related series of Securities might realize a loss if such costs were required to be paid by the Trust. Enforceability of Certain Provisions Generally all of the Loans contain due-on-sale clauses. These clauses permit the lender to accelerate the maturity of the loan if the borrower sells, transfers or conveys the property. The enforceability of these clauses has been the subject of legislation or litigation in many states, and in some cases the enforceability of these clauses was limited or denied. However, the Garn-St. Germain Depository Institutions Act of 1982 (the "Garn-St. Germain Act") preempts state constitutional, statutory and case law that prohibits the enforcement of due-on-sale clauses and permits lenders to enforce these clauses in accordance with their terms, subject to certain limited exceptions. The Garn-St Germain Act does "encourage" lenders to permit assumption of loans at the original rate of interest or at some other rate less than the average of the original rate and the market rate. The Garn-St. Germain Act also sets forth nine specific instances in which a mortgage lender covered by the Garn-St. Germain Act may not exercise a due-on-sale clause, notwithstanding the fact that a transfer of the property may have occurred. These include intra-family transfers, certain transfers by operation of law, leases of fewer than three years and the creation of a junior encumbrance. Regulations promulgated under the Garn-St. Germain Act also prohibit the imposition of a prepayment penalty upon the acceleration of a loan pursuant to a due-on-sale clause. The inability to enforce a due-on-sale clause may result in a mortgage loan bearing an interest rate below the current market rate being assumed by a new home buyer rather than being paid off, that may have an impact upon the average life of the Mortgage Loans and the number of Mortgage Loans that may be outstanding until maturity. Upon foreclosure, courts have imposed general equitable principles. These equitable principles generally are designed to relieve the borrower from the legal effect of his defaults under the loan documents. Examples of judicial remedies that have been fashioned include judicial requirements that the lender undertake affirmative and expensive actions to determine the causes for the borrower's default and the likelihood that the borrower will be able to reinstate the loan. In some cases, courts have substituted their judgment for the lender's judgment and have required that lenders reinstate loans or recast payment schedules in order to accommodate borrowers who are suffering from temporary financial disability. In other cases, courts have limited the right of the lender to foreclose if the default under the mortgage instrument is not monetary, such as the borrower failing to adequately 72 maintain the property or the borrower executing a second mortgage or deed of trust affecting the property. Finally, some courts have been faced with the issue of whether or not federal or state constitutional provisions reflecting due process concerns for adequate notice require that borrowers under deeds of trust or mortgages receive notices in addition to the statutorily prescribed minimum. For the most part, these cases have upheld the notice provisions as being reasonable or have found that the sale by a trustee under a deed of trust, or under a mortgage having a power of sale, does not involve sufficient state action to afford constitutional protections to the borrower. Certain Provisions of California Deeds of Trust Most institutional lenders in California use a form of deed of trust that confers on the beneficiary the right both to receive all proceeds collected under any hazard insurance policy and all awards made in connection with any condemnation proceedings, and to apply such proceeds and awards to any indebtedness secured by the deed of trust, in such order as the beneficiary may determine, provided, however, that California law prohibits the beneficiary from applying insurance and condemnation proceeds to the indebtedness secured by the deed of trust unless the beneficiary's security has been impaired by the casualty or condemnation, and, if such security has been impaired, permits such proceeds to be so applied only to the extent of such impairment. Thus, in the event improvements on the property are damaged or destroyed by fire or other casualty, or in the event the property is taken by condemnation, and, as a result thereof, the beneficiary's security is impaired, the beneficiary under the underlying first deed of trust will have the prior right to collect any insurance proceeds payable under a hazard insurance policy and any award of damages in connection with the condemnation and to apply the same to the indebtedness secured by the first deed of trust. Proceeds in excess of the amount of indebtedness secured by a first deed of trust will, in most cases, be applied to the indebtedness of a junior deed of trust. Another provision typically found in the forms of deed of trust used by most institutional lenders in California obligates the trustor to pay before delinquency all taxes and assessments on the property and, when due, all encumbrances, charges and liens on the property which appear prior to the deed of trust, to provide and maintain fire insurance on the property, to maintain and repair the property and not to commit or permit any waste thereof, and to appear in and defend any action or proceeding purporting to affect the property or the rights of the beneficiary under the deed of trust. Upon a failure of the trustor to perform any of these obligations, the beneficiary is given the right under the deed of trust to perform the obligation itself, at its election, with the trustor agreeing to reimburse the beneficiary for any sums expended by the beneficiary on behalf of the trustor. All sums so expended by the beneficiary become part of the indebtedness secured by the deed of trust. Applicability of Usury Laws Title V of the Depository Institutions Deregulation and Monetary Control Act of 1980, enacted in March 1980 ("Title V"), provides that state usury limitations shall not apply to certain types of residential first mortgage loans originated by certain lenders after March 31, 1980. A similar federal statute was in effect with respect to mortgage loans made during the first three months of 1980. The Office of Thrift Supervision is authorized to issue rules and regulations and to publish interpretations governing implementation of Title V. The statute authorized any state to reimpose interest rate limits by adopting, before April 1, 1983, a law or constitutional provision which expressly rejects application of the federal law. In addition, even where Title V is not so rejected, any state is authorized by the law to adopt a provision limiting discount points or other charges on mortgage loans covered by Title V. Certain states have taken action to reimpose interest rate limits or to limit discount points or other charges. As indicated above under "Underwriting Program--Representations," each Originator of a Mortgage Loan will have represented that such Mortgage Loan was originated in compliance with then applicable state laws, including usury laws, in all material respects. However, the Loan Rates on the Mortgage Loans will be subject to applicable usury laws as in effect from time to time. 73 Alternative Mortgage Instruments Alternative mortgage instruments, including ARM Loans and early ownership mortgage loans, originated by non-federally chartered lenders have historically been subjected to a variety of restrictions. Such restrictions differed from state to state, resulting in difficulties in determining whether a particular alternative mortgage instrument originated by a state-chartered lender was in compliance with applicable law. These difficulties were alleviated substantially as a result of the enactment of Title VIII of the Garn-St. Germain Act ("Title VIII"). Title VIII provides that: notwithstanding any state law to the contrary, state-chartered banks may originate alternative mortgage instruments in accordance with regulations promulgated by the Comptroller of the Currency with respect to origination of alternative mortgage instruments by national banks; state-chartered credit unions may originate alternative mortgage instruments in accordance with regulations promulgated by the National Credit Union Administration with respect to origination of alternative mortgage instruments by federal credit unions; and all other non-federally chartered housing creditors, including state-chartered savings and loan associations, state-chartered savings banks and mutual savings banks and mortgage banking companies, may originate alterative mortgage instruments in accordance with the regulations promulgated by the Federal Home Loan Bank Board, predecessor to the Office of Thrift Supervision, with respect to origination of alternative mortgage instruments by federal savings and loan associations. Title VIII provides that any state may reject applicability of the provisions of Title VIII by adopting, prior to October 15, 1985, a law or constitutional provision expressly rejecting the applicability of such provisions. Certain states have taken such action. Soldiers' and Sailors' Civil Relief Act of 1940 Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), a Obligor who enters military service after the origination of such Obligor's Mortgage Loan (including a Obligor who was in reserve status and is called to active duty after origination of the Mortgage Loan), may not be charged interest (including fees and charges) above an annual rate of 6% during the period of such Obligor's active duty status, unless a court orders otherwise upon application of the lender. The Relief Act applies to Obligors who are members of the Army, Navy, Air Force, Marines, National Guard, Reserves, Coast Guard, and officers of the U.S. Public Health Service assigned to duty with the military. Because the Relief Act applies to Obligors who enter military service (including reservists who are called to active duty) after origination of the related Mortgage Loan, no information can be provided as to the number of loans that may be effected by the Relief Act. Application of the Relief Act would adversely affect, for an indeterminate period of time, the ability of the Servicer to collect full amounts of interest on certain of the Mortgage Loans. Any shortfall in interest collections resulting from the application of the Relief Act or similar legislation or regulations, which would not be recoverable from the related Mortgage Loans, would result in a reduction of the amounts distributable to the holders of the related Securities, and would not be covered by advances, any Letter of Credit or any other form of Credit Enhancement provided in connection with the related series of Securities. In addition, the Relief Act imposes limitations that would impair the ability of the Servicer to foreclose on an affected Mortgage Loan during the Obligor's period of active duty status, and, under certain circumstances, during an additional three month period thereafter. Thus, in the event that the Relief Act or similar legislation or regulations applies to any Mortgage Loan which goes into default, there may be delays in payment and losses on the related Securities in connection therewith. Any other interest shortfalls, deferrals or forgiveness of payments on the Mortgage Loans resulting from similar legislation or regulations may result in delays in payments or losses to Securityholders of the related series. Manufactured Housing Contracts General The following discussion of certain legal aspects of the Contracts is general in nature. Because certain of such legal aspects are governed by applicable state law (which laws may differ substantially), the following does not purport to be complete nor reflect the laws of any particular state, nor encompass the laws of all states in which the properties securing the Contracts are situated. In the event that a particular Trust Fund contains Contracts with a concentration in a particular state, and such state's laws 74 vary materially from the general discussion below, the related Prospectus Supplement will elaborate on the relevant laws of such state. The summaries are qualified in their entirety by reference to the applicable federal and state laws governing the Contracts. As a result of the assignment of the Contracts in a Loan Pool to the Trustee, the Trust will succeed collectively to all of the rights (including the right to receive payment on such Contracts), and will assume the obligations of the obligee, under such Contracts. Each Contract evidences both (a) the obligation of the Obligor to repay the loan evidenced thereby, and (b) the grant of a security interest in the Manufactured Home. Certain aspects of both features of the Contracts are described more fully below. The following discussion focuses on issues relating generally to the Company's or any lender's interest in manufactured housing contracts. Security Interests in the Manufactured Homes The Manufactured Homes securing the Contracts may be located in all 50 states and the District of Columbia. Security interests in Manufactured Homes, similar to the ones securing the Contracts, ("Manufactured Homes") generally may be perfected either by notation of the secured party's lien on the certificate of title or by delivery of the required documents and payment of a fee to the state motor vehicle authority, depending on state law. In some non-title states, perfection pursuant to the provisions of the UCC is required. Generally, with respect to manufactured housing Contracts individually originated or purchased by the Company, the Company effects such notation or delivery of the required documents and fees, and obtains possession of the certificate of title or a lien certificate, as appropriate, under the laws of the state in which any Manufactured Home securing a manufactured housing conditional sales Contract is registered. If the Company fails, due to clerical errors or otherwise, to effect such notation or delivery, or files the security interest under the wrong law (for example, under a motor vehicle title statute rather than under the UCC, in a few states), the Company may not have a first-priority security interest in the Manufactured Home securing a Contract. As Manufactured Homes have become larger and often have been attached to their sites without any apparent intention to move them, courts in many states have held that Manufactured Homes, under certain circumstances, may become subject to real estate title and recording laws. As a result, a security interest in a Manufactured Home could be rendered subordinate to the interests of other parties claiming an interest in the Manufactured Home under applicable state real estate law. In order to perfect a security interest in a Manufactured Home under real estate laws, the holder of the security interest must file either a "fixture filing" under the provisions of the UCC or a real estate mortgage under the real estate laws of the state where the Manufactured Home is located. These filings must be made in the real estate records office of the county where the Manufactured Home is located. Most of the Contracts in any Loan Pool will contain provisions prohibiting the Obligor from permanently attaching the Manufactured Home to its site if it was not so attached on the date of the Contract. As long as each Manufactured Home was not so attached on the date of the Contract and the Obligor does not violate this agreement, a security interest in the Manufactured Home will be governed by the certificate of title laws or the UCC, and the notation of the security interest on the certificate of title or the filing of a UCC financing statement will be effective to maintain the priority of the Company's security interest in the Manufactured Home. Upon the conveyance of each Contract to the Company, the Company will represent that it had obtained a perfected first-priority security interest in the Manufactured Home securing the related Contract. Such representation, however, will not be based upon an inspection of the site of any Manufactured Home to determine if the Manufactured Home had become permanently attached to its site. In the absence of fraud, forgery or permanent affixation of a Manufactured Home to its site by the obligor, or administrative error by state recording officials, the notation of the lien of the Company on the certificate of title or delivery of the required documents and fees (or if applicable, perfection under the UCC) will be sufficient to protect the Company against the rights of subsequent purchasers of a Manufactured Home or subsequent lenders who take a security interest in the Manufactured Home. If there are any Manufactured Homes as to which the security interest in favor of the Company is not perfected, such security interest would be subordinate to the claims of, among others, subsequent purchasers for value of and holders of perfected security interests in such Manufactured Homes. 75 In the event that the Obligor of a Manufactured Home moves it to a state other than the state in which such Manufactured Home initially is registered, under the laws of most states, the perfected security interest in the Manufactured Home would continue for four months after such relocation and thereafter until the Obligor registers the Manufactured Home in such state. If the Obligor were to relocate a Manufactured Home to another state and were to re-register the Manufactured Home in such state, and if steps are not taken by the Company or the applicable Trust, to re-perfect an existing security interest in such state, the security interest in the Manufactured Home would cease to be perfected. A majority of states generally require surrender of a certificate of title to such Manufactured Home. The Company must therefore surrender possession if it holds the certificate of title to such Manufactured Home or, in the case of Manufactured Homes registered in states which provide for notation of lien, the Company would receive notice of surrender if its security interest in the Manufactured Home is noted on the certificate of title. Accordingly, the Company would have the opportunity to re-perfect its security interest in the Manufactured Home in the state of relocation. In states which do not require a certificate of title for registration of a Manufactured Home, re-registration could defeat the perfection. In the ordinary course of servicing its manufactured housing Contracts, the Company takes steps to effect such re-perfection upon receipt of notice of re-registration or information from the Obligor as to relocation. Similarly, when an Obligor under a Contract sells a Manufactured Home, the Company must surrender possession of the certificate of title or the Company will receive notice as a result of its lien noted thereon and accordingly the Company will have an opportunity to require satisfaction of the related Contract before release of the lien. Such protections generally would not be available in the case of security, interests in Manufactured Homes located in non-title states where perfection of such security interest is achieved by appropriate filings under the UCC (as in effect in such state). Under the laws of most states, liens for repairs performed on a Manufactured Home and liens for personal property taxes take priority over a perfected security interest in the Manufactured Home. Upon the conveyance of each Contract to the Trust, the Company will represent that it had obtained a perfected first-priority security interest in the Manufactured Home securing the related Contract. However, such warranty will not be based on any lien searches or other review. In addition, such liens could arise after the date of initial issuance of the Securities. Notice may not be given to the Company, the Servicer, the Trustee or Securityholders in the event such a lien arises. Enforcement of Security Interests in Manufactured Homes The Servicer on behalf of the Trustee, to the extent required by the Pooling and Servicing Agreement, may take action to enforce the Trustee's security interest with respect to Contracts in default by repossession and resale of the Manufactured Homes securing such defaulted Contracts. In general, as long as a Manufactured Home has not become subject to the real estate law, a creditor can repossess a Manufactured Home by voluntary surrender, by "self-help" repossession that is "peaceful" (i.e., without breach of the peace) or, in the absence of voluntary surrender and the ability to repossess without breach of the peace, by judicial process. The holder of a manufactured housing Contract generally must give the obligor a number of days' notice prior to commencement of any repossession. The UCC and consumer protection laws in most states place restrictions on repossession sales, including requiring prior notice to the obligor and commercial reasonableness in effecting such a sale. The law in most states also requires that the obligor be given notice of any sales prior to resale of the unit so that the obligor may redeem at or before such resale. Under the laws applicable in most states, a creditor is entitled to obtain a deficiency, judgment from an obligor for any deficiency on repossession and resale of the Manufactured Home securing such obligor's Contract. However, some states impose prohibitions or limitations on deficiency judgments, and in many cases the defaulting obligor would have no assets with which to pay a judgment. Certain other statutory provisions, including federal and state bankruptcy and insolvency laws and general equitable principles, may limit or delay the Company's ability to repossess and resell any Manufactured Home or enforce a deficiency judgment. Land Secured Contracts 76 General. The Land Secured Contract will, to the extent described under "The Loan Pool," be secured by Mortgages on the property on which the related Manufactured Homes are located. The Mortgages will either be mortgages or deeds of trust, depending on the general real estate practice in the state in which the Property is located. A mortgage creates a lien upon the real property described in the mortgage. There are two parties to a mortgage: the mortgagor, who is the borrower, and the mortgagee, who is the lender. The mortgagor delivers to the mortgagee a note or bond evidencing the loan and the mortgage. A deed of trust normally has three parties: the real property owner called the trustor (similar to a mortgagor), a lender called the beneficiary (similar to the mortgagee) and a third-party grantee called the trustee. Under a deed of trust, the trustor grants the property, irrevocably until the debt is paid, "in trust with power of sale" to the trustee to secure payment of the obligation. Non-Recordation. Because of the expenses and administrative inconvenience involved, the assignment of mortgages or deeds of trust to the Trustee will not be recorded with respect to the Mortgages securing each Land Secured Contract. The failure to record the assignments to the Trustee of the Mortgage securing Land Secured Contracts may result in the sale of such Contracts or the Trustee's rights in the land secured by the Mortgage being ineffective against creditors of the Company or against a trustee in bankruptcy of the Company or against a subsequent purchaser of such Contracts from the Company, without notice of the sale to the Trustee. Foreclosure. Foreclosure of a mortgage is generally accomplished by judicial action. The action is initiated by the service of legal pleadings upon all parties having an interest of record in the real property. Delays in completion of the foreclosure occasionally may result from difficulties in locating and serving necessary parties. Judicial foreclosure proceedings are generally not contested by any of the parties due to the lack of the mortgagor's equity in the property. However, when the mortgagee's right to foreclosure is contested, the legal proceedings necessary to resolve the issue can be time consuming and expensive. After the completion of a judicial foreclosure proceeding, the court issues a judgment of foreclosure and a court officer conducts the sale of the property. Foreclosure of a deed of trust is generally accomplished by a non-judicial trustee's sale under a specific provision in the deed of trust that authorizes the trustee to sell the property to a third party upon any default by the borrower under the terms of the note or deed of trust. In certain states, such foreclosure also may be accomplished by judicial action in the manner provided for foreclosure of mortgages. In some states, the borrower-trustor has the right to reinstate the loan at any time following default until shortly before the trustee's sale. In general, the borrower, or any other person having a junior encumbrance on the real estate, may, during a reinstatement period, cure the default by paying the entire amount in arrears plus the costs and expenses incurred in enforcing the obligation. Certain state laws control the amount of foreclosure expenses and costs, including attorneys' fees, which may be recovered by a lender. The sale must be conducted by public auction and must be held in the county where all or some part of the property subject to the mortgage is located. However, because of the difficulty a potential buyer at the sale would have in determining the exact status of title and because the physical condition of the property may have deteriorated during the foreclosure proceedings, it is not common for a third party to purchase the property at the foreclosure sale. Rather, the lender generally purchases the property for an amount equal to the unpaid principal amount of the note, accrued and unpaid interest and the expenses of foreclosure. Thereafter, subject to the right of the borrower in some states to remain in possession during the redemption period, the lender will assume the burdens of ownership, including obtaining hazard insurance and making such repairs at its own expense as are necessary to render the property suitable for sale. The lender commonly will obtain the services of a real estate broker and pay the broker a commission in connection with the sale of the property. Depending upon market conditions, the ultimate proceeds of the sale of the property may not equal the lender's investment in the property. Rights of Redemption. In some states, after a sale pursuant to a deed of trust or a foreclosure of a mortgage, the borrower and certain foreclosed junior lienors are given a statutory period in which to redeem the property from the foreclosure sale. Redemption may occur upon payment of the entire principal balance of the 77 loan, accrued statutory interest and expenses of foreclosure. The effect of a right of redemption is to diminish the ability of the lender to sell the foreclosed property. The exercise of a right of redemption would defeat the title of any purchaser from the lender subsequent to foreclosure and before expiration of the redemption period. Consequently, the practical effect of the redemption right is to force the lender to maintain the property, and pay the expenses of ownership until the redemption period has expired. Anti-Deficiency Legislation and Other Limitations on Lenders. Certain states have imposed statutory restrictions that limit the remedies of a mortgagee under a mortgage relating to a single family residence. In some states, statutes limit the right of the lender to obtain a deficiency judgment against the borrower following foreclosure or sale under a deed of trust. A deficiency judgment is a personal judgment against the borrower equal in most cases to the difference between the amount due to the lender and the net amount realized upon the foreclosure sale. Some state statutes may require the lender to exhaust the security afforded under a mortgage or deed of trust by foreclosure in an attempt to satisfy the full debt before bringing a personal action against the borrower. In certain other states, the lender has the option of bringing a personal action against the borrower on the debt without first exhausting such security; however, in some of these states, the lender, following judgment on such personal action, may be deemed to have elected a remedy and may be precluded from exercising remedies with respect to the security. Other statutory provisions may limit any deficiency judgment against the former borrower following a foreclosure sale to the excess of the outstanding debt over the fair market value of the property at the time of such sale. The purpose of these statutes is to prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment against the former borrower as a result of low or no bids at the foreclosure sale. In some states, exceptions to the anti-deficiency statutes are provided for in certain instances where the value of the lender's security has been impaired by acts or omissions of the borrower, for example, in the event of waste of the property. In addition to anti-deficiency and related legislation, numerous other federal and state, statutory provisions, including the federal bankruptcy laws, the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws affording relief to debtors, may interfere with or affect the ability of a secured mortgage lender to realize upon its security. A bankruptcy court may grant the debtor a reasonable time to cure a payment default, and in the case of a mortgage loan not secured by the debtor's principal residence, also may reduce the monthly payments due under such mortgage loan, change the rate of interest and alter the mortgage loan repayment schedule. Certain court decisions have applied such relief to claims secured by, the debtor's principal residence. The Code provides priority to certain tax liens over the lien of the mortgage or deed of trust. The laws of some states provide priority to certain tax liens over the lien of the mortgage or deed of trust. Numerous federal and some state consumer protection laws impose substantive requirements upon mortgage lenders in connection with the origination, servicing and enforcement of mortgage loans. These laws include the federal Truth in Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and related statutes and regulations. These federal laws and state laws impose specific statutory liabilities upon lenders who originate or service mortgage loans and who fail to comply with the provisions of the law. In some cases, this liability may affect assignees of the mortgage loans. Consumer Protection Laws The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is intended to defeat the ability of the transferor of a consumer credit contract which is the seller of goods which gave rise to the transaction (and certain related lenders and assignees) to transfer such contract free of notice of claims by the obligor thereunder. The effect of this rule is to subject the assignee of such a contract to all claims and defenses which the obligor could assert against the seller of goods. Liability under this rule is limited to amounts paid under such a contract; however, the obligor also may be able to assert the rule to set off remaining amounts due 78 as a defense against a claim brought by the assignee against such obligor. Generally, this rule will apply to any Contracts conveyed to the Trustee and to any claims made by the Servicer on behalf of the Trustee, as the assignee of the Company. Numerous other federal and state consumer protection laws impose requirements applicable to the origination and lending pursuant to such Contracts, including the Truth in Lending Act, the Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the Uniform Consumer Credit Code. In the case of some of these laws, the failure to comply with their provisions may affect the enforceability of the related Contract or create liability for the Trust. Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), if so required by a obligor under a manufactured housing contract who enters military service after the origination of such obligor's contract (including a obligor who is a member of the National Guard or is in reserve status at the time of the origination of the contract and is later called to active duty), such obligor may not be charged interest above an annual rate of 6% during the period of such obligor's active duty status, unless a court orders otherwise upon application of the lender. In addition, the Relief Act imposes limitations which would impair the ability of any lender to foreclose on an affected contract during the obligor's period of active duty status. It is possible that application of the Relief Act to certain of the Contracts could have an effect, for an indeterminate period of time, on the ability of the Servicer to collect full amounts of interest or foreclose on such Contracts and to the extent not covered by a Credit Facility, could result in delays in payment or losses to the holders of the related Certificates. The Company will not make any representation or warranty as to whether any Contract is or could become subject to the Relief Act. Transfers of Manufactured Homes; Enforceability of Restrictions on Transfer The Contracts comprising any Loan Pool generally will prohibit the sale or transfer of the related Manufactured Homes without the consent of the Obligee and permit the acceleration of the maturity of the Contracts by the Obligee upon any such sale or transfer that is not consented to. Under the Pooling and Servicing Agreement, the Servicer may be required to consent to any such transfer and to permit the assumption of the related Contract if the proposed buyer meets the Servicer's underwriting standards and enters into an assumption agreement, the Servicer determines that permitting such assumption will not materially increase the risk of nonpayment of the Contract and such action will not adversely affect or jeopardize any coverage under any insurance policy required by the Agreement. If the Servicer determines that these conditions have not been fulfilled, then it may be required to withhold its consent to the transfer, but only to the extent permitted under the Contract and applicable law and governmental regulations and only to the extent that such action will not adversely affect or jeopardize any coverage under any insurance policy required by the Agreement. In certain cases, a delinquent Obligor may attempt to transfer a Manufactured Home in order to avoid a repossession proceeding with respect to such Manufactured Home. In the case of a transfer of a Manufactured Home after which the Obligee desires to accelerate the maturity of the related Contract, the Obligee's ability to do so will depend on the enforceability under state law of the clause permitting acceleration on transfer. The Garn-St. Germain Depositary Institutions Act of 1982 preempts, subject to certain exceptions and conditions, state laws prohibiting enforcement of such clauses applicable to Manufactured Homes. To the extent such exceptions and conditions apply in some states, the Servicer may be prohibited from enforcing such a clause in respect of certain Manufactured Homes. Applicability of Usury Laws Title V of the Depository Institutions Deregulation and Monetary Controls Act of 1980, as amended ("Title V"), provides that, subject to the following conditions, state usury limitations shall not apply to any loan which is secured by a first lien on certain kinds of manufactured housing. The Contracts would be covered under Title V if, among other things, they satisfy certain conditions governing the terms of any prepayments, late charges and deferral fees and requiring a 30-day notice period prior to instituting any action leading to repossession of the related unit. 79 Title V authorized any state to reimpose limitations on interest rates and finance charges by adopting before April 1, 1983 a law or constitutional provision which expressly rejects application of the federal law. Fifteen states adopted such a law prior to the April 1, 1983 deadline. In addition, even where Title V was not so rejected, any state is authorized by the law to adopt a provision limiting discount points or other charges on loans covered by Title V. Upon the conveyance of each Contract to the Trust, Receivables Corp. will represent that such Contract complied with applicable usury laws. FEDERAL INCOME TAX CONSIDERATIONS General The following is a general discussion of the material anticipated federal income tax considerations to investors of the purchase, ownership and disposition of the Securities offered hereby. Dewey Ballantine, counsel to the Company, has issued its approving opinion of the matters discussed herein. The discussion is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. The discussion below does not purport to deal with all federal tax considerations applicable to all categories of investors, some of which may be subject to special rules. Investors should consult their own tax advisors in determining the federal, state, local and any other tax consequences to them of the purchase, ownership and disposition of the Securities. The following discussion addresses securities of three general types: (i) securities ("Grantor Trust Securities") representing interests in a Trust (a "Grantor Trust") which the Company will covenant not to elect to have treated as a real estate mortgage investment conduit (a "REMIC"); (ii) securities ("REMIC Securities") representing interests in a Trust, or a portion thereof, which the Company will covenant to elect to have treated as a REMIC under Sections 860A through 860G of the Internal Revenue Code of 1986, as amended (the "Code"); and (iii) securities ("Debt Securities") that are intended to be treated for federal income tax purposes as indebtedness secured by the underlying Loans. This Prospectus does not address the tax treatment of partnership interests. Such a discussion will be set forth in the related Prospectus Supplement for any Trust issuing Securities characterized as partnership interests. The Prospectus Supplement for each series of Securities will indicate whether a REMIC election (or elections) will be made for the related Trust and, if a REMIC election is to be made, will identify all "regular interests" and "residual interests" in the REMIC. For purposes of this discussion, references to a "Securityholder" or a "Holder" are to the beneficial owner of a Security. Grantor Trust Securities With respect to each series of Grantor Trust Securities, Dewey Ballantine, special tax counsel to the Company, will deliver its opinion to the Company that the related Grantor Trust will be classified as a grantor trust and not as a partnership or an association taxable as a corporation. Accordingly, each Holder of a Grantor Trust Security will generally be treated as the owner of an interest in the Loans included in the Grantor Trust. For purposes of the following discussion, a Grantor Trust Security representing an undivided equitable ownership interest in the principal of the Loans constituting the related Grantor Trust, together with interest thereon at a pass-through rate, will be referred to as a "Grantor Trust Fractional Interest Security." A Grantor Trust Security representing ownership of all or a portion of the difference between interest paid on the Loans constituting the related Grantor Trust and interest paid to the Holders of Grantor Trust Fractional Interest Securities issued with respect to such Grantor Trust will be referred to as a "Grantor Trust Strip Security." Special Tax Attributes Dewey Ballantine, special tax counsel to the Company, will deliver its opinion to the Company that (a) Grantor Trust Fractional Interest Securities will represent interests in (i) "qualifying real property loans" within the meaning of Section 593(d) of the Code; (ii) "loans . . . secured by an interest in real property" within the meaning of Section 7701(a)(19)(C)(v) of the Code; and (iii) "obligation[s] (including any participation or certificate of beneficial ownership therein) which . . . [are] principally secured by an interest in real property" 80 within the meaning of Section 860G(a)(3)(A) of the Code; and (b) interest on Grantor Trust Fractional Interest Securities will be considered "interest on obligations secured by mortgages on real property or on interests in real property" within the meaning of Section 856(c)(3)(B) of the Code. In addition, the Grantor Trust Strip Securities will be "obligation[s] (including any participation or certificate of beneficial ownership therein) . . . principally secured by an interest in real property" within the meaning of Section 860G(a)(3)(A) of the Code. Taxation of Holders of Grantor Trust Securities Holders of Grantor Trust Fractional Interest Securities generally will be required to report on their federal income tax returns their respective shares of the income from the Loans (including amounts used to pay reasonable servicing fees and other expenses but excluding amounts payable to Holders of any corresponding Grantor Trust Strip Securities) and, subject to the limitations described below, will be entitled to deduct their shares of any such reasonable servicing fees and other expenses. If a Holder acquires a Grantor Trust Fractional Interest Security for an amount that differs from its outstanding principal amount, the amount includible in income on a Grantor Trust Fractional Interest Security may differ from the amount of interest distributable thereon. See "--Discount and Premium." Individuals holding a Grantor Trust Fractional Interest Security directly or through certain pass-through entities will be allowed a deduction for such reasonable servicing fees and expense only to the extent that the aggregate of such Holder's miscellaneous itemized deductions exceeds 2% of such Holder's adjusted gross income. Further, Holders (other than corporations) subject to the alternative minimum tax may not deduct miscellaneous itemized deductions in determining alternative minimum taxable income. Holders of Grantor Trust Strip Securities generally will be required to treat such Securities as "stripped coupons" under Section 1286 of the Code. Accordingly, such a Holder will be required to treat the excess of the total amount of payments on such a Security over the amount paid for such Security as original issue discount and to include such discount in income as it accrues over the life of such Security. See "--Discount and Premium." Grantor Trust Fractional Interest Securities may also be subject to the coupon stripping rules if a class of Grantor Trust Strip Securities is issued as part of the same series of Securities. The consequences of the application of the coupon stripping rules would appear to be that any discount arising upon the purchase of such a Security (and perhaps all stated interest thereon) would be classified as original issue discount and includible in the Holder's income as it accrues (regardless of the Holder's method of accounting), as described below under "--Discount and Premium." The coupon stripping rules will not apply, however, if (i) the pass-through rate is no more than 100 basis points lower than the gross rate of interest payable on the underlying Loans and (ii) the difference between the outstanding principal balance on the Security and the amount paid for such Security is less than 0.25% of such principal balance times the weighted average remaining maturity of the Security. Sales of Grantor Trust Securities Any gain or loss recognized on the sale of a Grantor Trust Security (equal to the difference between the amount realized on the sale and the adjusted basis of such Grantor Trust Security) will be capital gain or loss, except to the extent of accrued and unrecognized market discount, which will be treated as ordinary income, and in the case of banks and other financial institutions except as provided under Section 582(c) of the Code. The adjusted basis of a Grantor Trust Security will generally equal its cost, increased by any income reported by the seller (including original issue discount and market discount income) and reduced (but not below zero) by any previously reported losses, any amortized premium and by any distributions of principal. Grantor Trust Reporting The Trustee will furnish to each Holder of a Grantor Trust Fractional Interest Security with each distribution a statement setting forth the amount of such distribution allocable to principal on the underlying Loans and to interest thereon at the rate at which interest is payable on such Security. In addition, within a reasonable time after the end of each calendar year, based on information provided by the Servicer, the Trustee 81 will furnish to each Holder during such year such customary factual information as the Servicer deems necessary or desirable to enable Holders of Grantor Trust Securities to prepare their tax returns and will furnish comparable information to the Internal Revenue Service (the "IRS") as and when required to do so by law. REMIC Securities If provided in a related Prospectus Supplement, an election will be made to treat a Trust as one or more REMICs under the Code. Qualification as a REMIC requires ongoing compliance with certain conditions. With respect to each series of Securities for which such an election is made, Dewey Ballantine, special tax counsel to the Company, will deliver its opinion to the Company that, assuming compliance with the Agreement, the Trust will be treated as a REMIC for federal income tax purposes. A Trust for which a REMIC election is made will be referred to herein as a "REMIC Trust." The Securities of each class will be designated as "regular interests" in the REMIC Trust except that a separate class will be designated as the "residual interest" in the REMIC Trust. The Prospectus Supplement for each series of Securities will state whether Securities of each class will constitute a regular interest (a "REMIC Regular Security") or a residual interest (a "REMIC Residual Security"). A REMIC Trust will not be subject to federal income tax except with respect to income from prohibited transactions and in certain other instances described below. See "--Taxes on a REMIC Trust." Generally, the total income from the Loans in a REMIC Trust will be taxable to the Holders of the Securities of that series, as described below. Regulations issued by the Treasury Department on December 23, 1992 (the "REMIC Regulations") provide some guidance regarding the federal income tax consequences associated with the purchase, ownership and disposition of REMIC Securities. While certain material provisions of the REMIC Regulations are discussed below, investors should consult their own tax advisors regarding the possible application of the REMIC Regulations in their specific circumstances. Special Tax Attributes REMIC Regular Securities and REMIC Residual Securities will be "regular or residual interests in a REMIC" within the meaning of Section 7701(a)(19)(C)(xi) of the Code, "qualifying real property loans" within the meaning of Section 593(d) of the Code and "real estate assets" within the meaning of Section 856(c)(5)(A) of the Code. If at any time during a calendar year less than 95% of the assets of a REMIC Trust consist of "qualified mortgages" (within the meaning of Section 860G(a)(3) of the Code) then the portion of the REMIC Regular Securities and REMIC Residual Securities that are qualifying assets under those Sections during such calendar year may be limited to the portion of the assets of such REMIC Trust that are qualified mortgages. Similarly, income on the REMIC Regular Securities and REMIC Residual Securities will be treated as "interest on obligations secured by mortgages on real property" within the meaning of Section 856(c)(3)(B) of the Code, subject to the same limitation as set forth in the preceding sentence. For purposes of applying this limitation, a REMIC Trust should be treated as owning the assets represented by the qualified mortgages. REMIC Regular Securities and REMIC Residual securities held by a financial institution to which Section 585, 586 or 593 of the Code applies will be treated as evidences of indebtedness for purposes of Section 582(c)(1) of the Code. REMIC Regular Securities will also be qualified mortgages with respect to other REMICs. Taxation of Holders of REMIC Regular Securities Except as indicated below in this federal income tax discussion, the REMIC Regular Securities will be treated for federal income tax purposes as debt instruments issued by the REMIC Trust on the date such Securities are first sold to the public (the "Closing Date") and not as ownership interests in the REMIC Trust or its assets. Holders of REMIC Regular Securities that otherwise report income under a cash method of accounting will be required to report income with respect to such Securities under an accrual method. For additional tax consequences relating to REMIC Regular Securities purchased at a discount or with premium, see "-Discount and Premium," below. 82 Taxation of Holders of REMIC Residual Securities Daily Portions. Except as indicated below, a Holder of a REMIC Residual Security for a REMIC Trust generally will be required to report its daily portion of the taxable income or net loss of the REMIC Trust for each day during a calendar quarter that the Holder owned such REMIC Residual Security. For this purpose, the daily portion shall be determined by allocating to each day in the calendar quarter its ratable portion of the taxable income or net loss of the REMIC Trust for such quarter and by allocating the amount so allocated among the Holders of REMIC Residual Securities (on such day) in accordance with their percentage interests on such day. Any amount included in the gross income or allowed as a loss of any Holder of a REMIC Residual Security by virtue of this paragraph will be treated as ordinary income or loss. The requirement that each Holder of a REMIC Residual Security report its daily portion of the taxable income or net loss of the REMIC Trust will continue until there are no Securities of any class outstanding, even though the Holder of the REMIC Residual Security may have received full payment of the stated interest and principal on its REMIC Residual Security. The Trustee will provide to Holders of REMIC Residual Securities of each series of Securities (i) such information as is necessary to enable them to prepare their federal income tax returns and (ii) any reports regarding the Securities of such series that may be required under the Code. Taxable Income or Net Loss of a REMIC Trust. The taxable income or net loss of a REMIC Trust will be the income from the qualified mortgages it holds and any reinvestment earnings less deductions allowed to the REMIC Trust. Such taxable income or net loss for a given calendar quarter will be determined in the same manner as for an individual having the calendar year as the taxable year and using the accrual method of accounting, with certain modifications. First, a deduction will be allowed for accruals of interest (including any original issue discount, but without regard to the investment interest limitation in Section 163(d) of the Code) on the REMIC Regular Securities (but not the REMIC Residual securities), even though REMIC Regular Securities are for non-tax purposes evidences of beneficial ownership rather than indebtedness of a REMIC Trust. Second, market discount or premium equal to the difference between the total stated principal balances of the qualified mortgages and the basis of the REMIC Trust therein generally will be included in income (in the case of discount) or deductible (in the case of premium) by the REMIC Trust as it accrues under a constant yield method, taking into account the "Prepayment Assumption" (as defined in the related Prospectus Supplement, see "--Discount and Premium--Original Issue Discount," below). The basis of a REMIC Trust in the qualified mortgages is the aggregate of the issue prices of all the REMIC Regular Securities and REMIC Residual Securities in the REMIC Trust on the related Closing Date. If, however, a substantial amount of a class of REMIC Regular Securities or REMIC Residual Securities has not been sold to the public, then the fair market value of all the REMIC Regular Securities or REMIC Residual Securities in that class as of the related Closing Date should be substituted for the issue price. Third, no item of income, gain, loss or deduction allocable to a prohibited transaction (see "-Taxes on a REMIC Trust-- Prohibited Transactions") will be taken into account. Fourth, a REMIC Trust generally may not deduct any item that would not be allowed in calculating the taxable income of a partnership by virtue of Section 703(a)(2) of the Code. Finally, the limitation on miscellaneous itemized deductions imposed on individuals by Section 67 of the Code will not be applied at the REMIC Trust level to any servicing and guaranty fees (See, however, "--Pass-Through of Servicing and Guaranty fees to Individuals.") In addition, under the REMIC Regulations, any expenses that are incurred in connection with the formation of a REMIC Trust and the issuance of the REMIC Regular Securities and REMIC Residual Securities are not treated as expenses of the REMIC Trust for which a deduction is allowed. If the deductions allowed to a REMIC Trust exceed its gross income for a calendar quarter, such excess will be a net loss for the REMIC Trust for that calendar quarter. The REMIC Regulations also provide that any gain or loss to a REMIC Trust from the disposition of any asset, including a qualified mortgage or "permitted investment" (as defined in Section 860G(a)(5) of the Code) will be treated as ordinary gain or loss. 83 A Holder of a REMIC Residual Security may be required to recognize taxable income without being entitled to receive a corresponding amount of cash. This could occur, for example, if the qualified mortgages are considered to be purchased by the REMIC Trust at a discount, some or all of the REMIC Regular Securities are issued at a discount, and the discount included as a result of a prepayment on a Loan that is used to pay principal on the REMIC Regular Securities exceeds the REMIC Trust's deduction for unaccrued original issue discount relating to such REMIC Regular Securities. Taxable income may also be greater in earlier years because interest expense deductions, expressed as a percentage of the outstanding principal amount of the REMIC Regular Securities, may increase over time as the earlier classes of REMIC Regular Securities are paid, whereas interest income with respect to any given Loan expressed as a percentage of the outstanding principal amount of that Loan, will remain constant over time. Basis Rules and Distributions. A Holder of a REMIC Residual security has an initial basis in its Security equal to the amount paid for such REMIC Residual Security. Such basis is increased by amounts included in the income of the Holder and decreased by distributions and by any net loss taken into account with respect to such REMIC Residual Security. A distribution on a REMIC Residual Security to a Holder is not included in gross income to the extent it does not exceed such Holder's basis in the REMIC Residual Security (adjusted as described above) and, to the extent it exceeds the adjusted basis of the REMIC Residual Security, shall be treated as gain from the sale of the REMIC Residual Security. A Holder of a REMIC Residual Security is not allowed to take into account any net loss for any calendar quarter to the extent such net loss exceeds such Holder's adjusted basis in its REMIC Residual Security as of the close of such calendar quarter (determined without regard to such net loss). Any loss disallowed by reason of this limitation may be carried forward indefinitely to future calendar quarters and, subject to the same limitation, may be used only to offset income from the REMIC Residual Security. Excess Inclusions. Any "excess inclusions" with respect to a REMIC Residual Security are subject to certain special tax rules. With respect to a Holder of a REMIC Residual Security, the "excess inclusions" for any calendar quarter is defined as the excess (if any) of the daily portions of taxable income over the sum of the "daily accruals" for each day during such quarter that such REMIC Residual Security was held by such Holder. The "daily accruals" are determined by allocating to each day during a calendar quarter its ratable portion of the product of the "adjusted issue price" of the REMIC Residual Security at the beginning of the calendar quarter and 120% of the "federal long-term rate" in effect on the Settlement Date, based on quarterly compounding and properly adjusted for the length of such quarter. For this purpose, the "adjusted issue price" of a REMIC Residual Security as of the beginning of any calendar quarter is equal to the "issue price" of the REMIC Residual Security, increased by the amount of daily accruals for all prior quarters and decreased by any distributions made with respect to such REMIC Residual Security before the beginning of such quarter. The "issue price" of a REMIC Residual Security is the initial offering price to the public (excluding bond houses and brokers) at which a substantial number of the REMIC Residual Security was sold. The "federal long-term rate" is a blend of current yields on Treasury securities having a maturity of more than nine years, computed and published monthly by the IRS. For Holders of REMIC Residual Securities that are thrift institutions described in Section 593 of the Code, income from a REMIC Residual Security generally may be offset by losses from other activities. Under the REMIC Regulations, such an organization is treated as having applied its allowable deductions for the year first to offset income that is not an excess inclusion and then to offset that portion of its income that is an excess inclusion. For other Holders of REMIC Residual Securities, any excess inclusions cannot be offset by losses from other activities. For Holders that are subject to tax only on unrelated business taxable income (as defined in Section 511 of the Code), an excess inclusion of such Holder is treated as unrelated business taxable income. With respect to variable contracts (within the meaning of Section 817 of the Code), a life insurance company cannot adjust its reserve to the extent of any excess inclusion, except as provided in regulations. The REMIC Regulations indicate that if a Holder of a REMIC Residual Security is a member of an affiliated group filing a consolidated income tax return, the taxable income of the affiliated group cannot be less than the sum of the excess inclusions attributable to all residual interests in REMICS held by members of the affiliated group. For 84 a discussion of the effect of excess inclusions on certain foreign investors that own REMIC Residual Securities, see "--Foreign Investors" below. The REMIC Regulations provide that an organization to which Section 593 of the Code applies and which is the Holder of a REMIC Residual Security may not use its allowable deductions to offset any excess inclusions with respect to such Security if such Security does not have "significant value." For this purpose, a REMIC Residual Security has "significant value" under the REMIC Regulations if (i) its issue price is at least 2% of the aggregate of the issue prices of all the REMIC Regular Securities and REMIC Residual Securities in that REMIC Trust and (ii) its "anticipated weighted average life" is at least 20% of the anticipated weighted average life of such REMIC Trust. In determining whether a REMIC Residual Security has significant value, the "anticipated weighted average life" of such Security is based in part on the Prepayment Assumption, except that all anticipated payments on such Security are taken into account, regardless to their designation as principal or interest. The anticipated weighted average life of a REMIC Trust is the weighted average of the anticipated weighted average lives of the Securities. The Treasury Department also has the authority to issue regulations that would treat all taxable income of a REMIC Trust as excess inclusions if the REMIC Residual Security does not have significant value. Although the Treasury Department did not exercise this authority in the REMIC Regulations, future regulations may contain such a rule. If such a rule were adopted, it is unclear whether the test for significant value that is contained in the REMIC Regulations and discussed in the two preceding paragraphs would be applicable. If no such rule is applicable, excess inclusions would be calculated as discussed above. In the case of any REMIC Residual Securities that are held by a real estate investment trust, the aggregate excess inclusions with respect to such REMIC Residual Securities reduced (but not below zero) by the real estate investment trust taxable income (within the meaning of Section 857(b)(2) of the Code, excluding any net capital gain) will be allocated among the shareholders of such trust in proportion to the dividends received by such shareholders from such trust, and any amount so allocated will be treated as an excess inclusion with respect to a REMIC Residual Security as if held directly by such shareholder. Similar rules will apply in the case of regulated investment companies, common trust funds and certain cooperatives that hold a REMIC Residual Security. Pass-Through of Servicing and Guaranty Fees to Individuals. A Holder of a REMIC Residual Security who is an individual will be required to include in income a share of any servicing and guaranty fees. A deduction for such fees will be allowed to such Holder only to the extent that such fees, along with certain of such Holder's other miscellaneous itemized deductions exceed 2% of such Holder's adjusted gross income. In addition, a Holder of a REMIC Residual Security may not be able to deduct any portion of such fees in computing such Holder's alternative minimum tax liability. A Holder's share of such fees will generally be determined by (i) allocating the amount of such expenses for each calendar quarter on a pro rata basis to each day in the calendar quarter, and (ii) allocating the daily amount among the Holders in proportion to their respective holdings on such day. Taxes on a REMIC Trust Prohibited Transactions. The Code imposes a tax on a REMIC equal to 100% of the net income derived from "prohibited transactions." In general, a "prohibited transaction" means the disposition of a qualified mortgage other than pursuant to certain specified exceptions, the receipt of investment income from a source other than a qualified mortgage or certain other permitted investments, the receipt of compensation for services, or the disposition of an asset purchased for temporary investment with payments on qualified mortgages pending distributions on the regular and residual interests. Contributions to a REMIC after the Startup Day. The Code imposes a tax on a REMIC equal to 100% of the value of any property contributed to the REMIC after the "startup day" (generally the same as the related 85 Closing Date). Exceptions are provided for contributions to a REMIC (i) during the three-month period beginning on the startup day, (ii) made to a qualified reserve fund by a Holder of a residual interest, (iii) in the nature of a guarantee, (iv) made to facilitate a qualified liquidation or clean-up call, and (v) as otherwise permitted by Treasury regulations. Net Income from Foreclosure Property. The Code imposes a tax on a REMIC equal to the highest corporate rate on "net income from foreclosure property." The terms "foreclosure property" (which includes property acquired by deed in lieu of foreclosure) and "net income from foreclosure property" are defined by reference to the rules applicable to real estate investment trusts. Generally, foreclosure property would be treated as such for a period of two years, with possible extensions. Net income from foreclosure property generally means gain from the sale of foreclosure property that is inventory property and gross income from foreclosure property other than qualifying rents and other qualifying income for a real estate investment trust. Sales of REMIC Securities General. Except as provided below, if a REMIC Regular or Residual Security is sold, the seller will recognize gain or loss equal to the difference between the amount realized on the sale and its "adjusted basis" in the Security. The "adjusted basis" of a REMIC Regular Security generally will equal the cost of such Security to the seller, increased by any original issue discount or market discount included in the seller's gross income with respect to such Security and reduced by distribution on such Security previously received by the seller of amounts included in the stated redemption price at maturity and by any premium that has reduced the seller's interest income with respect to such Security. See "--Discount and Premium." The adjusted basis of a REMIC Residual Security is determined as described above under "--Taxation of Holder of REMIC Residual Securities-Basis Rules and Distributions". Except as provided in the following paragraphs or under Section 582(c) of the Code, any such gain or loss will be capital gain or loss, provided such Security is held as a "capital asset" (generally, property held for investment) within the meaning of Section 1221 of the Code. Gains from the sale of a REMIC Regular Security that might otherwise be capital gain will be treated as ordinary income to the extent that such gain does not exceed the excess, if any, of (i) the amount that would have been includible in the income of the Holder of a REMIC Regular Security had income accrued at a rate equal to 110% of the "applicable federal rate" (generally, an average of current yields on Treasury securities) as of the date of purchase over (ii) the amount actually includible in such Holder's income. In addition, gain recognized on such a sale by a Holder of a REMIC Regular Security who purchased such a Security at a market discount would also be taxable as ordinary income in an amount not exceeding the portion of such discount that accrued during the period such Security was held by such Holder, reduced by any market discount includible in income under the rules described below under "--Discount and Premium." If a Holder of a REMIC Residual Security sells such Security at a loss, the loss will not be recognized if, within six months before or after the sale of the REMIC Residual Security, such Holder purchases another residual interest in any REMIC or any interest in a taxable mortgage pool (as defined in Section 7701(i) of the Code) comparable to a residual interest in a REMIC. Such disallowed loss would be allowed upon the sale of the other residual interest (or comparable interest) if the rule referred to in the preceding sentence does not apply to that sale. While this rule may be modified by Treasury regulations, to date such regulations have not been published. Transfer of REMIC Residual Securities. Section 860E(c) of the Code imposes a substantial tax, payable by the transferor (or, if a transfer is through a broker, nominee or other middleman as the transferee's agent, payable by that agent) upon any transfer of a REMIC Residual Security to a "disqualified organization" and upon a pass-through entity (including regulated investment companies, real estate investment trusts, common trust funds, partnerships, trusts, estates, certain cooperatives, and nominees) that owns a REMIC Residual Security if such pass-through entity has a disqualified organization as a record-holder. For purposes of the preceding sentence, a transfer includes any transfer of record or beneficial ownership, whether pursuant to a purchase, a default under a secured lending agreement or otherwise. 86 The term "disqualified organization" includes the United States, any state or political subdivision thereof, any foreign government, any international organization, or any agency or instrumentality of the foregoing (other than certain taxable instrumentalities), any cooperative organization furnishing electric energy or providing telephone service to persons in rural areas, or any organization (other than a farmers' cooperative) that is exempt from federal income tax, unless such organization is subject to the tax on unrelated business income. Moreover, an entity will not qualify as a REMIC unless there are reasonable arrangements designed to ensure that (i) residual interests in such entity are not held by disqualified organizations and (ii) information necessary for the application of the tax described herein will be made available. Restrictions on the transfer of a REMIC Residual Security and certain other provisions that are intended to meet this requirement are described in the related Pooling and Servicing Agreement, and will be discussed more fully in the related Prospectus Supplement relating to the offering of any REMIC Residual Security. In addition, a pass-through entity (including a nominee) that holds a REMIC Residual Security may be subject to additional taxes if a disqualified organization is a record-holder therein. A transferor of a REMIC Residual Security (or an agent of a transferee of a REMIC Residual Security, as the case may be) will be relieved of such tax liability with respect to a transfer if (i) the transferee furnishes to the transferor an affidavit that the transferee is not a disqualified organization, and (ii) the transferor (or the transferee's agent) does not have actual knowledge that the affidavit is false at the time of the transfer. Similarly, no such tax will be imposed on a pass-through entity for a period with respect to an interest therein owned by a disqualified organization if (i) the record-holder of such interest furnishes to the pass-through entity an affidavit that it is not a disqualified organization, and (ii) during such period, the pass-through entity has no actual knowledge that the affidavit is false. Under the REMIC Regulations, a transfer of a "noneconomic residual interest" to a U.S. Person (as defined below under "-- Foreign Investors--Grantor Trust Securities and REMIC Regular Securities") will be disregarded for all federal tax purposes unless no significant purpose of the transfer is to impede the assessment or collection of tax. A REMIC Residual Security would be treated as constituting a "noneconomic residual interest" unless, at the time of the transfer, (i) the present value of the expected future distributions on the REMIC Residual Securities is no less than the product of the present value of the "anticipated excess inclusions" with respect to such Security and the highest corporate rate of tax for the year in which the transfer occurs, and (ii) the transferor reasonably expects that the transferee will receive distributions from the applicable REMIC Trust in an amount sufficient to satisfy the liability for income tax on any excess inclusions at or after the time when such liability accrues. "Anticipated excess inclusions" are the excess inclusions that are anticipated to be allocated to each calendar quarter (or portion thereof) following the transfer of a REMIC Residual Security, determined as of the date such Security is transferred and based on events that have occurred as of that date and on the Prepayment Assumption. See "-- Discount and Premium" and "--Taxation of Holders of REMIC Residual Securities--Excess Inclusions". The REMIC Regulations provide that a significant purpose to impede the assessment or collection of tax exists if, at the time of the transfer, a transferor of a REMIC Residual Security has "improper knowledge" (i.e., either knew, or should have known, that the transferee would be unwilling or unable to pay taxes due on its share of the taxable income of the REMIC Trust). A transferor is presumed not to have improper knowledge if (i) the transferor conducts, at the time of a transfer, a reasonable investigation of the financial condition of the transferee and, as a result of the investigation, the transferor finds that the transferee has historically paid its debts as they come due and finds no significant evidence to indicate that the transferee will not continue to pay its debts as they come due in the future, and (ii) the transferee makes certain representations to the transferor in the affidavit relating to disqualified organizations discussed above. Transferors of a REMIC Residual Security should consult with their own tax advisors for further information regarding such transfers. Reporting and Other Administrative Matters. For purposes of the administrative provisions of the Code, each REMIC Trust will be treated as a partnership and the Holders of REMIC Residual Securities will be treated as partners. The Trustee will prepare, sign and file federal income tax returns for each REMIC Trust, which returns are subject to audit by the IRS. Moreover, within a reasonable time after the end of each calendar year, the Trustee will furnish to each Holder that received a distribution during such year a statement setting forth the portions of any such distributions 87 that constitute interest distributions, original issue discount, and such other information as is required by Treasury regulations and, with respect to Holders of REMIC Residual Securities in a REMIC Trust, information necessary to compute the daily portions of the taxable income (or net loss) of such REMIC Trust for each day during such year. The Trustee will also act as the tax matters partner for each REMIC Trust, either in its capacity as a Holder of a REMIC Residual Security or in a fiduciary capacity. Each Holder of a REMIC Residual Security, by the acceptance of its REMIC Residual Security, agrees that the Trustee will act as its fiduciary in the performance of any duties required of it in the event that it is the tax matters partner. Each Holder of a REMIC Residual Security is required to treat items on its return consistently with the treatment on the return of the REMIC Trust, unless the Holder either files a statement identifying the inconsistency or establishes that the inconsistency resulted from incorrect information received from the REMIC Trust. The IRS may assert a deficiency resulting from a failure to comply with the consistency requirement without instituting an administrative proceeding at the REMIC Trust level. The Trustee does not intend to register any REMIC Trust as a tax shelter pursuant to Section 6111 of the Code. Termination In general, no special tax consequences will apply to a Holder of a REMIC Regular Security upon the termination of a REMIC Trust by virtue of the final payment or liquidation of the last of the Loans remaining in the Trust. If a Holder's adjusted basis in its REMIC Residual Security at the time such termination occurs exceeds the amount of cash distributed to such Holder in liquidation of its interest, although the matter is not entirely free from doubt, it would appear that the Holder of the REMIC Residual Security is entitled to a loss equal to the amount of such excess. Debt Securities General With respect to each series of Debt Securities, Dewey Ballantine, special tax counsel to the Company, will deliver its opinion to the Company that the Securities will be classified as debt of the Company secured by the related Loans. Consequently, the Debt Securities will not be treated as ownership interests in the Loans or the Trust. Holders will be required to report income received with respect to the Debt Securities in accordance with their normal method of accounting. For additional tax consequences relating to Debt Securities purchased at a discount or with premium, see "-- Discount and Premium," below. Special Tax Attributes As described above, Grantor Trust Securities will possess certain special tax attributes by virtue of their being ownership interests in the underlying Loans. Similarly, REMIC Securities will possess similar attributes by virtue of the REMIC provisions of the Code. In general, Debt Securities will not possess such special tax attributes. Investors to whom such attributes are important should consult their own tax advisors regarding investment in Debt Securities. Sale or Exchange If a Holder of a Debt Security sells or exchanges such Security, the Holder will recognize gain or loss equal to the difference, if any, between the amount received and the Holder's adjusted basis in the Security. The adjusted basis in the Security generally will equal its initial cost, increased by any original issue discount or market discount previously included in the seller's gross income with respect to the Security and reduced by the payments previously received on the Security, other than payments of qualified stated interest, and by any amortized premium. In general (except as described under "-Discount and Premium-- Market Discount," below), except for certain financial institutions subject to Section 582(c) of the Code, any gain or loss on the sale or exchange of 88 a Debt Security recognized by a Holder who holds the Security as a capital asset (within the meaning of Section 1221 of the Code), will be capital gain or loss and will be long-term or short-term depending on whether the Security has been held for more than one year. Discount and Premium A Security purchased for an amount other than its outstanding principal amount will be subject to the rules governing original issue discount, market discount or premium. In addition, all Grantor Trust Strip Securities and certain Grantor Trust Fractional Interest Securities will be treated as having original issue discount by virtue of the coupon stripping rules in Section 1286 of the Code. In very general terms, (i) original issue discount is treated as a form of interest and must be included in a Holder's income as it accrues (regardless of the Holder's regular method of accounting) using a constant yield method; (ii) market discount is treated as ordinary income and must be included in a Holder's income as principal payments are made on the Security (or upon a sale of a Security); and (iii) if a Holder so elects, premium may be amortized over the life of the Security and offset against inclusions of interest income. These tax consequences are discussed in greater detail below. Original Issue Discount In general, a Security will be considered to be issued with original issue discount equal to the excess, if any, of its "stated redemption price at maturity" over its "issue price." The "issue price" of a Security is the initial offering price to the public (excluding bond houses and brokers) at which a substantial number of the Securities was sold. The issue price also includes any accrued interest attributable to the period between the beginning of the first remittance period and the Closing Date. The stated redemption price at maturity of a Security that has a notional principal amount or receives principal only, or that is or may be a Security with respect to which certain accrued interest is not distributed but added to the principal amount, is equal to the sum of all distributions to be made under such Security. The "stated redemption price at maturity" of any other Security is its stated principal amount, plus an amount equal to the excess (if any) of the interest payable on the first Distribution Date for the Security over the interest that accrues for the period from the Closing Date to the first Distribution Date. Notwithstanding the general definition, original issue discount will be treated as zero if such discount is less than 0.25 % of the stated redemption price at maturity multiplied by the weighted average life of the Security. The weighted average life of a Security is apparently computed for this purpose as the sum, for all distributions included in the stated redemption price at maturity of the amounts determined by multiplying (i) the number of complete years (rounding down for partial years) from the Closing Date until the date on which each such distribution is expected to be made under the assumption that the Loans prepay at the rate specified in the related Prospectus Supplement (the "Prepayment Assumption"), by (ii) a fraction, the numerator of which is the amount of such distribution and the denominator of which is the Security's stated redemption price at maturity. If original issue discount is treated as zero under this rule, the actual amount of original issue discount must be allocated to the principal distributions on the Security and, when each such distribution is received, gain equal to the discount allocated to such distribution will be recognized. Section 1272(a)(6) of the Code contains special original issue discount rules directly applicable to REMIC Securities and Debt Securities and applicable by analogy to Grantor Trust Securities. Investors in Grantor Trust Securities should be aware that there can be no assurance that the rules described below will be applied to such Securities. In particular with respect to Grantor Trust Strip Securities, on June 12, 1996 the Treasury issued regulations concerning the tax treatment of debt instruments that provide for one or more contingent payments (the "Contingent Payment Regulations"). Investors should be aware that while the Contingent Payment Regulations do not specifically address the taxation of Grantor Trust Strip Securities, the IRS may take the position that Grantor Trust Strip Securities should be taxed under the methods described in those regulations. In the absence of specific guidance, however, the Trustee will apply the rules of Section 1272(a)(6) to calculate accruals of original issue discount on the Grantor Trust Securities. Under these rules (described in greater detail below), (i) the amount and rate of accrual of original issue discount on each series of Securities will be based on (x) the Prepayment Assumption, and (y) in the case of a Security calling 89 for a variable rate of interest, an assumption that the value of the index upon which such variable rate is based remains equal to the value of that rate on the Closing Date, and (ii) adjustments will be made in the amount of discount accruing in each taxable year in which the actual prepayment rate differs from the Prepayment Assumption. Section 1272(a)(6)(b)(iii) of the Code requires that the prepayment assumption used to calculate original issue discount be determined in the manner prescribed in Treasury regulations. To date, no such regulations have been promulgated. The legislative history of this Code provision indicates that the assumed prepayment rate must be the rate used by the parties in pricing the particular transaction. The Company anticipates that the Prepayment Assumption for each series of Securities will be consistent with this standard. The Company makes no representation, however, that the Loans for a given series will prepay at the rate reflected in the Prepayment Assumption for that series or at any other rate. Each investor must make its own decision as to the appropriate prepayment assumption to be used in deciding whether or not to purchase any of the Securities. Each Holder of a Security must include in gross income the sum of the "daily portions" of original issue discount on its Security for each day during its taxable year on which it held such Security. For this purpose, in the case of an original Holder, the "daily portions" of original issue discount will be determined as described as follows. A calculation will first be made of the portion of the original issue discount that accrued during each "accrual period." The Trustee will supply, at the time and in the manner required by the IRS, to Holders of Securities, brokers and middlemen information with respect to the original issue discount accruing on the Securities. The Trustee will report original issue discount based on accrual periods of one month, each beginning on a payment date (or, in the case of the first such period, the Closing Date) and ending on the day before the next payment date. Under Section 1272(a)(6) of the Code, the portion of original issue discount treated as accruing for any accrual period will equal the excess, if any, of (i) the sum of (A) the present values of all the distributions remaining to be made on the Security, if any, as of the end of the accrual period and (B) the distribution made on such Security during the accrual period of amounts included in the stated redemption price at maturity over (ii) the "adjusted issue price" of such Security at the beginning of the accrual period. The present value of the remaining distributions referred to in the preceding sentence will be calculated based on (i) the yield to maturity of the Security, calculated as of the Settlement Date, giving effect to the Prepayment Assumption, (ii) events (including actual prepayments) that have occurred prior to the end of the accrual period, (iii) the Prepayment Assumption, and (iv) in the case of a Security calling for a variable rate of interest, and assumption that the value of the index upon which such variable rate is based remains the same as its value on the Closing Date over the entire life of such Security. The "adjusted issued price" of a Security at any time will equal the issue price of such Security, increased by the aggregate amount of previously accrued original issue discount with respect to such Security, and reduced by the amount of any distributions made on such Security as of that time of amounts included in the stated redemption price at maturity. The original issue discount accruing during any accrual period will then be allocated ratably to each day during the period to determine the daily portion of original issue discount. In the case of Grantor Trust Strip Securities and certain REMIC Securities, the calculation described in the preceding paragraph may produce a negative amount of original issue discount for one or more accrual periods. No definitive guidance has been issued regarding the treatment of such negative amounts. The legislative history of Section 1272(a)(6) indicates that such negative amounts may be used to offset subsequent positive accruals, but may not offset prior accruals and may not be allowed as a deduction item in a taxable year in which negative accruals exceed positive accruals. Holders of such Securities should consult their own tax advisors concerning the treatment of such negative accruals. A subsequent purchaser of a Security that purchases such Security at a cost less than its remaining stated redemption price at maturity also will be required to include in gross income for each day on which its holds such Security, the daily portion of original issue discount with respect to such Security (but reduced, if the cost of such Security to such purchaser exceeds its adjusted issue price, by an amount equal to the product of (i) such daily 90 portion and (ii) a constant fraction, the numerator of which is such excess and the denominator of which is the sum of the daily portions of original issue discount on such Security for all days on or after the day of purchase). Market Discount A Holder that purchases a Security at a market discount, that is, at a purchase price less than the remaining stated redemption price at maturity of such Security (or, in the case of a Security with original issue discount, its adjusted issue price), will be required to allocate each principal distribution first to accrued market discount on the Security, and recognize ordinary income to the extent that such distribution does not exceed the aggregate amount of accrued market discount on such Security not previously included in income. With respect to Securities that have unaccrued original issue discount, such market discount must be included in income in addition to any original issue discount. A Holder that incurs or continues indebtedness to acquire a Security at a market discount may also be required to defer the deduction of all or a portion of the interest on such indebtedness until the corresponding amount of market discount is included in income. In general terms, market discount on a Security may be treated as accruing either (i) under a constant yield method or (ii) in proportion to remaining accruals of original issue discount, if any, or if none, in proportion to remaining distributions of interest on the Security, in any case taking into account the Prepayment Assumption. The Trustee will make available, as required by the IRS, to Holders of Securities information necessary to compute the accrual of market discount. Notwithstanding the above rules, market discount on a Security will be considered to be zero if such discount is less than 0.25% of the remaining stated redemption price at maturity of such Security multiplied by its weighted average remaining life. Weighted average remaining life presumably would be calculated in a manner similar to weighted average life, taking into account payments (including prepayments) prior to the date of acquisition of the Security by the subsequent purchaser. If market discount on a Security is treated as zero under this rule, the actual amount of market discount must be allocated to the remaining principal distributions on the Security and, when each such distribution is received, gain equal to the discount allocated to such distribution will be recognized. Securities Purchased at a Premium A purchaser of a Security that purchases such Security at a cost greater than its remaining stated redemption price at maturity will be considered to have purchased such Security (a "Premium Security") at a premium. Such a purchaser need not include in income any remaining original issue discount and may elect, under Section 171(c)(2) of the Code, to treat such premium as "amortizable bond premium." If a Holder makes such an election, the amount of any interest payment that must be included in such Holder's income of each period ending on a Distribution Date will be reduced by the portion of the premium allocable to such period based on the Premium Security's yield to maturity. The legislative history of the Tax Reform Act of 1986 states that such premium amortization should be made under principles analogous to those governing the accrual of market discount (as discussed above under "--Discount and Premium--Market Discount"). If such election is made by the Holder, the election will also apply to all bonds the interest on which is not excludible from gross income ("fully taxable bonds") held by the Holder at the beginning of the first taxable year to which the election applies and to all such fully taxable bonds thereafter acquired by it, and is irrevocable without the consent of the IRS. If such an election is not made, (i) such a Holder must include the full amount of each interest payment in income as it accrues, and (ii) the premium must be allocated to the principal distributions on the Premium Security and, when each such distribution is received, a loss equal to the premium allocated to such distribution will be recognized. Any tax benefit from the premium not previously recognized will be taken into account in computing gain or loss upon the sale or disposition of the Premium Security. Some Securities may provide for only nominal distributions of principal in comparison to the distributions of interest thereon. It is possible that the IRS or the Treasury Department may issue guidance excluding such Securities from the rules generally applicable to debt instruments issued at a premium. In particular, it is possible that such a Security will be treated as having original issue discount equal to the excess of the total payments to be received thereon over its issue price. In such event, Section 1272(a)(6) of the Code 91 would govern the accrual of such original issue discount, but a Holder would recognize substantially the same income in any given period as would be recognized if an election were made under Section 171(e)(2) of the Code. Unless and until the Treasury Department or the IRS publishes specific guidance relating to the tax treatment of such Securities, the Trustee intends to furnish tax information to Holders of such Securities in accordance with the rules described in the preceding paragraph. Special Election For any Security acquired on or after April 4, 1994, a Holder may elect to include in gross income all "interest" that accrues on the Security by using a constant yield method. For purposes of the election, the term "interest" includes stated interest, acquisition discount, original issue discount, de minimis original issue discount, market discount, de minimis market discount and unstated interest as adjusted by any amortizable bond premium or acquisition premium. A Holder should consult it own tax advisor regarding the time and manner of making and the scope of the election and the implementation of the constant yield method. Backup Withholding Distributions of interest and principal, as well as distributions of proceeds from the sale of Securities, may be subject to the "backup withholding tax" under Section 3406 of the Code at rate of 31% if recipients of such distributions fail to furnish to the payor certain information, including their taxpayer identification numbers, or otherwise fail to establish an exemption from such tax. Any amounts deducted and withheld from a distribution to a recipient would be allowed as a credit against such recipient's federal income tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of distributions that is required to supply information but that does not do so in the proper manner. Foreign Investors Grantor Trust Securities and REMIC Regular Securities Distributions made on a Grantor Trust Security or a REMIC Regular Security to, or on behalf of, a Holder that is not a "U.S. Person" generally will be exempt from United States federal income and withholding taxes. The term "U.S. Person" means a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, or an estate trust that is subject to United States federal income tax regardless of the source of its income. This exemption is applicable provided (a) the Holder is not subject to United States tax as a result of a connection to the United States other than ownership of the Security, (b) the Holder signs a statement under penalties of perjury that certifies that such Holder is not a U.S. Person, and provides the name and address of such Holder, and (c) the last U.S. Person in the chain of payment to the Holder receives such statement from such Holder or a financial institution holding on its behalf and does not have actual knowledge that such statement is false. Holders should be aware that the IRS might take the position that this exemption does not apply to a Holder that also owns 10% or more of the REMIC Residual Securities of any REMIC Trust, or to a Holder that is a "controlled foreign corporation" described in Section 881(c)(3)(C) of the Code. REMIC Residual Securities Amounts distributed to a Holder of a REMIC Residual Security that is not a U.S. Person generally will be treated as interest for purposes of applying the 30% (or lower treaty rate) withholding tax on income that is not effectively connected with a United States trade or business. Temporary Treasury Regulations clarify that amounts not constituting excess inclusions that are distributed on a REMIC Residual Security to a Holder that is not a U.S. Person generally will be exempt from United States federal income and withholding tax, subject to the same conditions applicable to distributions on Grantor Trust Securities and REMIC Regular Securities, as described above, but only to the extent that the obligations directly underlying the REMIC Trust that issued the REMIC Residual Security (e.g., Loans or regular interests in another REMIC) were issued after July 18, 1984. In no case will any portion of REMIC income that constitutes an excess inclusion be entitled to any exemption 92 from the withholding tax or a reduced treaty rate for withholding. See "--Taxation of Holders of REMIC Residual Securities--Excess Inclusions." Taxation of the Securities Classified as Partnership Interests Certain Trusts may be treated as partnerships for Federal income tax purposes. In such event, the Trust may issue Debt Securities in the form of Notes, as described above, and may also issue Securities characterized as partnership interests ("Partnership Interests") as discussed in the related Prospectus Supplement. STATE TAX CONSIDERATIONS In addition to the federal income tax consequences described in " Federal Income Tax Considerations," potential investors should consider the state and local income tax consequences of the acquisition, ownership, and disposition of the Securities. State and local income tax law may differ substantially from the corresponding federal law, and this discussion does not purport to describe any aspect of the income tax laws of any state or locality. Therefore, potential investors should consult their own tax advisors with respect to the various state and local tax consequences of an investment in the Securities. ERISA CONSIDERATIONS The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), imposes certain fiduciary and prohibited transaction restrictions on employee pension and welfare benefit plans subject to ERISA ("ERISA Plans"). Section 4975 of the Code imposes essentially the same prohibited transaction restrictions on tax-qualified retirement plans described in Section 401(a) of the Code ("Qualified Retirement Plans") and on Individual Retirement Accounts ("IRAs") described in Section 408 of the Code (collectively, "Tax-Favored Plans"). Certain employee benefit plans, such as governmental plans (as defined in Section 3(32) of ERISA), are not subject to the ERISA requirements discussed herein. Accordingly, assets of such plans may generally be invested in Securities without regard to the ERISA considerations described below, subject to the provisions of applicable federal and state law. Any such plan that is a Qualified Retirement Plan and exempt from taxation under Sections 401(a) and 501(a) of the Code, however, is subject to the prohibited transaction rules set forth in Section 503 of the Code. Section 404 of ERISA imposes general fiduciary requirements, including those of investment prudence and diversification and the requirement that a Plan's investment be made in accordance with the documents governing the Plan. In addition, section 406 of ERISA and Section 4975 of the Code prohibit a broad range of transactions involving assets of ERISA Plans and Tax-Favored Plans (collectively, "Plans") and persons ("Parties in Interest" under ERISA or "Disqualified Persons" under the Code) who have certain specified relationships to the Plans, unless a statutory or administrative exemption is available. Certain Parties in Interest (or Disqualified Persons) that participate in a prohibited transaction may be subject to a penalty (or an excise tax) imposed pursuant to Section 502(i) of ERISA or Section 4975 of the Code, unless a statutory or administrative exemption is available. A Plan's investment in Securities may cause the Loans included in a Loan Pool to be deemed Plan assets. The United States Department of Labor ("DOL") has issued a final regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what constitutes the assets of a Plan. This regulation provides that, as a general rule, the underlying assets and properties of corporations, partnerships, trusts and certain other entities in which a Plan makes an investment in an "equity interest" will be deemed for purposes of ERISA to be assets of the Plan unless certain exceptions apply. 93 Under the terms of the regulation, the Trust Estate may be deemed to hold plan assets by reason of a Plan's investment in a Security; such plan assets would include an undivided interest in the Loans and any other assets held by the Trust Estate. In such an event, persons providing services with respect to the assets of the Trust Estate may be parties in interest, subject to the fiduciary responsibility provisions of Title I of ERISA, including the prohibited transaction provisions of Section 406 of ERISA (and of Section 4975 of the Code), with respect to transactions involving such assets unless such transactions are subject to a statutory or administrative exemption. An exception applies if the class of equity interests in question is: (i) "widely held" (held by 100 or more investors who are independent of the Trust Estate and each other); (ii) freely transferable; and (iii) sold as part of an offering pursuant to (A) an effective registration statement under the Securities Act of 1933, and then subsequently registered under the Securities Exchange Act of 1934 or (B) an effective registration statement under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 ("Publicly Offered Securities"). In addition, the regulation provides that if at all times more than 75% of the value of each class of equity interest in the Trust Estate is held by investors other than benefit plan investors (which is defined as including, among others, plans subject to ERISA, government plans and individual retirement accounts), the investing Plan's assets will not include any of the underlying assets of the Trust Estate. Under the regulation, a Plan will not be considered to have invested in an "equity interest" if the interest described is treated as indebtedness under applicable local law and has no substantial equity features. Generally, a profits interest in a partnership, an undivided ownership interest in property and a beneficial ownership interest in a trust are deemed to be "equity interests" under the final regulation. If Notes of a particular series were deemed to be indebtedness under applicable local law without any substantial equity features, an investing Plan's assets would include such Notes, but not, by reason of such purchase, the underlying assets of the Trust Estate. If an investing Plan's assets are considered to include the underlying assets of the Trust Estate, an exemption may be available. Various underwriters and placement agents have been granted individual exemptions by the DOL from certain of the prohibited transaction rules of ERISA with respect to the initial purchase, the holding and the subsequent resale by Plans of securities representing interests in, and the operation of, asset-backed pass-through trusts that consist of certain receivables, loans and other obligations that meet the conditions and requirements of such exemptions (each such exemption is referred to hereafter as the "Exemption"). These securities may include the Certificates. The obligations that may be held in trusts covered by the Exemption include obligations such as the Loans. Among the conditions which must be satisfied for the Exemption to apply are the following: (i) The acquisition of the Certificates by a Plan is on terms (including the price for the Certificates) that are at least as favorable to the Plan as they would be in an arm' s-length transaction with an unrelated party; (ii) The rights and interests evidenced by the Certificates acquired by the Plan are not subordinated to the rights and interests evidenced by other securities of the trust; (iii) The Certificates acquired by the Plan have received a rating at the time of such acquisition that is in one of the three highest generic rating categories from either Standard & Poor's Ratings Group ("Standard & Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Inc. ("D&P") or Fitch Investors Service, Inc. ("Fitch"); (iv) The sum of all payments made to the underwriter in connection with the distribution of the Certificates represents not more than reasonable compensation for underwriting the Certificates. The sum of all payments made to and retained by the seller pursuant to the sale of the obligations to the trust represents not more than the fair market value of such obligations. The sum of all payments made to and retained by the servicer represents not more than reasonable compensation for the servicer's services under the related servicing agreement and reimbursement of the servicer's reasonable expenses in connection therewith; 94 (v) The Trustee is not an affiliate of any other member of the Restricted Group (as defined below); and (vi) The Plan investing in the Certificates is an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission under the Securities Act of 1933. The trust also must meet the following requirements: (i) the corpus of the trust must consist solely of assets of the type which have been included in other investment pools; (ii) securities in such other investment pools must have been rated in one of the three highest rating categories of Standard & Poor's, Moody's, D&P or Fitch for at least one year prior to the Plan's acquisition of securities; and (iii) securities evidencing interests in such other investment pools must have been purchased by investors other than Plans for at least one year prior to any Plan's acquisition of Securities. Moreover, the Exemption provides relief from certain self-dealing/conflict of interest prohibited transactions that may occur when the Plan fiduciary causes a Plan to acquire securities in a trust in which the fiduciary (or its affiliate) is an obligor on the receivables held in the trust provided that, among other requirements: (i) in the case of an acquisition in connection with the initial issuance of Certificates, at least fifty (50) percent of each class of Certificates in which Plans have invested is acquired by persons independent of the Restricted Group and at least fifty (50) percent of the aggregate interest in the trust is acquired by persons independent of the Restricted Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five (5) percent or less of the fair market value of the obligations contained in the trust; (iii) the Plan's investment in Certificates does not exceed twenty-five (25) percent of all of the Certificates outstanding after the acquisition; and (iv) no more than twenty-five (25) percent of the assets of the Plan are invested in securities representing an interest in one or more trusts containing assets sold or serviced by the same entity. The Exemption does not apply to Plans sponsored by the Company, the underwriters of the Certificates, the Trustee, the Servicer, any obligor with respect to obligations included in a Trust Estate constituting more than five (5) percent of the aggregate unamortized principal balance of the assets in a Trust Estate, or any affiliate of such parties (the "Restricted Group"). There are other class (e.g. Prohibited Transaction Class Exemption 83-1) and individual prohibited transaction exemptions issued by the DOL that could apply to a Plan's acquisition or holding of Securities. The applicable Prospectus Supplement under "ERISA Considerations" may contain additional information regarding the application of the Exemption, or other prohibited transaction exemptions that may be available, with respect to the series offered thereby. Prospective Plan investors should consult with their legal advisors concerning the impact of ERISA and the Code, the potential application of the regulation described above, the Exemption or other class and individual exemptions issued by the DOL to the purchase and holding of the Securities and the potential consequences to their specific circumstances, prior to making an investment in the Securities. Moreover, each Plan fiduciary should determine whether under the general fiduciary standards of investment procedure and diversification an investment in the Securities is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan's investment portfolio. In this regard, purchasers that are insurance companies should consult with their counsel with respect to the United States Supreme Court case interpreting the fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114 S. Ct. 517 (1993). In John Hancock, the Supreme Court ruled that assets held in an insurance company's general account may be deemed to be "plan assets" for purposes of ERISA under certain circumstances. Prospective purchasers should determine whether the decision affects their ability to purchase the Securities. 95 A Plan that is exempt from federal income taxation pursuant to Section 501 of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal income taxation to the extent that its income is UBTI within the meaning of Section 512 of the Code. All "excess inclusions" of a REMIC allocated to a REMIC Residual Security held by a Tax Exempt Investor will be considered UBTI and thus will be subject to federal income tax. See " Federal Income Tax Considerations--REMICS--Taxation of Owners of REMIC Residual Securities--Excess Inclusions." LEGAL INVESTMENT MATTERS Certain classes of Securities offered hereby and by the related Prospectus Supplement will constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so long as they are rated in at least the second highest rating category by any Rating Agency, and as such may be legal investments for persons, trusts, corporations, partnerships, associations, business trusts and business entities (including depository institutions, life insurance companies and pension funds) created pursuant to or existing under the laws of the United States or of any State whose authorized investments are subject to state regulation to the same extent that, under applicable law, obligations issued by or guaranteed as to principal and interest by the United States or any agency or instrumentality thereof constitute legal investments for such entities. Under SMMEA, if a State enacted legislation on or prior to October 3, 1991 specifically limiting the legal investment authority of any such entities with respect to "mortgage related securities," such securities will constitute legal investments for entities subject to such legislation only to the extent provided therein. Certain States have enacted legislation which overrides the preemption provisions of SMMEA. SMMEA provides, however, that in no event will the enactment of any such legislation affect the validity of any contractual commitment to purchase, hold or invest in "mortgage related securities," or require the sale or other disposition of such securities, so long as such contractual commitment was made or such securities acquired prior to the enactment of such legislation. SMMEA also amended the legal investment authority of federally-chartered depository institutions as follows: federal savings and loan associations and federal savings banks may invest in, sell or otherwise deal with "mortgage related securities" without limitation as to the percentage of their assets represented thereby, federal credit unions may invest in such securities, and national banks may purchase such securities for their own account without regard to the limitations generally applicable to investment securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable federal regulatory authority may prescribe. The Federal Financial Institutions Examination Council has adopted a supervisory policy statement (the "Policy Statement"), applicable to all depository institutions, setting forth guidelines for and significant restrictions on investments in "high-risk mortgage securities." The Policy Statement has been adopted by the Federal Reserve Board, the Office of the Comptroller of the Currency, the FDIC and the Office of Thrift Supervision with an effective date of February 10, 1992. The Policy Statement generally indicates that a mortgage derivative product will be deemed to be high risk if it exhibits greater price volatility than a standard fixed rate thirty-year mortgage security. According to the Policy Statement, prior to purchase, a depository institution will be required to determine whether a mortgage derivative product that it is considering acquiring is high-risk, and if so that the proposed acquisition would reduce the institution's overall interest rate risk. Reliance on analysis and documentation obtained from a securities dealer or other outside party without internal analysis by the institution would be unacceptable. There can be no assurance as to which classes of Securities will be treated as high-risk under the Policy Statement. In addition, the National Credit Union Administration has issued regulations governing federal credit union investments which prohibit investment in certain specified types of securities, which may include certain classes of Securities. Similar policy statements have been issued by regulators having jurisdiction over other types of depository institutions. There may be other restrictions on the ability of certain investors either to purchase certain classes of Securities or to purchase any class of Securities representing more than a specified percentage of the investors' assets. The Company will make no representations as to the proper characterization of any class of Securities for legal investment or other purposes, or as to the ability of particular investors to purchase any class of Securities under applicable legal investment restrictions. These uncertainties may adversely affect the liquidity 96 of any class of Securities. Accordingly, all investors whose investment activities are subject to legal investment laws and regulations, regulatory capital requirements or review by regulatory authorities should consult with their own legal advisors in determining whether and to what extent the Securities of any class constitute legal investments under SMMEA or are subject to investment, capital or other restrictions, and whether SMMEA has been overridden in any jurisdiction applicable to such investor. USE OF PROCEEDS Substantially all of the net proceeds to be received from the sale of Securities will be applied by the Company to finance the purchase of, or to repay short-term loans incurred to finance the purchase of, the Loans underlying the Securities or will be deposited by the Company in its general funds and used by the Company for general corporate purposes, such as payment of salaries, rent, utilities and related business expenses. The Company expects that it will make additional sales of securities similar to the Securities from time to time, but the timing and amount of any such additional offerings will be dependent upon a number of factors, including the volume of loans originated or purchased by the Company, prevailing interest rates, availability of funds and general market conditions. METHODS OF DISTRIBUTION The Securities offered hereby and by the related Prospectus Supplements will be offered in series through one or more of the methods described below. The Prospectus Supplement prepared for each series will describe the method of offering being utilized for that series and will state the public offering or purchase price of such series and the net proceeds to the Company from such sale. The Company intends that Securities will be offered through the following methods from time to time and that offerings may be made concurrently through more than one of these methods or that an offering of a particular series of Securities may be made through a combination of two or more of these methods. Such methods are as follows: 1. By negotiated firm commitment or best efforts underwriting and public re-offering by underwriters; 2. By placements by the Company with institutional investors through dealers; and 3. By direct placements by the Company with institutional investors. If underwriters are used in a sale of any Securities (other than in connection with an underwriting on a best efforts basis), such Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at fixed public offering prices or at varying prices to be determined at the time of sale or at the time of commitment therefor. The managing underwriter or underwriters with respect to the offer and sale of a particular series of Securities will be set forth on the cover of the Prospectus Supplement relating to such series and the members of the underwriting syndicate, if any, will be named in such Prospectus Supplement. In connection with the sale of the Securities, underwriters may receive compensation from the Company or from purchasers of the Securities in the form of discounts, concessions or commissions. Underwriters and dealers participating in the distribution of the Securities may be deemed to be underwriters in connection with such Securities, and any discounts or commissions received by them from the Company and any profit on the resale of Securities by them may be deemed to be underwriting discounts and commissions under the Securities Act of 1933, as amended. The Prospectus Supplement will describe any such compensation paid by the Company. 97 It is anticipated that the underwriting agreement pertaining to the sale of any series of Securities will provide that the obligations of the underwriters will be subject to certain conditions precedent, that the underwriters will be obligated to purchase all such Securities if any are purchased (other than in connection with an underwriting on a best efforts basis) and that, in limited circumstances, the Company will indemnify the several underwriters and the underwriters will indemnify the Company against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended, or will contribute to payments required to be made in respect thereof. The Prospectus Supplement with respect to any series offered by placements through dealers will contain information regarding the nature of such offering and any agreements to be entered into between the Company and purchasers of Securities of such series. The Company anticipates that the Securities offered hereby will be sold primarily to institutional investors. Purchasers of Securities, including dealers, may, depending on the facts and circumstances of such purchases, be deemed to be "underwriters" within the meaning of the Securities Act of 1933, as amended, in connection with reoffers and sales by them of Securities. Holders of Securities should consult with their legal advisors in this regard prior to any such reoffer or sale. LEGAL MATTERS Certain legal matters will be passed upon for the Company by Dewey Ballantine, New York, New York and by the office of the general counsel of the Company. ADDITIONAL INFORMATION This Prospectus, together with the Prospectus Supplement for each series of Securities, contains a discussion of the material terms of the applicable exhibits to the Registration Statement and the documents referred to herein and therein. Copies of such exhibits are on file at the offices of the Securities and Exchange Commission in Washington, D.C., and may be obtained at rates prescribed by the Commission upon request to the Commission and may be inspected, without charge, at the Commission's offices. 98 INDEX OF PRINCIPAL DEFINITIONS Page ---- Accounts ..............................................................40 Accrual Securities.........................................................8 AFH ..............................................................57 AFL ...........................................................1, 57 APR ..............................................................24 ARM Loans ..............................................................19 Balloon Amount...........................................................29 Balloon Loans.............................................................17 Bankruptcy Bond...........................................................53 Bankruptcy Loss...........................................................51 Bankruptcy Loss Amount...................................................51 Base Servicing Fee.......................................................58 Book-Entry Securities....................................................36 Bulk Acquisitions.........................................................10 Buydown Account..........................................................23 Buydown Funds.............................................................22 Buydown Mortgage Loans....................................................22 Buydown Period............................................................22 Cede ...............................................................14 Certificates...............................................................6 Closing Date..............................................................38 CLTV (Combined Loan-to-Value Ratio).......................................24 Code ...............................................................80 Collateral ............................................................1, 6 Collateral Pool...........................................................21 Collateral Schedule......................................................22 Company ...........................................................1, 57 Company's Seller's Guide..................................................31 Compensating Interest.....................................................44 Contracts ...........................................................1, 21 Conventional Loans.......................................................22 Convertible Loan..........................................................29 Cooperative ..............................................................26 Cooperative Loans.........................................................21 Cooperative Notes........................................................28 Credit Enhancement.........................................................2 Credit Enhancer......................................................21, 42 Cut-Off Date.............................................................24 Debt Securities......................................................14, 80 Debt Service Reduction....................................................53 Defaulted Mortgage Loss...................................................51 Deferred Interest........................................................17 Deficient Valuation.......................................................53 Deleted Loan..............................................................30 Delinquency Advances......................................................44 Designated Depository Institution.........................................40 Detailed Description.....................................................22 Determination Date.......................................................44 Direct or Indirect Participants..........................................21 Disqualified Persons......................................................93 99 Page ---- Distribution Account......................................................40 DTC ...............................................................14 Due Date ..............................................................39 Eligible Investments......................................................40 Equity Securities..........................................................7 ERISA ..............................................................13 ERISA Plan(s)............................................................93 Exchange Act.............................................................14 Extraordinary Losses......................................................51 FHA ...............................................................27 Financial Guaranty Insurance Policy......................................54 Financial Guaranty Insurer...............................................54 Fixed-Income Securities....................................................7 Forward Purchase Agreement................................................11 Fraud Loss ..............................................................51 Fraud Loss Amount........................................................51 Funding Period.......................................................11, 38 Garn-St. Germain Act.....................................................72 Graduated Payments.......................................................23 Grantor Trust............................................................80 Grantor Trust Fractional Interest Security...............................80 Grantor Trust Securities.............................................13, 80 Grantor Trust Strip Security.............................................80 Guidelines...............................................................30 Holder ...............................................................80 Home Improvement Loans....................................................21 Indenture ...............................................................7 Indenture Trustee..........................................................7 Index ..............................................................28 Indirect Participant(s)...................................................36 Insurance Paying Agent...................................................54 Insurance Proceeds........................................................39 Insured Payment..........................................................54 Interest Payment Date....................................................64 Interest Rate..............................................................7 Investment Company Act....................................................10 IRAs ...............................................................93 IRS ..............................................................81 Junior Lien Loans.........................................................25 Land Secured Contracts....................................................18 Letter of Credit..........................................................52 Letter of Credit Bank.....................................................52 Liquidated Mortgage Loan..................................................17 Liquidation Proceeds......................................................17 Loan Pool ...............................................................1 Loan Purchase Price.......................................................30 Loan Rate ..............................................................22 Loans ...............................................................22 LTV ..............................................................24 Manufactured Homes........................................................27 Manufacturer's Invoice Price.............................................25 Master Commitments.......................................................32 100 Page ---- Master Servicer............................................................6 Master Servicing Fee.....................................................58 Mixed Use Loans.......................................................1, 21 Modified Loans...........................................................29 Mortgage Loans.........................................................1, 21 Mortgage Pool Insurance Policy............................................52 Mortgages ..............................................................10 Multi-family Loans........................................................21 Negotiated Transactions...................................................10 Net Liquidation Proceeds.................................................40 Net Loan Rate............................................................64 Note Margin ..............................................................28 Notes ...........................................................6, 27 Obligor ..............................................................16 Originator's Retained Yield...............................................58 Originators ...............................................................1 Participants..............................................................36 Parties in Interest.......................................................93 Partnership Interests....................................................14 Pass-Through Rate.........................................................43 Paying Agent.............................................................43 Payment Date...............................................................9 Percentage Interest......................................................43 Physical Certificates.....................................................35 Plan(s) ..............................................................13 Policy Statement.........................................................96 Pool Factor..............................................................46 Pooling and Servicing Agreement............................................7 Pre-Funding Account.......................................................11 Premium Security.........................................................91 Prepayment Assumption....................................................83 Principal Prepayments.....................................................39 Properties...............................................................22 Property ..............................................................10 Purchase Obligation.......................................................15 Qualified Replacement Loan................................................30 Qualified Retirement Plans...............................................93 Qualifying Rate...........................................................31 Rating Agencies..........................................................14 Realized Loss.............................................................50 Record Date ...............................................................9 Relief Act...........................................................21, 79 REMIC ...............................................................80 REMIC Regular Securities..................................................13 REMIC Regular Security...................................................82 REMIC Regulations........................................................82 REMIC Residual Securities.................................................13 REMIC Residual Security..................................................82 REMIC Securities.........................................................80 REMIC Trust..............................................................82 REMIC(s) ...............................................................2 Remittance Date..........................................................41 101 Page ---- Remittance Period..........................................................9 REO Property.............................................................48 Reserve Fund..............................................................53 Rule of 78's.............................................................24 Securities ............................................................1, 6 Security Registrar........................................................35 Securityholder...........................................................80 Securityholders............................................................1 Senior Lien..............................................................25 Senior Securities..........................................................8 Servicer ...............................................................6 Servicer(s) ...............................................................2 Servicing Advance(s).................................................... 45 Servicing Agreement........................................................7 Servicing Fee............................................................58 Single Family Loans.......................................................21 SMMEA ...............................................................13 Special Hazard Amount....................................................51 Special Hazard Insurance Policy..........................................53 Special Hazard Insurer...................................................53 Special Hazard Loss.......................................................51 Statistic Calculation Date...............................................24 Strip Securities...........................................................8 Sub-Servicers..............................................................2 Sub-Servicing Account.....................................................39 Sub-Servicing Agreement..................................................49 Subordinate Securities.....................................................8 Subordinate(d) Amount.....................................................51 Subsequent Collateral.....................................................11 Subsequent Loans..........................................................38 Tax Exempt Investor......................................................96 Tax-Favored Plans........................................................93 Title V ...........................................................73, 79 Title VIII ..............................................................73 Trust ...............................................................1 Trust Agreement............................................................6 Trust Estate...............................................................1 Trustee ...............................................................6 UCC ...............................................................36 102 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. Set forth below is an estimate of the amount of fees and expenses (other than underwriting discounts and commissions) to be incurred in connection with the issuance and distribution of the Offered Certificates. SEC Filing Fee......................................... $345 Trustee's Fees and Expenses*........................... 5,000 Legal Fees and Expenses*............................... 212,500 Accounting Fees and Expenses*.......................... 30,000 Printing and Engraving Expenses*....................... 35,000 Blue Sky Qualification and Legal Investment Fees and Expenses*........................ 10,000 Rating Agency Fees*.................................... 40,000 Certificate Insurer's Fee*............................. 40,000 Miscellaneous*......................................... 200,000 ------- TOTAL............................................. $ 572,845 ========= - ---------- * Estimated in accordance with Item 511 of Regulation S-K. Item 15. Indemnification of Directors and Officers. Indemnification. Under the laws which govern the organization of the Registrant, the Registrant has the power and in some instances may be required to provide an agent, including an officer or director, who was or is a party or is threatened to be made a party to certain proceedings, with indemnification against certain expenses, judgments, fines, settlements and other amounts under certain circumstances. Article VII, Section 6 of the By-Laws of Access Financial Lending Corp. provides that each person (including the heirs, executors, administrators, or estate of such person) who by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, and who was, is or is threatened to be made a defendant in any threatened, pending or completed suit, action or proceeding, shall be indemnified by the corporation to the full extent permitted or authorized by the General Corporation Law of Delaware against any liability, judgment, fine, amount paid in settlement, cost and expense (including attorneys' fees) actually and reasonably incurred by such person in defense of said suit, action or proceeding including, without limiting the generality of the foregoing, any liability, judgment, fine, amount paid in settlement, cost and expense (including attorneys' fees) arising out of or connected with the unlawful restraint or confinement of any such person for any purpose. The form of the Underwriting Agreement, filed as Exhibit 1.1 to this Registration Statement, provides that Access Financial Lending Corp. will indemnify and reimburse the underwriter(s) and each director, officer and controlling person of the underwriter(s) with respect to certain expenses and liabilities, including liabilities under the 1933 Act or other federal or state regulations or under the common law, which arise out of or are based on certain material misstatements or omissions in the Registration Statement. In addition, the Underwriting Agreement provides that the underwriter(s) will similarly indemnify and reimburse Access Financial Lending Corp. and each director, officer and controlling person of Access Financial Lending Corp. with respect to certain material misstatements or omissions in the Registration Statement which are based on certain written information furnished by the underwriter(s) for use in connection with the preparation of the Registration Statement. II-1 Insurance. As permitted under the laws which govern the organization of the Registrant, the Registrant has adopted by-laws which permit the board of directors to purchase and maintain insurance on behalf of the Registrant's agents, including its officers and directors, against any liability asserted against them in such capacity or arising out of such agents' status as such, whether or not the Registrant would have the power to indemnify them against such liability under applicable law. Access Financial Lending Corp. has general liability policies which insure its agents, including directors and officers, for general liability exposures. As permitted by the Employee Retirement Income Security Act of 1974, Access Financial Lending Corp. has obtained insurance covering all employees entrusted with fiduciary responsibilities under certain of its employee welfare or benefit plans. The maximum coverage provided by this policy is an aggregate of $5,000,000 per year, subject to a maximum $100,000 deductible amount with respect to each claim. Item 16. Exhibits. 1.1** -- Form of Underwriting Agreement. 1.2** -- Form of Indemnification Agreement. 3.1** -- Certificate of Incorporation of Access Financial Lending Corp. 3.2** -- By-Laws of Access Financial Lending Corp. 4.1** -- Form of Pooling and Servicing Agreement. 4.2** -- Form of Pooling and Servicing Agreement. 5.1* -- Opinion of Dewey Ballantine with respect to validity. 8.1* -- Opinion of Dewey Ballantine with respect to tax matters. 10.1** -- Form of Financial Guaranty Insurance Policy. 23.1 -- Consents of Dewey Ballantine are included in its opinions filed as Exhibits 5.1 and 8.1 hereto. 99.1* -- Form of Prospectus Supplement. 99.2* -- Form of Prospectus Supplement. - ---------- * Filed herewith. ** Previously filed. II-2 Item 17. Undertakings. A. Undertaking in respect of indemnification Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described above in Item 15, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. B. Undertaking pursuant to Rule 415. The Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change of such information in the Registration Statement; provided, however, that paragraphs (i) and (ii) do not apply if the information required to be included in the post-effective amendment is contained in periodic reports filed by the Issuer pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-3 C. Undertaking pursuant to Rule 430A. The Registrant hereby undertakes: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis Park, State of Minnesota on the 16th day of August, 1996. ACCESS FINANCIAL LENDING CORP. By /s/ Leslie Zejdlik Foster ------------------------- Leslie Zejdlik Foster President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Leslie Zejdlik Foster Director and President August 16, 1996 - ------------------------- (Principal Executive Officer) Leslie Zejdlik Foster /s/ Heather A. McQueen Director and Treasurer August 16, 1996 - ------------------------- (Principal Financial Officer and Heather A. McQueen Principal Accounting Officer) /s/ Kenneth M. Duncan Director, Chairman of the Board August 16, 1996 - ------------------------- of Directors and Chief Executive Kenneth M. Duncan Officer II-5 EXHIBIT INDEX Exhibit Location of Document in Number Description of Document Sequential Numbering System - -------------------------------------------------------------------------------- 1.1** -- Form of Underwriting Agreement. 1.2** -- Form of Indemnification Agreement. 3.1** -- Certificate of Incorporation of Access Financial Lending Corp. 3.2** -- By-Laws of Access Financial Lending Corp. 4.1** -- Form of Pooling and Servicing Agreement. 4.2** -- Form of Pooling and Servicing Agreement. 5.1* -- Opinion of Dewey Ballantine with respect to validity. 8.1* -- Opinion of Dewey Ballantine with respect to tax matters. 10.1** -- Form of Financial Guaranty Insurance Policy. 23.1 -- Consents of Dewey Ballantine are included in its opinions filed as Exhibits 5.1 and 8.1 hereto. 99.1* -- Form of Prospectus Supplement. 99.2* -- Form of Prospectus Supplement. - ---------- * Filed herewith. ** Previously filed. EX-5 2 EXHIBIT 5.1 Exhibit 5.1 [Dewey Ballantine Letterhead] August 16, 1996 Access Financial Lending Corp. 400 Highway 169 South Suite 400 St. Louis Park, Minnesota 55426-0365 Re: Access Financial Lending Corp. Asset Backed Securities ----------------------- Ladies and Gentlemen: We have acted as counsel to Access Financial Lending Corp. (the "Registrant") in connection with the preparation and filing of the registration statement on Form S-3 (such registration statement, the "Registration Statement") being filed today with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), in respect of Asset Backed Securities ("Securities") which the Registrant plans to offer in series, each series to be issued under a separate pooling and servicing agreement (a "Pooling and Servicing Agreement"), in substantially one of the forms incorporated by reference as Exhibits to the Registration Statement, among Access Financial Lending Corp. (the "Company"), a servicer to be identified in the prospectus supplement for such series of Securities (the "Servicer" for such series), and a trustee to be identified in the prospectus supplement for such series of Securities (the "Trustee" for such series). We have examined and relied on the originals or copies certified or otherwise identified to our satisfaction of all such documents and records of the Company and such other instruments and other certificates of public officials, officers and representatives of the Company and such other persons, and we have made such investigations of law, as we have deemed appropriate as a basis for the opinions expressed below. The opinions expressed below are subject to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and to general equity principles. Access Financial Lending Corp. July 25, 1996 Page 2 We are admitted to the Bar of the State of New York and we express no opinion as to the laws of any other jurisdiction except as to matters that are governed by Federal law or the laws of the State of New York. All opinions expressed herein are based on laws, regulations and policy guidelines currently in force and may be affected by future regulations. Based upon the foregoing, we are of the opinion that: 1. When, in respect of a series of Securities, a Pooling and Servicing Agreement has been duly authorized by all necessary action and duly executed and delivered by the Company, the Servicer and the Trustee for such series, such Pooling and Servicing Agreement will be a valid and legally binding obligation of the Company; and 2. When a Pooling and Servicing Agreement for a series of Securities has been duly authorized by all necessary action and duly executed and delivered by the Company, the Servicer and the Trustee for such series, and when the Securities of such series have been duly executed and authenticated in accordance with the provisions of the Pooling and Servicing Agreement, and issued and sold as contemplated in the Registration Statement and the prospectus, as amended or supplemented and delivered pursuant to Section 5 of the Act in connection therewith, such Securities will be legally and validly issued, fully paid and nonassessable, and the holders of such Securities will be entitled to the benefits of such Pooling and Servicing Agreement. This opinion is furnished by us as counsel to the Registrant and is solely for the benefit of the addressees hereof. It may not be relied upon by any other person or for any other purpose without our prior written consent. We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the reference to Dewey Ballantine in the Registration Statement and the related prospectus under the heading "Legal Matters." Very truly yours, Dewey Ballantine EX-8 3 EXHIBIT 8.1 Exhibit 8.1 [Dewey Ballantine Letterhead] August 16, 1996 Access Financial Lending Corp. 400 Highway 169 South Suite 400 St. Louis Park, Minnesota 55426-0365 Re: Access Financial Lending Corp. Asset Backed Securities ----------------------- Ladies and Gentlemen: We have acted as counsel to Access Financial Lending Corp. (the "Registrant") in connection with the preparation and filing of a registration statement on Form S-3 (the "Registration Statement") being filed today with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), in respect of Mortgage Loan Asset Backed Securities ("Securities") which the Registrant plans to offer in series. Our advice formed the basis for the description of federal income tax consequences appearing under the heading "Certain Federal Income Tax Considerations" in the prospectus contained in the Registration Statement. Such description does not purport to discuss all possible federal income tax considerations of an investment in Securities, but with respect to those tax considerations which are discussed in our opinion, the description is accurate. We hereby consent to the filing of this letter as an Exhibit to the Registration Statement and to the reference to Dewey Ballantine in the Registration Statement and related prospectus under the heading "Certain Federal Income Tax Considerations." Very truly yours, Dewey Ballantine EX-99 4 EXHIBIT 99.1 SUBJECT TO COMPLETION, DATED __________, 199_ PROSPECTUS SUPPLEMENT (To Prospectus Dated , 1996) - -------------------------------------------------------------------------------- $____________ ___________ Mortgage Loan Trust 199 - Mortgage Loan Pass-Through Certificates, Series 199 - - -------------------------------------------------------------------------------- $ % Class A-1 Group I Certificates, Variable Pass-Through Rate $ % Class A-2 Group I Certificates, ____% Pass-Through Rate $ % Class A-3 Group I Certificates, ____% Pass-Through Rate $ % Class A-4 Group I Certificates, ____% Pass-Through Rate $ % Class A-5 Group I Certificates, ____% Pass-Through Rate $ % Class A-6 Group II Certificates, Variable Pass-Through Rate - -------------------------------------------------------------------------------- Access Financial Lending Corp. Company - -------------------------------------------------------------------------------- The ________________ Mortgage Loan Asset Backed Certificates, Series 199 - (the "Certificates") will consist of six classes of offered certificates, the Class A-1 Group I Certificates, the Class A-2 Group I Certificates, the Class A-3 Group I Certificates, the Class A-4 Group I Certificates, the Class A-5 Group I Certificates (collectively, the "Class A Group I Certificates") and the Class A-6 Group II Certificates (together with the Class A Group I Certificates, the "Class A Certificates") which represent beneficial ownership interests in __________ Mortgage Loan Trust 19__-__ (the "Trust"). The assets of the Trust consist primarily of a pool (the "Pool") of fixed and adjustable rate, amortizing mortgage loans which are secured by first or second liens on residential properties (the "Mortgage Loans"), [funds on deposit in a trust account (the "Pre-Funding Account") to be established with the Trustee] and the Certificate Insurance Policy (as defined below; See the Index of Principal Definitions on page i hereof) covering the Class A Certificates. The Company has obtained a financial guaranty insurance policy (the "Certificate Insurance Policy") from (the "Certificate Insurer") which will unconditionally and irrevocably guarantee payment of certain amounts due to the Owners of the Class A Certificates to the extent described herein; see "The Certificate Insurance Policy and the Certificate Insurer -- The Certificate Insurance Policy" in this Prospectus Supplement. (Cover continued on next page) - -------------------------------------------------------------------------------- For a discussion of certain risk factors regarding an investment in the Class A Certificates, see "Risk Factors" on page S-17 herein and on page 15 of the accompanying Prospectus. - -------------------------------------------------------------------------------- ___________________ (the "Underwriters") have agreed to purchase from the Trust the Class A-1 Group I Certificates at an aggregate price of _____% of the principal amount thereof, the Class A-2 Group I Certificates at an aggregate price of _____% of the principal amount thereof, the Class A-3 Group I Certificates at an aggregate price of _____% of the principal amount thereof, the Class A-4 Group I Certificates at an aggregate price of _____% of the principal amount thereof, the Class A-5 Group I Certificates at an aggregate price of _____% of the principal amount thereof, and the Class A-6 Group II Certificates at an aggregate price of _____% of the principal amount thereof (representing $________ aggregate proceeds to the Company before deducting expenses payable by the Company, estimated at $_______) plus accrued interest, if any, from _________, 199 for the Class A-2, A-3, A-4 and A-5 Group I Certificates subject to the terms and conditions set forth in the Underwriting Agreement dated ______, 199 among the Underwriters and the Company. See "Underwriting" in this Prospectus Supplement. The Underwriters propose to offer the Class A Certificates from time to time for sale in negotiated transactions or otherwise, at market prices prevailing at the time of sale or at negotiated prices. For further information with respect to the plan of distribution and any discounts, commissions or profits on resale that may be deemed underwriting discounts or commissions, see "Underwriting" in this Prospectus Supplement. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- The Class A Certificates are offered hereby by the Underwriters when, as and if issued by the Trust, delivered and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that delivery of the Class A Certificates will be made in book-entry form only through the facilities of The Depository Trust Company, CEDEL, S.A. and Euroclear on or about ________, 199 against payment in immediately available funds. [NAME(S) OF UNDERWRITER(S)] __________ , 199 (Cover continued from previous page) The Class A Group I Certificates will represent undivided ownership interests in a group ("Group I") of Mortgage Loans in the Trust which bear fixed rates of interest and the Class A-6 Group II Certificates will represent undivided ownership interests in a group ("Group II") of Mortgage Loans in the Trust which bear adjustable rates of interest. Group I and Group II are collectively referred to herein as the "Mortgage Loan Groups" and each singularly, a "Mortgage Loan Group". The Certificates will be issued pursuant to a Pooling and Servicing Agreement ("Pooling and Servicing Agreement") among Access Financial Lending Corp. (the "Company"), __________, __________ (the "Master Servicer") and (the "Trustee"). On or prior to the Closing Date, the Company will acquire the Initial Mortgage Loans from the Originators, as described herein. In addition to the Class A Certificates, the Trust will also issue a subordinate Class of Certificates with respect to Group I (the "Class B Group I Certificates"), a subordinate Class of Certificates with respect to Group II (the "Class B Group II Certificates", together with the Class B Group I Certificates, the "Class B Certificates") and one or more Classes of Residual Certificates. Only the Class A Certificates are offered hereby. Distributions of interest on the Class A Certificates are of an equal priority to the extent described herein, and distributions on the Class B Certificates and on the Residual Certificates are subordinate to distributions on the Class A Certificates to the extent described herein. See "Description of the Certificates" herein. [The Pooling and Servicing Agreement provides that additional mortgage loans (the "Subsequent Mortgage Loans") are intended to be purchased by the Trust from the Company from time to time on or before , 199 from funds on deposit in the Pre-Funding Account. Any Subsequent Mortgage Loan so acquired by the Trust will be assigned to one (and only one) of the two Mortgage Loan Groups. On the Closing Date an aggregate cash amount not to exceed $________ will be deposited with the Trustee in the Pre-Funding Account; amounts not to exceed $________, and $________ of such aggregate amount will be funded from the sale of the Group I Certificates and the Group II Certificates, respectively, and may be used to acquire Subsequent Mortgage Loans with respect to Group I and Group II, respectively.] All of the Mortgage Loans were originated under the Company's Mortgage Loan Program by unaffiliated originators (the "Originators"). Except for certain representations and warranties relating to the Mortgage Loans and certain other matters, Access Financial Lending Corp., _________________, the Master Servicer, any Sub-Servicers and the Originators will have no obligations with respect to the Certificates. Distributions of principal and interest on the Class A Certificates will be made to the extent funds are available therefor on the day of each month or if such day is not a business day, on the next succeeding business day commencing , 199 (each, a "Payment Date") to holders of record as of the close of business on the first business day of the current calendar month (with respect to the Class A Fixed Rate Certificates) or as of the close of business on the business on the business day immediately preceding such Payment Date (with respect to the Class A-1 Group I Certificates and the Class A-6 Group II Certificates), except in the case of the first Payment Date, on which distributions will be made to holders of record as of the Closing Date (each such date being the applicable "Record Date"). An ERISA Plan purchasing the Class A Certificates should consult with its legal advisors concerning the impact of ERISA and the Code with respect to such purchase. See "Risk Factors" and "ERISA Considerations" herein. There is currently no secondary market for any Class of the Class A Certificates. There can be no assurance that a secondary market for any of the Class A Certificates will develop, or if it does develop, that it will continue. One or more elections will be made to treat certain assets of the Trust as "real estate mortgage investment conduits" ("REMICs") for federal income tax purposes, pursuant to the Internal Revenue Code of 1986, as amended (the "Code"). See "Federal Tax Consequences" herein. S-2 THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. THE CLASS A CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF ACCESS FINANCIAL LENDING CORP., THE TRUSTEE, THE CERTIFICATE INSURER, ANY SUB-SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. THE CLASS A CERTIFICATES AND THE MORTGAGE LOANS ARE NOT INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY, NOR HAS ANY GOVERNMENTAL AGENCY PASSED UPON THE ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS. AVAILABLE INFORMATION The Company has filed a Registration Statement under the Securities Act of 1933, as amended, (the "1933 Act") with the Securities and Exchange Commission (the "Commission") on behalf of the Trust with respect to the Class A Certificates offered pursuant to this Prospectus Supplement and the related Prospectus. For further information, reference is made to the Registration Statement and amendments thereof and to the exhibits thereto, which are available for inspection without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison Street, Chicago, Illinois 60661. Copies of the Registration Statement and amendments thereof and exhibits thereto may be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the Commission maintains a site on the world wide web at http://www.sec.gov containing reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. REPORTS TO THE HOLDERS So long as the Class A Certificates are in book-entry form, monthly and annual reports concerning such Certificates and the Trust will be sent by the Trustee to Cede & Co. ("Cede"), as the nominee of The Depository Trust Company ("DTC") and as registered holder of the Class A Certificates pursuant to the Pooling and Servicing Agreement. DTC will forward such reports to the Participants and indirect participants by mail for forwarding to the Owner of any Class A Certificates (the "Owner" or "Certificateholder"). See "Risk Factors" and "Description of the Certificates -- Reports to Owners". The Trust will not provide any financial information to the Owners which has been examined and reported upon, with an opinion expressed by, an independent public accountant. The Company and the Master Servicer have determined that their respective financial statements are not material to the offering made hereby. The Trust will have no assets or obligations prior to issuance of the Certificates and will engage in no activities other than those described herein. Accordingly, no financial statements with respect to the Trust are included in this Prospectus Supplement and the related Prospectus. The audited financial statements of the Certificate Insurer are set forth in Appendix A hereto. S-3 SUMMARY This summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus Supplement and the accompanying Prospectus. Reference is made to the Indices of Principal Definitions for the location in either the Prospectus or this Prospectus Supplement of the definitions of certain capitalized terms. Issuer Access Financial Mortgage Loan Trust 199_-_ (the "Trust"). Securities Offered $________ aggregate principal amount of Class A-1 Group I Certificates, Variable Pass-Through Rate; $_________ aggregate principal amount of Class A-2 Group I Certificates, ____% Pass-Through Rate; $________ aggregate principal amount of Class A-3 Group I Certificates, ____% Pass-Through Rate; $________ aggregate principal amount of Class A-4 Group I Certificates, ____% Pass-Through Rate; $________ aggregate principal amount of Class A-5 Group I Certificates, ____% Pass-Through Rate; and $________ aggregate principal amount of Class A-6 Group II Certificates. Company Access Financial Lending Corp., a Delaware corporation ("AFL") and a wholly-owned subsidiary of Access Financial Holdings Corp., a wholly-owned subsidiary of Cargill Financial Services Corporation (the "Company"). Master Servicer ___________________ (the "Master Servicer"). Trustee ____________________ (the "Trustee"). Originators of the Mortgage Loans The Mortgage Loans to be acquired by the Trust have been acquired by the Company from the Originators, in accordance with the Company's underwriting criteria. Original Pool Principal Balance $_________ as of the close of business on the Cut-Off Date. Original Group I Pool Principal Balance $_________ as of the close of business on the Cut-Off Date. Original Group II Pool Principal Balance $_________ as of the close of business on the Cut-Off Date. Closing Date ________, 199_. Cut-Off Date ________, 199_.
S-4 Description of the Certificates The Certificates will be issued by the Trust pursuant to a Pooling and Servicing Agreement to be dated as of ________, 199_ (the "Pooling and Servicing Agreement") among the Master Servicer, the Company and the Trustee. The $_________ aggregate principal amount of Class A Group I Certificates, comprised of five "sequential pay" Classes (the "Class A Group I Certificates") and the $________ aggregate principal amount of Class A-6 Group II Certificates (the "Class A-6 Group II Certificates") are senior certificates as described herein. The assets of the Trust initially will include two groups (each, a "Mortgage Loan Group") of closed-end mortgage loans (the "Initial Mortgage Loans") secured by mortgages or deeds of trust (the "Mortgages") on one-to-four family residential properties (the "Mortgaged Properties") to be conveyed to the Trust on the Closing Date [and funds on deposit in a trust account (the "Pre-Funding Account") to be established with the Trustee.] The Group I Certificates will represent undivided ownership interests in a group of fixed-rate Mortgage Loans ("Group I"). The Group II Certificates will represent undivided ownership interests in a group of adjustable-rate Mortgage Loans ("Group II"). [The Pooling and Servicing Agreement provides that additional mortgage loans (the "Subsequent Mortgage Loans") are intended to be purchased by the Trust from the Company from time to time on or before __________, 199_ from funds on deposit in the Pre-Funding Account. Any Subsequent Mortgage Loan so acquired by the Trust will be assigned to one (and only one) of the Mortgage Loan Groups. On the Closing Date an aggregate cash amount not to exceed $________ will be deposited with the Trustee in the Pre-Funding Account; amounts not to exceed $________ and $________ of such aggregate amount will be funded from the sale of the Group I Certificates and the Group II Certificates, respectively, and may be used to acquire Subsequent Mortgage Loans with respect to Group I and Group II, respectively.] The Trust will issue a subordinate Class of Certificates with respect to Group I (the "Class B Group I Certificates") and a subordinate Class of Certificates with respect to Group II (the "Class B Group II Certificates", and together with the Class B Group I Certificates, the "Class B Certificates"), which are subordinated to the Class A Group I Certificates and the Class A-6 Group II Certificates, respectively. The Class B Certificates are not being offered hereby. The Trust will also issue one residual class of Certificates with respect to each REMIC election made by the Trust (the "Residual Certificates") which are not being offered hereby and will initially be retained by the Company or its affiliates. The Class A Group I Certificates, the Class A-6 Group II Certificates, the Class B Group I Certificates, the Class B Group II Certificates and the Residual Certificates are collectively referred to as the "Certificates". The Class A Group I Certificates and the Class A-6 Group II Certificates are collectively referred to as the "Class A Certificates". A. Class A Group I The Class A Group I Certificates represent Certificates senior beneficial ownership interests in Group I. One hundred percent (100%) of the Group I Insured Distribution Amount (as described herein under "Description of the
S-5 Certificates") due to the Owners of the Class A Group I Certificates on each Payment Date is guaranteed by the Certificate Insurer. The final scheduled Payment Date for the Class A-1 Group I Certificates is ________, for the Class A-2 Group I Certificates is ________, for the Class A-3 Group I Certificates is ________, for the Class A-4 Group I Certificates is ________ and for the Class A-5 Group I Certificates is ________. Each Class of Class A Group I Certificates is issuable in original principal amounts of $1,000 and integral multiples thereof except that one certificate for each Class of Class A Group I Certificates may be issued in a different amount. B. Class A-6 Group II Certificates The Class A-6 Group II Certificates represent senior beneficial ownership interests in Group II. One hundred percent (100%) of the Group II Insured Distribution Amount (as described herein under "Description of the Certificates") due to the Owners of the Class A-6 Group II Certificates on each Payment Date is guaranteed by the Certificate Insurer. The final scheduled Payment Date for the Class A-6 Group II Certificates is ________. The Class A-6 Group II Certificates are issuable in original principal amounts of $1,000 and integral multiples thereof except that one certificate may be issued in a different amount. The Mortgage Loan Pool The statistical information concerning the Pool of Mortgage Loans is based upon Pool information as of the close of business on ________, 199_ (the "Cut-Off Date"). The Pool of Mortgage Loans consists of Notes secured by mortgages, deeds of trust or other instruments creating liens or estates in fee simple interests ("Mortgages") on one- to four-family residential properties, including investment properties. The Mortgage Loans will not be insured by primary mortgage insurance policies, nor will any pool insurance insure the Mortgage Loans. The Mortgage Loans are not guaranteed by the Company, the Master Servicer, the Sub-Servicers, the Trustee or any of their respective affiliates. The Mortgage Loans will be serviced by the Master Servicer on a "scheduled/actual" basis (i.e., "scheduled" interest and "actual" principal receipts are required to be remitted by the Master Servicer to the Trustee each month). The Subsequent Mortgage Loans to be purchased by the Trust, if available, will be originated on or prior to ____________, 199_ by one or more of the Originators, sold by such Originators to the Company and then sold by the Company to the Trust. Any Subsequent Mortgage Loans sold to the Trust will be assigned to one (and only one) of the two Mortgage Loan Groups. The Pooling and Servicing Agreement will provide that the Mortgage Loans in each Mortgage Loan Group, following the conveyance of any Subsequent Mortgage Loans to such Mortgage Loan Group, must in the aggregate conform to certain specified characteristics. See "The Mortgage Loan Pool--Conveyance of Subsequent Mortgage Loans." Each Mortgage Loan in the Trust will be assigned to one of two mortgage loan groups ("Group I" or the "Group II", each, a "Mortgage Loan Group") comprised of Mortgage Loans which bear fixed-interest rates only in the case of Group I, and Mortgage Loans which bear adjustable interest rates only in
S-6 the case of Group II. As of the Cut-Off Date, the Initial Mortgage Loans in Group I had an aggregate principal balance of approximately $________ (the "Original Group I Pool Principal Balance"), and the Initial Mortgage Loans in the Group II had an aggregate principal balance of approximately $________ (the "Original Group II Pool Principal Balance"). The sum of the Original Group I Pool Principal Balance and the Original Group II Pool Principal Balance is equal to the "Original Pool Principal Balance". The Pool of Initial Mortgage Loans in Group I consists of approximately ____ Mortgages secured by Mortgaged Properties located in __ states and the District of Columbia. The Pool of Initial Mortgage Loans in Group I consists as of the Cut-Off Date and as a percentage of the Original Group I Pool Principal Balance, of approximately ____% of loans secured by first liens on the related Mortgaged Properties and approximately ____% of loans secured by second liens on the related Mortgaged Properties. The Pool of Initial Mortgage Loans in Group I consists of approximately ____% of loans secured by primary residences. ____% of the Initial Mortgage Loans in Group I will be fully amortizing and ____% of the Initial Mortgage Loans in Group I are "balloon loans" ("Balloon Loans"). The weighted average Combined Loan-to-Value Ratio (with property values calculated as of the time of origination of the related Mortgage Loan) of the Pool of Initial Mortgage Loans in Group I is approximately ____% with a range from approximately ____% to approximately ____% the weighted average remaining term to maturity is approximately ___ months, with a range from ___ months to ___ months; the weighted average number of months since origination is approximately ___; the average principal balance of the Initial Mortgage Loans in Group I is approximately $________, the highest principal balance is approximately $________ and the lowest principal balance is approximately $________; the Coupon Rates (the "Coupon Rates") of the Initial Mortgage Loans in Group I range from ____% per annum to ____% per annum, with a weighted average Coupon Rate of approximately ____% per annum. The Pool of Initial Mortgage Loans in Group II consists of ___ Mortgages secured by Mortgaged Properties located in ___ states and the District of Columbia. The Pool of Initial Mortgage Loans in Group II consists as of the Cut-Off Date and as a percentage of the Original Group II Pool Principal Balance, of ___% of loans secured by first liens on the related Mortgaged Properties. The Pool of Initial Mortgage Loans in Group II consists of approximately ____% of loans secured by primary residences. ____% of the Initial Mortgage Loans in Group II will be fully amortizing and ____% of the Initial Mortgage Loans in Group II are Balloon Loans. The weighted average Combined Loan-to-Value Ratio (with property values calculated as of the time of origination of the related Mortgage Loan) of the Pool of Initial Mortgage Loans in Group II is approximately ____% with a range from approximately ____% to approximately ____%; the weighted average remaining term to maturity is approximately ____ months, with a range from ____ months to ____ months; the weighted average number of months since origination is approximately ___; the average principal balance of the Initial Mortgage Loans in Group II is approximately $________, the highest principal balance is approximately $________ and the lowest principal balance is approximately $_________; the Coupon Rates of the Initial Mortgage Loans in Group II range from ____% per annum to ____% per
S-7 annum, with a weighted average Coupon Rate of approximately ____% per annum; the margins of the Initial Mortgage Loans in Group II range from ____% to ____% with a weighted average margin of approximately ____% per annum. The Coupon Rates of Mortgage Loans in Group II bear interest rates that adjust semi-annually based on six-month LIBOR. In general the interest rates on the Mortgage Loans in Group II are subject to periodic interest rate caps and interest rate ceilings. [Following the initial Cut-Off Date, the Trust will be obligated to purchase from time to time on or before ________________, 199_ subject to the availability thereof, Subsequent Mortgage Loans which will be originated on or before ___________________, 199_ by one or more Originators, and acquired by the Company from such Originators for subsequent sale to the Trust pursuant to a Purchase Agreement (the "Purchase Agreement") between the Company and the Trust. Any Subsequent Mortgage Loans sold to the Trust will be assigned to one (and only one) of the two Mortgage Loan Groups. The aggregate principal amounts of Subsequent Mortgage Loans which may be acquired by the Trust and assigned to Group I and Group II are $________________ and $__________________, respectively. In connection with each purchase of Subsequent Mortgage Loans, the Trust will be required to pay to the Company a cash purchase price of 100% of the principal amount thereof from the Pre-Funding Account. Under the Pooling and Servicing Agreement, the Company will be obligated to sell Subsequent Mortgage Loans to the Trust and the Trust will be obligated, subject to the satisfaction of certain conditions described herein, to purchase such Subsequent Mortgage Loans. The Company will designate as a cut-off date (each a "Subsequent Cut-Off Date") the first day of the month in which Subsequent Mortgage Loans will be conveyed by the Company to the Trust (each a "Subsequent Transfer Date") occurring during the Funding Period (as defined herein). The Trust may purchase the Subsequent Mortgage Loans only from the Company and not from any other person.] [Pre Funding Account On the Closing Date an aggregate cash amount (the "Pre-Funded Amount"), which shall not exceed $___________, will be deposited with the Trustee in an account in the name of the Trustee on behalf of the Trust (the "Pre-Funding Account"); amounts not to exceed $_______________ and $______________ of such aggregate amount will be funded from the sale of the Group I Certificates and the Group II Certificates, respectively, and may be used to acquire subsequent Mortgage Loans with respect to Group I and Group II, respectively. During the period (the "Funding Period") from the Closing Date until the earliest of the date on which (i) the amount on deposit in the Pre-Funding Account with respect to each Mortgage Loan Group is less than $100,000, (ii) an Event of Default occurs under the Pooling and Servicing Agreement, or (iii) the ______________, 199_ Payment Date occurs, the Pre-Funded Amount will be maintained in the Pre-Funding Account. The Pre-Funding Account will be reduced during the Funding Period by the amount thereof used to purchase Subsequent Mortgage Loans in accordance with the Pooling and Servicing Agreement. The Company expects that the Pre-Funded Amount will be reduced to less than $100,000 with respect to each Mortgage Loan Group by the __________________, 199_ Payment Date. Any Pre-Funded Amount remaining at the end of the Funding Period will be used to prepay pro rata the Class A Certificates of the related Class on the ________________, 199_ Payment Date; the Pooling and Servicing Agreement does not permit Pre-Funding Account moneys
S-8 funded from the sale of one Class of Class A Certificates to be used to acquire Mortgage Loans relating to either of the other Classes of Class A Certificates.] Class A-1 Pass- Through Rate On each Payment Date, the "Class A-1 Pass-Through Rate" will be equal to the least of (i) the London interbank offered rate for one-month United States dollar deposits ("LIBOR") (calculated as described under "Description of the Certificates-- Calculation of LIBOR") as of the second to last business day prior to the immediately preceding Payment Date (or as of the second to the last business day prior to the Closing Date in the case of the first Payment Date) plus ____% per annum, (ii) the weighted average net coupon rate (i.e., the weighted average coupon rate less ____% for Servicing Fees, Trustee fees and Certificate Insurer premiums) for Group I for such Payment Date, and (iii) ____% per annum. Class A-2 Pass- Through Rate ____% per annum. Class A-3 Pass- Through Rate ____% per annum. Class A-4 Pass- Through Rate ____% per annum. Class A-5 Pass- Through Rate ____% per annum. Class A-6 Pass- Through Rate On each Payment Date, the "Class A-6 Pass-Through Rate" will be equal to the lesser of (i) LIBOR as of the second to last business day prior to the immediately preceding Payment Date (or as of the second to the last business day prior to the Closing Date in the case of the first Payment Date) plus ____% per annum, and (ii) the weighted average net coupon rate (i.e., the weighted average coupon rate less Servicing Fees, Trustee fees and Certificate Insurer premiums) for Group II for such Payment Date (the "Class A-6 Available Funds Pass-Through Rate"). The "Class A-6 Formula Pass-Through Rate" for a Payment Date is the rate described in clause (i) of the definition of "Class A-6 Group II Pass-Through Rate" on such Payment Date. The excess, if any, of (x) the interest due on the Class A-6 Certificates on any Payment Date calculated at the Class A-6 Formula Pass-Through Rate over (y) the interest due on the Class A-6 Certificates calculated at the Class A-6 Available Funds Pass-Through Rate is the "Supplemental Interest Amount" for such Payment Date. If, on any Payment Date, there is a Supplemental Interest Amount calculated for any Payment Date, the Owners of certain of the Class R Certificates have agreed to pay such amount. If the full amount of the Supplemental Interest Amount is not paid on a Payment Date, then the amount not paid will accrue interest at the Class A-6 Formula Pass-Through Rate until actual payment.
S-9 The Certificate Insurer does not guarantee the payment of, nor do the ratings assigned to the Class A-6 Certificates address the likelihood of the payment of, any Supplemental Interest Amount. Payment Dates, Record Dates and Accrual Periods On the ____ day of each month, or, if such day is not a business day, then the next succeeding business day, commencing ________, 199_ (each such day being a "Payment Date"), the Trustee will be required to distribute to the Owners of record of the Certificates as of the close of business on the first business day of the current calendar month (with respect to the Class A Fixed Rate Certificates) or as of the close of business on the business day immediately preceding such Payment Date (with respect to the Class A-1 Group I Certificates and the Class A-6 Group II Certificates), except in the case of the first Payment Date, on which distributions will be made to holders of record as of the Closing Date (each such date being the applicable "Record Date") such Owners' Percentage Interests in the amounts required to be distributed to the Owners of each Class of Certificates on such Payment Date. Interest will accrue on each Class A-2, A-3, A-4 and A-5 Group I Certificate during the period from and including the second day of the month preceding the month in which a Payment Date occurs through and including the first day of the month in which such Payment Date occurs and on each Class A-1 Group I Certificate and Class A-6 Group II Certificate from and including each Payment Date (or the Closing Date, with respect to the initial Payment Date) to and including the day preceding the current Payment Date. Each period referred to in the immediately preceding sentence relating to the accrual of interest is the "Accrual Period" for the related Class of Certificates. Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months for the Class A-2, A-3, A-4 and A-5 Group I Certificates. Interest for the Class A-1 Group I Certificates and the Class A-6 Group II Certificates will be calculated based upon the actual number of days in the related Accrual Period, divided by 360. Distributions on the Certificates A. Priority of Distributions As more fully described herein, each Class of Certificates has a specified priority to the collections on the Pool of Mortgage Loans which comprise the related Mortgage Loan Group, subject to the credit enhancement and cross-collateralization provisions hereinafter described. In addition, _______________________, as Certificate Insurer, is required pursuant to the Certificate Insurance Policy to make available to the Trustee on each Payment Date 100% of the related Class A Insured Distribution Amount for the related Mortgage Loan Group to the extent that available funds remaining after payment of the Certificate Insurer's premium and the Trustee's fee are insufficient to cover such amount. The Owners of the Class A Group I Certificates and the Class A-6 Group II Certificates will receive certain monthly distributions of principal on each Payment Date which generally reflect collections of principal during the prior Remittance Period with respect to the related Mortgage Loan Group.
S-10 The Certificate Insurance Policy only guarantees the amount by which the sum of the related Interest Distribution Amount and the related Subordination Deficit, if any, exceeds Total Available Funds. B. Distributions on the Class A Certificates 1. Interest Interest will accrue on each Class of Class Distributions A Certificates at the related Class A Pass-Through Rate during each Accrual Period for such Class of Certificates, and will be distributed, to the extent of the Total Available Funds for the related Mortgage Loan Group plus the proceeds of any Insured Payments, on each Payment Date. Interest accruing during the related Accrual Period at the related Class A Pass-Through Rate on the related Class A Principal Balance immediately preceding such Payment Date is referred to herein as the "Class A Interest Distribution Amount" for the related Class of Class A Certificates. The "Class A Interest Distribution Amount" does not include the amounts, if any, of the Supplemental Interest Amount applicable to the Class A-6 Group II Certificates. See "Description of the Certificates -- Flow of Funds and Distributions on the Class A Certificates" herein. 2. Principal The Holders of the Class A Certificates Distributions issued with respect to each Mortgage Loan Group will be entitled to receive on each Payment Date a distribution allocable to principal (the "Class A Principal Distribution Amount" for such Mortgage Loan Group and Payment Date) which will be equal to the lesser of: (a) the Total Available Funds for the related Mortgage Loan Group plus any related Insured Payment minus the interest then due on account of the related Class A Certificates; and (b) (i)the sum, without duplication, of: (x) for the Mortgage Loans in the related Mortgage Loan Group, the sum of (i) the principal portion of all scheduled and unscheduled payments received on the Mortgage Loans during the related Remittance Period, including (a) any full or partial principal prepayments of any Mortgage Loans ("Prepayments") received during the related Remittance Period, (b) the proceeds received on any insurance policy relating to a Mortgage Loan, a Mortgaged Property or a REO Property, net of proceeds to be applied to the repair of the Mortgaged Property or released to the Mortgagor (as defined herein) and net of expenses reimbursable therefrom ("Insurance Proceeds"), (c) proceeds received in connection with the liquidation of any defaulted Mortgage Loans, whether by trustee's sale, foreclosure sale or otherwise ("Liquidation Proceeds"), net of fees and advances reimbursable therefrom ("Net Liquidation Proceeds") and (d) proceeds received in connection with a taking of a Mortgaged Property by condemnation or the exercise of eminent domain or in connection with a release of part of
S-11 the Mortgaged Property from the related lien ("Released Mortgaged Property Proceeds"), (ii) the principal portion of all amounts deposited into the Principal and Interest Account on the related Remittance Date in connection with the repurchase of, or the substitution of a substantially similar mortgage loan for, a Mortgage as to which there is defective documentation or a breach of a representation or warranty contained in the Pooling and Servicing Agreement, [(iii) any moneys released from the Pre-Funding Account at the end of the Funding Period as a prepayment of the related Class of Class A Certificates,] and (iv) the proceeds received by the Trustee in connection with any termination of the Trust, to the extent that such proceeds relate to principal. (y) the amount of any Subordination Deficit with respect to the related Mortgage Loan Group for such Payment Date; and (z) the amount of any Subordination Increase Amount with respect to the related Mortgage Loan Group for such Payment Date, to the extent of the Class B Interest available to be applied for such purpose for such Payment Date; minus (ii) the amount of any Subordination Reduction Amount with respect to the related Mortgage Loan Group for such Payment Date. The amount of any Subordination Deficit or Subordination Increase Amount to be paid to the Holders of the Class A Certificates will be paid to the Holders of the Class A Certificates then entitled to receive distributions of principal. Similarly, the amount of any Subordination Reduction Amount to be deducted from the Class A Principal Distribution Amount for the Class A Certificates will be deducted from such amounts otherwise due to the Holders of the Class A Certificates then entitled to receive distributions of principal. The amount of any loss on a Liquidated Mortgage Loan in the related Mortgage Loan Group (i.e., a Realized Loss) may or may not be allocated to the Owners of the Class A Certificates issued with respect to such Mortgage Loan Group on the Payment Date which immediately follows the event of loss. However, the Owners of each Class of the Class A Certificates are entitled to receive ultimate recovery of 100% of the original principal balance for such Class. The Class A Group I Certificates have been tranched into five "sequential pay" Classes, such that the Class A-5 Group I Certificates are entitled to receive no principal distributions until the Class A-4 Certificate Principal Balance has been reduced to zero, the Class A-4 Group I Certificates are entitled to receive no principal distributions until the Class A-3 Certificate Principal Balance has been reduced to zero, the Class A-3 Group I Certificates are entitled to receive no principal distributions until the Class A-2 Certificate Principal Balance has been reduced to zero, and the Class A-
S-12 2 Group I Certificates are entitled to receive no principal distributions until the Class A-1 Certificate Principal Balance has been reduced to zero. As of any Payment Date, the "Class A Certificate Principal Balance" for a Class of Class A Certificates, prior to any distribution on such Payment Date, will equal the original Class A Certificate Principal Balance of such Class less the sum of all amounts previously distributed to the Owners of the related Class of Class A Certificates on account of principal. "Class A Group I Certificate Principal Balance" refers to the Class A Group I Certificates, and the "Class A Group II Certificate Principal Balance" refers to the Class A-6 Group II Certificates. C. Class A Distribution Amounts and Class A Insured The "Class A Distribution Amount" with Distribution Amounts respect to each Class of Class A Certificates and Payment Date is the sum, without duplication, of (x) the Class A Interest Distribution Amount with respect to such Class and Payment Date, (y) the Class A Principal Distribution Amount, if any, with respect to such Class and Payment Date and (z) the Class A Carry-Forward Amount, if any, with respect to such Class and Payment Date. The "Class A Carry-Forward Amount" means, with respect to each Class of Class A Certificates and Payment Date, the sum, without duplication, of (a) the amount, if any, by which (x) the Class A Distribution Amount for the related Class of Class A Certificates as of the immediately preceding Payment Date exceeded (y) the amount of the actual distribution, exclusive of any portion thereof representing the proceeds of an Insured Payment, to the Owners of the related Class of Class A Certificates on such immediately preceding Payment Date and (b) interest on the amount, if any, described in clause (a) at the related Class A Pass-Through Rate from such immediately preceding Payment Date. The "Class A Insured Distribution Amount" with respect to each Class of Class A Certificates and Payment Date is the sum, without duplication, of (x) the Class A Interest Distribution Amount with respect to such Class and Payment Date, (y) the amount of any Subordination Deficit with respect to such Class and Payment Date and (z) the Class A Carry-Forward Amount, if any, with respect to such class and Payment Date. To the extent that the Certificate Insurer pays Insured Payments the Certificate Insurer, as subrogee, will be entitled to receive the Class A Carry-Forward Amount. The Pooling and Servicing Agreement provides that to the extent any portion of a Class A Carry-Forward Amount relates to principal such portion shall be treated as a distribution of principal, with any portion which relates to interest being treated as a distribution of interest. [Mandatory Prepayment Of the maximum original Pre-Funding Amount of $________, maximum amounts of $________ and $________ will be funded from the proceeds of the scale of the Group I Certificates and the Group II Certificates, respectively and may be used to acquire Subsequent Mortgage Loans with respect to Group I and Group II, respectively. In the event that, on the
S-13 199_ Payment Date, not all of the $________ and $________ funded from the proceeds of the sale of the Group I Certificates and the Group II Certificates, respectively, has been used to acquire subsequent Mortgage Loans with respect to the related Mortgage Loan Group, then the related Class A Certificates will be prepaid in part on such date, on a pro rata basis with respect to the Owners of individual Certificates of the related Group, from and to the extent of such remaining amounts. The Pooling and Servicing Agreement does not permit Pre-Funding Account moneys funded from the sale of one Group of Class A Certificates to be used to acquire Mortgage Loans relating to the other Group of Class A Certificates.] Registration of the Class A Certificates The Class A Certificates will initially be issued in book-entry form. Persons acquiring beneficial ownership interests in such Class A Certificates ("Beneficial Certificate Owners") may elect to hold their interests through The Depository Trust Company ("DTC"), in the United States, or Centrale de Livraison de Valeurs Mobiliers, S.A. ("CEDEL") or the Euroclear System ("Euroclear"), in Europe. Transfers within DTC, CEDEL or Euroclear, as the case may be, will be in accordance with the usual rules and operating procedures of the relevant system. So long as the Class A Certificates are book-entry certificates, such Class A Certificates will be evidenced by one or more Class A Certificates registered in the name of Cede & Co. ("Cede"), as the nominee of DTC or one of the relevant depositories (collectively, the "European Depositories"). Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and counterparties holding directly or indirectly through CEDEL or Euroclear, on the other, will be effected in DTC through Citibank N.A. ("Citibank") or Morgan Guaranty Trust Company of New York ("Morgan"), the relevant depositories of CEDEL or Euroclear, respectively, and each a participating member of DTC. The Class A Certificates will initially be registered in the name of Cede. The interests of the Owners of such Class A Certificates will be represented by book-entries on the records of DTC and participating members thereof. No Beneficial Certificate Owner will be entitled to receive a definitive certificate representing such person's interest, except in the event that Definitive Certificates (as defined herein) are issued under the limited circumstances described herein. All references herein to any Class A Certificates reflect the rights of Beneficial Certificate Owners only as such rights may be exercised through DTC and its participating organizations for so long as such Class A Certificates are held by DTC. See "Risk Factors" and "Description of the Certificates -- Book-Entry Registration of the Class A Certificates" herein. Servicing of the The Master Servicer has agreed to service Mortgage Loans the Mortgage Loans in accordance with the Pooling and Servicing Agreement. In certain limited circumstances, the Master Servicer may be removed as Master Servicer under the Pooling and Servicing Agreement. In the event that __________ is removed as Master Servicer under the Pooling and Servicing Agreement, a successor Master Servicer will be appointed thereunder. The Master Servicer has entered into certain Sub-Servicing Agreements with respect to the Mortgage Loans. See "The Company and the Master Servicer."
S-14 Monthly Servicing Fee The Master Servicer will retain fees not in excess of ____% per annum (the "Servicing Fee"), payable monthly at one-twelfth the annual rate, of the then outstanding principal amount of each Mortgage Loan serviced by it as of the close of business on the first day of the preceding calendar month. Subordination of Class B The Class B Certificates are subordinated to Certificates the Class A Certificates. Such subordination is intended to enhance the likelihood that the Owners of the Class A Certificates will receive full and timely receipt of all amounts due to them. See "Description of the Certificates -- Subordination of Class B Certificates" herein. Certificate Insurer __________________, a _________________. Certificate The Company will obtain the Certificate Insurance Policy Insurance Policy, which is non-cancelable, in favor of the Trustee on behalf of the Owners of the Class A Certificates. On each Payment Date, the Certificate Insurer is required to make available to the Trustee the amount of any insufficiency in Total Available Funds for the related Mortgage Loan Group as of such Payment Date necessary to distribute the Class A Insured Distribution Amount with respect to the related Mortgage Loan Group. The Certificate Insurance Policy does not guarantee any specified rate of Prepayments. See "The Certificate Insurance Policy and the Certificate Insurer" and "Description of the Certificates--Subordination of Class B Certificates" herein. The Trustee or paying agent will (i) receive as attorney-in-fact of each Owner of the Class A Certificates, any Insured Payment from the Certificate Insurer and (ii) disburse the same to each Owner of the related Class A Certificates in accordance with the Pooling and Servicing Agreement. The Pooling and Servicing Agreement will provide that to the extent the Certificate Insurer makes Insured Payments, either directly or indirectly (as by paying through the Trustee or a paying agent), to the Owners of any Class A Certificates, the Certificate Insurer will be subrogated to the rights of such Owners of such Class A Certificates with respect to such Insured Payments. The Certificate Insurer will receive reimbursement for such Insured Payments, but only from the sources and in the manner provided in the Pooling and Servicing Agreement. Such subrogation and reimbursement will have no effect on the Certificate Insurer's obligations under the Certificate Insurance Policy. Optional The Company will have the right to purchase Termination all the Mortgage Loans on any Payment Date when the aggregate principal balances of the Mortgage Loans has declined to ten percent or less of the Original Pool Principal Balance (the "Company Optional Termination Date"). See "Description of the Certificates -- Optional Termination by the Company" herein. Auction Sale The Pooling and Servicing Agreement requires that, within ninety days following the Company Optional Termination Date, if the Company has not exercised its optional termination right by such date, the Trustee shall solicit bids for the purchase of all Mortgage Loans remaining in the Trust. In the event that satisfactory bids are received as described in the Pooling and Servicing Agreement, the net sale proceeds will be distributed to Certificateholders, in the same order of priority as collections received in respect of the Mortgage Loans. If satisfactory bids are not received, the Trustee shall decline to sell the Mortgage Loans and shall not be under any
S-15 obligation to solicit any further bids or otherwise negotiate any further sale of the Mortgage Loans. Such sale and consequent termination of the Trust must constitute a "qualified liquidation" of each REMIC established by the Trust under Section 860F of the Internal Revenue Code of 1986, as amended, including, without limitation, the requirement that the qualified liquidation takes place over a period not to exceed 90 days. Ratings It is a condition of the original issuance of the Class A Certificates that the Class A Certificates receive ratings of ___ or ___ by _____ and _____, respectively. A security rating is not a recommendation to buy, sell or hold securities, and may be subject to revision or withdrawal at any time by the assigning entity. Such ratings address credit risk, but do not purport to address any prepayment risk associated with the Class A Certificates, nor do such ratings cover the payment of the Supplemental Interest Amounts. Federal Income Tax Consequences One or more elections will be made to treat certain assets of the Trust as one or more REMICs for federal income tax purposes. Each Class of the Class A Certificates will be designated as a "regular interest" in a REMIC and a separate class of certificates will be designated as the "residual interest" with respect to each REMIC. Certificateholders that would otherwise report income under a cash method of accounting will be required to include in income interest on the Class A Certificates (including original issue discount, if any) in accordance with an accrual method of accounting. See "Federal Income Tax Consequences" herein and in the Prospectus. ERISA As described under "ERISA Considerations" Considerations herein, the Class A Certificates may be purchased by a pension or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or by individual retirement accounts or Keogh plans covering only a sole proprietor or partner which are not subject to ERISA but are subject to Section 4975 of the Code ("Plans"), [after the earlier of (i) the date on which the Funding Period expires and (ii) the date on which the Department of Labor amends the Exemption (as defined below) to permit the use of pre-funding accounts thereunder.] See "ERISA Considerations" herein and in the Prospectus. Legal Investment The Class A Certificates will not constitute Considerations "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). Accordingly, many institutions may not be legally authorized to invest in the Class A Certificates. Risk Factors For a discussion of certain factors that should be considered by prospective investors in the Class A Certificates, see "Risk Factors" herein and in the accompanying Prospectus.
S-16 RISK FACTORS Prospective investors should consider, among other things, the following factors (as well as the factors set forth under "Risk Factors" in the accompanying Prospectus) in connection with the purchase of the Class A Certificates. Maturity and Prepayment Considerations. All of the Mortgage Loans are prepayable in full or in part at any time. The rate of Prepayments on the Mortgage Loans may be influenced by a variety of economic, social and other factors, including interest rates, the availability of alternative financing and homeowner mobility. Although there is little significant data available on the effects of interest rates on prepayment rates for non-purchase money, non-conforming credit mortgage loans, a number of factors suggest that the prepayment behavior of a pool of such mortgage loans may be significantly different from that of a pool of purchase money, conforming-credit mortgage loans. One such factor is the typically smaller principal balance of the average non-purchase money mortgage loan than that of the average purchase money mortgage conventional loan in the typical pool. A smaller principal balance is easier for a borrower to prepay than a larger balance and therefore a higher prepayment rate may result for a non-purchase money mortgage loan pool than for a pool of purchase money mortgage loans, irrespective of the relative average interest rates in the two pools and the general interest rate environment. A small principal balance, however, also may make refinancing a non-purchase money mortgage loan at a lower loan rate less attractive to the borrower relative to refinancing a larger principal balance non-purchase money mortgage loan, as the perceived impact to the borrower of lower interest rates on the size of the monthly payment on a mortgage loan is much less than for a larger principal balance non-purchase money mortgage loan. Other factors that might be expected to affect the prepayment rate of a pool of mortgage loans include the amounts of, and interest rates on, the related senior mortgage loans, if one exists, and the use of the first mortgage loans as long-term financing for home purchase and junior mortgage loans as shorter-term financing for a variety of purposes, including debt consolidation, home improvement, education expenses and purchases of consumer durables such as automobiles. See "Risk Factors" in the accompanying Prospectus. The weighted average life of a pool of loans is the average amount of time for which each dollar of principal on such loans is outstanding. Because it is expected that there will be payments of principal of Mortgage Loans in advance of the scheduled due date for the payments of such principal (the "Prepayments") and defaults on the Mortgage Loans, the actual weighted average life of the Mortgage Loans is expected to vary substantially from the weighted average life of the Mortgage Loans based upon their amortization schedules. Prepayments may result from voluntary early payments by borrowers (including payments in connection with refinancings of the related first mortgage loans or the Mortgage Loan itself), the sale of Properties subject to due-on-sale clauses, and liquidations due to default, as well as the receipt of proceeds from physical damage insurance policies. In addition, repurchases of Mortgage Loans from the Trust will have the same effect as Prepayments of the related Mortgage Loans. Substantially all of the Mortgage Loans contain "due-on-sale" provisions, and the Pooling and Servicing Agreement generally requires the Master Servicer to enforce such provisions unless such enforcement is not permitted by applicable law. See "Description of the Certificates -- Flow of Funds and Distributions on the Class A Certificates", " -- General Servicing Procedures", " -- Termination of the Trust", "Legal Investment Considerations", and "Maturity, Prepayment and Yield Considerations" herein. Risk of Higher Default Rates for Mortgage Loans with Balloon Payments. ____% of the Original Group I Pool Principal Balance of the Mortgage Loans in Group I and ____% of the Original Group II Pool Principal Balance of the Mortgage Loans in Group II are Balloon Loans. See "Risk Factors" in the accompanying Prospectus. Geographic Concentration of Mortgage Loans. Approximately ____% of the Original Group I Pool Principal Balance represents Mortgage Loans relating to Mortgaged Properties located in five states: ________ ____%, _________ ____%, ________ ____%, ________ ____%, and ________ ____% Approximately ____% S-17 of the Original Group II Pool Principal Balance represents Mortgage Loans relating to Mortgaged Properties located in five states: _________ ____%, ________ ____%, ________ ____%, _________ ____% and ________ ____%. See "Risk Factors." Risk of Higher Default Rates for Junior Lien Loans. ____% of the Original Group I Pool Principal Balance of the Mortgage Loans relates to Mortgage Loans secured by liens which are in a second position. See "Risk" Factors in the Prospectus. Risk of Potential Termination of Trust. The Trust may be terminated when the aggregate principal balances of the Mortgage Loans has declined to ten percent or less of the Original Pool Principal Balance, either by the Company, exercising its optional termination right, or pursuant to the Auction Sale. See "Description of Certificates -- Optional Termination by the Company" and "Description of the Certificates -- Auction Sale". Such a termination would be the equivalent of a prepayment of all the Mortgage Loans. The Owners of the Class A Certificates would receive from the proceeds resulting from any such termination, any interest accrued and unpaid, together with any distribution of principal owed and unpaid, in the order of priority set forth under "Description of Certificates -- Distributions on the Class A Certificates". Any such termination of the Trust will reduce the yield to maturity on Class A Certificates purchased at a premium. See "Description of the Certificates -- Termination of the Trust" herein. Effect of Mortgage Loan Yield on Class A-1 and Class A-6 Pass-Through Rate. The Class A-1 Pass- Through Rate is based upon the value of an adjustable index (one-month LIBOR), while the Coupon Rates on the Group I Mortgage Loans are fixed. Consequently, the interest which becomes due on such Mortgage Loans in Group I (net of the Servicing Fees, the Trustee fees and the Certificate Insurer premiums) during any Remittance Period may be less than the amount of interest that would accrue at one-month LIBOR plus the margin on the Class A-1 Group I Certificates, during the related Accrual Period, and will be limited to such lower amount. The Class A-1 Group I Certificates do not contain any "carry-forward" or "catch-up" feature if the amount of interest paid is so limited. The Class A-6 Group II Pass-Through Rate is based upon the value of an index (one-month LIBOR) which is different from the value of the indices applicable to the Mortgage Loans in Group II, as described under "The Mortgage Pool -- Group II" (either as a result of the use of a different index, rate determination date, rate adjustment date or rate cap or floor). The Mortgage Loans in Group II primarily adjust semi-annually or yearly based upon a six-month LIBOR index whereas the Class A-6 Group II Pass-Through Rate adjusts monthly based on a one-month LIBOR index and is limited by the Class A-6 Available Funds Pass-Through Rate, unless Supplemental Interest Amounts (the payment of which is not insured by the Certificate Insurer and which is not rated) are funded in full. Consequently the actual Class A-6 Pass-Through Rate for such Payment Date may not equal the Class A-6 Formula Pass-Through Rate for such Payment Date. In particular, the interest rates on the Mortgage Loans in Group II adjust less frequently, with the result that the actual Class A-6 Pass- Through Rate may be lower than the Class A-6 Formula Pass-Through Rate for extended periods in a rising interest rate environment. In addition, one-month LIBOR and six-month LIBOR may respond to different economic and market factors, and there is not necessarily any correlation between them. Thus, it is possible, for example, that one-month LIBOR may rise during periods in which one or more Indices are falling or that, even if both one-month LIBOR and Indices rise during the same period, one-month LIBOR may rise much more rapidly than six-month LIBOR. See "Class A-6 Pass-Through Rate" in the Summary for this Prospectus Supplement. [The Subsequent Mortgage Loans and the Pre-Funding Account. If the principal amount of eligible S-18 Mortgage Loans available during the Funding Period and sold to the Trust is less than 100% of the Pre-Funded Amount, the Company will have insufficient Mortgage Loans to sell to the Trust, on the Subsequent Transfer Dates, thereby resulting in prepayments of principal to Owners of one or more Classes of Class A Certificates as described herein. In addition, any conveyance of Subsequent Mortgage Loans is subject to the following conditions, among others: (i) each such Subsequent Mortgage Loan must satisfy the representations and warranties specified in the Purchase Agreement and the Pooling and Servicing Agreement; (ii) the Company will not select such Subsequent Mortgage Loans in a manner that they believe is adverse to the interests of the Class A Certificateholders; (iii) the Company will deliver certain opinions of counsel with respect to the validity of the conveyance of such Subsequent Mortgage Loans; and (iv) as of the Subsequent Cut-Off Date, the Mortgage Loans in the related Mortgage Loan Group at that time, including the Subsequent Mortgage Loans to be conveyed by the Company as of such Subsequent Cut-Off Date, will satisfy the criteria set forth in the Pooling and Servicing Agreement, as described herein under "The Mortgage Loan Pool - Conveyance of Subsequent Mortgage Loans". To the extent that amounts on deposit in the Pre-Funding Account have not been fully applied to the purchase of Subsequent Mortgage Loans by the Trust by the end of the Funding Period, the Owners of one or more Classes of Class A Certificates will receive a prepayment of principal in an amount equal to the Pre- Funded Amount allocable to such Class and remaining in the Pre-Funding Account following the purchase of any Subsequent Mortgage Loans on the first Payment Date following the Funding Period. Although no assurances can be given, it is anticipated by the Company that the principal amount of Subsequent Mortgage Loans sold to the Trust will require the application of substantially all amounts on deposit in the Pre-Funding Account and that there will be no material principal prepayment to the Class A Certificateholders. Each Subsequent Mortgage Loan must satisfy the eligibility criteria referred to above at the time of its addition. However, Subsequent Mortgage Loans may have been originated by the Originators or purchased by the Company using credit criteria different from those which were applied to the Initial Home Mortgage and may be of a different credit quality. Therefore, following the transfer of Subsequent Mortgage Loans to the related Mortgage Loan Group, the characteristics of the related Mortgage Loan Group included in the Trust may vary significantly from those of the Initial Mortgage Loans included in such Mortgage Loan Group. See "The Mortgage Loan Pool - Conveyance of Subsequent Mortgage Loans".] USE OF PROCEEDS The Trust will acquire the Mortgage Loans from the Company concurrently with the sale of the Certificates and the net proceeds from the sale of the Certificates will be paid to the Company. Such net proceeds (together with the Residual Certificates retained by the Company or its affiliates) will, in effect, represent the purchase price paid by the Trust to the Company for the Mortgage Loans. The net proceeds, after funding transaction costs, to be received from the sale of the Mortgage Loans will be added to the Company's general funds and will be available for general corporate purposes. THE COMPANY Access Financial Lending Corp. ("AFL" or the "Company"), a Delaware corporation, provides housing finance programs to consumers throughout the United States through its Mortgage Lending and Manufactured Housing Programs. The Company is the successor by merger of Access Financial Lending Corp., a Delaware corporation (formerly Equicon Corporation), whose principal business was the purchase of non-conforming mortgages, and Access Financial Corp., whose principal business was the retail financing of manufactured housing. The merger occurred on July 1, 1996. S-19 The Company is a wholly-owned subsidiary of Access Financial Holding Corp. ("AFH"), which is a Delaware corporation and wholly-owned subsidiary of Cargill Financial Services Corporation. AFH was formed in January 1996 to facilitate the continued growth of the housing finance business. The Company maintains its principal offices at 400 Highway 169 South, Suite 400, St. Louis Park, Minnesota 55426-0365. As described herein, AFL will be obligated to repurchase certain Mortgage Loans pursuant to certain representations and warranties made with respect to the Mortgage Loans. See "The Mortgage Loan Pool -- Mortgage Loan Program -- Underwriting Standards; Representations" herein and "Mortgage Loan Program" in the accompanying Prospectus. THE MASTER SERVICER As Master Servicer, ________ will be obligated to service the Mortgage Loans pursuant to the Pooling and Servicing Agreement. See "Description of the Certificates -- General Servicing Procedures" herein. The Master Servicer has entered into a sub-servicing agreement with __________, which provides for servicing and administration of the Mortgage Loans. Notwithstanding such sub-servicing agreement, the Master Servicer shall be obligated to the same extent and under the same terms and conditions under the Pooling and Servicing Agreement as if it alone were servicing and administering the Mortgage Loans. See "Description of the Certificates--General Servicing Procedures" herein. THE MORTGAGE LOAN POOL General The statistical information concerning the Pool of Mortgage Loans is based upon Pool information as of the close of business on ________, 199_ (the "Cut-Off Date"). The Initial Mortgage Loans consist of ____ mortgage loans evidenced by promissory notes (the "Notes") secured by deeds of trust, security deeds or mortgages on the properties (the "Properties" or "Mortgaged Properties"), which are located in ___ states and the District of Columbia. The Properties securing the Initial Mortgage Loans consist of one- to four-family residences (which may be detached, part of a one- to four-family dwelling, a condominium unit, a townhouse or a unit in a planned unit development). The Properties may be owner-occupied (which includes second and vacation homes) and non-owner occupied investment properties. Each Mortgage Loan in the Trust will be assigned to one of two mortgage loan groups: "Group I" or "Group II", (each a "Mortgage Loan Group") comprised of Mortgage Loans which bear fixed interest rates only, in the case of Group I, and Mortgage Loans which bear adjustable interest rates only, in the case of Group II. The Class A Group I Certificates will be issued in respect of Group I and the Class A-6 Group II Certificates will be issued in respect of Group II. The Initial Mortgage Loans in Group I consist of ____% of fully amortizing mortgage loans and ____% of Balloon Loans; consist of approximately ____% of loans secured by first liens on the related Properties, with the remainder representing second liens; consist of approximately ____% of loans secured by primary residences. No Group I Initial Mortgage Loan is more than ___ days contractually delinquent as of the Cut-Off Date. The Initial Mortgage Loans in Group II consist of ____% of fully amortizing mortgage loans and ____% of Balloon Loans; consist of ____% of loans secured by first liens on the related Properties; and consist of S-20 approximately ____% of Loans secured by primary residences. No Group II Initial Mortgage Loan is more than ___ days contractually delinquent as of the Cut-Off Date. [Additional mortgage loans (the "Subsequent Mortgage Loans") are intended to be purchased by the Trust from the Company from time to time on or before , 199_, from funds on deposit in the Pre- Funding Account. The Initial Mortgage Loans and the Subsequent Mortgage Loans are referred herein collectively as the "Mortgage Loans". The Subsequent Mortgage Loans to be purchased by the Trust, if available, will be originated on or prior to , 199_ by the Originators, sold by the Originators to the Company and then sold by the Company to the Trust. The Pooling and Servicing Agreement will provide that the Mortgage Loans in each Mortgage Loan Group, following the conveyance of the Subsequent Loans, must in the aggregate conform to certain specified characteristics described below under "Conveyance of Subsequent Mortgage Loans".] S-21 Delinquency Experience on the Company's Portfolio of Mortgage Loans(1)
As of ---------------------------------------------------------------------------------------- March December June 30, December June 30, December June 30, 31, 199 31, 199 199 31, 199 199 31, 199 199 ---------------------------------------------------------------------------------------- Number of Mortgage Loans......... Dollar amount of Mortgage Loans.. $ $ $ $ $ $ $ Delinquency Period 30-59 Days % of number of loans (2)..... % % % % % % % % of dollar amount of loans (3) % % % % % % % 60-89 days % of number of loans (2)..... % % % % % % % % of dollar amount of loans (3) % % % % % % % 90 days and over % of number of loans (2)..... % % % % % % % % of dollar amount of loans (3) % % % % % % % Foreclosed Properties % of number of loans (2)..... % % % % % % % % of dollar amount of loans (3) % % % % % % %
- ---------- (1) The Mortgage Loans comprising the Company's portfolio were originated beginning in April 1992. The variable rate program commenced in April 1994. (2) The number of delinquent Mortgage Loans or the number of foreclosed properties as a percentage of the total "Number of Mortgage Loans" as of the date indicated. (3) The dollar amount of delinquent Mortgage Loans or the dollar amount of foreclosed properties as a percentage of the total "Dollar amount of Mortgage Loans" as of the date indicated. S-22 LOAN LOSS EXPERIENCE ON THE Company'S PORTFOLIO OF MORTGAGE LOANS Prior to June 14, 1995, the Company experienced no losses since the Company's program began.
For the Twelve Months Ended For the Months Ended , 199 December 31, 199 -------------------------------------------------------------------- Average amount outstanding(1)................. $ $ Gross losses(2)............................... Recoveries(3)................................. Net losses(4)................................. Net losses as a percentage of average amount outstanding ......................... % %
(1) "Average Amount Outstanding" during the period is the arithmetic average of the principal balances of the mortgage loans outstanding on the last business day of each month during the period. (2) "Gross Losses" are the principal amounts of the mortgage loans for each respective period which have been determined to be uncollectible. (3) "Recoveries" represent the excess of (x) the sum of recoveries from liquidation proceeds and deficiency judgments over (y) the sum of expenses and accrued interest. (4) "Net Losses" represents "Gross Losses" minus "Recoveries". While the above delinquency and loan loss experience represents the recent experience of the Company's portfolio of Mortgage Loans, there can be no assurance that the future delinquency and loan loss experience on the Mortgage Loans included in the Pool will be similar. The Company can neither quantify the impact of any recent property value declines on the Mortgage Loans nor predict whether, to what extent or how long such declines may continue. In a period of such decline, the rates of delinquencies, foreclosures and losses on the Mortgage Loans could be higher than those heretofore experienced in the mortgage lending industry in general. In addition, adverse economic conditions (which may or may not affect real property values) may affect the timely payment by borrowers of scheduled payments of principal and interest on the Mortgage Loans and, accordingly, the actual rates of delinquencies, foreclosures and losses. Group I The Initial Mortgage Loans in Group I consist of approximately ____ loans under which the related Mortgaged Properties are located in ___ states and the District of Columbia as set forth herein. As of the CutOff Date, the Initial Mortgage Loans in Group I had an aggregate principal balance of $________, the maximum principal balance of any of the Initial Mortgage Loans in the Group I was $________, the minimum principal balance thereof was $________, and the principal balance of the Initial Mortgage Loans in Group I averaged $________. As of the Cut-Off Date, Coupon Rates on the Initial Mortgage Loans in Group I ranged from ____% to ____% per annum, and the weighted average Coupon Rate of the Initial Mortgage Loans in Group I was ____% per annum. As of the Cut-Off Date, the original term to stated maturity of the Initial Mortgage Loans in Group I ranged from ___ months to ___ months, the remaining term to stated maturity ranged from ___ months to ___ months, the weighted average original term to stated maturity was ___ months and the weighted average remaining term to stated maturity was ___ months. No Initial Mortgage Loan in Group I had a stated maturity later than ________. ____% of the aggregate principal balance of the Initial Mortgage Loans in Group I require monthly payments of principal that will fully amortize the Mortgage Loans by their respective maturity dates, and ____% of the aggregate principal balance of the Initial Mortgage Loans in Group I are Balloon Loans. The sum of the percentage columns set forth in the following tables may not equal 100% due to rounding. S-23 Geographic Distribution Group I
Number Aggregate Unpaid of Initial Principal Balance % of Mortgage as of the Aggregate State Loans Cut-Off Date Principal Balance - ----- ---------------- ----------------------- -------------------- Alabama $ % Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina Tennessee Texas Utah Virginia Washington Wisconsin Wyoming - -------------------------------------------------------------------------------------------------------- TOTAL $ % ========================================================================================================
The combined loan-to-value ratio of a Mortgage Loan is equal to the ratio (expressed as a percentage) of (x) the sum of the (i) original principal balance of such Mortgage Loan and (ii) the outstanding principal balances of any senior mortgage loans (computed at the date of origination of such Mortgage Loan) and (y) the appraised value of the related Mortgaged Property at the time of origination or in the case of a purchase money mortgage loan the lesser of the purchase price or the appraised value at the time of origination (the "Combined Loan-to-Value Ratio"). The Combined Loan-to-Value Ratios are distributed as follows: S-24 Combined Loan-To-Value Ratio Distribution Group I
Number Aggregate Unpaid of Initial Principal Balance % of Range of Combined Mortgage as of the Aggregate Loan-to-Value Ratios Loans Cut-Off Date Principal Balance - -------------------- --------- ----------------- ------------------ - ------------------------------------------------------------------------------------------------------- TOTAL $ % =======================================================================================================
The Combined Loan-to-Value Ratios shown above were calculated based upon the appraised values of the Properties at the time of origination of the Mortgage Loans or in the case of a purchase money mortgage loan the lesser of the purchase price or the appraised value at the time of origination (the "Appraised Values"). No assurance can be given that values of the Properties have remained or will remain at their levels on the dates of origination of the related Mortgage Loans. If the residential real estate market should experience an overall decline in property values such that the unpaid principal balances of the Mortgage Loans, together with the unpaid principal balances of any senior mortgage loans, become equal to or greater than the value of the Properties, the actual rates of delinquencies, foreclosures and losses could be higher than those now generally experienced in the mortgage lending industry. S-25 Coupon Rate Distribution Group I
Number Aggregate Unpaid of Initial Principal Balance % of Range of Mortgage as of the Aggregate Coupon Rates (%) Loans Cut-Off Date Principal Balance - ---------------- --------- ----------------- ------------------ - -------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% ========================================================================================================
S-26 Distribution of Unpaid Principal Balances as of the Cut-Off Date Group I
Number Aggregate Unpaid of Initial Principal Balance % of Range of Unpaid Mortgage as of the Aggregate Principal Balances ($) Loans Cut-Off Date Principal Balance - ---------------------- ----- ------------- ----------------- - ----------------------------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% =============================================================================================================================
Lien Status and Occupancy Status Group I
Number Aggregate Unpaid of Initial Principal Balance % of Lien Status and Mortgage as of the Aggregate Occupancy Status Loans Cut-Off Date Principal Balance - ---------------------------------- ------------ ------------------- ----------------- First Lien Owner Occupied $ % Non-Owner Occupied Second Lien Owner Occupied Non-Owner Occupied - ----------------------------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% =============================================================================================================================
Distribution of Age (in months) from Origination to the Cut-Off Date Group I
Number Aggregate Unpaid of Initial Principal Balance % of Months Elapsed Mortgage as of the Aggregate Since Origination Loans Cut-Off Date Principal Balance - ----------------- ---------- ------------------ ----------------- - ----------------------------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% =============================================================================================================================
S-27 Property Type Group I
Number Aggregate Unpaid of Initial Principal Balance % of Mortgage as of the Aggregate Property Type Loans Cut-Off Date Principal Balance - ------------- ----------- ------------------ ----------------- Single-family $ % Modular Housing Manufactured Housing FUD SF Row House Townhouse Duplex Condominium 2-4 family - -------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% ========================================================================================================
Distribution of Remaining Term to Maturity (in months) as of the Cut-Off Date Group I
Number Aggregate Unpaid of Initial Principal Balance % of Months Remaining Mortgage as of the Aggregate to Maturity Loans Cut-Off Date Principal Balance - ---------------- ---------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------ TOTAL $ 100.00% ============================================================================================================
Group I -- Conveyance of Subsequent Mortgage Loans The Pooling and Servicing Agreement permits the Trust to acquire up to $ aggregate principal balance of Subsequent Mortgage Loans for assignment to Group I. Accordingly, the statistical characteristics of Group I will vary as of any Subsequent Cut-Off Date upon the acquisition of Subsequent Mortgage Loans which are assigned to Group I. The obligation of the Trust to purchase the Subsequent Mortgage Loans on a Subsequent Transfer Date for assignment to Group I is subject to the following requirements: (i) such Subsequent Mortgage Loan may not be _____ or more days contractually delinquent as of the related Subsequent Cut-Off Date; (ii) the stated term to maturity to such Subsequent Mortgage Loan may not exceed _____ years; (iii) such Subsequent Mortgage Loan will be secured by a Mortgage in a first lien position and (iv) following the purchase of such Subsequent Mortgage Loans by the Trust, the Mortgage Loans in Group I (including the Subsequent Mortgage Loans) (a) will have a weighted average Mortgage Rate of at least %; (b) will have a weighted average original term to stated maturity of not more S-28 than months; (c) will have a weighted average LTV of not more than %; (d) will not have more than % by aggregate principal balance Balloon Loans; (e) will have no Mortgage Loan with a principal balance in excess of $ ; (f) will have a [state] concentration not in excess of % by aggregate principal balance; and (g) will have not more than % in aggregate principal balance of Mortgage Loans relating to non-owner occupied Mortgaged Properties. Group II The Initial Mortgage Loans in Group II consist of approximately ___ loans under which the related Mortgaged Properties are located in ___ states and the District of Columbia as set forth herein. As of the CutOff Date, the Initial Mortgage Loans in Group II had an aggregate principal balance of $________, the maximum principal balance of any of the Initial Mortgage Loans in Group II was $________, the minimum principal balance thereof was $________ and the principal balance of the Initial Mortgage Loans in Group II averaged $________. As of the Cut-Off Date, Coupon Rates of the Initial Mortgage Loans in Group II ranged from ____% per annum to ____% per annum. As of the Cut-Off Date, the weighted average Coupon Rate of the Mortgage Loans in Group II was ____%. As of the Cut-Off Date, margins of the Initial Mortgage Loans in Group II ranged from ____% per annum to ____% per annum, and the weighted average margin was ____%. As of the Cut-Off Date, the maximum coupons of the Initial Mortgage Loans in Group II ranged from ____% per annum to ____% per annum, and the weighted average maximum coupon was ____%. ____% of the aggregate principal balance of the Initial Mortgage Loans in Group II had a periodic interest rate cap of ___%, and ____% of the aggregate principal balance of the Initial Mortgage Loans in Group II had a periodic interest rate cap of ___%, ____% of the aggregate principal balance of the Initial Mortgage Loans in Group II were fixed rate loans that, in __ years from origination, will be converted into variable rate loans with an interest rate cap of ___% on the date of such conversion and with a periodic interest rate cap of ___% thereafter, and ____% of the aggregate principal balance of the Initial Mortgage Loans in Group II were fixed rate loans that, in ___ years from origination, will be converted into variable rate loans with an interest rate cap of ___% on the date of such conversion and with a periodic interest rate cap of ___% thereafter. As of the Cut-Off Date, the original term to stated maturity of the Initial Mortgage Loans in Group II ranged from ___ months to ___ months, the remaining term to stated maturity ranged from ___ months to ___ months, the weighted average original term to stated maturity was ___ months and the weighted average remaining term to stated maturity was ___ months. No Initial Mortgage Loan in Group II had a stated maturity later than ________. ____% of the aggregate principal balance of the Initial Mortgage Loans in Group II require monthly payments of principal that will fully amortize the Initial Mortgage Loans by their respective dates and ____% of the aggregate principal balance of the Initial Mortgage Loans in Group II are Balloon Loans. The Coupon Rates of the Initial Mortgage Loans in Group II adjust semi-annually based on six month LIBOR. S-29 The sum of the percentage columns set forth on the following tables may not equal 100% due to rounding. Geographic Distribution Group II
Number Aggregate Unpaid of Initial Principal Balance % of Mortgage as of the Aggregate State Loans Cut-Off Date Principal Balance - ----- ----------- ------------------ ----------------- Alabama $ % Arizona California Colorado Connecticut District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Maryland Massachusetts Michigan Minnesota Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina Ohio Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Virginia Washington West Virginia Wisconsin Wyoming - ------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% =======================================================================================================
S-30 The combined loan-to-value ratio of a Mortgage Loan is equal to the ratio (expressed as a percentage) of (x) the sum of the (i) original principal balance of such Mortgage Loan and (ii) the outstanding principal balances of any senior mortgage loans (computed at the date of origination of such Mortgage Loan) and (y) the appraised value of the related Mortgaged Property at the time of origination or in the case of a purchase money mortgage loan the lesser of the purchase price or the appraised value at the time of origination (the "Combined Loan-to-Value Ratio"). The Combined Loan-to-Value Ratios are distributed as follows: Combined Loan-To-Value Ratio Distribution Group II
Number Aggregate Unpaid of Initial Principal Balance % of Range of Combined Mortgage as of the Aggregate Loan-to-Value Ratios Loans Cut-Off Date Principal Balance -------------------- --------- ----------------- ----------------- 10.36 - -------------------------------------------------------------------------------------------------- TOTAL $ 100.00% ==================================================================================================
The Combined Loan-to-Value Ratios shown above were calculated based upon the appraised values of the Properties at the time of origination of the Mortgage Loans or in the case of a purchase money mortgage loan the lesser of the purchase price or the appraised value at the time of origination (the "Appraised Values"). No assurance can be given that values of the Properties have remained or will remain at their levels on the dates of origination of the related Mortgage Loans. If the residential real estate market should experience an overall decline in property values such that the unpaid principal balances of the Mortgage Loans, together with the unpaid principal balances of any senior mortgage loans, become equal to or greater than the value of the Properties, the actual rates of delinquencies, foreclosures and losses could be higher than those now generally experienced in the mortgage lending industry. S-31 Distribution of Unpaid Principal Balances as of the Cut-Off Date Group II
Number Aggregate Unpaid % of of Initial Principal Balance Aggregate Range of Unpaid Mortgage as of the Principal Principal Balances ($) Loans Cut-Off Date Balance ---------------------- ----- ------------ ------- - ----------------------------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% =============================================================================================================================
Lien Status and Occupancy Status Group II
Number Aggregate Unpaid of Initial Principal Balance % of Lien Status and Mortgage as of the Aggregate Occupancy Status Loans Cut-Off Date Principal Balance - --------------------------------- ----------- --------------------- ----------------- First Lien Owner Occupied $ % Non-Owner Occupied - ----------------------------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% =============================================================================================================================
Distribution of Age (in months) from Origination to the Cut-Off Date Group II
Number Aggregate Unpaid of Initial Principal Balance % of Months Elapsed Mortgage as of the Aggregate Since Origination Loans Cut-Off Date Principal Balance - ----------------- ---------- ------------------ ----------------- - --------------------------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% ===========================================================================================================================
S-32 Property Type Group II
Number Aggregate Unpaid of Initial Principal Balance % of Mortgage as of the Aggregate Property Type Loans Cut-Off Date Principal Balance - ------------- ---------- ------------------ ----------------- - -------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% ========================================================================================================
Distribution of Remaining Term to Maturity (in months) as of the Cut-Off Date Group II
Number Aggregate Unpaid of Initial Principal Balance % of Months Remaining Mortgage as of the Aggregate to Maturity Loans Cut-Off Date Principal Balance ----------- ----- ------------ ----------------- - -------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% ========================================================================================================
S-33 Distribution of Current Coupon Rates as of the Cut Off Date Group II
Number Aggregate Unpaid of Initial Principal Balance Mortgage as of the % of Aggregate Current Coupon Rates (%) Loans Cut-Off Date Principal Balance - ----------------------- ----- ------------ ----------------- - --------------------------------------------------------------------------------------------------- TOTAL $ 100.00% ===================================================================================================
Distribution of Maximum Coupon Rates Group II
Number Aggregate Unpaid of Initial Principal Balance Mortgage as of the % of Aggregate Maximum Coupon Rates (%) Loans Cut-Off Date Principal Balance - ----------------------- ----- ------------ ----------------- - -------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% ========================================================================================================
S-34 Distribution of Margins as of the Cut Off Date Group II
Number Aggregate Unpaid of Initial Principal Balance Mortgage as of the % of Original Pool Margins (%) Loans Cut-Off Date Principal Balance - ---------- ----- ------------ ----------------- - ----------------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% =================================================================================================================
S-35 Next Interest Adjustment Date Group II
Number of Aggregate Unpaid Initial Principal Balance Next Interest Mortgage as of the % of Aggregate Adjustment Date Loans Cut-Off Date Principal Balance - --------------- ----- ------------ ----------------- - -------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% ========================================================================================================
Distribution of Minimum Coupon Rates Group II
Number Aggregate Unpaid of Initial Principal Balance Minimum Mortgage as of the % of Aggregate Coupon Rates (%) Loans Cut-Off Date Principal Balance ---------------- ----- ------------ ----------------- - -------------------------------------------------------------------------------------------------------- TOTAL $ 100.00% ========================================================================================================
Group II - Conveyance of Subsequent Mortgage Loans The Pooling and Servicing Agreement permits the Trust to acquire up to $ aggregate principal balance of Subsequent Mortgage Loans for assignment to Group II. Accordingly, the statistical characteristics of Group II will vary as of any Subsequent Cut-Off Date upon the acquisition of Subsequent Mortgage Loans. S-36 The obligation of the Trust to purchase the Subsequent Mortgage Loans on a Subsequent Transfer Date for assignment to the Variable Rate Group is subject to the following requirements: (i) such Subsequent Mortgage Loan may not be _____ or more days contractually delinquent as of the related Subsequent Cut-Off Date; (ii) the stated term to maturity of such Subsequent Mortgage Loan may not exceed _____ years; (iii) must have an index which is any of 6 Monthly Treasury Bills, One Year CMT, Cost of Funds (Eleventh District) or ; (iv) must have a margin of at least over the related Index; (v) must have a floor Mortgage Rate of at least % and (vi) following the purchase of such Subsequent Mortgage Loans by the Trust, the Mortgage Loans in the Variable Rate Group (including the Subsequent Mortgage Loans) (a) will have a weighted average Mortgage Rate of at least %; (b) will have a weighted average original term to stated maturity of not more than months; (c) will have a weighted average CLTV of not more than %; (d) will have not more than % by aggregate principal balance Balloon Loans; (e) will have no Mortgage Loan with a principal balance in excess of $ ; (f) will have a [state] concentration not in excess of % by aggregate principal balance; (g) will not have more than % in aggregate principal balance of Mortgage Loans secured by third liens; (h) will have not less than % in aggregate principal balance of Mortgage Loans secured by first liens; and (i) will have not more than % in aggregate principal balance of Mortgage Loans relating to non-owner occupied Mortgaged Properties. The Mortgage Loan Program -- Underwriting Standards; Representations The Initial Mortgage Loans were acquired by the Company from ___ Unaffiliated Originators. Not more than ___% of the Original Pool Principal Balance represents Mortgage Loans purchased from any single Unaffiliated Originator. All of the Mortgage Loans will be originated or acquired by the Originators generally in accordance with underwriting criteria satisfactory to the Company. The Company will make representations and warranties with respect to the Initial Mortgage Loans sold to the Trust as of the Closing Date pursuant to the Pooling and Servicing Agreement and with respect to the Subsequent Mortgage Loans as of the Subsequent Transfer Date pursuant to the Purchase Agreement. The Company may be obligated to repurchase the Mortgage Loans in respect of which a breach of representation or warranty has occurred. See "Mortgage Loan Program" in the accompanying Prospectus. The Company's Guidelines provide that each borrower is required to provide, and the Originator is generally required to verify, personal financial information. The borrower's total monthly obligations (including principal and interest on each mortgage, tax assessments, other loans, charge accounts and all other scheduled indebtedness) should not exceed 60% of the borrower's monthly income. Borrowers who are salaried employees must provide current employment information, in addition to recent employment history. The Originator verifies this information for salaried borrowers based on a current pay stub and either (i) a written verification of income signed by their employer or (ii) two years' W-2 forms. A self-employed applicant is generally required to be successfully self-employed in the same field for a minimum of two years. A self-employed borrower is generally required to provide financial statements and signed copies of federal income tax returns (including schedules) filed for the most recent two years. The borrower's debt-to-income ratio is calculated based on income as generally verified by the Originator and must be reasonable. The Mortgage Loans were underwritten pursuant to the Company's "Full Documentation Program," "Alternative Income Documentation Program" and "Stated Income Program," as set forth in the Company's Guidelines. Under each of the programs, the Originator reviews the loan applicant's source of income, calculates the amount of income from sources indicated on the loan application or similar documentation, reviews the credit history of the applicant, calculates the debt service-to-income ratio to determine the applicant's ability to repay the loan, reviews the type and use of the property being financed and reviews the property for compliance with its standards. In determining the ability of the applicant to repay an adjustable rate Mortgage Loan, the Originators use a rate (the "Qualifying Rate") that generally is a rate equal to the fully-indexed Mortgage interest rate for such adjustable rate Mortgage Loan. The Company's Guidelines are applied in a standardized procedure that complies with applicable federal and state laws and regulations. S-37 Under the Full Documentation Program, the income of each applicant and the source of funds (if any) required to be deposited by an applicant into a bank account will be verified by the Originators. Applicants are generally required to submit a current pay stub and either (i) a written verification of income signed by their employer or (ii) two years' W-2 forms. Under the Alternative Income Documentation Program, a self-employed applicant is required to provide the applicant's business' profit and loss statement, and bank account statements supporting such statement for the prior calendar year and any completed calendar quarter of the current year and a current copy of a business license. Both the Alternative Income Program and the Stated Income Program generally require (i) that the applicant's income be reasonable for its business/profession, (ii) that the business has been in existence for three years or more and (iii) that the loan-to-value ratio be reduced. In addition, the Mortgage Loan will generally improve the applicant's cash flow. Verification of the source of funds (if any) required to be deposited by the applicant into a bank account is generally required under all documentation programs in the form of a standard verification of deposit or two months' consecutive bank statements or other acceptable documentation. Twelve months' mortgage payment or rental history is generally required to be verified by the applicant's current lender or landlord. If appropriate compensating factors exist, the Originators and the Company may waive certain documentation requirements for individual applicants. MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS Class A Certificates The weighted average life of, and, if purchased at other than par, the yield to maturity on, a Class A Certificate will be directly related to the rate of payment of principal of the Mortgage Loans in the related Mortgage Loan Group, including for this purpose Prepayments, liquidations due to defaults, casualties and condemnations, and repurchases of Mortgage Loans by the Company, or purchases of Mortgage Loans by the Master Servicer or a Sub- Servicer. The Mortgage Loans in the related Mortgage Loan Group may be prepaid by the related obligors on the Notes ("Mortgagors") at any time. The actual rate of principal prepayments on pools of mortgage loans is influenced by a variety of economic, tax, geographic, demographic, social, legal and other factors and has fluctuated considerably in recent years. In addition, the rate of principal prepayments may differ among pools of mortgage loans at any time because of specific factors relating to the mortgage loans in the particular pool, including, among other things, the age of the mortgage loans, the geographic locations of the properties securing the loans, the extent of the mortgagors' equity in such properties, and changes in the mortgagors' housing needs, job transfers and unemployment. Generally, however, because the Mortgage Loans in Group I bear interest at fixed rates, and the rate of prepayment on fixed rate mortgage loans is sensitive to prevailing interest rates, if prevailing interest rates were to fall, the Mortgage Loans in Group I may be subject to higher prepayment rates. Conversely, if prevailing interest rates were to rise, the rate of prepayments on Mortgage Loans in Group I would be likely to decrease. If purchased at other than par, the yield to maturity on a Class A Certificate will be affected by the rate of the payment of principal of the Mortgage Loans in the related Mortgage Loan Group. If the actual rate of payments on the Mortgage Loans in the related Mortgage Loan Group is slower than the rate anticipated by an investor who purchases a Class A Certificate at a discount, the actual yield to such investor will be lower than such investor's anticipated yield. If the actual rate of payments on the Mortgage Loans in the related Mortgage Loan Group is faster than the rate anticipated by an investor who purchases a Class A Certificate at a premium, the actual yield to such investor will be lower than such investor's anticipated yield. All of the Mortgage Loans in Group II are adjustable rate mortgage loans. As is the case with conventional fixed rate mortgage loans, adjustable rate mortgage loans may be subject to a greater rate of principal prepayments in a declining interest rate environment. For example, if prevailing interest rates fall significantly, adjustable rate mortgage loans could be subject to higher prepayment rates than if prevailing interest rates remain constant because the availability of fixed rate mortgage loans at competitive interest rates may encourage Mortgagors to refinance their adjustable rate mortgage loans to "lock in" a lower fixed interest S-38 rate. However, no assurance can be given by the Company as to the level of prepayments that the Group II Mortgage Loans will experience. The final scheduled Payment Date for the A-1 Group I Certificates is ________, for the Class A-2 Group I Certificates is ________, for the Class A-3 Group I Certificates is ________, for the A-4 Group I Certificates is ________, for the Class A-5 Group I Certificates is ________, and for the Class A-6 Group II Certificates is ________. Such dates are the dates on which the related Class A Certificate Principal Balance would be reduced to zero, assuming, among other things that with respect to the Class A-1 Group I Certificates, the Class A-2 Group I Certificates, the Class A-3 Group I Certificates and the Class A-4 Group I Certificates (i) no Prepayments are received on any of the Mortgage Loans, (ii) distributions of principal and interest on each of the Mortgage Loans is timely received, (iii) Class B Interest will be used to make accelerated payments of principal (i.e. Subordination Increase Amounts) to the Holders of the Class A Certificates and (iv) the Mortgage Loans in each Mortgage Loan Group have the applicable characteristics set forth in the "Weighted Average Lives of Class A Certificates" section herein. The final scheduled Payment Date for the Class A-5 Group I Certificates and the Class A-6 Group II Certificates is the Payment Date in the calendar month in which the stated maturity of the Mortgage Loan in the related Mortgage Loan Group having the latest stated maturity occurs. The weighted average life of the Class A Certificates of each Class is likely to be shorter than would be the case if payments actually made on the Mortgage Loans in the related Mortgage Loan Group conformed to the foregoing assumptions, and the final Payment Dates with respect to the Class A Certificates of each Class could occur significantly earlier than such final scheduled Payment Dates because (i) Prepayments are likely to occur, (ii) the Company may repurchase Mortgage Loans in the related Mortgage Loan Group in the event of breaches of representations and warranties and (iii) the Company may cause, and the Trustee may, pursuant to the Auction Call, cause a termination of the Trust when the Pool Principal Balance has declined to ten percent or less of the Original Pool Principal Balance. "Weighted average life" refers to the average amount of time from the date of issuance of a security until each dollar of principal of such security will be repaid to the investor. The weighted average lives of the Classes of Class A Certificates will be influenced by the rate at which principal payments (including scheduled payments and prepayments) on the Mortgage Loans in the related Mortgage Loan Group are made. Principal payments on Mortgage Loans may be in the form of scheduled amortization or prepayments (for this purpose, the term "prepayment" includes prepayments and liquidations due to a default or other dispositions of the Mortgage Loans). The weighted average lives of the Class A Certificates will also be influenced by delays associated with realizing on defaulted Mortgage Loans in the related Mortgage Loan Group. The model used in this Prospectus Supplement (the "Home Equity Prepayment" Model or "HEP") assumes that, (i) with respect to Group I, the pool of loans prepays in the first month at a constant prepayment rate of 2.3% and increases by an additional 2.3% each month thereafter until the tenth month, where it remains at a constant prepayment rate equal to 23% and (ii) with respect to Group II, the pool of loans prepays in the first month at a constant prepayment rate of 2.4% and increases by an additional 2.4%, each month thereafter until the tenth month, where it remains at a constant prepayment rate equal to 24%, (the "Prepayment Assumption"). HEP represents an assumed annualized rate of prepayment relative to the then outstanding principal balance on a pool of new mortgage loans. [Mandatory Prepayment Of the maximum original Pre-Funding Amount of $________, maximum amounts of $________, and $________ will be funded from the proceeds of the sale of the Group I Certificates and the Group II Certificates, respectively, and may be used to acquire Subsequent Mortgage Loans with respect to Group I and the Group II, respectively. In the event that, on the 199_ Payment Date, not all of the $________, $y $________ funded from the proceeds of the sale of the Group I Certificates and the Group II Certificates, respectively, has been used to acquire subsequent Mortgage Loans with respect to the related Mortgage Loan Group, then the related Class A Certificates will be prepaid in part on such date, on a pro rata basis with respect to the Owners of individual Certificates of the related Class, from and to the extent of such remaining amounts. The Pooling and Servicing Agreement does not permit Pre-Funding Account moneys funded from S-39 the sale of one Group of Class A Certificates to be used to acquire Mortgage Loans relating to the other Group of Class A Certificates. Although no assurances can be given, it is anticipated by the Company that the principal amount of Subsequent Mortgage Loans sold to the Trust will require the application of substantially all the amount on deposit in the Pre-Funding Account and that there should be no material principal prepaid to the Class A Certificateholders.] Weighted Average Lives of Class A Certificates For the purpose of the tables below, it is assumed that: (i) the Mortgage Loans of each Mortgage Loan Group consist of pools of loans with level-pay and balloon amortization methodologies, Cut-Off Date principal balances, gross coupon rates, net coupon rates, original and remaining terms to maturity, and original amortization terms as applicable, as set forth below, (ii) the Closing Date for the Certificates occurs on ______, 199_, (iii) distributions on the Certificates are made on the ___ day of each month regardless of the day on which the Payment Date actually occurs, commencing in ________ 199_ in accordance with the priorities described herein, (iv) the difference between the gross coupon rate and the net coupon rate is sufficient to pay Servicer Fees, Trustee fees and Certificate Insurer premiums, (v) the Mortgage Loans' prepayment rates are a multiple of the Prepayment Assumption, (vi) prepayments include 30 days' interest thereon, (vii) no optional termination or mandatory termination is exercised, (viii) the Specified Subordinated Amount for each Mortgage Loan Group is set initially as specified in the Insurance Agreement and thereafter changes in accordance with the provisions of the Insurance Agreement, (ix) no delinquencies in the payment by Mortgagors of principal and interest on the Mortgage Loans are experienced, (x) no Mortgage Loan is repurchased for breach of a representation and warranty or otherwise, (xi) the Coupon Rate for each Mortgage Loan in Group II is adjusted on its next rate adjustment date (and on subsequent rate adjustment dates, if necessary) to equal the sum of (a) an assumed level of the applicable index (____%) and (b) the respective gross margin (such sum being subject to the applicable periodic adjustment cap and maximum interest rate) and (xii) the Class A-6 Group II Pass-Through Rate remains constant at ____%. S-40 GROUP I CHARACTERISTICS
Original Remaining Original Term to Term to Amortization Pool Principal Gross Coupon Net Coupon Maturity Maturity Term Amortization Number Balance Rate Rate (in months) (in months) (in months) Method - ------------------------------------------------------------------------------------------------------------------------------------
GROUP II CHARACTERISTICS
Original Remaining Original Gross Net Months Maximum Term to Term to Amortization Pool Principal Coupon Coupon to Rate Interest Maturity Maturity Term Periodic Amortization Number Balance Rate Rate Change Margin Rate (in months) (in months) (in months) Cap Method - ---------------------------------------------------------------------------------------------------------------------------
(1) The aggregate principal balance of the Mortgage Loans are fixed rate loans that, in __ years from origination, will be converted into variable rate loans with an interest rate cap of __% on the date of such conversion and with a periodic interest rate cap of __% thereafter. (2) The aggregate principal balance of the Mortgage Loans are fixed rate loans that, in __ years from origination, will be converted into variable rate loans with an interest rate cap of __% on the date of such conversion and with a periodic interest rate cap of __% thereafter. The model used for the Mortgage Loan Groups in this Prospectus Supplement is the prepayment assumption (the "Prepayment Assumption") which represents an assumed rate of prepayment each month relative to the then outstanding principal balance of a pool of Mortgage Loans for the life of such Mortgage Loans. A 100% Prepayment Assumption with respect to Group I assumes constant prepayment rates of 2.3% per annum of the then outstanding principal balance of such Mortgage Loans in the first month of the life of the Mortgage Loans and an additional 2.3% in each month thereafter until the tenth month. Beginning in the tenth month and in each month thereafter during the life of the Mortgage Loans, 100% Prepayment Assumption assumes a constant prepayment rate of 23% per annum each month. A 100% Prepayment Assumption with respect to Group II assumes constant prepayment rates of 2.4% per annum of the then outstanding principal balance of such Mortgage Loans in the first month of the life of the Mortgage Loans and an additional 2.4% in each month thereafter until the tenth month. Beginning in the tenth month and in each S-41 month thereafter during the life of the Mortgage Loans, 100% Prepayment Assumption with respect to the Group II assumes a constant prepayment rate of 24% per annum each month. With respect to the Mortgage Loan Groups as used in the tables below, 0% Prepayment Assumption assumes prepayment rates equal to 0% of the Prepayment Assumption, i.e., no prepayments. Correspondingly, 100% Prepayment Assumption assumes prepayment rates equal to 100% of the Prepayment Assumption, and so forth. The Prepayment Assumption does not purport to be a historical description of prepayment experience or a prediction of the anticipated rate of prepayment of any pool of mortgage loans, including the Mortgage Loans. The Company believes that no existing statistics of which it is aware provide a reliable basis for holders of Class A Certificates to predict the amount or the timing of receipt of prepayments on the related Mortgage Loans. Since the tables were prepared on the basis of the assumptions in the above paragraphs, there are discrepancies between the characteristics of the actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in preparing the tables. Any such discrepancy may have an effect upon the percentages of the related Class A Certificate Principal Balances outstanding and weighted average lives of the Class A Certificates set forth in the tables. In addition, since the actual Mortgage Loans in the Trust have characteristics which differ from those assumed in preparing the tables set forth below, the Class A Principal Distribution Amount may be made earlier or later than as indicated in the tables. The following tables set forth the percentages of the initial principal amount of the Class A Certificates that would be outstanding after each of the dates shown, based on a rate equal to varying percentages of the Prepayment Assumption (as defined above). S-42 PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-1 Group I Certificates Class A-2 Group I Certificates Class A-3 Group I Certificates Payment Date 0% 13% 18% 21% 23% 28% 0% 13% 18% 21% 23% 28% 0% 13% 18% 21% 23% 28% -- --- --- --- --- --- -- --- --- --- --- --- -- --- --- --- --- --- Weighted Average Life (Years)(1)
(1) The weighted average life of the Class A Certificates is determined by (i) multiplying the amount of each principal payment by the number of years from the Closing Date to the related Payment Date, (ii) adding the results, and (iii) dividing the sum by the initial respective Certificate Principal Balance for such Class of Class A Certificate. S-43 PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-4 Group I Certificates Class A-5 Group I Certificates Class A-6 Group II Certificates Payment Date 0% 13% 18% 21% 23% 28% 0% 13% 18% 21% 23% 28% 0% 15% 20% 23% 24% 30% -- --- --- --- --- --- -- --- --- --- --- --- -- --- --- --- --- --- Weighted Average Life (Years)(1) (1) The weighted average life of the Class A Certificates is determined by (i) multiplying the amount of each principal payment by the number of years from the Closing Date to the related Payment Date, (ii) adding the results, and (iii) dividing the sum by the initial respective Certificate Principal Balance for such Class of Class A Certificate.
S-44 The Mortgage Loans will not have the characteristics assumed above, and there can be no assurance that (i) the Mortgage Loans will prepay at any of the rates shown in the table or at any other particular rate or will prepay proportionately or (ii) the weighted average lives of the Class A Group I Certificates of each Class or the weighted average life of the Class A-6 Group II Certificates will be as calculated above. Because the rate of distributions of principal of the Class A Certificates will be a result of the actual amortization (including prepayments) of the Mortgage Loans in the related Mortgage Loan Group, which will include Mortgage Loans that have remaining terms to stated maturity shorter or longer than those assumed and Coupon Rates higher or lower than those assumed, the weighted average lives of the Class A Group I Certificates and the Class A-6 Group II Certificates will differ from those set forth above, even if all of the Mortgage Loans in the related Mortgage Loan Group prepay at the indicated constant prepayment rates. Payment Delay Feature of Class A-2, A-3, A-4 and A-5 Group I Certificates The effective yield to the Owners of the Class A-2, A-3, A-4 and A-5 Group I Certificates will be lower than the yield which would otherwise apply because distributions will not be payable to such Owners until at least the ___ day of the month in which the related Accrual Period ends, without any additional distribution of interest or earnings thereon in respect of such delay. DESCRIPTION OF THE CERTIFICATES General The Certificates will be issued in classes (each, a "Class") pursuant to a Pooling and Servicing Agreement to be dated as of ________, 199_ (the "Pooling and Servicing Agreement") among the Master Servicer, the Company and the Trustee. The Trustee will make available for inspection a copy of the Pooling and Servicing Agreement (without exhibits or schedules) to the Owners of the Certificates on written request. The following describes certain terms of the Pooling and Servicing Agreement, but does not purport to be complete and is qualified in its entirety by reference to the Pooling and Servicing Agreement. The $________ aggregate principal amount of Class A-1 Group I Certificates, Variable Pass-Through Rate (the "Class A-1 Group I Certificates"), the $________ aggregate principal amount of Class A-2 Group I Certificates, ____% Pass-Through Rate (the "Class A-2 Group I Certificates"), the $________ aggregate principal amount of Class A-3 Group I Certificates, ____% Pass-Through Rate (the "Class A-3 Group I Certificates"), the $________ aggregate principal amount of Class A-4 Group I Certificates, ____% Pass-Through Rate (the "Class A-4 Group I Certificates") and the $________ aggregate principal amount of Class A-5 Group I Certificates, ____% Pass-Through Rate (the "Class A-5 Group I Certificates", and, collectively with the Class A-1 Group I Certificates, the Class A-2 Group I Certificates, the Class A-3 Group I Certificates, Class A-4 Group I Certificates, the "Class A Group I Certificates"), and the $________ aggregate principal amount of Class A-6 Group II Certificates (the "Class A-6 Group II Certificates") are senior certificates as described herein (together, the "Class A Certificates"). The Class B Certificates are not being offered hereby. Each Class of Class A Certificates will be issued in original principal amounts of $1,000 and integral multiples thereof, except that one certificate for each class of Class A Certificates may be issued in a different amount. The Trust will also issue a residual class in each REMIC created by the Trust (the "Residual Certificates") which are not being offered hereby and will initially be retained by the Company or its affiliates. The Class A Certificates, the Class B Certificates and the Residual Certificates are collectively referred to as the "Certificates". Payment Dates and Distributions On the ____ day of each month, or, if such day is not a business day then the next succeeding business day, commencing ________, 199_ (each such day being a "Payment Date"), the Trustee will be required to distribute to the Owners of record of the Certificates as of the related Record Date, such Owners' Percentage Interest in the amounts required to be distributed to the Owners of each Class of Certificates on S-45 such Payment Date. For so long as any Class A Certificate is in book-entry form with DTC, the only "Owner" of such Class A Certificates will be Cede. See " -- Book-Entry Registration of the Class A Certificates" herein. Each Owner of record of a Certificate as of each Record Date will be entitled to receive such Owner's Percentage Interest in the amounts due on the related Payment Date to the Owners of the related Class of Certificates. The "Percentage Interest" of each Class A Certificate as of any date of determination will be equal to the percentage obtained by dividing the principal balance of such Class A Certificate as of the Cut-Off Date by the related Class A Certificate Principal Balance as of the Cut-Off Date. Flow of Funds and Distributions on the Class A Certificates The Principal and Interest Account. The Pooling and Servicing Agreement requires the Master Servicer to establish a custodial account (the "Principal and Interest Account") on behalf of the Trustee at a depository institution meeting the requirements set forth in the Pooling and Servicing Agreement. The Pooling and Servicing Agreement requires the Master Servicer to deposit all collections (other than amounts escrowed for taxes and insurance) related to the Mortgage Loans to the Principal and Interest Account on a daily basis (but no later than the first business day after receipt). All funds in the Principal and Interest Account can only be invested in Eligible Investments. Investment earnings on funds held in the Principal and Interest Account are for the account of the Master Servicer, and the Master Servicer will be responsible for any losses. The Master Servicer is required pursuant to the Pooling and Servicing Agreement on the thirteenth day or, if such day is not a business day, on the next following business day (the "Remittance Date") of each month to remit to the Trustee the following amounts with respect to the Mortgage Loans in each Mortgage Loan Group: (i) an amount equal to the sum, without duplication, of (x) the aggregate portions of the interest payments (whether or not collected) becoming due on the Mortgage Loans during the immediately preceding Remittance Period, and (y) any Compensating Interest calculated at the Coupon Rate on the related Mortgage Loan, less the Servicing Fee with respect to the Mortgage Loans serviced by the Master Servicer due with respect to such Mortgage Loans with respect to the immediately preceding Remittance Period (the amount described in this clause (i) for the Mortgage Loans in the Group I being the "Group I Interest Remittance Amount" and the amount in this clause (i) for the Mortgage Loans in the Group II being the "Group II Interest Remittance Amount"), (ii) an amount equal to the sum, without duplication, of (x) the aggregate portions of the scheduled principal payments, but only to the extent collected, on the Mortgage Loans during the immediately preceding Remittance Period, (y) any Prepayments, Insurance Proceeds and Net Liquidation Proceeds (but only to the extent that such Net Liquidation Proceeds do not exceed the principal balance of the related Mortgage Loan) and Released Mortgaged Property Proceeds, in each case only to the extent collected on the Mortgage Loans during the preceding Remittance Period and (z) all Loan Purchase Prices and Substitution Amounts with respect to the related Mortgage Loans at such Remittance Date paid or received by the Master Servicer for deposit to the Principal and Interest Account (the amount described in this clause (ii) for the Mortgage Loans in the Group I being the "Group I Principal Remittance Amount" and the amount described in this clause (ii) for the Mortgage Loans in Group II being the "Group II Principal Remittance Amount"). For any Remittance Date the Group I Interest Remittance Amount and the Group I Principal Remittance Amount are together referred to as the "Group I Monthly Remittance" for such Remittance Date, and the Group II Interest Remittance Amount and the Group II Principal Remittance Amount are together referred to as the "Group II Monthly Remittance" for such Remittance Date. The sum of the Group I Interest Remittance Amount and the Group II Interest Remittance Amount is equal to the "Interest Remittance Amount". The sum of Group I Principal Remittance Amount and the Group II Principal Remittance Amount is equal to the "Principal Remittance Amount". For any Remittance Date the Interest Remittance Amount and the Principal Remittance Amount are together referred to as the "Monthly Remittance" for such Remittance Date. A "Remittance Period" is the period commencing at the opening of business on the second day of each month and ending at the close of business on the first day of the following month. S-46 Delinquency Advances. The Pooling and Servicing Agreement requires that if, on any Remittance Date, the amount then on deposit in the Principal and Interest Account from Mortgage Loan collections and relating to interest is less than the Interest Remittance Amount applicable to such Remittance Period, then the Master Servicer is required to deposit into the Principal and Interest Account a sufficient amount of its own funds ("Delinquency Advances") to make such amount equal to such Interest Remittance Amount. The Master Servicer is not required to make a Delinquency Advance if it believes that such Delinquency Advance will not be recoverable from the related Mortgage Loan. The Trustee, as successor Master Servicer, will not be required to make a Delinquency Advance if it believes that such Delinquency Advance will not be recoverable from the related Mortgage Loan. The Certificate Account. The Pooling and Servicing Agreement provides that the Trustee shall create and maintain one or more accounts for the purpose of funding distributions to the Owners (collectively, the "Certificate Account"). The Pooling and Servicing Agreement provides that the Trustee shall deposit to the Certificate Account (i) monthly, the Monthly Remittance received from the Master Servicer on the related Remittance Date and (ii) all Insured Payments received from the Certificate Insurer. [On each Payment Date, the Trustee shall withdraw from the Pre-Funding Account any earnings received on investment of the Pre-Funding Amount held by it in the Pre-Funding Account and deposit such earnings in the Certificate Account. On the , 199_ Payment Date, the Trustee shall withdraw from the Pre-Funding Account any funds theretofore remaining and deposit such funds in the Certificate Account.] On the second business day prior to each Payment Date, in preparation of making distributions on such Payment Date, if the Trustee determines with respect to either Mortgage Loan Group that the Total Available Funds to be on deposit in the Certificate Account with respect to such Mortgage Loan Group will be insufficient to pay the full amount of the related Insured Distribution Amount and the fees of the Trustee and Certificate Insurer for such Payment Date, the Trustee will then be required to make a draw on the related Certificate Insurance Policy for the deficiency (the amount of any such deficiency being the amount of the "Insured Payment" required to be made) and to deposit the amount received with respect to such draw into the Certificate Account. The Pooling and Servicing Agreement also establishes an account, the "Supplemental Interest Account," which is held in trust by the Trustee, but does not constitute a part of the Trust. The Supplemental Interest Account will hold certain amounts and other property relating to the funding of Supplemental Interest Amounts, if any, to the Owners of the Class A-6 Group II Certificates. "Supplemental Interest Amounts" are payments due on any Payment Date which result from any shortfall between Class A-6 Group II Certificate interest calculated at the Class A-6 Formula Pass-Through Rate, and such interest calculated at the Class A-6 Available Funds Pass-Through Rate. Distributions on the Class A Certificates. On each Payment Date, the Trustee shall be required to make the following disbursements and transfers from the Certificate Account in the following order of priority, and each such transfer and disbursement shall be treated as having occurred only after all preceding transfers and disbursements have occurred: (i) first, the Trustee shall pay first, to itself the Trustee's fees then due; (ii) second, the Trustee shall pay to the Certificate Insurer the premium amount then due; (iii) third, the Trustee shall pay, pari passu, to the Owners of each of the Class A Certificates, the related Class A Distribution Amount for such Class and such Payment Date; (iv) fourth, the Trustee shall distribute any remaining amount in the Certificate Account to the Owners of the related Class B Certificates and as otherwise required by the Pooling and Servicing Agreement. S-47 The Class A Group I Certificates have been tranched into five "sequential pay" Classes, such that the Class A-5 Group I Certificates are entitled to receive no principal distributions until the Class A-4 Certificate Principal Balance has been reduced to zero, the Class A-4 Group I Certificates are entitled to receive no principal distributions until the Class A-3 Certificate Principal Balance has been reduced to zero, the Class A-3 Group I Certificates are entitled to receive no principal distributions until the Class A-2 Certificate Principal Balance has been reduced to zero, and the Class A-2 Group I Certificates are entitled to receive no principal distributions until the Class A-1 Certificate Principal Balance has been reduced to zero. The Pooling and Servicing Agreement provides that to the extent the Certificate Insurer makes Insured Payments, the Certificate Insurer will be subrogated to the rights of the Owners of the related Class A Certificates with respect to such Insured Payments and shall be deemed, to the extent of the payments so made, to be a registered Owner of Class A Certificates and shall be entitled to reimbursement for such Insured Payments, as provided in the Pooling and Servicing Agreement. Calculation of LIBOR On the second business day preceding each Payment Date or, in the case of the first Payment Date, on the second business day preceding the Closing Date (each such date, an "Interest Determination Date"), the Trustee will determine the London interbank offered rate for one-month U.S. dollar deposits ("LIBOR") for the next Accrual Period for the Class A-1 Group I Certificates and Class A-6 Group II Certificates on the basis of the offered rates of the Reference Banks for one-month U.S. dollar deposits, as such rates appear on the Reuters Screen LIBO Page, as of 11:00 a.m. (London time) on such Interest Determination Date. As used in this section, "business day" means a day on which banks are open for dealing in foreign currency and exchange in London and New York City; "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks); and "Reference Banks" means leading banks selected by the Trustee and engaged in transactions in Eurodollar deposits in the international Eurocurrency market (i) with an established place of business in London, (ii) whose quotations appear on the Reuters Screen LIBO Page on the Interest Determination Date in question, (iii) which have been designated as such by the Trustee and (iv) not controlling, controlled by, or be under common control with, the Company or the Trustee. On each Interest Determination Date, LIBOR for the related Accrual Period for the Class A-6 Group II Certificates will be established by the Trustee as follows: (a) If on such Interest Determination Date two or more Reference Banks provide such offered quotations, LIBOR for the related Accrual Period for the Class A-1 Group I and the Class A-6 Group II Certificates shall be the arithmetic mean of such offered quotations (rounded upwards if necessary to the nearest whole multiple of 1/16%). (b) If on such Interest Determination Date fewer than two Reference Banks provide such offered quotations, LIBOR for the related Accrual Period for the Class A-1 Group I and the Class A-6 Group II Certificates shall be the higher of (x) LIBOR as determined on the previous Interest Determination Date and (y) the Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate per annum that the Trustee determines to be either (i) the arithmetic mean (rounded upwards if necessary to the nearest whole multiple of 1/16%) of the one-month U.S. dollar lending rates which New York City banks selected by the Trustee are quoting on the relevant Interest Determination Date to the principal London offices of leading banks in the London interbank market or, in the event that the Trustee can determine no such arithmetic mean, (ii) the lowest one-month U.S. dollar lending rate which New York City banks selected by the Trustee are quoting on such Interest Determination Date to leading European banks. The establishment of LIBOR on each Interest Determination Date by the Trustee and the Trustee's calculation of the rate of interest applicable to the Class A-1 Group I and the Class A-6 Group II Certificates S-48 for the related Accrual Period shall (in the absence of manifest error) be final and binding. Each such rate of interest may be obtained by telephoning the Trustee at (612) 667-8085. Subordination of Class B Certificates The Class B Certificates are subordinated to the Class A Certificates. Such subordination is intended to enhance the likelihood that the Owners of the Class A Certificates will receive full and timely receipt of all amounts due to them. The Pooling and Servicing Agreement requires that the excess of the aggregate principal balance of the Mortgage Loans in Group I over the Class A Certificate Principal Balance for all Classes of the Class A Group I Certificates be maintained at a certain amount (which amount may vary over time) over the life of the transaction, which amount is specified by the Certificate Insurer. The actual amount of this excess is the "Subordinated Amount" for Group I, and the specified target amount of the excess at a point in time is the "Specified Subordinated Amount" for Group I. Similarly, the Pooling and Servicing Agreement requires that the excess of Group II's Pool Principal Balance over the Class A Certificate Principal Balance for the Class A-6 Group II Certificates be maintained at a certain amount (which amount may vary over time) over the life of the transaction, which amount is specified by the Certificate Insurer. The actual amount of this excess is the "Subordinated Amount" for Group II, and the specified target amount of the excess at a point in time is the "Specified Subordinated Amount" for Group II. The Certificate Insurer may permit the reduction of the Specified Subordinated Amount without the consent of, or the giving of notice to, the Owners of the related Class A Certificates; provided, that the Certificate Insurer is not then in default; and provided, further, that such reduction would not change materially the weighted average life of the related Class A Certificates or the current rating thereof. The Pooling and Servicing Agreement generally provides that the Owners of the Class B Certificates will only receive distributions of principal to the extent that the actual related Subordinated Amount exceeds the then related Specified Subordinated Amount; i.e., to the extent that there is a level of subordination greater than that required by the Certificate Insurer, as will be the case when the Specified Subordinated Amount decreases or "steps down" in accordance with its terms. Consequently, unless there exists on any particular Payment Date such related excess subordination, the Owners of the related Class A Certificates will be entitled to receive 100% of the principal to be distributed on such Payment Date with respect to the related Mortgage Loan Group. The Class B Certificates are also entitled to receive all excess interest available on any Payment Date for the related Mortgage Loan Group, i.e., the interest remitted by the Master Servicer to the Trustee relating to the prior Remittance Period (which interest remittance is itself net of the aggregate monthly Servicing Fees) less the interest due and payable to the Owners of the related Class A Certificates, together with the fees and premium due and payable to the Trustee and the Certificate Insurer (such interest to which the related Class B Certificates are entitled, the "Class B Interest" for the related Mortgage Loan Group). On each Payment Date the Class B Interest will be used, to the extent available, to fund any shortfalls in amounts due to the Owners of the Class A Certificates on such Payment Date. In addition, to the extent that the related Specified Subordinated Amount increases or "steps up" due to the effect of the triggers set forth in the definition thereof, or if, due to Realized Losses, the related Subordinated Amount has been reduced below the related Specified Subordinated Amount, the Pooling and Servicing Agreement requires that Class B Interest be used to make payments of principal to the Owners of the Class A Group I Certificates and the Class A-6 Group II Certificates for the purposes of accelerating the amortization thereof relative to the amortization of the Mortgage Loans in the related Mortgage Loan Group. Such accelerated payments of principal will be made to the extent necessary to increase the related Subordinated Amount to its then-applicable Specified S-49 Subordinated Amount. To the extent that, on any Payment Date, the actual related Subordinated Amount is less than the related Specified Subordinated Amount, a "Subordination Deficiency" will exist. The Insurance Agreement defines a "Group I Subordination Deficit" with respect to a Payment Date to be the amount, if any, by which (x) the aggregate Certificate Principal Balance of the Class A Group I Certificates as of such Payment Date, and following the making of all distributions to be made on such Payment Date (except for any payment to be made as to principal from proceeds of the related Certificate Insurance Policy), exceeds (y) an amount equal to the aggregate principal balances of the Mortgage Loans in the Group I as of the close of business on the last day of the preceding Remittance Period; a "Group II Subordination Deficit" with respect to a Payment Date is the amount, if any, by which (x) the aggregate Certificate Principal Balance of the Class A-6 Group II Certificates as of such Payment Date, and following the making of all distributions to be made on such Payment Date (except for any payment to be made as to principal from proceeds of the related Certificate Insurance Policy) exceeds (y) the aggregate principal balances of the Mortgage Loans in the Group II as of the close of business on the last day of the preceding Remittance Period. "Subordination Increase Amount" means, as of any Payment Date and with respect to the related Mortgage Loan Group, the lesser of (i) the Subordination Deficiency applicable to such Mortgage Loan Group as of such Payment Date and (ii) the actual amount available to pay the Class B Interest on such Payment Date. "Subordination Reduction Amount" means, with respect to any Payment Date and with respect to the related Mortgage Loan Group, an amount equal to the lesser of (x) the excess of the actual Subordinated Amount applicable to such Mortgage Loan Group over the Specified Subordinated Amount for such Payment Date and (y) the amount described in clause (b)(i)(x) of the definition of Class A Principal Distribution Amount for such Payment Date. Overcollateralization and the Certificate Insurance Policy. The Pooling and Servicing Agreement requires the Trustee to make a claim for an Insured Payment under the related Certificate Insurance Policy not later than the second business day prior to any Payment Date as to which the Trustee has determined that a Subordination Deficit will occur for the purpose of applying the proceeds of such Insured Payment as a payment of principal to the Owners of the Class A Group I Certificates or Class A-6 Group II Certificates, as the case may be, on such Payment Date. The Certificate Insurance Policy is thus similar to the subordination provisions described above insofar as the Certificate Insurance Policy guarantees ultimate, rather than current, payment of the amounts of any Realized Losses to the Holders of the related Class A Group I Certificates and Class A-6 Group II Certificates. Investors in the Class A Group I Certificates of each Class and the Class A-6 Group II Certificates should realize that, under extreme loss or delinquency scenarios applicable to the related Mortgage Loan Pool, they may temporarily receive no distributions of principal. Crosscollateralization Provisions The Pooling and Servicing Agreement further provides that the Class B Interest generated by the Group I may be used to fund certain shortfalls with respect to the Group II and vice versa, provided that such Class B Interest must first be applied to fund certain required payments with respect to the related Mortgage Loan Group. Specifically, the Class B Interest generated by one Mortgage Loan Group is to be applied in the following order of priority: (i) first, to fund a Subordination Increase Amount payment in response to a Subordination Deficit in the related Mortgage Loan Group; (ii) second, to fund a Subordination Increase Amount payment in response to a Subordination Deficit or interest shortfall in the other Mortgage Loan Group; (iii) third, to fund a Subordination Increase Amount payment in response to a Subordination Deficiency in the related Mortgage Loan Group; and (iv) fourth, to fund a Subordination Increase Amount payment in response to a Subordination Deficiency with respect to the other Mortgage Loan Group. S-50 Credit Enhancement Does Not Apply to Prepayment Risk In general, the protection afforded by the subordination provisions and by the Certificate Insurance Policy is protection for credit risk and not for prepayment risk. The subordination provisions may not be adjusted, nor may a claim be made under the Certificate Insurance Policy to guarantee or insure that any particular rate of prepayment is experienced by either of the two Mortgage Loan Groups. Class A Certificate Distributions and Insured Payments No later than the second business day prior to each Payment Date the Trustee will be required to determine the amounts to be on deposit in the Certificate Account on such Payment Date and following the application of the cross-collateralization provisions described above with respect to each of the two Mortgage Loan Groups, such amounts being the "Group I Total Available Funds", and the "Group II Total Available Funds", respectively, or, collectively, the "Total Available Funds". If the aggregate Class A Insured Distribution Amount related to the Class A Group I Certificates for any Payment Date exceeds the Group I Total Available Funds for such Payment Date, the Trustee will be required to draw the amount of such insufficiency from the Certificate Insurer under the Certificate Insurance Policy. Similarly, if on any Payment Date the Class A Insured Distribution Amount related to the Class A-6 Group II Certificates exceeds the Group II Total Available Funds for such Payment Date, the Trustee will be required to draw the amount of such insufficiency from the Certificate Insurer under the Certificate Insurance Policy. The Trustee will be required to deposit to the Certificate Account the amount of any Insured Payment made by the Certificate Insurer. The Pooling and Servicing Agreement provides that amounts which cannot be distributed to the Owners of the Certificates as a result of final, non-appealable proceedings under the United States Bankruptcy Code or similar insolvency laws will not be considered in determining the amount of Total Available Funds with respect to any Payment Date. Book-Entry Registration of the Class A Certificates The Class A Certificates will be book-entry certificates (the "Book-Entry Certificates"). The Beneficial Certificate Owners may elect to hold their Class A Certificates through DTC in the United States, or CEDEL or Euroclear (in Europe) if they are participants of such systems ("Participants"), or indirectly through organizations which are Participants in such systems. The Book-Entry Certificates will be issued in one or more certificates per class of Class A Certificates which in the aggregate equal the principal balance of such Class A Certificates and will initially be registered in the name of Cede, the nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of their Participants through customers' securities accounts in CEDEL's and Euroclear's names on the books of their respective depositories which in turn will hold such positions in customers' securities accounts in the depositories' names on the books of DTC. Citibank will act as depository for CEDEL and Morgan will act as depository for Euroclear (in such capacities, individually the "Relevant Depository" and collectively the "European Depositories"). Investors may hold such beneficial interests in the Book-Entry Certificates in minimum denominations representing principal amounts of $1,000. Except as described below, no Beneficial Certificate Owner will be entitled to receive a physical certificate representing such Certificate (a "Definitive Certificate"). Unless and until Definitive Certificates are issued, it is anticipated that the only "Owner" of such Class A Certificates will be Cede, as nominee of DTC. Beneficial Certificate Owners will not be Owners as that term is used in the Pooling and Servicing Agreement. Beneficial Certificate Owners are only permitted to exercise their rights indirectly through Participants and DTC. The Beneficial Certificate Owner's ownership of a Book-Entry Certificate will be recorded on the records of the brokerage firm, bank, thrift institution or other financial intermediary (each, a "Financial Intermediary") that maintains the Beneficial Certificate Owner's account for such purpose. In turn, the Financial Intermediary's Ownership of such Book-Entry Certificate will be recorded on the records of DTC (or of a participating firm that acts as agent for the Financial Intermediary, whose interest will in turn be recorded on the records of DTC, or, if the Beneficial Certificate Owner's Financial Intermediary is not a DTC Participant, then on the records of CEDEL or Euroclear, as appropriate). S-51 Beneficial Certificate Owners will receive all distributions of principal of, and interest on, the Class A Certificates from the Trustee through DTC and DTC Participants. While such Class A Certificates are outstanding (except under the circumstances described below), under the rules, regulations and procedures creating and affecting DTC and its operations (the "Rules"), DTC is required to make book-entry transfers among Participants on whose behalf it acts with respect to such Class A Certificates and is required to receive and transmit distributions of principal of, and interest on, such Class A Certificates. Participants and indirect participants with whom Beneficial Certificate Owners have accounts with respect to Class A Certificates are similarly required to make book-entry transfers and receive and transmit such distributions on behalf of their respective Beneficial Certificate Owners. Accordingly, although Beneficial Certificate Owners will not possess certificates, the Rules provide a mechanism by which Beneficial Certificate Owners will receive distributions and will be able to transfer their interest. Beneficial Certificate Owners will not receive or be entitled to receive certificates representing their respective interests in the Class A Certificates, except under the limited circumstances described below. Unless and until Definitive Certificates are issued, Beneficial Certificate Owners who are not Participants may transfer ownership of Class A Certificates only through Participants and indirect participants by instructing such Participants and indirect participants to transfer such Class A Certificates, by book-entry transfer, through DTC for the account of the purchasers of such Class A Certificates, which account is maintained with their respective Participants. Under the Rules and in accordance with DTC's normal procedures, transfers of ownership of such Class A Certificates will be executed through DTC and the accounts of the respective Participants at DTC will be debited and credited. Similarly, the Participants and indirect participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing Beneficial Certificate Owners. Because of time zone differences, credits of securities received in CEDEL or Euroclear as a result of a transaction with a Participant will be made during subsequent securities settlement processing and dated the business day following the DTC settlement date. Such credits or any transactions in such securities settled during such processing will be reported to the relevant Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL Participant (as defined below) or Euroclear Participant (as defined below) to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant CEDEL or Euroclear cash account only as of the business day following settlements in DTC. For information with respect to tax documentation procedures relating to the Certificates, see "Federal Income Tax Consequences -- Foreign Investors" and " -- Backup Withholding" in the Prospectus and "Global Clearance, Settlement and Tax Documentation Procedures -- Certain U.S. Federal Income Tax Documentation Requirements" in Annex I hereto. Transfers between Participants will occur in accordance with DTC rules. Transfers between CEDEL Participants and Euroclear Participants will occur in accordance with their respective rules and operating procedures. Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through CEDEL Participants or Euroclear Participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of the relevant European international clearing system by the Relevant Depository; however, such cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to the Relevant Depository to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same day funds settlement applicable to DTC. CEDEL Participants and Euroclear Participants may not deliver instructions directly to the European Depositories. S-52 DTC, which is a New York-chartered limited purpose trust company, performs services for its Participants ("DTC Participants"), some of which (and/or their representatives) own DTC. In accordance with its normal procedures, DTC is expected to record the positions held by each DTC Participant in the Book-Entry Certificates, whether held for its own account or as a nominee for another person. In general, beneficial ownership of Book-Entry Certificates will be subject to the rules, regulations and procedures governing DTC and DTC Participants as in effect from time to time. CEDEL is incorporated under the laws of Luxembourg as a professional depository. CEDEL holds securities for its participant organizations ("CEDEL Participants") and facilitates the clearance and settlement of securities transactions between CEDEL Participants through electronic book-entry changes in accounts of CEDEL Participants, thereby eliminating the need for physical movement of certificates. Transactions may be settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL provides to its CEDEL Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. CEDEL interfaces with domestic markets in several countries. As a professional depository, CEDEL is subject to regulation by the Luxembourg Monetary Institute. CEDEL Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to CEDEL is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a CEDEL Participant, either directly or indirectly. Euroclear was created in 1968 to hold securities for participants of Euroclear ("Euroclear Participants") and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Transactions may now be settled in any of 31 currencies, including United States dollars. Euroclear includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are conducted by the Euroclear Operator, and all Euroclear Securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear operator, not the Cooperative. The Cooperative establishes policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly. The Euroclear Operator is the Belgian branch of a New York banking corporation which is a member bank of the Federal Reserve System. As such, it is regulated and examined by the Board of Governors of the Federal Reserve System and the New York State Banking Department, as well as the Belgian Banking Commission. Securities clearance accounts and cash accounts with the Euroclear operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System and applicable Belgian law (collectively, the "Terms and Conditions"). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no record of or relationship with persons holding through Euroclear Participants. Distributions on the Book-Entry Certificates will be made on each Payment Date by the Trustee to DTC. DTC will be responsible for crediting the amount of such payments to the accounts of the applicable DTC Participants in accordance with DTC's normal procedures. Each DTC Participant will be responsible for S-53 disbursing such payment to the Beneficial Certificate Owners of the Book-Entry Certificates that it represents and to each Financial Intermediary for which it acts as agent. Each such Financial Intermediary will be responsible for disbursing funds to the Beneficial Certificate Owners of the Book-Entry Certificates that it represents. Under a book-entry format, Beneficial Certificate Owners of the Book-Entry Certificates may experience some delay in their receipt of payments, since such payments will be forwarded by the Trustee to Cede. Distributions with respect to Class A Certificates held through CEDEL or Euroclear will be credited to the cash accounts of CEDEL Participants or Euroclear Participants in accordance with the relevant system's rules and procedures, to the extent received by the Relevant Depository. Such distributions will be subject to tax reporting in accordance with relevant United States tax laws and regulations. Because DTC can only act on behalf of Financial Intermediaries, the ability of a Beneficial Certificate Owner to pledge Book-Entry Certificates, to persons or entities that do not participate in the Depository system, or otherwise take actions in respect of such Book-Entry Certificates, may be limited due to the lack of physical certificates for such Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in book-entry form may reduce the liquidity of such Certificates in the secondary market since certain potential investors may be unwilling to purchase Certificates for which they cannot obtain physical certificates. Monthly and annual reports on the Trust provided by the Master Servicer to Cede, as nominee of DTC, may be made available to Beneficial Certificate Owners upon request, in accordance with the rules, regulations and procedures creating and affecting the Depository, and to the Financial Intermediaries to whose DTC accounts the Book-Entry Certificates of such Beneficial Certificate Owners are credited. DTC has advised the Trustee that, unless and until Definitive Certificates are issued, DTC will take any action permitted to be taken by the holders of the Book-Entry Certificates under the Pooling and Servicing Agreement only at the direction of one or more Financial Intermediaries to whose DTC accounts the Book-Entry Certificates are credited, to the extent that such actions are taken on behalf of Financial Intermediaries whose holdings include such Book-Entry Certificates. CEDEL or the Euroclear Operator, as the case may be, will take any action permitted to be taken by an Owner under the Pooling and Servicing Agreement on behalf of a CEDEL Participant or Euroclear Participant only in accordance with its relevant rules and procedures and subject to the ability of the Relevant Depository to effect such actions on its behalf through DTC. DTC may take actions, at the direction of the related Participants, with respect to some Class A Certificates which conflict with actions taken with respect to other Class A Certificates. Definitive Certificates will be issued to Beneficial Certificate Owners of the Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC or the Depositor advises the Trustee in writing that DTC is no longer willing, qualified or able to discharge properly its responsibilities as a nominee and depository with respect to the Book-Entry Certificates and the Depositor or the Trustee is unable to locate a qualified successor, (b) the Depositor, at its sole option, elects to terminate a book-entry system through DTC or (c) DTC, at the direction of the Beneficial Certificate Owners representing a majority of the outstanding Percentage Interests of the Class A Certificates, advises the Trustee in writing that the continuation of a book-entry system through DTC (or a successor thereto) is no longer in the best interests of Beneficial Certificate Owners. Upon the occurrence of any of the events described in the immediately preceding paragraph, the Trustee will be required to notify all Beneficial Certificate Owners of the occurrence of such event and the availability through DTC of Definitive Certificates. Upon surrender by DTC of the global certificate or certificates representing the Book-Entry Certificates and instructions for re-registration, the Trustee will issue Definitive Certificates, and thereafter the Trustee will recognize the holders of such Definitive Certificates as Owners under the Pooling and Servicing Agreement. Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of Certificates among Participants of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue to perform such procedures and such procedures may be discontinued at any time. S-54 Certain Activities The Trust has not and will not: (i) issue securities (except for the Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities for the purpose of exercising control; (v) underwrite securities; (vi) except as provided in the Pooling and Servicing Agreement, engage in the purchase and sale (or turnover) of investments other than the purchase of Subsequent Mortgage Loans; (vii) offer securities (except the Certificates) in exchange for property; or (viii) repurchase or otherwise reacquire its securities. See "Reports to the Holders" for information regarding reports to the Certificateholders. General Servicing Procedures Acting directly or through one or more sub-servicers, ________ (the "Master Servicer") is required to service and administer the Mortgage Loans in accordance with the Pooling and Servicing Agreement. The Master Servicer in its own name or in the name of a sub-servicer is authorized and empowered pursuant to the Pooling and Servicing Agreement (i) to execute and deliver any and all instruments of satisfaction or cancellation or of partial or full release or discharge and all other comparable instruments with respect to the Mortgage Loans and with respect to the Properties, (ii) to institute foreclosure proceedings or obtain a deed in lieu of foreclosure so as to effect ownership of any Property in its own name on behalf of the Trustee, and (iii) to hold title in the name of the Trust to any Property upon such foreclosure or deed in lieu of foreclosure on behalf of the Trustee; provided, however, that to the extent any instrument described in clause (i) would be delivered by the Master Servicer outside of its ordinary procedures for mortgage loans held for its own account, the Master Servicer is required, prior to executing and delivering such instrument, to obtain the prior written consent of the Certificate Insurer. The Master Servicer, in its own name or in the name of a Sub-Servicer, has the right to approve requests of Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations, and (iii) removal, demolition or division of Properties subject to Mortgages. The Pooling and Servicing Agreement provides that no such request shall be approved by the Master Servicer unless: (i) (x) the provisions of the related Note and Mortgage have been complied with, (y) the Combined Loan-to-Value Ratio (which may, for this purpose, be determined at the time of any such action in a manner reasonably acceptable to the Certificate Insurer) after any release does not exceed the Combined Loan-to-Value Ratio set forth for such Mortgage Loan in the Schedule of Mortgage Loans, and (z) the lien priority of the related Mortgage is not affected; or (ii) the Certificate Insurer shall have approved the granting of such request. On the tenth day of each month (or the immediately following business day if the tenth day does not fall on a business day), the Master Servicer or Sub-Servicer shall send to the Trustee a report detailing the payments on the Mortgage Loans serviced by it in each of the two Mortgage Loan Groups during the prior Remittance Period. Collection of Certain Mortgage Loan Payments The Master Servicer is required generally to service the Mortgage Loan Pool in a prudent manner consistent with its general servicing standards for similar mortgage loans and to make reasonable efforts to collect all payments called for under the terms and provisions of the Mortgage Loans, and shall, to the extent such procedures shall be consistent with the provisions of the Pooling and Servicing Agreement, follow collection procedures for all Mortgage Loans at least as rigorous as those the Master Servicer would take in servicing loans and in collecting payments thereunder for its own account. Consistent with the foregoing, the Master Servicer, in its own name or in the name of a Sub-Servicer, may (i) in its discretion waive or permit to be waived any late payment charge or assumption fee or any other fee or charge which the Master Servicer would be entitled to retain as servicing compensation, (ii) extend the due date for payments due on a Note for a period (with respect to each payment as to which the due date is S-55 extended) not greater than 125 days after the initially scheduled due date for such payment, and (iii) amend any Note to extend the maturity thereof, provided that no maturity shall be extended beyond the maturity date of the Mortgage Loan with the latest maturity date and that no more than 1.0% of the Original Pool Balance of the Mortgage Loans shall have a maturity date which has been extended beyond the maturity date thereof at the Cut-Off Date; provided that such action does not violate applicable REMIC provisions. In the event the Master Servicer, in its own name or in the name of a Sub-Servicer, consents to the deferment of the due dates for payments due on a Note, the Master Servicer or Sub-Servicer is nonetheless required to make payment of any required Delinquency Advance with respect to the payments so extended to the same extent as if such installment were due, owing and delinquent and had not been deferred. Generally the Class A Certificate Owners would prefer that "due-on-sale" clauses be waived in the event of a sale of the underlying Mortgaged Property, that extensions and accommodations be made with delinquent Mortgagors, and that liquidations of Mortgage Loans be deferred, since upon prepayment due to sale or upon liquidation such Owners will receive a payment of principal in connection with such prepayment or liquidation. If attractive re-investment opportunities are available at the time, Class A Certificate Owners may prefer that "due-on-sale" clauses not be waived and that no such extensions, accommodations or deferments be made, thus hastening the return of principal to such Owners. Owners do not have the right under the Pooling and Servicing Agreement to make decisions with respect to Mortgagor accounts. Such decisions are in the nature of mortgage servicing and the Master Servicer generally has the right to make such decisions without the requirement of consent of the Owners, the Trustee or the Certificate Insurer. The Master Servicer will generally be required under the Pooling and Servicing Agreement to enforce "due-on-sale" clauses, and will make decisions with respect to liquidations in accordance with the Pooling and Servicing Agreement. Under certain limited circumstances the Pooling and Servicing Agreement may require the Master Servicer to obtain the consent of the Certificate Insurer before taking certain actions with respect to defaulted Mortgage Loans and in connection with the waiver of "due-on-sale" clauses. Since the Certificate Insurer's exposure increases, to the extent of interest accrued, the longer the liquidation process, it is likely to be the case that the Certificate Insurer will favor quick liquidations in those situations in which its consent is required. Similarly, the Certificate Insurer would favor the enforcement of a "due-on-sale" clause, since a prepayment in the event of a sale also reduces its exposure by limiting the accrual of interest. Principal and Interest Account The Master Servicer, in its own name or in the name of a Sub-Servicer, is required to deposit to the Principal and Interest Account all collections on the Mortgage Loans, certain proceeds received by the Master Servicer in connection with the termination of the Trust, Loan Purchase Prices and Substitution Amounts received or paid by the Master Servicer, insurance and condemnation proceeds received by the Master Servicer, other amounts related to the Mortgage Loans received by the Master Servicer, including any income from REO Properties (net of Servicing Advances made with respect to such REO Properties), and Delinquency Advances together with any amounts which are reimbursable from the Principal and Interest Account, but net of the Servicing Fee with respect to each Mortgage Loan serviced by the Master Servicer and other servicing compensation to the Master Servicer as permitted by the Pooling and Servicing Agreement. The Master Servicer or Sub-Servicer may make withdrawals from the Principal and Interest Account only for the following purposes: (a) to effect the timely remittance to the Trustee of the Monthly Remittance due on the Remittance Date; (b) to withdraw investment earnings on amounts on deposit in the Principal and Interest Account; (c) to withdraw amounts that have been deposited to the Principal and Interest Account in error; (d) to pay certain miscellaneous amounts over to the Company and (e) to clear and terminate the Principal and Interest Account. S-56 On each Remittance Date the Master Servicer and any Sub-Servicer is required to remit the Monthly Remittance amount inclusive of all Delinquency Advances and Compensating Interest to the Trustee by wire transfer, or otherwise make funds available in immediately available funds. Servicing Advances The Pooling and Servicing Agreement obligates the Master Servicer to pay all reasonable and customary "out-of-pocket" costs and expenses (including reasonable legal fees) incurred in the performance of its servicing obligations including, but not limited to, the cost of (i) preservation expenses, (ii) any enforcement or judicial proceedings, including foreclosures, (iii) the management and liquidation of REO Property (including, without limitation, realtors' commissions) and (iv) advances made for taxes, insurance and other charges against a Property. Each such expenditure will constitute a "Servicing Advance". The Master Servicer may recover Servicing Advances from the Mortgagors to the extent permitted by the Mortgage Loans or, if not theretofore recovered from the Mortgagor on whose behalf such Servicing Advance was made, from Liquidation Proceeds realized upon the liquidation of the related Mortgage Loan. In no case may the Master Servicer recover Servicing Advances from the principal and interest payments on any Mortgage Loan or from any amounts relating to any other Mortgage Loan. The Master Servicer is not required to make a Servicing Advance if it believes that such Servicing Advance will not be recoverable from the related Mortgage Loan. Compensating Interest A full month's interest on each Mortgage Loan, calculated at a rate equal to such Mortgage Loan's Coupon Rate less the Servicing Fee is due to the Trustee on the outstanding principal balance of each Mortgage Loan as of the beginning of each Remittance Period. If a Prepayment of a Mortgage Loan occurs during any calendar month, any difference between the interest collected from the Mortgagor during such calendar month and the full month's interest at such rate ("Compensating Interest") that is due is required to be deposited by the Master Servicer to the Principal and Interest Account (without any right of reimbursement therefor) and shall be included in the Monthly Remittance and made available to the Trustee on the next succeeding Remittance Date. Maintenance of Insurance The Master Servicer is required to cause to be maintained with respect to each Mortgage Loan that it services and related Property a hazard insurance policy with a carrier licensed in the state in which such Property is located that provides for fire and extended coverage, and which provides for a recovery by the Trust of insurance proceeds relating to such Mortgage Loan in an amount not less than the least of (i) the outstanding principal balance of the Mortgage Loan (together in the case of a Junior Mortgage, with the outstanding principal balance of the senior lien), or (ii) the minimum amount required to compensate for loss or damage on a replacement cost basis, or (iii) the full insurable value of the premises. If a Mortgage Loan at the time of origination relates to a Mortgaged Property in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, the Master Servicer, in its own name or in the name of a Sub-Servicer, will be required to maintain with respect thereto a flood insurance policy in a form meeting the requirements of the then-current guidelines of the Federal Insurance Administration with a generally acceptable carrier in an amount representing coverage, and which provides for recovery by the Master Servicer or a Sub-Servicer on behalf of the Trust of insurance proceeds relating to such Mortgage Loan, of not less than the least of (i) the outstanding principal balance of the Mortgage Loan, or (ii) the minimum amount required to compensate for damage or loss on a replacement cost basis, or (iii) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973, as amended. In the event that the Master Servicer or a Sub-Servicer obtains and maintains a blanket policy insuring against fire with extended coverage and against flood hazards on all of the Mortgage Loans that it services, S-57 then, to the extent such policy names the Master Servicer or a Sub-Servicer as loss payee and provides coverage in an amount equal to the aggregate unpaid principal balance on the Mortgage Loans without co-insurance, and otherwise complies with the requirements of the Pooling and Servicing Agreement, the Master Servicer shall be deemed conclusively to have satisfied its obligations with respect to fire and hazard insurance coverage under the Pooling and Servicing Agreement. Such blanket policy may contain a deductible clause, in which case the Master Servicer will be required, in the event that there shall not have been maintained on the related Mortgaged Property a policy complying with the Pooling and Servicing Agreement, and there shall have been a loss that would have been covered by such policy, to deposit in the Principal and Interest Account from the Master Servicer's own funds the difference, if any, between the amount that would have been payable under a policy complying with the Pooling and Servicing Agreement and the amount paid under such blanket policy. Pursuant to the Pooling and Servicing Agreement, the Master Servicer will be required to indemnify the Trust out of its own funds for any loss to the Trust resulting from the Master Servicer's failure to maintain any required insurance. Due-on-Sale Clauses When a Property has been or is about to be conveyed by the Mortgagor, the Master Servicer or a Sub- Servicer, to the extent it has knowledge of such conveyance or prospective conveyance, is required to exercise its rights to accelerate the maturity of the related Mortgage Loan under any "due on sale" clause contained in the related Mortgage or Note; provided, however, that the Master Servicer will not be required to exercise any such right if the "due-on-sale" clause, in the reasonable belief of the Master Servicer, is not enforceable under applicable law; and provided further, that the Master Servicer may refrain from exercising any such right if the Certificate Insurer gives its prior consent to such non-enforcement. Realization Upon Defaulted Mortgage Loans The Master Servicer, in its own name or in the name of a Sub-Servicer, is required to foreclose upon or otherwise comparably effect the ownership in the name of the Trust, on behalf of the Trustee, of Properties relating to defaulted Mortgage Loans that it services as to which no satisfactory arrangements can be made for collection of delinquent payments and which the Master Servicer has not purchased pursuant to its purchase option described below, unless the Master Servicer reasonably believes that Net Liquidation Proceeds with respect to such Mortgage Loan would not be increased as a result of such foreclosure or other action, in which case such Mortgage Loan will be charged off and will become a Liquidated Mortgage Loan. In connection with such foreclosure or other conversion, the Master Servicer is required to exercise or use foreclosure procedures with the same degree of care and skill as it would exercise or use under the circumstances in the conduct of its own affairs. Any amounts advanced in connection with such foreclosure or other action shall constitute "Servicing Advances". The Master Servicer, in its own name or in the name of a Sub-Servicer, is required to sell any REO Property within 23 months of its acquisition by the Trustee, unless the Master Servicer obtains for the Trustee an opinion of counsel experienced in federal income tax matters, addressed to the Trustee and the Master Servicer, to the effect that the holding by the Trust of such REO Property for a greater specified period will not result in the imposition of taxes on "prohibited transactions" of the Trust as defined in Section 860F of the Code or cause the Trust to fail to qualify as a REMIC. In accordance with the Pooling and Servicing Agreement, if the Master Servicer has actual knowledge that a Property which it is contemplating acquiring in foreclosure or by deed in lieu of foreclosure contains environmental or hazardous waste risks known to it, the Master Servicer shall notify the Certificate Insurer and the Trustee prior to acquiring the Property. The Master Servicer is not permitted to take any action with respect to such a Property without the prior written approval of the Certificate Insurer. S-58 The Master Servicer is required to determine, with respect to each defaulted Mortgage Loan that it services, when it has recovered, whether through trustee's sale, foreclosure sale or otherwise, all amounts, if any, it expects to recover from or on account of such defaulted Mortgage Loan, whereupon such Mortgage Loan shall become a "Liquidated Mortgage Loan". Servicing Compensation As compensation for its servicing activities under the Pooling and Servicing Agreement, the Master Servicer shall be entitled to retain the amount of the Servicing Fee with respect to each Mortgage Loan that it services. Additional servicing compensation in the form of release fees, bad check charges, assumption fees, late payment charges, and any other servicing-related fees, and similar items may, to the extent collected from Mortgagors, be retained by the Master Servicer. Annual Statement as to Compliance The Master Servicer is required to deliver, on its own behalf, to the Trustee, the Company and the Certificate Insurer, on or before the last day of April of each year, commencing in 1997, an Officer's Certificate stating, as to each signer thereof, that (i) a review of the activities of the Master Servicer during such preceding calendar year and of performance under the Pooling and Servicing Agreement has been made under such officer's supervision, and (ii) to the best of such officer's knowledge, based on such review, the Master Servicer has fulfilled all its obligations under the Pooling and Servicing Agreement for such year, or, if there has been a default in the fulfillment of all such obligations, specifying each such default known to such officer and the nature and status thereof including the steps being taken by the Master Servicer to remedy such default. Annual Independent Certified Public Accountants' Reports On or before the last day of April of each year, commencing in 1997, the Master Servicer is required to cause to be delivered, on its own behalf, to the Trustee and the Certificate Insurer a letter or letters of a firm of independent, nationally recognized certified public accountants reasonably acceptable to the Certificate Insurer stating that such firm has, with respect to the Master Servicer's overall servicing operations (i) performed applicable tests in accordance with the compliance testing procedures as set forth in Appendix 3 of the Audit Guide for Audits of HUD Approved Nonsupervised Mortgagees or (ii) examined such operations in accordance with the requirements of the Uniform Single Audit Program for Mortgage Bankers, and stating such firm's conclusions relating thereto. Assignment of Agreement The Master Servicer may not assign its obligations under the Pooling and Servicing Agreement, in whole or in part, unless it shall have first obtained the written consent of the Company, the Trustee and the Certificate Insurer; provided, however, that any assignee must meet the eligibility requirements set forth in the Pooling and Servicing Agreement for a successor Master Servicer. Removal and Resignation of the Master Servicer; Events of Default The Certificate Insurer, or with the consent of the Certificate Insurer, the Company or the Owners of Class A Certificates owning a majority in Percentage Interest in the Class A Certificates may remove the Master Servicer upon the occurrence of any of the following events (each, an "Event of Default"): (i) The Master Servicer shall (I) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian or similar entity with respect to itself or its property, (II) admit in writing its inability to pay its debts generally as they become due, (III) make a general assignment for the benefit of creditors, (IV) be adjudicated bankrupt or insolvent, (V) commence a voluntary case under the federal bankruptcy laws of the United States of America or file a voluntary petition or S-59 answer seeking reorganization, an arrangement with creditors or an order for relief or seeking to take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization or insolvency proceeding or (VI) cause corporate action to be taken by it for the purpose of effecting any of the foregoing; or (ii) If without the application, approval or consent of the Master Servicer, a proceeding shall be instituted in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Master Servicer an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or similar entity with respect to the Master Servicer or of all or any substantial part of its assets, or other like relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding is being contested by the Master Servicer in good faith, the same shall (A) result in the entry of an order for relief or any such adjudication or appointment or (B) continue undismissed or pending and unstayed for any period of sixty (60) consecutive days; or (iii) The Master Servicer shall fail to perform any one or more of its obligations under the Pooling and Servicing Agreement (other than its obligations referenced in clauses (vi) and (vii) below) and shall continue in default thereof for a period of thirty (30) days after the earlier to occur of (x) the date on which an authorized officer of the Master Servicer knows or reasonably should know of such failure or (y) receipt by the Master Servicer of a written notice by the Trustee, any Owner, the Company or the Certificate Insurer of said failure; or (iv) The Master Servicer shall fail to cure any breach of any of its representations and warranties set forth in the Pooling and Servicing Agreement which materially and adversely affects the interests of the Owners or Certificate Insurer for a period of thirty (30) days after the earlier of (x) the date on which an authorized officer of the Master Servicer knows or reasonably should know of such breach or (y) receipt by the Master Servicer of a written notice from the Trustee, any Owner, the Company or the Certificate Insurer of such breach; (v) If the Certificate Insurer pays out any money under the Certificate Insurance Policy, or if the Certificate Insurer otherwise funds any shortfall with its own money, because the amounts available to the Trustee (other than from the Certificate Insurer) are insufficient to make required distributions on the Class A Certificates; (vi) The failure by the Master Servicer to make any required Servicing Advance for a period of 30 days following the earlier of (x) the date on which an authorized officer of the Master Servicer knows or reasonably should know of such failure or (y) receipt by the Master Servicer of a written notice from the Trustee, any Owner, the Company or the Certificate Insurer of such failure; (vii) The failure by the Master Servicer to make any required Delinquency Advance or to pay any Compensating Interest or to pay over the Monthly Remittance; or (viii) If the delinquency or loss levels applicable to the Mortgage Loans serviced by the Master Servicer exceed certain "trigger" levels set forth in the Pooling and Servicing Agreement; provided, however, that (x) prior to any removal of the Master Servicer pursuant to clauses (ii) through (iv) and (vi) above, any applicable grace period granted by any such clause shall have expired prior to the time such occurrence shall have been remedied and (y) in the event of the refusal or inability of the Master Servicer to comply with its obligations described in clause (vii) above, such removal shall be effective (without the requirement of any action on the part of the Company, the Trustee or the Certificate Insurer) at 4 p.m. (New York City time) on the second business day following the day on which the Trustee notifies the Master Servicer that a required amount described in clause (vii) above has not been received by the Trustee, unless the S-60 required amount described in clause (vii) above is paid by the Master Servicer prior to such time. Upon the Trustee's determination that a required amount described in clause (vii) above has not been made by the Master Servicer, the Trustee shall so notify the Master Servicer, the Company and the Certificate Insurer as soon as is reasonably practical. The Master Servicer may not resign from the obligations and duties imposed on it under the Pooling and Servicing Agreement, except upon determination that its duties thereunder are no longer permissible under applicable law or are in material conflict by reason of applicable law with any other activities carried on by it, the other activities of the Master Servicer so causing such a conflict being of a type and nature carried on by the Master Servicer at the date of the Pooling and Servicing Agreement. Any such determination permitting the resignation of the Master Servicer shall be evidenced by an opinion of counsel to such effect which shall be delivered to the Trustee, the Company and the Certificate Insurer. No removal or resignation of the Master Servicer shall become effective until the Trustee or a successor servicer shall have assumed the Master Servicer's responsibilities and obligations in accordance with the Pooling and Servicing Agreement. Successor Master Servicer Upon removal or resignation of ________ as Master Servicer under the Pooling and Servicing Agreement, the Trustee (x) may solicit bids for a successor Master Servicer under the Pooling and Servicing Agreement, and (y) pending the appointment of a successor Master Servicer under the Pooling and Servicing Agreement, as a result of soliciting such bids, is required to serve as Master Servicer under the Pooling and Servicing Agreement, unless ________ has been removed without cause, in which event the Trustee prior to any such removal must designate a successor Master Servicer under the Pooling and Servicing Agreement acceptable to the Certificate Insurer. The Trustee, if it is unable to obtain a qualifying bid and is prevented by law from acting as Master Servicer under the Pooling and Servicing Agreement, may appoint, or petition a court of competent jurisdiction to appoint, any housing and home finance institution, bank or mortgage servicing institution which has been designated as an approved seller-servicer by FNMA or FHLMC for first and second mortgage loans and having equity of not less than $15,000,000, as determined in accordance with generally accepted accounting principles, and acceptable to the Certificate Insurer. The Trustee, or any other successor Master Servicer, upon assuming the duties of the Master Servicer, is required immediately to make payment of all Compensating Interest and all Delinquency Advances which the Master Servicer has theretofore failed to remit with respect to the Mortgage Loans; provided, however, that if the Trustee is acting as successor Master Servicer, the Trustee is only required to make Delinquency Advances (including the Delinquency Advances described in this sentence) if, in the Trustee's reasonable good faith judgment, such Delinquency Advances will ultimately be recoverable from the related Mortgage Loans. Investment of Accounts All or a portion of the Principal and Interest Account, the Certificate Account and any other account which may be created by the Trustee, may be invested and reinvested in one or more Eligible Investments bearing interest or sold at a discount. The bank serving as Trustee or any affiliate thereof, may be the obligor on any investment in any Account which otherwise qualifies as an Eligible Investment. No investment in any Account held by the Trustee may mature later than the business day immediately preceding the next succeeding Payment Date; provided, however, that if the investment is an investment of the bank serving as Trustee, then it may mature on the Payment Date. The Trustee will not in any way be held liable by reason of any insufficiency in any Account resulting from any loss on any Eligible Investment included therein (except to the extent that the bank serving as Trustee is the obligor thereon). S-61 All income or other gain from investments in any Account will be required to be deposited in such Account immediately upon receipt, and any loss resulting from such investments will be required to be charged to such Account. Eligible Investments The Pooling and Servicing Agreement defines the following as Eligible Investments: (a) Direct general obligations of the United States or the obligations of any agency or instrumentality of the United States, the timely payment or the guarantee of which constitutes a full faith and credit obligation of the United States. (b) Federal Housing Administration debentures, but excluding any such securities whose terms do not provide for payment of a fixed dollar amount upon maturity or call for redemption. (c) FHLMC senior debt obligations, but excluding any such securities whose terms do not provide for payment of a fixed dollar amount upon maturity or call for redemption. (d) FNMA senior debt obligations, but excluding any such securities whose terms do not provide for payment of a fixed dollar amount upon maturity or call for redemption. (e) Federal funds, certificates of deposit, time and demand deposits, and bankers' acceptances (having original maturities of not more than 365 days) of any domestic bank, the short-term debt obligations of which have been rated A-1 or better by S&P and P-1 by Moody's. (f) Deposits of any bank or savings and loan association which has combined capital, surplus and undivided profits of at least $50,000,000 which deposits are not in excess of the applicable limits insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC, provided that the long-term deposits of such bank or savings and loan association are rated at least "BBB" by S&P and "Baa3" by Moody's. (g) Commercial paper (having original maturities of not more than 270 days) rated A-1 or better by S&P and P-1 by Moody's. (h) Investments in money market funds rated AAAm or AAAm-G by S&P and Aaa or P-1 by Moody's. (i) Such other investments as have been approved in writing by S&P, Moody's and the Certificate Insurer. provided that no instrument described above is permitted to evidence either the right to receive (a) only interest with respect to obligations underlying such instrument or (b) both principal and interest payments derived from obligations underlying such instrument and the interest and principal payments with respect to such instrument provided a yield to maturity at par greater than 120% of the yield to maturity at par of the underlying obligations; and provided, further, that no instrument described above may be purchased at a price greater than par if such instrument may be prepaid or called at a price less than its purchase price prior to stated maturity. S-62 Amendments The Trustee, the Master Servicer and the Company may at any time and from time to time, with the prior written consent of the Certificate Insurer but without the consent of the Owners, amend the Pooling and Servicing Agreement, for the purposes of (a) curing any ambiguity, or correcting or supplementing any provision of any such agreement which may be inconsistent with any other provision of such agreement, (b) if accompanied by an approving opinion of counsel experienced in federal income tax matters, removing the restriction against the transfer of a Residual Certificate to a Disqualified Organization (as such term is defined in the Code) or (c) complying with the requirements of the Code; provided, however, that such action shall not, as evidenced by an opinion of counsel delivered to the Trustee, materially and adversely affect the interests of any Owner or materially and adversely affect (without its written consent) the rights and interests of the Certificate Insurer. The Pooling and Servicing Agreement may also be amended by the Trustee, the Master Servicer and the Company, as applicable, at any time and from time to time, with the prior written approval of the Certificate Insurer and of not less than 66 2/3% of the Percentage Interest represented by each affected Class of Certificates then outstanding, for the purpose of adding any provisions or changing in any manner or eliminating any of the provisions thereof or of modifying in any manner the rights of the Owners thereunder; provided, however, that no such amendment shall (a) change in any manner the amount of, or delay the timing of, payments which are required to be distributed to any Owner without the consent of the Owner of such Certificate or (b) change the aforesaid percentages of Percentage Interest which are required to consent to any such amendments, without the consent of the Owners of all Certificates of the Class or Classes affected then outstanding. Any such amendment must be accompanied by an opinion of tax counsel as to REMIC matters. The Trustee will be required to furnish a copy of any such amendment to each Owner in the manner set forth in the Pooling and Servicing Agreement. Termination of the Trust The Pooling and Servicing Agreement provides that the Trust will terminate upon the payment to the Owners of all Certificates from amounts other than those available under the Certificate Insurance Policy all amounts required to be paid to such Owners upon the final payment and other liquidation (or any advance made with respect thereto) of the last Mortgage Loan. Optional Termination By the Company At its option, the Company may purchase from the Trust all (but not fewer than all) remaining Mortgage Loans and other property, acquired by foreclosure, deed in lieu of foreclosure, or otherwise, then constituting the Trust Estate, and thereby effect early retirement of the Certificates, on any Payment Date when the Pool Principal Balance has declined to ten percent or less of the Original Pool Principal Balance. The termination of the Trust by the preceding method is equivalent to a prepayment of all the Mortgage Loans and a liquidation of the Trust. The Owners of the Class A Certificates would receive from the proceeds of such purchase any interest owed and the Owners of the Class A Certificates would receive any principal not yet paid, in the order of priority set forth under "Description of Certificates -- Distributions on Class A Certificates". Consequently, a termination of the Trust pursuant to the preceding methods, if purchased at a price in excess of par, reduces the yield to maturity on the Class A Certificates. Auction Sale The Pooling and Servicing Agreement requires that, within ninety days following the Company Optional Termination Date, if the Company has not exercised its optional termination right by such date, the Trustee solicit bids for the purchase of all Mortgage Loans remaining in the Trust. In the event that satisfactory S-63 bids are received as described in the Pooling and Servicing Agreement, the net sale proceeds will be distributed to Certificateholders, in the same order of priority as collections received in respect of the Mortgage Loans. If satisfactory bids are not received, the Trustee shall decline to sell the Mortgage Loans and shall not be under any obligation to solicit any further bids or otherwise negotiate any further sale of the Mortgage Loans. Such sale and consequent termination of the Trust must constitute a "qualified liquidation" of each REMIC established by the Trust under Section 860F of the Internal Revenue Code of 1986, as amended, including, without limitation, the requirement that the qualified liquidation takes place over a period not to exceed 90 days. THE TRUSTEE Pursuant to the Pooling and Servicing Agreement, ______________________ will serve as trustee of the Trust. The Pooling and Servicing Agreement sets forth provisions regarding the Trustee, certain of which are described below. Certain Covenants of the Trustee Withholding. The Trustee is required to comply with all requirements of the Code or any applicable state or local law with respect to the withholding from any distributions made by it to any Owner of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. Unclaimed Moneys. Any money held by the Trustee in trust for the payment of any amount due with respect to any Class A Certificate and remaining unclaimed for the period then specified in the escheat laws of the State of New York after such amount has become due and payable will be discharged from such trust and be paid to the Company, and the Owner of such Class A Certificate shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof (but only to the extent of the amounts so paid to the Company), and all liability of the Trustee with respect to such trust money will thereupon cease; provided, however, that the Trustee, before being required to make any such payment, may at the expense of the Company cause to be published once, in the eastern edition of The Wall Street Journal, notice that such money remains unclaimed and that, after a date specified therein, which shall be not less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be paid to the Company. The Trustee may also adopt and employ, at the expense of the Company, any other reasonable means of notification of such payment (including but not limited to mailing notice of such payment to Owners whose right to or interest in moneys due and payable but not claimed is determinable from the Register at the last address of record for each such Owner). Protection of Trust Estate. The trust estate (the "Trust Estate") of the Trust primarily consists of (i) the Mortgage Loans, (ii) all moneys held in the Accounts and (iii) the Certificate Insurance Policy. The Trustee is required to hold the Trust Estate in Trust for the benefit of the Owners and, upon request of and at the expense of the Company and at the expense of the requesting party, will from time to time execute and deliver all such supplements and amendments to the Pooling and Servicing Agreement, instruments of further assurance and other instruments, and will take such other action upon such request as it deems reasonably necessary or advisable, to more effectively hold in trust all or any portion of the Trust Estate. The Trustee has the power to enforce, and is required to enforce the obligations of the other parties to the Pooling and Servicing Agreement by action, suit or proceeding at law or equity, and also has the power to enjoin, by action or suit, any acts or occurrences which may be unlawful or in violation of the rights of the Owners; provided, however, that nothing in the Pooling and Servicing Agreement requires any action by the Trustee unless the Trustee shall first (i) have been furnished indemnity satisfactory to it and (ii) when required by the Pooling and Servicing Agreement, have been requested to take such action by the Owners. S-64 Performance and Enforcement of Obligations. The Pooling and Servicing Agreement provides that the Trustee is under no obligation to exercise any of the rights or powers vested in it by the Pooling and Servicing Agreement at the request or direction of any of the Owners, unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. The Trustee may execute any of the rights or powers granted by the Pooling and Servicing Agreement or perform any duties thereunder either directly or by or through agents or attorneys, and the Trustee is responsible for any misconduct or negligence on the part of any agent or attorney appointed and supervised with due care by it thereunder. Pursuant to the Pooling and Servicing Agreement, the Trustee is not liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized by an authorized officer of any person or within its rights or powers under the Pooling and Servicing Agreement. The Pooling and Servicing Agreement provides that no Owner has any right to institute any proceeding, judicial or otherwise, with respect to the Pooling and Servicing Agreement or the Certificate Insurance Policy, or for the appointment of a receiver or trustee under the Pooling and Servicing Agreement, unless: (1) such Owner has previously given written notice to the Company, the Certificate Insurer and the Trustee of such Owner's intention to institute such proceeding; (2) the Owners of not less than 25% of the Percentage Interests represented by any Class of Class A Certificates then outstanding or, if there are no Class A Certificates then outstanding, by such Percentage Interest represented by the Class B Certificates then outstanding, shall have made written request to the Trustee to institute such proceeding in its own name as representative of the Owners; (3) such Owner or Owners have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 30 days after its receipt of such notice, request and offer of indemnity, has failed to institute such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Owners of a majority of the Percentage Interests represented by each Class of Class A Certificates then outstanding or, if there are no Class A Certificates then outstanding, by a majority of the Percentage Interests represented by the Class B Certificates then outstanding. The Pooling and Servicing Agreement provides that no one or more Owners shall have any right in any manner whatever by virtue of, or by availing themselves of, any provision of the Pooling and Servicing Agreement to affect, disturb or prejudice the rights of any other Owner of the same Class or to obtain or to seek to obtain priority or preference over any other Owner of the same Class or to enforce any right under the Pooling and Servicing Agreement, except in the manner herein provided and for the equal and ratable benefit of all the Owners of the same Class. In the event the Trustee receives conflicting or inconsistent requests and indemnity from two or more groups of Owners, each representing less than a majority of the applicable Class of Certificates, the Trustee shall follow the directions of the Certificate Insurer. The Certificate Insurer or, with the consent of the Certificate Insurer, the Owners of a majority of the Percentage Interests represented by each Class of Class A Certificates then outstanding or, if there are no Class A Certificates then outstanding, by such majority of the Percentage Interests represented by the Class B S-65 Certificates then outstanding, may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee with respect to the Certificates or exercising any trust or power conferred on the Trustee with respect to the Certificates or the Trust Estate provided that: (1) such direction is not in conflict with any rule of law or with the Pooling and Servicing Agreement; (2) the Trustee has been provided with indemnity satisfactory to it; and (3) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; provided, however, that the Trustee need not take any action which it determines might involve it in liability or may be unjustly prejudicial to the Owners not so directing. Disposition of Trust Estate. The Trustee covenants not to permit the Trust to sell, transfer, exchange or otherwise dispose of any of the Trust Estate except as expressly permitted by the Pooling and Servicing Agreement. Reporting Requirements. On each Payment Date the Trustee is required to report in writing to each Owner: (i) the amount of the distribution with respect to the Class A Certificates, the Class B Certificates and the Residual Certificates; (ii) the amount of such distributions allocable to principal, separately identifying the aggregate amount of any Prepayments or other recoveries of principal included therein; (iii) the amount of such distributions allocable to interest; (iv) the amount of such distributions allocable to the Class A Carry-Forward Amount or the Class B Carry-Forward Amount; (v) the amount of any Insured Payment made with respect to such Payment Date; (vi) the Class A Principal Balance as of such Payment Date, together with the principal amount of each Class A Certificate (based on a Certificate in the original principal amount of $1,000) then outstanding, in each case after giving effect to any payment of principal on such Payment Date; (vii) the Class B Principal Balance as of such Payment Date, together with the principal amount of each Class B Certificate (based on a Certificate in the original principal amount of $1,000) then outstanding, in each case after giving effect to any payment of principal on such Payment Date; (viii) the total of any Substitution Amounts and any Loan Purchase Prices included in such distribution; (ix) the amount of the Servicing Fee paid with respect to such Payment Date; and (x) the Subordinated Amount as of such Payment Date. Removal of Trustee for Cause The Trustee may be removed upon the occurrence of any of the following events (whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) the Trustee shall fail to distribute to the Owners entitled thereto on any Payment Date amounts available for distribution in accordance with the terms of the Pooling and Servicing Agreement; or (2) the Trustee shall fail in the performance of, or breach, any covenant or agreement of the Trustee in the Pooling and Servicing Agreement, or if any representation or warranty of the Trustee made in the Pooling and Servicing Agreement or in any certificate or other writing delivered pursuant thereto or in connection therewith shall prove to be incorrect in any material respect as of the time when the same shall have been made, and such failure or breach shall continue or not be cured for a period of 30 days after, there shall have been given, by registered or certified mail, to the Trustee by the Company or by the Certificate Insurer or by the Owners of at least 25% of the aggregate Percentage Interest represented by any Class of Class A Certificates then outstanding, or, if there are no Class A Certificates then outstanding, by such Percentage Interest represented by the Class B Certificates then outstanding, a written notice specifying such failure or breach and requiring it to be remedied; or (3) certain insolvency events related to the Trustee. S-66 If any event described above occurs and is continuing, then and in every such case (x) the Company or the Certificate Insurer or (y) with the consent of the Certificate Insurer, the Owners of a majority Percentage Interest represented by any Class of Class A Certificates or, if there are no Class A Certificates then outstanding, by such Percentage Interest represented by the Class B Certificates then outstanding, may immediately appoint a successor trustee. Liability of the Trustee The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Pooling and Servicing Agreement. If an Event of Default has occurred and has not been cured or waived, the Trustee shall exercise such of the rights and powers vested in it by the Pooling and Servicing Agreement, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. Prior to the occurrence of an Event of Default, and after the curing of all such Events of Default which may have occurred, the Trustee (i) undertakes to perform such duties and only such duties as are specifically set forth in the Pooling and Servicing Agreement, and no implied covenants or obligations shall be read into the Pooling and Servicing Agreement against the Trustee and (ii) in the absence of bad faith on its part, may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished pursuant to and conforming to the requirements of the Pooling and Servicing Agreement; provided, however, that such provisions do not protect the Trustee or any such person against any liability which would otherwise be imposed by reason of negligent action, negligent failure to act or willful misconduct in the performance of duties or by reason of reckless disregard of obligations and duties thereunder. The Trustee and any director, officer, employee or agent of the Trustee may rely and will be protected in acting or refraining from acting in good faith in reliance on any certificate, notice or other document of any kind prima facie properly executed and submitted by the authorized officer of any person respecting any matters arising under the Pooling and Servicing Agreement. THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER General [description of certificate insurer] Capitalization The following table sets forth the capitalization of the Certificate Insurer as of December 31, 199_ and December 31, 199_, respectively, on the basis of generally accepted accounting principles. No material adverse change in the capitalization of the Certificate Insurer has occurred since December 31, 199_.
December 31, December 31, 199_ 199_ ------------- --------------- (in millions) (in millions) Unearned Premiums............................................................. $ $ Other Liabilities............................................................. Stockholder's Equity Common Stock............................................................... Additional Paid-in Capital................................................. Net Unrealized Gains/(Losses)..............................................
S-67 Foreign Currency Translation Adjustment.................................... Retained Earnings.......................................................... Total Stockholder's Equity.................................................... Total Liabilities and Stockholder's Equity.................................... $ $ ==== ====
For further financial information concerning the Certificate Insurer, see the audited financial statements of the Certificate Insurer included as Appendix A. Copies of the Certificate Insurer's quarterly and annual statutory statements filed by the Certificate Insurer with the New York Insurance Department are available upon request to ____________________, ____________________, Attention: ____________________. The Certificate Insurer's telephone number is - ----------. The Certificate Insurer does not accept any responsibility for the accuracy or completeness of this Prospectus or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of information regarding the Certificate Insurer and the Certificate Insurance Policy set forth under the heading "The Certificate Insurance Policy and The Certificate Insurer" and in Appendix A. An indemnification agreement among the Certificate Insurer, the Company and the Underwriters provides that each of the parties to such agreement will indemnify each other for certain liabilities under the 1933 Act. The Certificate Insurance Policy The Company will obtain the Certificate Insurance Policy, issued by the Certificate Insurer, in favor of the Owners of the Class A Certificates. The Certificate Insurance Policy provides for 100% coverage of the related Insured Distribution Amount. The Certificate Insurance Policy unconditionally guarantees the payment of Insured Payments on the Class A Certificates. The Certificate Insurer is required to make Insured Payments to the Trustee as paying agent on the later of the Payment Date or on the business day next following the day on which the Certificate Insurer shall have received telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from the Trustee that an Insured Payment is due. The Pooling and Servicing Agreement will provide that the term "Total Available Funds" does not include Insured Payments and does not include any amounts that cannot be distributed to the Owners of any Class A Certificates by the Trustee as a result of final, non-appealable proceedings under the United States Bankruptcy Code. Each Owner of a Class A Certificate which pays to the bankruptcy court as a "voidable preference" under the United States Bankruptcy Code any amounts ("Preference Amounts") theretofore received by such Owner on account of such Class A Certificate will be entitled to receive reimbursement for such amounts from the Certificate Insurer, but only after (i) delivering a copy to the Trustee of a final, nonappealable order (a "Preference Order") of a court having competent jurisdiction demanding payment of such amount to the bankruptcy court and (ii) assigning such Owner's claim with respect to such Preference Order to the Certificate Insurer. In no event shall the Certificate Insurer pay more than one Insured Payment in respect of any Preference Amount. The Certificate Insurance Policy is non-cancelable. THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. S-68 The Certificate Insurer's obligation under the Certificate Insurance Policy will be discharged to the extent that funds are received by the Trustee for distribution to the Class A Certificateholders, whether or not such funds are properly distributed by the Trustee. The Certificate Insurance Policy does not guarantee to the owners of the Class A Certificates any specific rate of prepayments of principal of the Mortgage Loans. Also, the Certificate Insurance Policy does not guarantee the payment of any Supplemental Interest Amount. Pursuant to the Pooling and Servicing Agreement, the Certificate Insurer is subrogated to the rights of the Owners of the Class A Certificates to the extent of any such payment under the Certificate Insurance Policy. Credit Enhancement Does Not Apply to Prepayment Risk In general, the protection afforded by the Certificate Insurance Policy is protection for credit risk and not for prepayment risk. A claim may not be made under the Certificate Insurance Policy in an attempt to guarantee or insure that any particular rate of prepayment is experienced by the Trust. FEDERAL INCOME TAX CONSEQUENCES The following discussion of the material federal income tax consequences of the purchase, ownership and disposition of the Class A Certificates is to be considered only in connection with "Federal Income Tax Considerations" in the Prospectus. The discussion herein and in the Prospectus is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. The discussion below and in the Prospectus does not purport to deal with all federal tax consequences applicable to all categories of investors, some of which may be subject to special rules. Investors should consult their own tax advisors in determining the federal, state, local and any other tax consequences to them of the purchase, ownership and disposition of the Class A Certificates. REMIC Election The Trustee will cause one or more elections to be made with respect to certain specified assets of the Trust as real estate mortgage investment conduits ("REMICs") within the meaning of Code Section 860D. _______________, special tax counsel, will advise that, in its opinion, for federal income tax purposes, assuming the REMIC elections are made and compliance with the Pooling and Servicing Agreement, each Class of Class A Certificates will be treated as a "regular interest" in a REMIC. For federal income tax purposes, regular interests in a REMIC are treated as debt instruments issued by the REMIC on the date on which those interests are created, and not as ownership interests in the REMIC or its assets. Owners of Class A Certificates that otherwise report income under a cash method of accounting will be required to report income with respect to such Certificates under an accrual method. The prepayment assumption that will be used in determining the rate of accrual of original issue discount on the Class A Certificates is ___% of the "Prepayment Assumption." See "Maturity, Prepayment and Yield Considerations" herein and "Federal Income Tax Considerations - -- Discount and Premium" in the Prospectus. The Owners of Class A-6 Group II Certificates and the related rights to receive Supplemental Interest Amounts will be treated for tax purposes as owning two separate investments: (i) Class A-6 Group II Certificates without the right to receive Supplemental Interest Amounts and (ii) the right to receive the Supplemental Interest Amounts. The Owners of Class A-6 Group II Certificates must allocate the purchase price of their Certificates between these two investments based on their relative fair market values. The purchase price allocated to the first investment will be the issue price of the Class A-6 Group II Certificates for calculating accruals of OID (if any). See "Federal Income Tax Consequences--Discount and Premium" in the Prospectus. S-69 An Owner of a Class A-6 Group II Certificate and the related rights to receive Supplemental Interest Amounts will be treated for federal income tax purposes as having entered into a notional principal contract on the date that it purchases its Certificate. Treasury Regulations under Section 446 of the Code relating to notional principal contracts (the "Notional Principal Contract Regulations") provide that taxpayers must recognize periodic payments with respect to a notional principal contract under the accrual method of accounting. Any Supplemental Interest Amounts will be periodic payments. Income with respect to periodic payments under a notional principal contract for a taxable year should constitute ordinary income. The purchase price allocated to the right to receive the related Supplemental Interest Amounts will be treated as a nonperiodic payment under the Notional Principal Contract Regulations. Such a nonperiodic payment may be amortized using several methods, including the level payment method described in the Notional Principal contract Regulations. The right to receive the Supplemental Interest Amounts will not constitute: (i) a "real estate asset" within the meaning of section 858(c)(5)(A) of the Internal Revenue Code (the "Code") if held by a real estate investment trust; (ii) a "qualified mortgage" within the meaning of section 860G(a)(3) of the Code or a "permitted investment" within the meaning of section 860G(a)(5) of the Code if held by a REMIC, or (iii) an asset described in section 7701(a)(19)(C)(xi) of the Code if held by a thrift. Moreover, other special rules may apply to certain investors, including dealers in securities and dealers in notional principal contracts. Taxation of Foreign Investors In general, foreign investors will not be subject to U.S. withholding on income from the Class A Certificates. See "Federal Income Tax Considerations - -- Foreign Investors -- Grantor Trust Securities and REMIC Regular Securities" in the Prospectus. ERISA CONSIDERATIONS The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), imposes certain requirements on those employee benefit plans to which it applies ("ERISA Plan") and on those persons who are fiduciaries with respect to such ERISA Plans. Certain employee benefit plans, such as governmental plans (as defined in ERISA Section 3(32)) and certain church plans (as defined in ERISA Section 3(33)), are not subject to ERISA. In accordance with ERISA's general fiduciary standards, before investing in a Class A Certificate, an ERISA Plan fiduciary should determine whether such an investment is permitted under the governing ERISA Plan instruments and is appropriate for the ERISA Plan in view of its overall investment policy and the composition and diversification of its portfolio. In addition, provisions of ERISA, and the corresponding provisions of the Code, prohibit a broad range of transactions involving assets of ERISA Plans, individual retirement accounts, and Keogh plans covering only a sole proprietor or partners (collectively, the "Plans") and persons having certain specified relationships to such a Plan ("parties in interest" and "disqualified persons"). Such transactions are treated as "prohibited transactions" under Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by Section 4975 of the Code. Certain affiliates of the Originators, the Company, the Master Servicer, any Sub- Servicer, and of the Trustee might be considered "parties in interest" or "disqualified persons" with respect to a Plan. If so, the acquisition or holding of Class A Certificates by or on behalf of such Plan could be considered to give rise to a "prohibited transaction" within the meaning of ERISA or the Code unless an exemption is available. Furthermore, if an investing Plan's assets were deemed to include an interest in the assets of the Mortgage Loans which constitute the Trust Estate and not merely an interest in the Class A Certificates, transactions occurring in the servicing of the Mortgage Loans might constitute prohibited transactions unless an administrative exemption applies. The DOL has issued to ____________________ an administrative exemption, Prohibited Transaction Exemption _____ (the "Exemption"), which generally exempts from the application of the prohibited transaction provisions of Section 406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA and the excise taxes imposed S-70 pursuant to Sections 4975(a) and (b) of the Code, certain transactions relating to the servicing and operation of asset pools, including pools of mortgage loans, and the purchase, sale and holding of asset-backed pass-through certificates, including pass-through certificates evidencing interests in mortgage loans, such as the Class A Certificates underwritten by ____________________ and certain of its affiliates, provided that certain conditions set forth in the Exemption are satisfied. If the general conditions of Section II of the Exemption are satisfied, the Exemption may provide an exemption from the restrictions imposed by Sections 406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(1)(A) through (D) of the Code) in connection with the direct or indirect sale, exchange or transfer of Class A Certificates by Plans in the initial issue of Certificates, the holding of Class A Certificates by Plans or the direct or indirect acquisition or disposition in the secondary market of Class A Certificates by Plans. However, no exemption is provided from the restrictions of Section 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a Class A Certificate on behalf of an "Excluded Plan" (defined below) by any person who has discretionary authority or renders investment advice with respect to the assets of such Excluded Plan. For purposes of the Class A Certificates, an Excluded Plan is a Plan sponsored by (1) the Underwriters, (2) the Master Servicer and any Sub- Servicer, (3) the Certificate Insurer, (4) the Trustee, (5) the Company, (6) any Mortgagor with respect to Mortgage Loans constituting more than 5 percent of the aggregate unamortized principal balance of the Mortgage Loans as of the date of initial issuance and (7) any affiliate or successor of a person described in (1) to (6) above (the "Restricted Group"). If the specific conditions of paragraph I.B of Section I of the Exemption are also satisfied, the Exemption may provide an exemption from the restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code in connection with (1) the direct or indirect sale, exchange or transfer of Class A Certificates in the initial issuance of Class A Certificates between the Company, the Underwriters and a Plan when the person who has discretionary authority or renders investment advice with respect to the investment of Plan assets in Class A Certificates is (a) a mortgagor with respect to 5 percent or less of the fair market value of the Mortgage Loans or (b) an affiliate of such a person, (2) the direct or indirect acquisition or disposition in the secondary market of Class A Certificates by Plans and (3) the holding of Class A Certificates by Plans. If the specific conditions of paragraph I.C of Section I of the Exemption are satisfied, the Exemptions may provide an exemption from the restrictions imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code for transactions in connection with the servicing, management and operation of the Trust. The Exemption may provide an exemption from the restrictions imposed by Section 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code if such restrictions are deemed to otherwise apply merely because a person is deemed to be a "party in interest" or a "disqualified person" with respect to an investing Plan by virtue of providing services to the Plan (or by virtue of having certain specified relationships to such a person) solely as a result of such Plan's ownership of Class A Certificates. The Exemption set forth the following seven general conditions which must be satisfied for a transaction to be eligible for exemptive relief thereunder. (1) The acquisition of the certificates by a Plan is on terms (including the price for the certificates) that are at least as favorable to the Plan as they would be in an arm's length transaction with an unrelated party; (2) The rights and interests evidenced by the certificates acquired by the Plan are not subordinated to the rights and interests evidenced by other certificates of the trust; S-71 (3) The certificates acquired by the Plan have received a rating at the time of such acquisition that is one of the three highest generic rating categories from either Standard & Poor's Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Rating Co. ("D&P") or Fitch Investors Service, Inc. ("Fitch"); (4) The trustee is not an affiliate of any other member of the Restricted Group (as defined above); (5) The sum of all payments made to and retained by the Underwriters in connection with the distribution of certificates represents not more than reasonable compensation for underwriting the certificates. The sum of all payments made and retained by the seller pursuant to the assignment of the loans to the trust fund represents not more than the fair market value of such loans. The sum of all payments made to and retained by the servicer represents not more than reasonable compensation for such person's services under the pooling and servicing agreement and reimbursement of such person's reasonable expenses in connection therewith; and (6) The Plan investing in the certificates is an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the Commission under the Securities Act of 1933. (7) The trust fund must also meet the following requirements: (i) the corpus of the trust fund must consist solely of assets of the type that have been included in other investment pools; (ii) certificates in such other investment pools must have been rated in one of the three highest generic rating categories of S&P, Moody's, Fitch or D&P for at least one year prior to the Plan's acquisition of certificates; and (iii) certificates evidencing interests in such other investment pools must have been purchased by investors other than Plans for at least one year prior to any Plan's acquisition of certificates. It is a condition of issuance of the Class A Certificates that they be rated ___ or ___ by _____ and _____, respectively. [Prior to the earlier of (i) the date on which the Funding Period expires and (ii) the date on which the DOL amends the Exemption to permit the use of pre-funding accounts thereunder, Plans will not be permitted to purchase the Class A Certificates. On or after the earlier to occur of such dates, the Exemption may be available for the purchase of Class A Certificates by Plans.] Before purchasing a Class A Certificate, based on the Exemption, a fiduciary of a Plan should itself confirm (1) that such Certificate constitutes a "certificate" for purposes of the Exemption and (2) that the specific conditions set forth in Section I of the Exemption, the general conditions set forth in Section II of the Exemption and the other requirements set forth in the Exemption would be satisfied. Any person purchasing a Class A-6 Group II Certificate and the related right to receive Supplemental Interest Amounts will have acquired for purposes of ERISA and for federal income tax purposes, such Class A-6 Certificate without the right to receive the Supplemental Interest Amounts, together with the right to receive the Supplemental Interest Amounts. The Exemption does not apply to the acquisition, holding or resale of the right to receive the Supplemental Interest Amounts. Accordingly, the acquisition of the right to receive the Supplemental Interest Amounts by a Plan could result in a prohibited transaction unless another administrative exemption to ERISA's prohibited transaction rules is applicable. One or more alternative exemptions may be available with respect to certain prohibited Transaction rules of ERISA that might apply in connection with the initial purchase, holding and resale of the right to receive the Supplemental Interest Amounts, including, but not limited to: (i) Prohibited transaction Class Exemption ("PTCE") 91-38, regarding investments by bank collective investment funds; (ii) PTCE 90-1, regarding investments by insurance company pooled separate S-72 accounts; (iii) PTCE 84-14, regarding transactions negotiated by qualified professional asset managers; or (iv) PTCE 75-1, Part II, regarding principal transactions by broker-dealers (the "Principal Transactions Exemption"). It is believed that the conditions of the Principal Transactions Exemption will be met with respect to the acquisition of a right to receive the Supplemental Interest Amounts by a Plan, so long as such Underwriter is not a fiduciary with respect to the Plan (and is not a party in interest with respect to the Plan by reason of being a participating employer or affiliate thereof). Before purchasing Class A-6 Group II Certificates based on an administrative exemption (or exemptions), a fiduciary of a Plan should determine whether the conditions of such exemption (or exemptions) would be met and whether the scope of the relief provided by such exemption (or exemptions) would cover all acts that might be construed as prohibited transactions. Prospective Plan investors in the Class A Certificates should consult with their legal advisors concerning the impact of ERISA and the Code, the applicability of the Exemption, and the potential consequences in their specific circumstances, prior to making an investment in the Class A Certificates. Moreover, each Plan fiduciary should determine whether under the general fiduciary standards of investment prudence and diversification an investment in the Class A Certificates is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan's investment portfolio. In addition to the matters described above, purchasers of a Class A Certificate that are insurance companies should consult with their counsel with respect to the United States Supreme Court case interpreting the fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114 S.CT. 517 (1993). In John Hancock, the Supreme Court ruled that assets held in an insurance company's general account may be deemed to be "plan assets" for ERISA purposes under certain circumstances. Prospective purchasers using insurance company general account assets should determine whether the decision affects their ability to make purchases of the Class A Certificates. Non-ERISA Plans Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are not subject to ERISA requirements. Accordingly, assets of such plans may be invested in the Class A Certificates without regard to the ERISA restrictions described above, subject to applicable provisions of other federal and state laws. RATINGS Ratings which are assigned to securities such as the Class A Certificates generally evaluate the ability of the issuer (i.e., the Trust) and any guarantor (i.e., the Certificate Insurer) to make timely payment when such payments are due, as required by such securities. The amounts which are "due" with respect to the Class A Certificates consist of principal and interest. In general, ratings address credit risk and not prepayment risk. The ratings issued with respect to the Class A-6 Group II Certificates do not cover the payment of the Supplemental Interest Amounts. It is a condition of the original issuance of the Class A Certificates that they receive ratings of ___ or ___ by _____ and _____, respectively. Explanations of the significance of such rating may be obtained from such rating agency. The ratings will be the views only of such rating agencies. There is no assurance that any such ratings will continue for any period of time or that such ratings will not be revised or withdrawn. Any such revision or withdrawal of such ratings may have an adverse effect on the market price of the Class A Certificates. A security rating is not a recommendation to buy, sell or hold securities. S-73 LEGAL INVESTMENT CONSIDERATIONS The Class A Certificates will not constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). Accordingly, many institutions may not be legally authorized to invest in the Class A Certificates. UNDERWRITING Under the terms and subject to the conditions contained in an Underwriting Agreement dated ________, 199_ (the "Underwriting Agreement"), _____________________ and ____________________ (together, the "Underwriters") have agreed to purchase, and the Company has agreed to sell, the Class A Certificates offered hereby. In the Underwriting Agreement, each of the Underwriters has agreed, subject to the terms and conditions set forth therein, to purchase, the principal amount of the Class A Certificates set forth opposite its name below.
Underwriter Principal Amount of Class A Certificates ----------- ---------------------------------------- ____________________...................................... $168,602,000 ____________________...................................... 42,000,000 Total................................................ $210,602,000
The Underwriters have advised the Company that they propose to offer the Class A Certificates for sale from time to time in one or more transactions (which may include block transactions), in negotiated transactions or otherwise, or a combination of such methods of sale, at market prices prevailing at the time of sale or at negotiated prices. The Underwriters may effect such transactions by selling the Class A Certificates to or through dealers, and such dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the Underwriters and/or the purchasers of the Class A Certificates for whom they may act as agents. In connection with the sale of the Class A Certificates, the Underwriters may be deemed to have received compensation from the Company in the form of underwriting discounts, and the Underwriters may also receive commissions from purchasers of the Class A Certificates for whom it may act as agent. The Underwriters and any dealers that participate with the Underwriters in the distribution of the Class A Certificates may be deemed to be underwriters, and any discounts or commissions received by them and any profit on the resale of the Class A Certificates by them may be deemed to be underwriting discounts or commissions. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all the Class A Certificates offered hereby if any are purchased. The Class A Certificates are a new issue of securities with no established trading market. The Underwriters have advised the Company that they intend to act as market makers for the Class A Certificates. However, the Underwriters are not obligated to do so and may discontinue any market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Class A Certificates. The Company has agreed to indemnify each Underwriter against certain liabilities, including civil liabilities under the Securities Act of 1933, or contribute to payments which either Underwriter may be required to make in respect thereof. S-74 EXPERTS The financial statements of _____________________, included in this Prospectus Supplement in Appendix A, as of December 31, 199 and 199 and for each of the years in the three year period ended December 31, 199 , have been included in reliance upon the report of ____________________, independent certified public accountants, appearing in Appendix A, and upon the authority of such firm as experts in accounting and auditing. The report of ____________________ refers to changes, in 1993, in accounting methods for multiple- year retrospectively rated reinsurance contracts, and for the adoption of the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." CERTAIN LEGAL MATTERS Certain legal matters will be passed upon for the Company by ____________________, counsel to the Company. Certain tax matters concerning the issuance of the Certificates will be passed upon by - --------------------. S-75 ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES Except in certain limited circumstances, the globally offered Access Financial Mortgage Loan Trust 199_-_ Class A Certificates (the "Global Securities") will be available only in book-entry form. Investors in the Global Securities may hold such Global Securities through any of DTC, CEDEL or Euroclear. The Global Securities will be tradeable as home market instruments in both the European and U.S. domestic markets. Initial settlement and all secondary trades will settle in same-day funds. Secondary market trading between investors through CEDEL and Euroclear will be conducted in the ordinary way in accordance with the normal rules and operating procedures of CEDEL and Euroclear and in accordance with conventional eurobond practice (i.e., seven calendar day settlement). Secondary market trading between investors through DTC will be conducted according to DTC's rules and procedures applicable to U.S. corporate debt obligations. Secondary cross-market trading between CEDEL or Euroclear and DTC Participants holding Certificates will be effected on a delivery-against-payment basis through the respective Depositories of CEDEL and Euroclear (in such capacity) and as DTC Participants. Non-U.S. holders (as described below) of Global Securities will be subject to U.S. withholding taxes unless such holders meet certain requirements and deliver appropriate U.S. tax documents to the securities clearing organizations or their participants. Initial Settlement All Global Securities will be held in book-entry form by DTC in the name of Cede as nominee of DTC. Investors' interests in the Global Securities will be represented through financial institutions acting on their behalf as direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold positions on behalf of their participants through their Relevant Depository which in turn will hold such positions in their accounts as DTC Participants. Investors electing to hold their Global Securities through DTC will follow DTC settlement practices. Investor securities custody accounts will be credited with their holdings against payment in same-day funds on the settlement date. Investors electing to hold their Global Securities through CEDEL or Euroclear accounts will follow the settlement procedures applicable to conventional eurobonds, except that there will be no temporary global security and no "lock-up" or restricted period. Global Securities will be credited to the securities custody accounts on the settlement date against payment in same-day funds. Secondary Market Trading Since the purchaser determines the place of delivery, it is important to establish at the time of the trade where both the purchaser's and seller's accounts are located to ensure that settlement can be made on the desired value date. Trading between DTC Participants. Secondary market trading between DTC Participants will be settled using the procedures applicable to prior home equity loan asset-backed certificates issues in same-day funds. I-1 Trading between CEDEL and/or Euroclear Participants. Secondary market trading between CEDEL Participants or Euroclear Participants will be settled using the procedures applicable to conventional eurobonds in same-day funds. Trading between DTC, Company and CEDEL or Euroclear Participants. When Global Securities are to be transferred from the account of a DTC Participant to the account of a CEDEL Participant or a Euroclear Participant, the purchaser will send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at least one business day prior to settlement. CEDEL or Euroclear will instruct the Relevant Depository, as the case may be, to receive the Global Securities against payment. Payment will include interest accrued on the Global Securities from and including the last coupon payment date to and excluding the settlement date, on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. Payment will then be made by the Relevant Depository to the DTC Participant's account against delivery of the Global Securities. After settlement has been completed, the Global Securities will be credited to the respective clearing system and by the clearing system, in accordance with its usual procedures, to the CEDEL Participant's or Euroclear Participant's account. The securities credit will appear the next day (European time) and the cash debt will be back-valued to, and the interest on the Global Securities will accrue from, the value date (which would be the preceding day when settlement occurred in New York). If settlement is not completed on the intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt will be valued instead as of the actual settlement date. CEDEL Participants and Euroclear Participants will need to make available to the respective clearing systems the funds necessary to process same-day funds settlement. The most direct means of doing so is to preposition funds for settlement, either from cash on hand or existing lines of credit, as they would for any settlement occurring within CEDEL or Euroclear. Under this approach, they may take on credit exposure to CEDEL or Euroclear until the Global Securities are credited to their account one day later. As an alternative, if CEDEL or Euroclear has extended a line of credit to them, CEDEL Participants or Euroclear Participants can elect not to preposition funds and allow that credit line to be drawn upon to finance settlement. Under this procedure, CEDEL Participants or Euroclear Participants purchasing Global Securities would incur overdraft charges for one day, assuming they cleared the overdraft when the Global Securities were credited to their accounts. However, interest on the Global Securities would accrue from the value date. Therefore, in many cases the investment income on the Global Securities earned during that one-day period may substantially reduce or offset the amount of such overdraft charges, although the result will depend on each CEDEL Participant's or Euroclear Participant's particular cost of funds. Since the settlement is taking place during New York business hours, DTC Participants can employ their usual procedures for crediting Global Securities to the respective European Depository for the benefit of CEDEL Participants or Euroclear Participants. The sale proceeds will be available to the DTC seller on the settlement date. Thus, to the DTC Participants a cross-market transaction will settle no differently than a trade between two DTC Participants. Trading between CEDEL or Euroclear Company and DTC Purchaser. Due to time zone differences in their favor, CEDEL Participants and Euroclear Participants may employ their customary procedures for transactions in which Global Securities are to be transferred by the respective clearing system, through the respective Depository, to a DTC Participant. The seller will send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at least one business day prior to settlement. In these cases CEDEL or Euroclear will instruct the respective Depository, as appropriate, to credit the Global Securities to the DTC Participant's account against payment. Payment will include interest accrued on the Global Securities from and including the last coupon payment to and excluding the settlement date on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. The payment will then be reflected in the account of CEDEL Participant or Euroclear Participant the I-2 following day, and receipt of the cash proceeds in the CEDEL Participant's or Euroclear Participant's account would be back-valued to the value date (which would be the preceding day, when settlement occurred in New York). In the event that the CEDEL Participant or Euroclear Participant have a line of credit with its respective clearing system and elect to be in debt in anticipation of receipt of the sale proceeds in its account, the back-valuation will extinguish any overdraft incurred over that one-day period. If settlement is not completed on the intended value date (i.e., the trade fails), receipt of the cash proceeds in the CEDEL Participant's or Euroclear Participant's account would instead be valued as of the actual settlement date. Finally, day traders that use CEDEL or Euroclear and that purchase Global Securities from DTC Participants for delivery to CEDEL Participants or Euroclear Participants should note that these trades would automatically fail on the sale side unless affirmative action is taken. At least three techniques should be readily available to eliminate this potential problem: (a) borrowing through CEDEL or Euroclear for one day (until the purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in accordance with the clearing system's customary procedures; (b) borrowing the Global Securities in the U.S. from a DTC Participant no later than one day prior to settlement, which would give the Global Securities sufficient time to be reflected in their CEDEL or Euroclear account in order to settle the sale side of the trade; or (c) staggering the value dates for the buy and sell sides of the trade so that the value date for the purchase from the DTC Participant is at least one day prior to the value date for the sale to the CEDEL Participant or Euroclear Participant. Certain U.S. Federal Income Tax Documentation Requirements A beneficial owner of Global Securities holding securities through CEDEL or Euroclear (or through DTC if the holder has an address outside the U.S.) will be subject to the 30% U.S. withholding tax that generally applies to payments of interest (including original issue discount) on registered debt issued by U.S. Persons (as defined below), unless (i) each clearing system, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business in the chain of intermediaries between such beneficial owner and the U.S. entity required to withhold tax complies with applicable certification requirements and (ii) such beneficial owner takes one of the following steps to obtain an exemption or reduced tax rate: Exemption for Non-U.S. Persons (Form W-8). Beneficial Certificate Owners of Global Securities that are Non-U.S. Persons (as defined below) can obtain a complete exemption from the withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If the information shown on Form W-8 changes, a new Form W-8 must be filed within 30 days of such change. Exemption for Non-U.S. Persons with effectively connected income (Form 4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or bank with a U.S. branch, for which the interest income is effectively connected with its conduct of a trade or business in the United States, can obtain an exemption from the withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States). Exemption or reduced rate for non-U.S. Persons resident in treaty countries (Form 1001). Non-U.S. Persons residing in a country that has a tax treaty with the United States can obtain an exemption or reduced tax rate (depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only for a reduced rate, withholding tax will be imposed at that rate unless the filer alternatively files Form W-8. Form 1001 may be filed by Certificate Owners or their agent. I-3 Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete exemption from the withholding tax by filing Form W-9 (Payer's Request for Taxpayer Identification Number and Certification). U.S. Federal Income Tax Reporting Procedure. The Owner of a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by submitting the appropriate form to the person through whom it holds (the clearing agency, in the case of persons holding directly on the books of the clearing agency). Form W-8 and Form 1001 are effective for three calendar years and Form 4224 is effective for one calendar year. On April 22, 1996 the IRS issued proposed regulations relating to (i) withholding income tax on U.S.- source income paid to Non-U.S. Persons; (ii) claiming Non-U.S. Person status to avoid backup withholding; and (iii) reporting to the IRS of payments to Non-U.S. Persons. The proposed regulations would substantially revise some aspects of the current system for withholding on and reporting amounts paid to Non-U.S. Persons. The regulations unify current certification procedures and forms and reliance standards are clarified. Most forms are proposed to be combined into a single form: Form W-8. The regulations are proposed to be effective for payments made after December 31, 1997. Certificates issued, however, on or before the date that is 60 days after the proposed regulations are made final will continue to be valid until they expire. All proposed regulations are subject to change before adoption in their final form. No reliable prediction can be made as to when, if ever, the proposed regulations will be made final and if so, as to their final form. The term "U.S. Person" means (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity organized in or under the laws of the United States or any political subdivision thereof or (iii) an estate or trust that is subject to U.S. federal income tax regardless of the source of its income. The term "Non-U.S. Person" means any person who is not a U.S. Person. This discussion does not deal with all aspects of U.S. Federal income tax withholding that may be relevant to foreign holders of the Global Securities. Investors are advised to consult their own tax advisors for specific tax advice concerning their holding and disposing of the Global Securities. I-4 APPENDIX A Audited Financial Statements ------------------------- Years ended December 31, 1995 and 1994 with Report of Independent Auditors A-1 INDEX OF PRINCIPAL DEFINITIONS 1933 Act ................................................................................................3 Accrual Period ...............................................................................................10 AFH ...............................................................................................21 AFL ...............................................................................................20 Appraised Values ...........................................................................................26, 32 Balloon Loans ................................................................................................7 Beneficial Certificate Owner.....................................................................................14 Book-Entry Certificates..........................................................................................52 Cede ............................................................................................3, 14 CEDEL ...............................................................................................14 CEDEL Participants...............................................................................................54 Certificate Account..............................................................................................48 Certificate Insurance Policy......................................................................................1 Certificate Insurer...............................................................................................1 Certificateholder ................................................................................................3 Certificates .........................................................................................1, 5, 46 Citibank ...............................................................................................14 Class ...............................................................................................46 Class A Carry-Forward Amount.....................................................................................13 Class A Certificate Principal Balance............................................................................13 Class A Certificates.......................................................................................1, 5, 46 Class A Distribution Amount......................................................................................13 Class A Group I Certificate Principal Balance....................................................................13 Class A Group I Certificates...............................................................................1, 5, 46 Class A Group II Certificate Principal Balance...................................................................13 Class A Insured Distribution Amount..............................................................................13 Class A Interest Distribution Amount.............................................................................11 Class A Principal Distribution Amount............................................................................11 Class A-1 Group I Certificates...................................................................................46 Class A-1 Pass-Through Rate.......................................................................................9 Class A-2 Group I Certificates...................................................................................46 Class A-3 Group I Certificates...................................................................................46 Class A-4 Group I Certificates...................................................................................46 Class A-5 Group I Certificates...................................................................................46 Class A-6 Formula Pass-Through Rate...............................................................................9 Class A-6 Group II Certificates...............................................................................5, 46 Class A-6 Pass-Through Rate.......................................................................................9 Class B Certificates...........................................................................................2, 5 Class B Group I Certificates...................................................................................2, 5 Class B Group II Certificates..................................................................................2, 5 Class B Interest ...............................................................................................50 Closing Date ................................................................................................4 Code ................................................................................................2 Combined Loan-to-Value Ratio.................................................................................25, 32 Commission ................................................................................................3 Company ............................................................................................4, 20 Company Optional Termination Date................................................................................15 Compensating Interest............................................................................................58 Cooperative ...............................................................................................54 Coupon Rates ................................................................................................7 Cut-Off Date .........................................................................................4, 6, 21
i D&P ...............................................................................................73 Definitive Certificate...........................................................................................52 Delinquency Advances.............................................................................................48 Description of the Certificates...................................................................................5 Disqualified persons.............................................................................................71 DTC ............................................................................................3, 14 DTC Participants ...............................................................................................54 ERISA ...........................................................................................16, 71 ERISA Plan ...............................................................................................71 Euroclear ...............................................................................................14 Euroclear Operator...............................................................................................54 Euroclear Participants...........................................................................................54 European Depositaries............................................................................................52 European Depositories............................................................................................14 Event of Default ...............................................................................................60 Excluded Plan ...............................................................................................72 Exemption ...........................................................................................16, 71 Financial Intermediary...........................................................................................52 Fitch ...............................................................................................73 Global Securities ................................................................................................1 Group I .............................................................................................2, 6 Group I Interest Remittance Amount...............................................................................47 Group I Monthly Remittance.......................................................................................47 Group I Principal Remittance Amount..............................................................................47 Group I Subordination Deficit....................................................................................51 Group I Total Available Funds....................................................................................52 Group II .............................................................................................2, 6 Group II Interest Remittance Amount..............................................................................47 Group II Monthly Remittance......................................................................................47 Group II Principal Remittance Amount.............................................................................47 Group II Subordination Deficit...................................................................................51 Group II Total Available Funds...................................................................................52 Insurance Proceeds...............................................................................................11 Insured Payment ...............................................................................................48 Interest Determination Date......................................................................................49 Interest Remittance Amount.......................................................................................47 LIBOR ............................................................................................9, 49 Liquidated Mortgage Loan.........................................................................................60 Liquidation Proceeds.............................................................................................11 Master Servicer ............................................................................................2, 56 Monthly Remittance...............................................................................................47 Moody's ...............................................................................................73 Morgan ...............................................................................................14 Mortgage Loan Group........................................................................................2, 6, 21 Mortgage Loans ................................................................................................1 Mortgaged Properties.............................................................................................21 Mortgages ................................................................................................6 Mortgagors ...............................................................................................39 Net Liquidation Proceeds.........................................................................................11 Non-U.S. Person ................................................................................................4 Notes ...............................................................................................21 Original Group I Pool Principal Balance...........................................................................7 Original Group II Pool Principal Balance..........................................................................7 Original Pool Principal Balance...................................................................................7
ii Original Variable Rate Pool Principal Balance Original Variable Rate Pool Principal Balance............................................................4 Originators ................................................................................................2 Owner ................................................................................................3 Participants ...............................................................................................52 Parties in interest..............................................................................................71 Payment Date ........................................................................................2, 10, 46 Percentage Interest..............................................................................................47 Plans ...........................................................................................16, 71 Pool ................................................................................................1 Pooling and Servicing Agreement............................................................................2, 5, 46 Pre-Funded Amount ................................................................................................8 Pre-Funding Account............................................................................................1, 8 Preference Amounts...............................................................................................69 Preference Order ...............................................................................................69 Prepayment Assumption............................................................................................42 Prepayments ...........................................................................................11, 18 Principal and Interest Account...................................................................................47 Principal Remittance Amount......................................................................................47 Properties ...............................................................................................21 Qualifying Rate ...............................................................................................38 Record Date ............................................................................................2, 10 Reference Banks ...............................................................................................49 Released Mortgaged Property Proceeds.............................................................................12 Relevant Depositary..............................................................................................52 REMICs ............................................................................................2, 70 Remittance Date ...............................................................................................47 Remittance Period ...............................................................................................47 Reserve Interest Rate............................................................................................49 Residual Certificates.........................................................................................5, 46 Restricted Group ...............................................................................................72 Reuters Screen LIBO Page.........................................................................................49 Rules ...............................................................................................53 S&P ...............................................................................................73 Servicing Advances...............................................................................................59 Servicing Fee ...............................................................................................15 SMMEA ...........................................................................................16, 75 Specified Subordinated Amount....................................................................................50 Subordinated Amount..............................................................................................50 Subordination Deficiency.........................................................................................51 Subordination Increase Amount....................................................................................51 Subordination Reduction Amount...................................................................................51 Subsequent Cut-Off Date...........................................................................................8 Subsequent Mortgage Loans..................................................................................2, 5, 22 Subsequent Transfer Date..........................................................................................8 Terms and Conditions.............................................................................................54 The Mortgage Loan Pool............................................................................................6 Total Available Funds............................................................................................52 Trust .............................................................................................1, 4 Trust Estate ...............................................................................................65 Trustee .............................................................................................2, 4 U.S. Person ................................................................................................4 Underwriters ............................................................................................1, 75 Underwriting Agreement...........................................................................................75
iii Weighted average life............................................................................................40
iv - -------------------------------------------------------------- ----------------------------------------------------------- No dealer, salesperson or any other person has been authorized to give any information or to make any ________________ representation not contained in this Prospectus Mortgage Loan Trust Supplement and the Prospectus, if given or made, 199_-_ such information or representations may not be relied upon as having been authorized by the Company or by the Underwriters. This Prospectus $__________ Supplement and the Prospectus do not constitute an offer to sell, or a solicitation of an offer to buy, the securities offered hereby in any Mortgage Loan Pass-Through jurisdiction to any person to whom it is unlawful Certificates, to make such offer in such jurisdiction. Neither the delivery of this Prospectus Supplement or Prospectus nor any sale made hereunder shall, under Series 199_-_ any circumstances, create any implication that information herein is correct as of any time subsequent to the date hereof or that there has been no change in the affairs of the Company, the Master Servicer or the Certificate Insurer since such date. $__________ Class A-1 Group I Certificates, Variable Pass-Through Rate ------------------ ---------------------- $__________ Class A-2 Group I Certificates, TABLE OF CONTENTS ___% Pass-Through Rate PROSPECTUS SUPPLEMENT ---------------------- Page Available Information.................................. S- $__________ Class A-3 Group I Certificates, Reports to the Holders................................. S- ___% Pass-Through Rate Summary................................................ S- ---------------------- Risk Factors........................................... S- Use of Proceeds........................................ S- $__________ Class A-4 Group I Certificates, The Company............................................ S- ___% Pass-Through Rate The Master Servicer.................................... S- ---------------------- The Mortgage Loan Pool................................. S- Maturity, Prepayment and Yield Considerations.......... S- $__________ Class A-5 Group I Certificates, Description of the Certificates........................ S- ___% Pass-Through Rate The Trustee............................................ S- ---------------------- The Certificate Insurance Policy and the Certificate Insurer.................................. S- $__________ Class A-6 Group II Certificates, Certain Federal Income Tax Consequences................ S- Variable Pass-Through Rate ERISA Considerations................................... S- ---------------------- Ratings................................................ S- Legal Investment Considerations........................ S- Underwriting........................................... S- Access Financial Lending Corp. Experts................................................ S- Company Certain Legal Matters.................................. S- ---------------------- Annex I................................................ I- Appendix A--Audited Financial Statements of Certificate Insurer.................................. A-1 Index of Principal Definitions......................... i PROSPECTUS SUPPLEMENT PROSPECTUS Incorporation of Certain Documents by Reference Summary of Prospectus.................................. [Names of Underwriters] Risk Factors........................................... The Trusts............................................. The Mortgage Pools..................................... Mortgage Loan Program.................................. Description of the Securities.......................... Subordination.......................................... __________, 199_ Description of Credit Enhancement...................... Hazard Insurance; Claims Thereunder.................... The Company............................................ The Servicer........................................... The Pooling and Servicing Agreement.................... The Trustee............................................ Yield Considerations................................... Maturity and Prepayment Considerations................. Certain Legal Aspects of Mortgage Loans and Related Matters.................................. Federal Income Tax Considerations...................... ERISA Considerations................................... Legal Investment Matters............................... Use of Proceeds........................................ Methods of Distribution................................ Legal Matters.......................................... Additional Information................................. Index of Principal Definitions......................... ------------------ Until 90 days after the date of this Prospectus Supplement, all dealers effecting transactions in the Class A Certificates, whether or not participating in this distribution, may be required to deliver a Prospectus Supplement or a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus Supplement and Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. - -------------------------------------------------------------- -----------------------------------------------------------
EX-99 5 EXHIBIT 99.2 Exhibit 99.2 PROSPECTUS SUPPLEMENT (To Prospectus dated ) - -------------------------------------------------------------------------------- $___________ (Approximate) ____________________ Manufactured Housing Contract Trust 199 - Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates, Series 199 - $ (Approximate) % Class A-1 $ (Approximate) % Class -5 $ (Approximate) % Class A-2 $ (Approximate) % Class A-6 $ (Approximate) % Class A-3 $ (Approximate) % Class B-1 $ (Approximate) % Class A-4
Access Financial Lending Corp., Servicer [LOGO] - -------------------------------------------------------------------------------- The Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates, Series (the "Certificates") will represent interests in a pool (the "Contract Pool") of actuarial manufactured housing installment sales contracts and installment loan agreements (the "Initial Contracts"), held by the -- Manufactured Housing Contract Trust (the "Trust") including certain rights to receive payments due on the Contracts on and after the Cut-off Date (as defined herein; see "Index of Principal Definitions on page i hereof), amounts held from time to time in the Certificate Account (as described herein under "Description of the Certificates -- Payment on Contracts; Certificate Account") maintained by the Trustee, [funds on deposit in a trust account (the "Pre-Funding Account") to be established with the Trustee], any property which initially secured a Contract and which is acquired in the process of realizing thereon and the obligation of Access Financial Lending Corp. under certain conditions to repurchase contracts sold by it with respect to which certain representations and warranties have been breached and not cured. The Trust will acquire the Contracts from Access Financial Receivables Corp. ("Receivables Corp." or the "Seller"), as described herein. Each Contract was originated or purchased from certain dealers or brokers by Access Financial Lending Corp. ("AFL") in the ordinary course of its business. AFL will serve as servicer of the Contracts (in such capacity and together with any successor servicer, the "Servicer"). The term "approximate," with respect to the aggregate principal amount of any Certificates or Contracts, means that the amount is subject to a variance of plus or minus 5%. Terms used and not otherwise defined herein have the respective meanings ascribed to such terms in the Prospectus dated and attached hereto (the "Prospectus"). The Certificates will consist of five classes of senior certificates (collectively, the "Senior Certificates") designated as the Class A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the Class A-4 Certificates and the Class A-5 Certificates, four classes of subordinate certificates designated as the Class A-6 Certificates, the Class B-1 Certificates, the Class B-2 Certificates and the Class C Certificates (collectively, the "Subordinate Certificates"). The Trust will also issue a residual class of Certificates for each REMIC election made by the Trust (the "Residual Certificates"). Only the Senior Certificates, the Class A-6 Certificates and the Class B-1 Certificates are being offered hereby (the "Offered Certificates"). The Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates, the Class A-4 Certificates, the Class A-5 Certificates, the Class A-6 Certificates, the Class B-1 Certificates and the Class B-2 Certificates will evidence in the aggregate initial undivided interests in the Contract Pool of approximately %, %, %, %, %, %, % and %, respectively, based on their Original Certificate Principal Balances (as defined herein); the Class C Certificate is a subordinate "interest-only" certificate and does not have a Certificate Principal Balance. See "Description of the Certificates" herein. (Continued on following page) - -------------------------------------------------------------------------------- Prospective investors should consider the information set forth under "Risk Factors" on page of this Prospectus Supplement and page of the accompanying Prospectus. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI- TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
Underwriting Price to Discounts and Proceeds to Public(1) Commissions Seller(1)(2) --------- -------------- ------------ Class A-1 Certificates........ % Class A-2 Certificates........ % Class A-3 Certificates........ % Class A-4 Certificates........ % Class A-5 Certificates........ % Class A-6 Certificates........ % Class B-1 Certificates........ % Total......................... $ $ $ = = (1) Plus accrued interest, if any, at the applicable rate from . (2) Before deducting expenses, payable by the Seller estimated to be $. - --------------------------------------------------------------------------------
The Offered Certificates are offered by the Underwriters, when, as and if issued by the Trust, delivered to and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that delivery of the Offered Certificates in book-entry form will be made through The Depository Trust Company, Cedel Bank, societe anonyme and the Euroclear System on or about against payment in immediately available funds. (Continued from previous page) [The Pooling and Servicing Agreement dated as of (the "Agreement") by and among AFL, Receivables Corp. and , as Trustee, provides that additional contracts (the "Subsequent Contracts") are intended to be purchased by the Trust from the Seller from time to time on or before , 199 from funds on deposit in the Pre-Funding Account. On the Closing Date an aggregate cash amount not to exceed $ will be deposited with the Trustee in the Pre-Funding Account; amounts not to exceed $ of such amount will be funded from the sale of the Class A Certificates, and may be used to acquire Subsequent Contracts. One or more elections will be made to treat certain assets of the Trust as one or more real estate mortgage investment conduits ("REMICs") for federal income tax purposes. See "Federal Income Tax Consequences" herein and in the Prospectus.] Neither AFL nor Receivables Corp. nor any of their affiliates will have any obligations with respect to the Certificates except, in the case of AFL for obligations arising from certain representations and warranties of AFL with respect to certain characteristics of the Contracts. In the event of an uncured breach of any such representation or warranty that materially adversely affects a Contract, AFL will be obligated under certain circumstances to repurchase such Contract or substitute another contract therefor, as described herein and in the Prospectus. The interests of the owners of the Offered Certificates (the "Certificate Owners") will be represented by book-entries on the records of The Depository Trust Company and participating members thereof. See "Description of the Certificates -- Registration of Offered Certificates" herein. and (the "Underwriters") intend to make a secondary market in the Offered Certificates, but have no obligation to do so. There can be no assurance that a secondary market for the Offered Certificates will develop, or if it does develop, that it will continue to exist or provide sufficient liquidity. The Offered Certificates will not be insured or guaranteed by any governmental agency or instrumentality, the Underwriters or any of their affiliates, or Receivables Corp., AFL or any of their affiliates. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. --------------------------- This Prospectus Supplement does not contain complete information about the offering of the Offered Certificates. Additional information is contained in the Prospectus and purchasers are urged to read both this Prospectus Supplement and the Prospectus in full. Sales of the Offered Certificates may not be consummated unless the purchaser has received both this Prospectus Supplement and the Prospectus. Terms used and not otherwise defined herein have the respective meanings ascribed to such terms in the Prospectus. To the extent that any statements in this Prospectus Supplement conflict with statements contained in the Prospectus, the statements in the Prospectus Supplement shall control. S-2 SUMMARY This summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus Supplement and in the accompanying Prospectus. Capitalized terms used and not otherwise defined herein have the respective meanings assigned them in the Prospectus or elsewhere in this Prospectus Supplement. Reference is made to the "Index of Significant Definitions" herein and in the Prospectus for the location of the definitions of certain capitalized terms. Issuer................................. Manufactured Housing Contract Trust 199 Offered Certificates................... Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates, Series (the "Certificates"). The Offered Certificates consist of five classes of senior certificates designated as the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates (collectively, the "Senior Certificates") and two classes of Subordinate Certificates, designated as the Class A-6 and Class B-1 Certificates. The Trust will also issue two additional classes of Subordinate Certificates and the Residual Certificates. Servicer............................... Access Financial Lending Corp., a Delaware corporation ("AFL" or, together with any successor servicer under the Agreement referred to below, the "Servicer") and a wholly-owned subsidiary of Access Financial Holdings Corp., which is a wholly-owned subsidiary of Cargill Financial Services Corporation. Seller................................. The Contracts will be acquired by the Trust from Access Financial Receivables Corp. (the "Seller") on the Closing Date. See "The Contract Pool" herein. Trustee................................ Risk Factors......................... Certain risk factors are particularly relevant to a decision to invest in the Offered Certificates sold hereunder. See "Risk Factors" herein and in the Prospectus. Cut-off Date........................... Closing Date........................... Original Class A-1 Principal Balance... $ (Approximate, subject to a variance of plus or minus 5%). Original Class A-2 Principal Balance.. $ (Approximate, subject to a variance of plus or minus 5%. Original Class A-3 Principal Balance... $ (Approximate, subject to a variance of plus or minus 5%). Original Class A-4 Principal Balance... $ (Approximate, subject to a variance of plus or minus 5%).
S-3 Original Class A-5 Principal Balance... $ (Approximate, subject to a variance of plus or minus 5%). Original Class A-6 Principal Balance... $ (Approximate, subject to a variance of plus or minus 5%). Original Class B-1 Principal Balance... $ (Approximate, subject to a variance of plus or minus 5%). Class A-1 Remittance Rate.............. % per annum, calculated on the basis of a 360-day year comprised of twelve 30-day months, payable monthly, subject to a maximum rate equal to the Weighted Average Net Contract Rate. The "Weighted Average Net Contract Rate" with respect to each Remittance Date is a rate equal to (i) the weighted average of the Contract Rates applicable to the Scheduled Payments that were due in the related Collection Period on outstanding Contracts less (ii) _____% per annum, representing the Monthly Servicing Fee (as defined herein), if AFL is no longer the Servicer. Class A-2 Remittance Rate.............. % per annum, calculated on the basis of a 360-day year comprised of twelve 30-day months, payable monthly, subject to a maximum rate equal to the Weighted Average Net Contract Rate. Class A-3 Remittance Rate.............. % per annum, calculated on the basis of a 360-day year comprised of twelve 30-day months, payable monthly, subject to a maximum rate equal to the Weighted Average Net Contract Rate. Class A-4 Remittance Rate.............. % per annum, calculated on the basis of a 360-day year comprised of twelve 30-day months, payable monthly, subject to a maximum rate equal to the Weighted Average Net Contract Rate. Class A-5 Remittance Rate.............. % per annum, calculated on the basis of a 360-day year comprised of twelve 30-day months, payable monthly, subject to a maximum rate equal to the Weighted Average Net Contract Rate. Class A-6 Remittance Rate.............. % per annum, calculated on the basis of a 360-day year comprised of twelve 30-day months, payable monthly, subject to a maximum rate equal to the Weighted Average Net Contract Rate. Class B-1 Remittance Rate.............. % per annum, calculated on the basis of a 360-day year comprised of twelve 30-day months, payable monthly, subject to a maximum rate equal to the Weighted Average Net Contract Rate. Remittance Date........................ The ____ day of each month (or if such ____ day is not a business day, the next succeeding business day), commencing in . The first Remittance Date is . Record Date............................ The last business day of the month preceding the related Remittance Date.
S-4 Collection Period...................... With respect to any Remittance Date, the calendar month prior to the month of such Remittance Date (each, a "Collection Period"). Agreement.............................. The Pooling and Servicing Agreement dated as of _________ (the "Agreement"), by and among AFL, Receivables Corp. and ___________________, as trustee (the "Trustee"). The Contract Pool...................... The Contract Pool will initially be comprised of actuarial manufactured housing installment sales contracts and installment loan agreements (collectively, the "Initial Contracts") originated or purchased from certain dealers or brokers by AFL in the ordinary course of its business to be conveyed to the Trust on the Closing Date [and funds on deposit in a trust account (the "Pre-Funding Account") to be established with the Trustee.] [The Agreement provides that additional actuarial manufactured housing installment sales contracts and installment loan agreements (the "Subsequent Contracts") (the Initial Contracts and the Subsequent Contracts together, the "Contracts") are intended to be purchased by the Trust from the Seller from time to time on or before , 199_ from funds on deposit in the Pre-Funding Account. On the Closing Date an aggregate cash amount not to exceed $ will be deposited with the Trustee in the Pre-Funding Account; amounts not to exceed $ of such aggregate amount will be funded from the sale of the Class A Certificates, and may be used to acquire Subsequent Contracts.] [The Subsequent Contracts to be purchased by the Trust, if available, will be originated on or prior to , 199_, sold by AFL to the Seller and then sold by the Seller to the Trust. The Agreement will provide that the Contracts must in the aggregate conform to certain specified characteristics following the conveyance of any Subsequent Contracts. See "The Contract Pool."] Each Contract will be secured by (i) a new or used manufactured home (each manufactured home securing a Contract being referred to herein as a "Manufactured Home") (a Contract secured by a Manufactured Home, a "Manufactured Home Contract") or (ii) a Manufactured Home together with the real estate on which such Manufactured Home is located (a Contract secured by a Manufactured Home and such real estate, a "Land Secured Contract"). The Contracts will not be insured by any governmental agency or instrumentality. As of the Cut-off Date, the Contract Pool consisted of approximately Initial Contracts having a Cut-off Date Pool Principal Balance of approximately $ . The Initial Contracts, as of their origination, were
S-5 secured by Manufactured Homes located in __ states and have been selected by AFL from the manufactured housing installment sale contracts and installment loan portfolio of AFL on the basis of the criteria specified in the Agreement. Approximately % of the Initial Contracts by outstanding principal balance as of the Cut-off Date were secured by Manufactured Homes located in , % in , % in , % in and % in . No other state represented more than % of the Initial Contracts. All of the Initial Contracts bear interest at a fixed annual percentage rate (the "Contract Rate") which is specified in the Contract. Monthly payments of principal and interest on the Initial Contracts will be due on various days (each, a "Due Date") throughout each month. As of the Cut-off Date, the Contract Rates on the Initial Contracts ranged from % to %, with a weighted average Contract Rate of approximately %. Because the Servicing Fee is subordinated while AFL is the Servicer, the Weighted Average Net Contract Rate as of the Cut-off Date is also %. As of the Cut-off Date, the Initial Contracts had a weighted average original term to maturity of approximately months and a weighted average remaining term to maturity of approximately months. The final scheduled payment date on the Initial Contract with the latest maturity is in . The Initial Contracts were originated or purchased from certain dealers or brokers during , and . See "The Contract Pool" and "Prepayment and Yield Considerations" herein for a detailed description of the Initial Contracts. [Following the initial Cut-Off Date, the Trust will be obligated to purchase from time to time on or before , 199_ subject to the availability thereof, Subsequent Contracts which will be originated on or before , 199_, and acquired by the Seller from AFL for subsequent sale to the Trust pursuant to a Purchase Agreement (the "Purchase Agreement") between the Seller and the Trust. The aggregate principal amounts of Subsequent Contracts which may be acquired by the Trust is $ . In connection with each purchase of Subsequent Contracts, the Trust will be required to pay to the Seller a cash purchase price of 100% of the principal amount thereof from the Pre-Funding Account. Under the Agreement, AFL will be obligated to sell Subsequent Contracts to the Seller for sale to the Trust, and the Trust will be obligated, subject to the satisfaction of certain conditions described herein, to purchase such Subsequent Contracts. AFL will designate as a cut-off date (each a "Subsequent Cut-Off Date") the first day of the month in which Subsequent Contracts will be conveyed by the Seller to the Trust (each a "Subsequent Transfer Date") occurring during the Funding Period (as defined herein). The Trust may
S-6 purchase the Subsequent Contracts only from the Seller and not from any other person.] Pre Funding Account.................... On the Closing Date an aggregate cash amount (the "Pre- Funded Amount"), which shall not exceed $ , will be deposited with the Trustee in an account in the name of the Trustee on behalf of the Trust (the "Pre- Funding Account"); amounts not to exceed $ of such aggregate amount will be funded from the sale of the Class A Certificates, and may be used to acquire Subsequent Contracts. During the period (the "Funding Period") from the Closing Date until the earliest of the date on which (i) the amount on deposit in the Pre-Funding Account is less than $100,000, (ii) an Event of Default occurs under the Agreement, or (iii) the , 199_ Remittance Date occurs, the Pre- Funded Amount will be maintained in the Pre- Funding Account. The Pre-Funding Account will be reduced during the Funding Period by the amount thereof used to purchase Subsequent Contracts in accordance with the Agreement. AFL expects that the Pre-Funded Amount will be reduced to less than $100,000 by the , 199_ Remittance Date. Any Pre-Funded Amount remaining at the end of the Funding Period will be used to prepay pro rata the Class A Certificates on the , 199_ Remittance Date. Description of Certificates............ The Certificates evidence undivided interests in the Contract Pool and certain other property held in trust for the benefit of the Certificateholders. The Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates are Senior Certificates and the Class A-6, Class B-1, Class B-2 and Class C Certificates are Subordinate Certificates, all as described herein. The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 and Class B-1 Certificates are the Offered Certificates. The Offered Certificates will be offered in book-entry form only in denominations of $1,000. The undivided percentage interest (the "Percentage Interest") evidenced by any particular Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 or Class B-1 Certificate for purposes of calculating distributions to the holder of such Certificate will be equal to the percentage obtained by dividing the original denomination of such Certificate by the Original Class A-1 Principal Balance, the Original Class A-2 Principal Balance, the Original Class A-3 Principal Balance, the Original Class A-4 Principal Balance, the Original Class A-5 Principal Balance, the Original Class A-6 Principal Balance or the Original Class B-1 Principal Balance, as appropriate. In addition to the Offered Certificates, the Trust will issue two additional classes of Subordinate Certificates, the Class B-2 and the Class C Certificates, which are subordinated to the Senior Certificates, the Class A-6 and the Class B-1
S-7 Certificates to the extent described herein. The Class B-2 and the Class C Certificates are not being offered hereby. The Class B-2 Certificates will have an original balance of $ and a Remittance Rate which, for purposes of this Prospectus Supplement, has been assumed on each Remittance Date to equal % per annum, subject to a maximum rate equal to the Weighted Average Net Contract Rate. The Trust will also issue one residual class of Certificates with respect to each REMIC election made by the Trust (the "Residual Certificates") which are not being offered hereby. The Class C Certificates and the Residual Certificates will initially be retained by the Seller or an affiliate thereof. The Class B-2, Class C and Residual Certificates are not offered hereby, and any information contained herein with respect to the Class B-2, Class C and Residual Certificates is provided only to permit a better understanding of the cash flow mechanics and subordination provisions of the Trust, insofar as such mechanics and provisions are relevant to the Offered Certificates. The Senior Certificates, the Class A-6, the Class B-1, the Class B-2, the Class C Certificates and the Residual Certificates are collectively referred to as the "Certificates." Distributions.......................... On each Remittance Date, distributions on the Certificates will be made in the following order of priority: (i) to the holders of the Senior Certificates, (ii) to the holders of the Class A-6 Certificates, (iii) to the holders of the Class B-1 Certificates, (iv) to the holders of the Class B-2 Certificates and (v) to the holders of the Class C Certificates, in the manner described below. Distributions of interest and principal to the holders of a Class of Senior Certificates will be made in an amount equal to the sum of (i) their respective Percentage Interests of the amount of interest calculated as described below under "A. Senior Interest" and (ii) their respective Percentage Interests of an amount of principal calculated as described below under "B. Senior Principal." Distributions of interest and principal to the Class A-6 Certificateholders will be made in an amount equal to their respective Percentage Interests multiplied by the Class A-6 Distribution Amount (as defined below). Distributions of interest and principal to the Class B-1 Certificateholders will be made in an amount equal to their respective Percentage Interests multiplied by the Class B-1 Distribution Amount (as described below). Distributions of interest and principal to the Class B-2 Certificateholders will be made in an amount equal to their respective Percentage Interests of the Class B-2 Distribution Amount (as described below).
S-8 The rights of the Subordinate Certificateholders and the Residual Certificateholders to receive distributions are subordinated to the rights of the Senior Certificateholders to the extent described herein. The rights of the Class B-1, Class B-2, Class C and Residual Certificateholders to receive distributions are subordinated to the rights of the Class A-6 Certificateholders, and the rights of the Class B-2, Class C and Residual Certificateholders to receive distributions are subordinated to the rights of the Class B-1 Certificateholders to the extent described herein. The Class C Certificates represent a class of subordinated, "interest-only" certificates, the distributions on which are subordinated to the rights of the Class B-2 Certificateholders and, if AFL is no longer the Servicer, to the payment of the Monthly Servicing Fee. The holders of the Residual Certificates will be entitled to receive only miscellaneous amounts (consisting of any excess of the initial Pool Scheduled Principal Balance over the aggregate initial Certifiate Principal Balance of the Non-IO Certificates, together with foreclosure gains (e.g., if a foreclosure results in higher proceeds than the loan amount, and the obligor cannot be located for the purpose of receiving such amount) not required to be distributed on account of the other classes of Certificates (the "Residual Distribution Amount"). Distributions will be made on each Remittance Date commencing in to holders of record on the related Record Date, except that the final distribution in respect of the Offered Certificates will only be made upon presentation and surrender of the Offered Certificates at the office or agency appointed by the Trustee for that purpose in New York, New York. The "Class A-6 Distribution Amount" for any Remittance Date is intended to be equal to the "Class A-6 Formula Distribution Amount," which equals the sum of (i) the amount of interest calculated as described under "C. Class A-6 Interest" below and (ii) an amount of principal calculated as described under "D. Class A-6 Principal" below. The "Class A-6 Distribution Amount" for any Remittance Date will equal the lesser of (i) the Class A-6 Formula Distribution Amount for such Remittance Date or (ii) the Amount Available in the Certificate Account available for distribution to the Class A-6 Certificateholders (after giving effect to the distributions made to Senior Certificateholders) on such Remittance Date (the "Class A-6 Remaining Amount Available"). The "Class B-1 Distribution Amount" for any Remittance Date is intended to be equal to the "Class B-1 Formula Distribution Amount," which equals the sum of (i) the amount of interest calculated as described under "E. Class B-1 Interest" below and (ii) an amount of principal calculated as described under "F. Class B-1 Principal" below. The "Class B-1 Distribution Amount" for any Remittance Date will equal the lesser of (i) the Class B-1 Formula Distribution Amount for such Remittance Date or (ii) the Amount Available in the Certificate Account available for distribution to the Class B-1
S-9 Certificateholders (after giving effect to the distributions made to Senior and Class A-6 Certificateholders) on such Remittance Date (the "Class B-1 Remaining Amount Available"). The "Class B-2 Distribution Amount" for any Remittance Date is intended to be equal to the "Class B-2 Formula Distribution Amount," which equals the sum of (i) the amount of interest calculated as described below under "G. Class B-2 Interest," and (ii) the amount of principal calculated as described below under "H. Class B-2 Principal." The "Class B-2 Distribution Amount" for any Remittance Date will equal the lesser of (i) the Class B-2 Formula Distribution Amount for such Remittance Date or (ii) the Amount Available in the Certificate Account available for distribution to the Class B-2 Certificateholders (after giving effect to the distributions made to Senior, Class A-6 and Class B-1 Certificateholders) on such Remittance Date (the "Class B-2 Remaining Amount Available"). See "Description of the Certificates" for a detailed description of the amounts on deposit in the Certificate Account that will constitute the Amount Available on each Remittance Date (the "Amount Available"). The Amount Available will include amounts otherwise payable to the holders of the Class A-6, the Class B-1, the Class B-2 and the Class C Certificates, to AFL as the Monthly Servicing Fee and to the Residual Certificateholders. The Class A-6 Remaining Amount Available will include amounts otherwise payable to the holders of the Class B-1, the Class B-2 and the Class C Certificates, to AFL as the Monthly Servicing Fee and to the Residual Certificateholders. The Class B-1 Remaining Amount Available will include amounts otherwise payable to the holders of the Class B-2 and the Class C Certificates, to AFL as the Monthly Servicing Fee and to the Residual Certificateholders. The Class B-2 Remaining Amount Available will include amounts otherwise payable to the holders of the Class C Certificates, to AFL as the Monthly Servicing Fee and to the Residual Certificateholders. The "Certificate Principal Balance" of a Class of Certificates as of any Remittance Date is the original principal balance of such Class of Certificates less all amounts previously distributed to such Class on account of principal. The Senior Principal Balance as of any Remittance Date is the sum of the Class A-1 Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal Balance, the Class A-4 Principal Balance and the Class A-5 Principal Balance as of such date. A. Senior Interest..................... Interest on the outstanding Principal Balance of each Class of Senior Certificates will accrue with respect to each Remittance Date for the period commencing
S-10 on the first day of the calendar month and ending on the last day of such calendar month preceding such Remittance Date (each such period, an "Accrual Period"), commencing . Interest will be paid concurrently on each Class of Senior Certificates on each Remittance Date, to the extent of the Amount Available for such date in the Certificate Account, at the related Remittance Rate on the Class A-1 Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal Balance, the Class A-4 Principal Balance and the Class A-5 Principal Balance, respectively, before giving effect to any distributions on such Remittance Date. In the event that, on a particular Remittance Date, the Amount Available in the Certificate Account is not sufficient to make a full distribution of interest to the holders of each Class of Senior Certificates, the Amount Available will be distributed among the outstanding Classes of Senior Certificates pro rata based on the aggregate amount of interest due on each such Class, and the amount of the shortfall will be carried forward and added to the amount such holders will be entitled to receive on the next Remittance Date. Any such amount so carried forward will bear interest at the related Remittance Rate, to the extent legally permissible. See "Description of the Certificates." B. Senior Principal.................... Holders of a Class of Senior Certificates will be entitled to receive on each Remittance Date as payments of principal, in the order of priority set forth below and to the extent of the Amount Available in the Certificate Account on such date after payment of interest on all Classes of Senior Certificates, the sum of (x) the Senior Percentage of the Formula Principal Distribution Amount for such Remittance Date, and (y) any portion of the amount described in clause (x) preceding which was due to the holders of the Senior Certificates on prior Remittance Dates, but which remains unpaid on such Remittance Date. The Agreement defines the "Formula Principal Distribution Amount" with respect to a Remittance Date as the sum of (i) all scheduled payments of principal due on each outstanding Contract during the related Collection Period, (ii) the Scheduled Principal Balance of each Contract which, during the related Collection Period, was purchased by AFL pursuant to the Agreement on account of certain breaches of its representations and warranties, (iii) all Partial Principal Prepayments applied and all Principal Prepayments in full received during the related Collection Period, (iv) the Scheduled Principal Balance of each Contract that became a Liquidated Contract during such related Collection Period and (v) the Accelerated Principal Payment, if any, for such Remittance Date. When the Certificate Principal Balance of a Class of Senior Certificates is reduced to zero, no further distributions of principal will be made to the holders of such Class.
S-11 The "Senior Percentage" for any Remittance Date prior to the Class B Cross-over Date (as defined below), and for any Remittance Date on or after the Class B Cross-over Date on which any Class B Principal Distribution Test (as described below) has not been satisfied, will equal 100%. On each Remittance Date on or after the Class B Cross-over Date, if each Class B Principal Distribution Test has been satisfied on such Remittance Date, the "Senior Percentage" will equal a fraction, expressed as a percentage, the numerator of which is the sum of the Senior Principal Balance and the Class A-6 Principal Balance for such Remittance Date (before giving effect to any distributions on such Remittance Date) and the denominator of which is the Pool Scheduled Principal Balance at the end of the second preceding Collection Period. The "Scheduled Principal Balance" of a Contract for any Collection Period is its principal balance as specified in its amortization schedule, after giving effect to any previous partial principal prepayments, any principal prepayment in full and to the principal portion of the scheduled payment due on its scheduled payment date (the "Due Date") in that Collection Period, but without giving effect to any adjustments due to bankruptcy or similar proceedings and after giving effect to any partial principal prepayments applied and principal prepayments in full received during the related Collection Period. The "Pool Scheduled Principal Balance" with respect to any Collection Period is the aggregate of the Scheduled Principal Balances of all Contracts (other than Liquidated Contracts and Contracts repurchased by AFL during such Collection Period) outstanding at the end of such Collection Period. A "Liquidated Contract" is a defaulted Contract as to which all amounts that the Servicer expects to recover through the date of disposition of the Manufactured Home have been received. The principal distribution to be made to the holders of the Senior Certificates on any Remittance Date will be distributed, to the extent of the Amount Available after payment of interest on all Classes of Senior Certificates, first, to the Class A-1 Certificateholders until the Class A-1 Principal Balance has been reduced to zero, then to the Class A-2 Certificateholders until the Class A-2 Principal Balance has been reduced to zero, then to the Class A-3 Certificateholders until the Class A-3 Principal Balance has been reduced to zero, then to the Class A-4 Certificateholders until the Class A-4 Principal Balance has been reduced to zero, then to the Class A-5 Certificateholders until the Class A-5 Principal Balance has been reduced to zero. If, on any Remittance Date prior to the Class A-5 Principal Balance being reduced to zero, the Pool
S-12 Scheduled Principal Balance at the close of business on the last day of the related Collection Period would be less than the sum of the Class A-1 Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal Balance, the Class A-4 Principal Balance and the Class A-5 Principal Balance on such Remittance Date after giving effect to distributions of principal to be made on such date, then the Amount Available remaining after distribution of interest on the Senior Certificates will be distributed to the Classes of Senior Certificates on a pro rata basis as a distribution of principal, and the amount of the shortfall will be allocated pro rata among the outstanding Classes of Senior Certificates, based upon their respective outstanding Certificate Principal Balances. C. Class A-6 Interest.................. Interest on the outstanding Class A-6 Principal Balance will accrue with respect to each Remittance Date during the related Accrual Period, commencing . On each Remittance Date, to the extent of the Class A-6 Remaining Amount Available, if any, on such Remittance Date after payment of the Senior Distribution Amount, interest will be paid to the Class A-6 Certificateholders at the Class A-6 Remittance Rate on the Class A-6 Principal Balance (before giving effect to any distributions on such Remittance Date). The "Class A-6 Principal Balance" is the Original Class A-6 Principal Balance less all amounts previously distributed to the Class A-6 Certificateholders on account of principal. In the event that, on a particular Remittance Date, the Class A-6 Remaining Amount Available, plus other funds, if any, in the Certificate Account available therefor, are not sufficient to make a full distribution of interest to the Class A-6 Certificateholders, the amount of the deficiency will be carried forward as an amount that the Class A-6 Certificateholders are entitled to receive on the next Remittance Date. Any amount so carried forward will bear interest at the Class A-6 Remittance Rate, to the extent legally permissible. See "Description of the Certificates -- Class A-6 Interest." D. Class A-6 Principal................. Payments of principal on the Class A-6 Certificates will not commence until the Senior Principal Balance has been reduced to zero. On each Remittance Date on or after the date on which the Senior Principal Balance has been reduced to zero, holders of Class A-6 Certificates will be entitled to receive the Senior Percentage of the Formula Principal Distribution Amount, until the Class A-6 Principal Balance has been reduced to zero. E. Class B-1 Interest.................. Interest on the outstanding Class B-1 Principal Balance will accrue with respect to each Remittance Date during the related Accrual Period, commencing .
S-13 On each Remittance Date, to the extent of the Class B-1 Remaining Amount Available, if any, on such Remittance Date after payment of the Senior Distribution Amount and the Class A-6 Distribution Amount, interest will be paid to the Class B-1 Certificateholders at the Class B-1 Remittance Rate on the Class B-1 Principal Balance (before giving effect to any distributions on such Remittance Date). The "Class B-1 Principal Balance" is the Original Class B-1 Principal Balance less all amounts previously distributed to the Class B-1 Certificateholders on account of principal. In the event that, on a particular Remittance Date, the Class B-1 Remaining Amount Available, plus other funds, if any, in the Certificate Account available therefor, are not sufficient to make a full distribution of interest to the Class B-1 Certificateholders, the amount of the deficiency will be carried forward as an amount that the Class B-1 Certificateholders are entitled to receive on the next Remittance Date. Any amount so carried forward will bear interest at the Class B-1 Remittance Rate, to the extent legally permissible. See "Description of the Certificates -- Class B-1 Interest." F. Class B-1 Principal................. Payments of principal on the Class B-1 Certificates will not commence until the Class B Cross-over Date, and will be made on that Remittance Date and each Remittance Date thereafter only if each Class B Principal Distribution Test is satisfied on such Remittance Date (unless the Senior Principal Balance and the Class A-6 Principal Balance have been reduced to zero in which event none of the Class B Distribution Tests need be satisfied). The "Class B Cross-over Date" will be the later of (A) the Remittance Date in , or (B) the first Remittance Date on which the sum of (i) the Senior Principal Balance on such Remittance Date (before taking into account any distributions to be made on such Remittance Date) and (ii) the Class A-6 Principal Balance on such Remittance Date (before taking into account any distributions to be made on such Remittance Date) (such sum expressed as a percentage of the Pool Scheduled Principal Balance at the end of the second preceding Collection Period) is less than %. The Class B Principal Distribution Tests on each Remittance Date relate to losses and delinquencies on the Contracts, and are described under "Description of the Certificates -- Class B-1 Principal." On each Remittance Date on or after the Class B Cross-over Date, if each Class B Principal Distribution Test is satisfied on such Remittance Date (unless the Senior Principal Balance and the Class A-6 Principal Balance have been reduced to zero in which event none of the Class B Distribution Tests
S-14 need be satisfied), Class B-1 Certificateholders will be entitled to receive, as payments of principal, the sum of (i) the Class B Percentage of the Formula Principal Distribution Amount and (ii) any portion of the amount described in clause (i) preceding which was due to the Class B-1 Certificateholders on prior Remittance Dates but which remains unpaid on such Remittance Date; such amount will only be distributed to the extent of the Class B-1 Remaining Amount Available in the Certificate Account on such date after payment of all interest payable on the Class B-1 Certificates. The Class B Percentage for any Remittance Date on or after the Class B Cross-over Date on which each Class B Principal Distribution Test has been satisfied will be equal to 100% minus the Senior Percentage. The Class B Percentage for each Remittance Date, if any, after the Senior Principal Balance and the Class A-6 Principal Balance have both been reduced to zero, will be equal to 100%. G. Class B-2 Interest.................. Interest on the outstanding Class B-2 Principal Balance will accrue with respect to each Remittance Date during the related Accrual Period, commencing . On each Remittance Date, to the extent of the Class B-2 Remaining Amount Available, if any, for a Remittance Date after payment of the Senior Distribution Amount, the Class A-6 Distribution Amount and the Class B-1 Distribution Amount for such date, interest will be paid to the Class B-2 Certificateholders on such Remittance Date at the Class B-2 Remittance Rate on the Class B-2 Principal Balance (before giving effect to any distributions on such Remittance Date). The "Class B-2 Principal Balance" is the Original Class B-2 Principal Balance less all amounts previously distributed to the Class B-2 Certificateholders on account of principal. In the event that, on a particular Remittance Date, the Class B-2 Remaining Amount Available, plus other funds, if any, in the Certificate Account available therefor, are not sufficient to make a full distribution of interest to the Class B-2 Certificateholders, the amount of the deficiency will be carried forward as an amount that the Class B-2 Certificateholders are entitled to receive on the next Remittance Date. Any amount so carried forward will bear interest at the Class B-2 Remittance Rate, to the extent legally permissible. See "Description of the Certificates -- Class B-2 Interest." H. Class B-2 Principal................. Payments of principal on the Class B-2 Certificates will not commence until the Remittance Date on which the Class B-1 Principal Balance has been reduced to zero and will be made on such Remittance Date and each Remittance Date thereafter only if each Class B Principal Distribution Test is satisfied on such
S-15 Remittance Date (unless the Senior Principal Balance and the Class A-6 Principal Balance have been reduced to zero in which event none of the Class B Distribution Tests need be satisfied). See "Description of the Certificates -- Class B-2 Principal." On each Remittance Date, on or after the date on which the Class B-1 Principal Balance has been reduced to zero and on which each Class B Principal Distribution Test is satisfied (unless the Senior Principal Balance and the Class A-6 Principal Balance have been reduced to zero in which event none of the Class B Distribution Tests need be satisfied), the Class B-2 Certificateholders will be entitled to receive, as payments of principal, the sum of (i) the Class B Percentage of the Formula Principal Distribution Amount and (ii) any portion of the amount described in clause (i) preceding which was due to the Class B- 2 Certificateholders on prior Remittance Dates but which remains unpaid on such Remittance Date; such amount will only be distributed to the extent of the Class B-2 Remaining Amount Available in the Certificate Account on such date, after payment of all interest payable on the Class B-2 Certificates. I.Class C Distributions; Overcollateralization Amount ........ The Weighted Average Net Contract Rate for the Contract Pool is expected generally to be higher than the weighted average of the Remittance Rates applicable to the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class B-1 and Class B-2 Certificates (collectively, the "Non-IO Certificates"), thus generating certain excess interest collections which, in the absence of losses and delinquencies, will not be necessary to fund distributions on the Non-IO Certificates. The Agreement provides that this excess interest, together with, if AFL is then the Servicer, the Monthly Servicing Fee then otherwise due to AFL, be applied, to the extent available, to make accelerated payments of principal to the class or classes then entitled to receive distributions of principal; such application is expected to cause the aggregate Certificate Principal Balance of the Non-IO Certificates to amortize more rapidly than the Contract Pool, resulting in "overcollateralization" (i.e., the excess of the Pool Scheduled Principal Balance over the aggregate Certificate Principal Balance of the Non-IO Certificates). This excess interest for a Collection Period, together with interest on the overcollateralization amount itself, on the related Remittance Date is the "Class C Formula Distribution Amount" for such Remittance Date. On any Remittance Date the "Overcollateralization Amount" will be an amount equal to the difference between the Pool Scheduled Principal Balance as of the end of the immediately preceding Collection Period and the aggregate Certificate Principal Balance of the Non-IO Certificates on such Remittance Date (and after taking
S-16 into account all other distributions to be made on such Remittance Date). The amounts available to fund the Class C Formula Distribution Amount (which amount will be the Class B-2 Remaining Amount Available less the Class B-2 Distribution Amount and less the Monthly Servicing Fee (for such Remittance Date) such amount being the "Class C Distribution Amount") will be applied, together with the Monthly Servicing Fee if AFL is the Servicer, to make such accelerated payments of principal on each Remittance Date until the Overcollateralization Amount is approximately equal to $ (the "Initial Required Overcollateralization Amount"). Thereafter, the Class C Distribution Amount will be available to make distributions of the Class C Formula Distribution Amount to the holders of the Class C Certificates, unless, due to losses, the Overcollateralization Amount is decreased, in which event such applications will commence to the extent necessary to increase the actual Overcollateralization Amount to the Required Overcollateralization Amount. The level of the Required Overcollateralization Amount is equal to, for any Remittance Date, (x) prior to the Class B Cross-over Date, the Initial Required Overcollateralization Amount, (y) on and after the Class B Cross-over Date, and as long as each Class B Principal Distribution Test is then satisfied, the lesser of (i) the Initial Required Overcollateralization Amount and (ii) the greater of (a) % of the then Scheduled Pool Principal Balance and (b) % of the Cut-off Date Pool Principal Balance and (z) on and after the Class B Cross-over Date, if any Class B Distribution Test is not satisfied, the required level as of the immediately preceding Remittance Date. The amount, if any, of the Class C Distribution Amount actually applied as an accelerated payment of principal on any Remittance Date (such amount to be the lesser of (x) the excess of (i) the Required Overcollateralization Amount over (ii) the actual Overcollateralization Amount on such Remittance Date and (y) the Class C Distribution Amount and the Monthly Servicing Fee if AFL is the Servicer for the immediately preceding Collection Period) is the "Accelerated Principal Payment" for such Remittance Date. Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates......................... The rights of the holders of the Class A-6, Class B-1, Class B-2, Class C Certificates and Residual Certificates to receive distributions with respect to the Contracts in the Trust will be subordinated, to the extent described herein, to such rights of the holders of the Senior Certificates. This subordination is intended to enhance the likelihood
S-17 of regular receipt by the holders of the Senior Certificates of the full amount of their scheduled monthly payments of interest and principal and to afford such holders protection against losses on Liquidated Contracts. The protection afforded to the holders of the Senior Certificates by means of the subordination of the Class A-6, Class B-1, Class B-2, Class C and Residual Certificates will be accomplished by the preferential right of the Senior Certificateholders to receive, prior to any distribution being made on a Remittance Date in respect of the Class A-6, Class B-1, Class B-2, Class C and Residual Certificates, the amounts of interest and principal due them on each Remittance Date out of the Amount Available on such date in the Certificate Account and, if necessary, by the right of such Senior Certificateholders to receive future distributions of Amounts Available that would otherwise be payable to the holders of the Class A-6, Class B-1, Class B-2, Class C and Residual Certificates. Inaddition, the rights of the holders of the Class B-1, Class B-2, Class C and Residual Certificates to receive distributions with respect to the Contracts will be subordinated, to the extent described herein, to such rights of the holders of the Class A-6 Certificates. This subordination is intended to enhance the likelihood of regular receipt by the holders of the Class A-6 Certificates of the full amount of their scheduled monthly payments of interest and principal and to afford such holders protection against losses on Liquidated Contracts. The protection afforded to the holders of the Class A-6 Certificates by means of the subordination of the Class B-1, Class B-2, Class C and Residual Certificates will be accomplished by the preferential right of the Class A-6 Certificateholders to receive, prior to any distribution being made on a Remittance Date in respect of the Class B-1, Class B-2, Class C and Residual Certificates, the amounts of interest and principal due them on each Remittance Date out of the Class A-6 Remaining Amount Available on such date in the Certificate Account and, if necessary, by the right of such Class A-6 Certificateholders to receive future distributions of Class A-6 Remaining Amounts Available that would otherwise be payable to the holders of the Class B-1, Class B-2, Class C and Residual Certificates. The rights of the holders of the Class B-2, Class C and Residual Certificates to receive distributions with respect to the Contracts will be subordinated in the same manner to such rights of the holders of the Senior Certificates, Class A-6 Certificates and Class B-1 Certificates.
S-18 The rights of the holders of the Class C Certificates to receive distributions with respect to the Contracts on each Remittance Date will be subordinated to the rights of the holders of the Senior Certificates, Class A-6 Certificates, Class B-1 Certificates and Class B-2 Certificates and to the payment of the Monthly Servicing Fee. See "Description of the Certificates-Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates." The rights of the holders of the Residual Certificates to receive distributions with respect to the Contracts on each Remittance Date will be subordinated to the rights of the holders of all other classes of Certificates and to the payment of the Monthly Servicing Fee. See "Description of the Certificates -- Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates." Losses on Liquidated Contracts......... As described above, the distribution of principal to the Senior and the Class A-6 Certificateholders and to the Class B-1 Certificateholders is intended to include the Senior Percentage and the Class B Percentage, respectively, of the Scheduled Principal Balance of each Contract that became a Liquidated Contract during the preceding Collection Period. If the Net Liquidation Proceeds (as defined below) from a Liquidated Contract are less than the Scheduled Principal Balance of such Liquidated Contract plus accrued and unpaid interest thereon plus amounts reimbursable to the Servicer for advances of certain taxes and insurance premiums, the deficiency (a "Realized Loss") will, in effect, be absorbed first, by the Residual Certificateholders, second, by the Class C Certificateholders (both through the application of the Class C Distribution Amount to fund such deficiency and through a reduction in the Overcollateralization Amount), third, by the Monthly Servicing Fee (so long as AFL is the Servicer), fourth, by the Class B-2 Certificateholders, fifth, by the Class B-1 Certificateholders and sixth, by the Class A-6 Certificateholders, since a portion of the Amount Available equal to such deficiency and otherwise distributable to them will be paid to the Senior Certificateholders. If AFL is no longer the Servicer, then the Monthly Servicing Fee will become senior to all Certificateholders' distributions. "Liquidation Proceeds" means cash (including insurance proceeds) received in connection with the liquidation of defaulted Contracts, whether through repossession, foreclosure sale or otherwise, including any rental income realized from the repossessed Manufactured Home. "Net Liquidation Proceeds" means, as to a Liquidated Contract, all Liquidation Proceeds received on or prior to the last day of the Collection Period in which such Contract became a Liquidated Contract, net of Liquidation Expenses. "Liquidation Expenses" means out-of-pocket expenses (exclusive of any overhead expenses) which are
S-19 incurred by the Servicer in connection with the liquidation of any defaulted Contract, on or prior to the date on which the related Manufactured Home is disposed of, including, without limitation, legal fees and expenses, and any related and unreimbursed expenditures for property taxes, property preservation or restoration of the property to marketable condition. If the Amount Available is not sufficient to cover the entire principal portion of the Senior Formula Distribution Amount due to the Senior Certificateholders or the entire principal portion of the Class A-6 Formula Distribution Amount due to the Class A-6 Certificateholders on a particular Remittance Date, then (i) if the Senior Percentage is less than 100%, the Senior Percentage on future Remittance Dates will be increased and the Class B Percentage on future Remittance Dates will be reduced as a result of such deficiency and (ii) the amount of the deficiency will be carried forward as an amount the Senior Certificateholders or the Class A-6 Certificateholders are entitled to receive on future Remittance Dates, until paid in full. If the Amount Available is sufficient to cover the entire principal portion of the Senior Formula Distribution Amount due to the Senior Certificateholders and the entire principal portion of the Class A-6 Formula Distribution Amount due to the Class A-6 Certificateholders on a particular Remittance Date but is not sufficient to cover the entire principal portion of the Class B-1 Formula Distribution Amount due to the Class B-1 Certificateholders, the amount of the deficiency will be carried forward as an amount that the Class B-1 Certificateholders are entitled to receive on the next Remittance Date. As a result of the subordination of the Class B-1 and the Class B-2 Certificates, the Monthly Servicing Fee (so long as AFL is the Servicer), and the subordination of the Class C and Residual Certificates, the Class A-6 Certificateholders will not absorb (i) losses resulting from Realized Losses or (ii) delinquent payments on the Contracts, at least to the extent that such subordination has not been exhausted. See "Description of the Certificates -- Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates" and "Prepayment and Yield Considerations." As a result of the subordination of the Class B-2 Certificates, the Monthly Servicing Fee (so long as AFL is the Servicer), and the subordination of the Class C and Residual Certificates, the Class B-1 Certificateholders will not absorb (i) losses resulting from Realized Losses or (ii) delinquent payments on the Contracts, at least to the extent that such subordination has not been exhausted. See "Description of the Certificates -- Subordination of Class A-6, Class B-1, Class B-2, Class C and
S-20 Residual Certificates" and "Prepayment and Yield Considerations." As a result of the subordination of the Monthly Servicing Fee (so long as AFL is the Servicer) and of the Class C and Residual Certificates, the Class B-2 Certificateholders will not absorb (i) losses resulting from Realized Losses or (ii) delinquent payments on the Contracts, at least to the extent that such subordination has not been exhausted. See "Description of the Certificates -- Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates" and "Prepayment and Yield Considerations." Final Scheduled Remittance Date........ The Final Scheduled Remittance Date for each Class of the Offered Certificates will be the Remittance Date in . The Final Scheduled Remittance Date has been determined by adding six months to the maturity date of the Contract with the latest stated maturity. Because the rate of distributions in reduction of the Principal Balances of the Offered Certificates will depend on the rate of amortization of the Contracts (including amortization due to prepayments and defaults), the actual final distribution on any Class of Offered Certificates could occur significantly earlier than the Final Scheduled Remittance Date. The rate of payments on the Contracts will depend on their particular characteristics, as well as on interest rates prevailing from time to time and other economic factors, and no assurance can be given as to the actual payment or default experience of the Contracts. [Mandatory Prepayment.................. Of the maximum original Pre-Funding Amount of $ , maximum amounts of $ will be funded from the proceeds of the scale of the Class A Certificates, and may be used to acquire Subsequent Contracts. In the event that, on the 199_ Remittance Date, not all of the $ funded from the proceeds of the sale of the Class A Certificates, has been used to acquire Subsequent Contracts, then the Class A Certificates will be prepaid in part on such date, on a pro rata basis with respect to the Owners of individual Certificates of the related Class, from and to the extent of such remaining amounts.] Optional Termination................... The Servicer has the option to purchase from the Trust all Contracts then outstanding and all other property in the Trust if, among other conditions, on any Remittance Date the Pool Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal Balance. See "Description of the Certificates -- Optional Termination" herein. Auction Sale........................... The Agreement requires that, within ninety days following the first Remittance Date as of which the Pool Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal Balance, if the
S-21 Servicer has not exercised its optional termination right by such date, the Trustee solicit bids for the purchase of all Contracts remaining in the Trust. In the event that satisfactory bids are received as described in the Agreement, the net sale proceeds will be distributed to Certificateholders, in the same order of priority as collections received in respect of the Contracts. If satisfactory bids are not received, the Trustee shall decline to sell the Contracts and shall not be under any obligation to solicit any further bids or otherwise negotiate any further sale of the Contracts. Such sale and consequent termination of the Trust must constitute a "qualified liquidation" of each REMIC established by the Trust under Section 860F of the Internal Revenue Code of 1986, as amended, including, without limitation, the requirement that the qualified liquidation takes place over a period not to exceed 90 days. See "Description of the Certificates -- Auction Sale". Advances............................... The Servicer will be required, not later than each Remittance Date, to deposit into the Certificate Account an amount equal to the Scheduled Payments due, but not collected, with respect to delinquent Contracts during the prior Collection Period, but only if, in its good faith business judgment, the Servicer believes that such amounts will ultimately be recovered on or with respect to the related Contract. Any such amounts so advanced are "Delinquency Advances." See "Description of the Certificates -- Advances" herein. Registration of Offered Certificates... The Offered Certificates initially will be issued in book- entry form. Persons acquiring beneficial ownership interests in such Offered Certificates ("Beneficial Certificate Owner") may elect to hold their interests through The Depository Trust Company ("DTC"), in the United States, or Cedel Bank, societe anonyme ("CEDEL") or the Euroclear System ("Euroclear"), in Europe. Transfers within DTC, CEDEL or Euroclear, as the case may be, will be in accordance with the usual rules and operating procedures of the relevant system. So long as the Offered Certificates are book-entry certificates, such Offered Certificates will be evidenced by one or more Offered Certificates registered in the name of Cede & Co. ("Cede"), as the nominee of DTC or one of the relevant depositories (collectively, the "European Depositories"). Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and counterparties holding directly or indirectly through CEDEL or Euroclear, on the other, will be effected in DTC through Citibank N.A. ("Citibank") or Morgan Guaranty Trust Company of New York ("Morgan"), the relevant depositories of CEDEL or Euroclear, respectively, and each a participating member of DTC. The Offered Certificates will initially be registered in the name of Cede. The interests of such Beneficial Certificate
S-22 Owners will be represented by book-entries on the records of DTC and participating members thereof. No Beneficial Certificate Owner will be entitled to receive a definitive certificate representing such person's interest, except under the limited circumstances described herein. All references herein to any Offered Certificates reflect the rights of Beneficial Certificate Owners only as such rights may be exercised through DTC and its participating organizations for so long as such Offered Certificates are held by DTC. See "Description of the Certificates -- Registration of Offered Certificates" herein. Federal Income Tax Consequences........ One or more elections will be made to treat certain assets of the Trust as one or more REMICs for federal income tax purposes. Each class of the Offered Certificates will be designated as a "regular interest" in a REMIC and a separate class of certificates will be designated as the "residual interest" with respect to each REMIC. Certificateholders that would otherwise report income under a cash method of accounting will be required to include in income interest on the Offered Certificates (including original issue discount, if any) in accordance with an accrual method of accounting. See "Federal Income Tax Consequences" herein and in the Prospectus. ERISA Considerations................... Senior Certificates. Subject to the conditions and discussion set forth herein, the Senior Certificates may be purchased by employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") [after the earlier of (i) the date on which the Funding Period expires and (ii) the date on which the Department of Labor amends the Exemption (as defined below) to permit the use of pre-funding accounts thereunder.] See "ERISA Considerations" herein and in the Prospectus. Subordinate Certificates. Except for an insurance company using assets of its general account, a fiduciary of any employee benefit plan or other plan subject to ERISA and/or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), should not purchase or hold the Subordinate Certificates as such actions may give rise to a transaction prohibited under ERISA or Section 4975 of the Code. See "ERISA Considerations" herein and in the Prospectus. Legal Investment....................... The Offered Certificates (other than the Class B-1 Certificates) at the time of issuance qualify as "mortgage related securities" under the Secondary Mortgage Market Enhancement Act of 1984, as amended ("SMMEA") and, as such, will constitute legal investments for certain types of investors to the extent provided in SMMEA. The Class B-1 Certificates are not "mortgage related securities"
S-23 under SMMEA. Accordingly, many institutions with legal authority to invest in comparably rated securities may not be legally authorized to invest in the Class B-1 Certificates. Investors should consult their own legal advisors in determining whether and to what extent the Offered Certificates (other than the Class B-1 Certificates) constitute legal investments for such investors. See "Legal Investment Matters" in the Prospectus. Ratings................................ It is a condition to the issuance of the Senior Certificates that they be rated " " by (" ") and " " by , (" "). It is a condition to the issuance of the Class A-6 Certificates that they be rated at least " " by and " " by . It is a condition to the issuance of the Class B-1 Certificates that they be rated at least " " by and " " by . The Seller has not requested a rating on the Offered Certificates by any rating agency other than and . However, there can be no assurance as to whether any other rating agency will rate any or all of the Offered Certificates, or if it does, what rating would be assigned by any such other rating agency. A rating on any or all of the Offered Certificates by certain other rating agencies, if assigned at all, may be lower than the rating assigned to such Certificates by either or . See "Ratings" herein. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.
S-24 RISK FACTORS Prospective Offered Certificateholders should consider, among other things, the factors discussed in the Prospectus under "Risk Factors." In addition, prospective Offered Certificateholders should consider the following in connection with the purchase of Offered Certificates: 1. A downturn in economic conditions could cause losses to the Holders. An investment in the Certificates may be affected by, among other things, a downturn in national, regional or local economic conditions. The geographic locations of the Manufactured Homes in the Contract Pool are set forth herein. Regional and local economic conditions are often volatile and, historically, regional and local economic conditions, as well as national economic conditions, have affected the delinquency, loan loss and repossession experience of manufactured housing installment sales contracts. Adverse economic conditions in any of the states with high concentrations could adversely affect the delinquency or loan loss experience of the Contracts. Moreover, regardless of its location, manufactured housing generally depreciates in value. Thus, Certificateholders should expect that, as a general matter, the market value of any Manufactured Home will be lower than the outstanding principal balance of the related Contract. See "The Contract Pool." Sufficiently high delinquencies and liquidation losses on the Contracts in the Contract Pool will have the effect of reducing, and could eliminate, the protection against loss afforded by any credit enhancement supporting any Class of the related Certificates. See "Description of Credit Enhancement" in the Prospectus. If such protection is eliminated, or if no such protection is provided, the holders of such Certificates will bear all risk of loss on the Contracts and must rely on the value of the Manufactured Homes for recovery of the outstanding principal of and unpaid interest on any defaulted Contracts. 2. Security Interests in the Manufactured Homes may not be perfected and the Trust may not realize upon the full amount under the related Contract. On or prior to the Closing Date, AFL will convey the related Contracts to the Seller and the Seller will convey the related Contracts to the Trust. Each Contract is secured by a security interest in a Manufactured Home together with, in the case of Land Secured Contracts, the real estate on which the related Manufactured Home is located. Perfection of security interests in the Manufactured Homes and enforcement of rights to realize upon the value of the Manufactured Homes as collateral for the Contracts are subject to a number of federal and state laws, including the Uniform Commercial Code (the "UCC") as adopted in the states in which the Manufactured Homes are located and such states' certificate of title statutes, but generally not their real estate laws. Under such federal and state laws, a number of factors may limit the ability of a holder of a perfected security interest in Manufactured Homes to realize upon such Manufactured Homes or may limit the amount realized to less than the amount due under the related Contract. See "Certain Legal Aspects of the Contracts." In addition, because of the expense and administrative inconvenience involved, AFL will not amend any certificates of title relating to any Manufactured Home to change the lienholder specified therein to the Trustee, and will not execute any transfer instrument (including, among, other instruments, UCC-3 assignments) relating to any Manufactured Home in favor of the Trustee or note thereon the Trustee's interest. As a result, AFL will remain the lienholder on the certificate of title relating to the Manufactured Home. In some states, in the absence of such an amendment, execution or notation, the assignment to the Trustee of the security interest in the Manufactured Homes located therein may not be effective or such security interest may not be perfected. If any otherwise effectively assigned security interest in favor of the Trustee is not perfected, such assignment of the security interest to the Trustee may not be effective against creditors of AFL to the extent it continues to be specified as lienholder on any certificate of title or as secured party on any UCC filing, or against a trustee in bankruptcy of AFL. Each Contract (other than a Land Secured Contract) will be "chattel paper" as defined in the UCC as in effect in Minnesota (where AFL's executive office is currently located) and the jurisdiction in which the related Manufactured Home was located at origination. Under the UCC as in effect in each such jurisdiction, the sale of chattel paper is treated in a manner similar to perfection of a security interest in chattel paper. Under the Agreement, the Trustee will have possession of the Contracts. In addition, AFL and the Seller will make appropriate filings of UCC-1 financing statements in the office of the Secretary S-25 of State of the State where their principal place of business is located to give notice of the Trustee's ownership of the Contracts. The Trustee's interest in the Contracts could, through the fraud or negligence of the Trustee, be defeated if a subsequent purchaser were able to take physical possession of the Contracts without notice of such assignment. Further, because of the expenses and administrative inconvenience involved, the assignment of mortgages or deeds of trust to the Trustee will not be recorded with respect to the mortgages or deeds of trust (each, a"Mortgage") securing each Land Secured Contract. The failure to record the assignments to the Trustee of the Mortgage securing Land Secured Contracts may result in the sale of such Contracts or the Trustee's rights in the land secured by the Mortgage being ineffective against creditors of AFL or against a trustee in bankruptcy of AFL or against a subsequent purchaser of such Contracts from AFL or Receivables Corp., without notice of the sale to the Trustee. See "The Contract Pool" herein for a description of the programs under which Contracts are originated or purchased by AFL. 3. Federal and State Consumer Protection Laws may limit collection or principal and interest on the Contracts. Numerous federal and state consumer protection laws could adversely affect the interest of the Trust in the Contracts in the Contract Pool. For instance, as described herein under "Certain Legal Aspects of the Contracts -- Consumer Protection Laws," the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), could, under certain circumstances, cap the amount of interest that may be charged on certain Contracts at 6% and may hinder the ability, of the Servicer to foreclose on such Contracts in a timely fashion. In addition, other federal and state consumer protection laws impose requirements on lending under installment sales contracts and installment loan agreements such as the Contracts, and the failure by the lender or seller of goods to comply with such requirements could give rise to liabilities of assignees for amounts due under such agreements and the right of set-off against claims by such assignees. These laws could apply to the Trust as assignee of the related Contracts. AFL will represent and warrant that, as of the Cut-Off Date, each Contract complies with all requirements of law. A breach of any such representation or warranty that materially adversely affects the Trust's interest in any Contract will create an obligation by AFL to repurchase, or at its option substitute another contract for, such Contract, unless such breach is cured within the time period specified in the Agreement. AFL will have no obligation to repurchase any Contract subject to the Relief Act, however. 4. Lack of recourse may increase risk of losses to the Holders. The purchase of the Certificates will be without recourse. See "Description of Credit Enhancement" in the Prospectus. The Certificates will not represent an interest in or obligation of, and the Certificates will not be guaranteed by, AFL or Receivables Corp. or any of their affiliates. In addition, the Certificates will not be insured or guaranteed by any governmental agency or instrumentality. 5. Prepayments and repurchases may adversely affect the yield to maturity of the Certificates. The prepayment experience on the Contracts underlying the Certificates (including prepayments due to liquidations of defaulted Contracts) will affect the average life and the maturity of such Certificates. Prepayments on the Contracts in the Contract Pool may be influenced by a variety of economic, geographic, social and other factors, including repossessions, seasonality and interest rates. Other factors affecting prepayment on the Contracts include changes in housing needs, job transfers and unemployment. See "Prepayment and Yield Considerations" herein. 6. Insolvency of AFL or Receivables Corp. may cause a delay in payment to the Holders. As described herein under "The Contract Pool," each of the Contracts will be conveyed by AFL to Receivables Corp. and by Receivables Corp. to the Trust. Each of AFL and Receivables Corp. intend that their respective conveyance of the Contracts constitute a sale, rather than a pledge of the Contracts to secure its respective indebtedness. However, if any such entity were to become a debtor under the federal bankruptcy code, it is possible that a creditor or trustee in bankruptcy of such entity or such entity as debtor-in-possession may argue that the sale of the Contracts by such entity was a pledge of the Contracts rather than a sale. This position, if presented to or accepted by a court, could result in a delay in or reduction of distributions to the Certificateholders. [7. Lack of Subsequent Contracts could adversely affect the yield to maurity of the Certificates. If the principal amount of eligible Contracts available during the Funding Period and sold to the Trust is less than 100% of the Pre-Funded Amount, the Seller will have insufficient Contracts to sell to the Trust, on the Subsequent Transfer Dates, S-26 thereby resulting in prepayments of principal to Owners of one or more Classes of Class A Certificates as described herein. In addition, any conveyance of Subsequent Contracts is subject to the following conditions, among others: (i) each such Subsequent Contract must satisfy the representations and warranties specified in the Purchase Agreement and the Agreement; (ii) AFL will not select such Subsequent Contracts in a manner that they believe is adverse to the interests of the Class A Certificateholders; (iii) AFL will deliver certain opinions of counsel with respect to the validity of the conveyance of such Subsequent Contracts; and (iv) as of the Subsequent Cut-Off Date, the Contracts at that time, including the Subsequent Contracts to be conveyed by the Seller as of such Subsequent Cut-Off Date, will satisfy the criteria set forth in the Agreement, as described herein under "The Contract Pool". To the extent that amounts on deposit in the Pre-Funding Account have not been fully applied to the purchase of Subsequent Contracts by the Trust by the end of the Funding Period, the Owners of one or more Classes of Class A Certificates will receive a prepayment of principal in an amount equal to the Pre-Funded Amount allocable to such Class and remaining in the Pre-Funding Account following the purchase of any Subsequent Contracts on the first Remittance Date following the Funding Period. Although no assurances can be given, it is anticipated by AFL that the principal amount of Subsequent Contracts sold to the Trust will require the application of substantially all amounts on deposit in the Pre- Funding Account and that there will be no material principal prepayment to the Class A Certificateholders. Each Subsequent Contract must satisfy the eligibility criteria referred to above at the time of its addition. However, Subsequent Contracts may have been originated or purchased by AFL using credit criteria different from those which were applied to the Initial Contracts and may be of a different credit quality. Therefore, following the transfer of Subsequent Contracts to the Trust, the characteristics of the Contracts in the Trust may vary significantly from those of the Initial Contracts. See "The Contract Pool".] THE CONTRACT POOL All of the Contracts to be sold by Receivables Corp. to the Trust will be originated or purchased by AFL. On or prior to the Closing Date, AFL will sell such Initial Contracts to Receivables Corp. On the date of initial issuance of the Offered Certificates, the Trust will acquire the Initial Contracts comprising the Contract Pool from Receivables Corp. [Additional contracts (the "Subsequent Contracts") are intended to be purchased by the Trust from the Seller from time to time on or before , 199_, from funds on deposit in the Pre-Funding Account.] The Initial Contracts and the Subsequent Contracts are referred herein collectively as the "Contracts". [The Subsequent Contracts to be purchased by the Trust, if available, will be originated on or prior to , 199_, sold by AFL to the Seller and then sold by the Seller to the Trust.] The Agreement will provide that the Contracts must in the aggregate conform to certain specified characteristics described below following the conveyance of the Subsequent Contracts. The Trustee will have possession of the Contracts. Each Contract will provide for scheduled payments of principal and interest on specified monthly due dates (each, a "Due Date"). The day of each month constituting the Due Date will vary from Contract to Contract. The scheduled payment due on each monthly Due Date (the "Scheduled Payment") is or will be specified in the Initial Contract or Subsequent Contract, respectively. The Contracts will all be actuarial Contracts. Each Contract will bear interest at a fixed annual percentage rate (the "Contract Rate") and will provide for level payments over the term of such Contract that fully amortize the principal balance of such Initial Contract. The Contract Pool will not contain any "step-up rate" Contracts. The Contract Pool will contain a limited number of Contracts as to which the real estate is either (i) in lieu of a cash down payment on the Manufactured Home ("Land-in-Lieu Contracts"), representing % of the Contract Pool (by aggregate principal balance as of the Cut-off Date) or (ii) taken as collateral against a loan advanced on the related Manufactured Home together with the real estate on S-27 which the Manufactured Home is located ("Land-Home Contracts") (together, "Land Secured Contracts"), representing % of the Contract Pool (by aggregate principal balance as of the Cut-off Date). Under the Agreement, the Manufactured Homes are required to comply with the requirements of certain federal statutes. These statutes generally require the Manufactured Homes to have a minimum of 400 square feet of living space and a minimum width of 102 inches and to be of a kind customarily used at a fixed location. Such statutes also require the Manufactured Homes to be transportable in one or more sections, and to be built on a permanent chassis and designed to be used as dwellings, with or without permanent foundations, when connected to the required utilities. The Manufactured Homes include the plumbing, heating, air conditioning and electrical systems contained therein. Management of AFL estimates that as of the date of origination in excess of % of the Manufactured Homes are used as primary residences by the obligors under the Initial Contracts (each, an "Obligor") secured by such Manufactured Homes. All Contracts will have fixed Contract Rates. As of the Cut-off Date, the Contract Rates on the Initial Contracts ranged % to %. The weighted average Contract Rate as of the Cut-off Date was approximately %. Because the Servicing Fee is subordinated while AFL is the Servicer, the Weighted Average Net Contract Rate as of the Cut-off Date is also %. As of the Cut-off Date, the Initial Contracts had remaining terms to maturity of at least months but not more than months, and original terms to maturity of at least months but not more than months. As of the Cut-off Date, the Initial Contracts had a weighted average remaining term to maturity of approximately months, and a weighted average original term to maturity of approximately months. The average outstanding principal balance of the Initial Contracts as of the Cut-off Date was $ and the outstanding principal balances of the Initial Contracts as of the Cut-off Date ranged from $ to $ . The weighted average loan-to-value ratio for the Initial Contracts at origination was %. "Value" in such calculation, (i) in the case of Manufactured Home Contracts and Land as Additional Collateral Contracts, is equal to the stated cash sale price of such Manufactured Home, including sales and other taxes, plus, to the extent financed, filing and recording fees imposed by law, premiums for related insurance and prepaid finance charges, (ii) in the case of Land-Home Contracts and Land-in-Lieu Contracts, is equal to the sum of Value in (i) above and the appraised value of the land securing the Initial Contract and (iii) in the case of Refinanced Contracts, is equal to the outstanding principal balance of the Contract refinanced at the time such Refinanced Contract was originated. Manufactured homes, unlike site-built homes, generally depreciate in value, and it has been AFL's experience that, upon repossession, the market value of a manufactured home securing a manufactured housing contract is generally lower than the principal balance of the related manufactured housing contract. The Contracts will be secured by Manufactured Homes located in states; approximately % of the Initial Contracts by outstanding principal balance as of the Cut-off Date were secured by Manufactured Homes located in , % in , % in , % in and % in . No other state represented more than % of the Initial Contracts. Approximately % of the Initial Contracts by outstanding principal balance as of the Cut-off Date are secured by Manufactured Homes which were new at the time the related Initial Contracts were originated and approximately % of the Initial Contracts by outstanding principal balance as of the Cut-off Date are secured by Manufactured Homes which were used at the time the related Initial Contracts were originated. All of the Contracts will be conventional Contracts in that they are not insured or guaranteed by any governmental agency or instrumentality. Conveyance of Subsequent Contracts The Agreement permits the Trust to acquire up to $ aggregate principal balance of Subsequent Contracts. Accordingly, the statistical characteristics of the Contract Pool will vary as of any Subsequent Cut-Off Date upon the acquisition of Subsequent Contracts. S-28 The obligation of the Trust to purchase the Subsequent Contracts on a Subsequent Transfer Date is subject to the following requirements: (i) such Subsequent Contract may not be _____ or more days contractually delinquent as of the related Subsequent Cut-Off Date; (ii) the stated term to maturity to such Subsequent Contract may not exceed _____ years; (iii) such Subsequent Contract will be a Manufactured Home Contract or a Land Secured Contract and (iv) following the purchase of such Subsequent Contracts by the Trust, the Contracts in the Contract Pool (including the Subsequent Contracts) (a) will have a weighted average Contract Rate of at least %; (b) will have a weighted average original term to stated maturity of not more than months; (c) will have a weighted average LTV of not more than %; (d) will have no Contract with a principal balance in excess of $ ; (e) will have a concentration not in excess of % by aggregate principal balance; and (f) will have not more than % in aggregate principal balance of Contracts relating to non-owner occupied Manufactured Homes. S-29 Set forth below is a description of certain additional characteristics of the Initial Contracts: Geographical Distribution of Manufactured Homes as of Origination(1)
Aggregate Number of Principal % of Initial Balance Contract Pool Contracts Outstanding By Outstanding As of As of Cut-off Principal Balance As State Cut-off Date Date of Cut-off Date ----- ------------ ------------- -------------------- Alabama...................................... $ % Arizona...................................... Arkansas..................................... California................................... Colorado..................................... Delaware..................................... Florida...................................... Georgia...................................... Idaho........................................ Illinois..................................... Indiana...................................... Iowa......................................... Kansas....................................... Kentucky..................................... Louisiana.................................... Maryland..................................... Michigan..................................... Minnesota.................................... Mississippi.................................. Missouri..................................... Montana...................................... Nebraska..................................... Nevada....................................... New Mexico................................... New York..................................... North Carolina............................... Oklahoma..................................... Oregon....................................... Pennsylvania................................. South Carolina............................... Tennessee.................................... Texas........................................ Utah......................................... Virginia..................................... Washington................................... West Virginia................................ Wisconsin.................................... Wyoming...................................... ------ ------------- --------- Total...................................... $ % ====== ============= =========
- -------------------- (1) Based on billing address of Obligors. S-30 Years of Origination of Initial Contracts
Aggregate Number of Principal % of Initial Balance Contract Pool Contracts Outstanding By Outstanding As of As of Cut-off Principal Balance As Years Cut-off Date Date of Cut-off Date ----- ------------ ------------- -------------------- ......................................... $ % ......................................... ......................................... ------ ----------- ------- Total...................................... $ % ====== =========== =======
Distribution of Original Principal Balances of Initial Contracts(1)
Aggregate % of Number of Principal Contract Pool Initial Balance By Outstanding Contracts Outstanding Principal Balance As of As of Cut-off As of Cut-off Distribution Cut-off Date Date Date ------------ ------------ ------------- ----------------- $ 5,000 or less........................... $ %(2) $ 5,000+ - 10,000............................ $ 10,000+ - 20,000............................ $ 20,000+ - 30,000............................ $ 30,000+ - 40,000............................ $ 40,000+ - 50,000............................ $ 50,000+ - 60,000............................ $ 60,000+ - 70,000............................ $ 70,000+ - 80,000............................ $ 80,000+ - 90,000............................ $ 90,000+ -100,000............................ $100,000+ -110,000............................ $110,000+ -120,000............................ $150,000+...... .............................. Total....................................... ------ ------------ --------- $ % ====== ============ =========
(1) The maximum original Initial Contract principal balance is $ , which represents % of the original principal balance of the Initial Contracts at origination. (2) This percentage is less than 0.01%. S-31 Distribution of Original Loan-to-Value Ratios(1)
Aggregate Number of Principal % of Initial Balance Contract Pool Contracts Outstanding By Outstanding As of As of Cut-off Principal Balance As Distribution Cut-off Date Date of Cut-off Date ------------ ------------ ------------- -------------------- 50% or less.................................. $ % 50.01 - 60%.................................. 60.01 - 70%.................................. 70.01 - 80%.................................. 80.01 - 90%.................................. 90.01 - 100%................................. Total...................................... ------ ----------- ---------- $ % ====== =========== ==========
- ------------------ (1) Determined at the time of loan origination. The definition of "Value" is set forth above under "The Contract Pool". Manufactured Homes, unlike site-built homes, generally depreciate in value, and it should generally be expected, especially with Initial Contracts with high loan-to-value ratios at origination, that at any time after the origination of an Initial Contract the market value of the Manufactured Home securing such Initial Contract may be lower than the outstanding principal balance of such Initial Contract. The original loan-to-value ratio of a Refinanced Contract is determined at the time of origination of such Refinanced Contract for purposes of preparing this table and other statistical information presented herein related to loan-to-value ratios. See "Access Financial Lending Corp. -- Underwriting Guidelines -- Loan-to-Value Ratio" herein. The Contract Pool contained $ in aggregate principal balance of Refinanced Contracts as of the Cut-Off Date. The weighted average original loan-to-value ratio of the Initial Contracts as of the Cut-off Date was approximately %. Contract Rates(1)
Aggregate Number of Principal % of Initial Balance Contract Pool Contracts Outstanding By Outstanding As of As of Cut-off Principal Balance As Contract Rate Cut-off Date Date of Cut-off Date ------------- ------------ ------------- -------------------- 6.01 - 7.00%................................ $ % 7.01 - 8.00%................................ 8.01 - 9.00%................................ 9.01 - 10.00%............................... 10.01 - 11.00%............................... 11.01 - 12.00%............................... 12.01 - 13.00%............................... 13.01 - 14.00%............................... 14.01 - 16.00%............................... (2) ------- --------------- ------------ Total...................................... $ % ======= =============== ===========
- ------------------ (1) The weighted average Contract Rate of the Initial Contracts as of the Cut-off Date was approximately %. (2) This percentage is less than 0.01%. S-32 Remaining Terms to Maturity (in Months)(1)
Aggregate Number of Principal % of Initial Balance Contract Pool Contracts Outstanding By Outstanding As of As of Cut-off Principal Balance As Remaining Terms Cut-off Date Date of Cut-off Date --------------- ------------ -------------- -------------------- 1 - 60..................................... $ % 61 - 84..................................... 85 - 120.................................... 121 - 180.................................... 181 - 240.................................... 241 - 300.................................... 301 - 360.................................... -------- ------------- ---------- Total...................................... $ % ======== ============= ==========
- ------------------ (1) The weighted average remaining term to maturity of the Initial Contracts as of the Cut-off Date was approximately months. Loan Purpose
Aggregate Number of Principal % of Initial Balance Contract Pool Contracts Outstanding By Outstanding As of As of Cut-off Principal Balance As Purpose Cut-off Date Date of Cut-off Date ------- ------------ ------------- -------------------- Purchase..................................... $ % Refinance.................................... ------ ------------- ---------- Total...................................... $ % ====== ============= ==========
Manufactured Home Type
Aggregate Number of Principal % of Initial Balance Contract Pool Contracts Outstanding By Outstanding As of As of Cut-off Principal Balance As Type Cut-off Date Date of Cut-off Date ---- ------------ ------------- -------------------- Single Wide.................................. $ % Double Wide.................................. ----- ----------- --------- Total...................................... $ % ===== =========== =========
S-33 PREPAYMENT AND YIELD CONSIDERATIONS The general prepayment and yield considerations discussed in the Prospectus under "Yield Considerations" are applicable to the Offered Certificates. In addition, prospective Offered Certificateholders should consider the following: The Initial Contracts had maturities at origination ranging from months to months, but may be prepaid in full or in part at any time. The prepayment experience of the Contracts (including prepayments due to liquidations of defaulted Contracts) will affect the weighted average life of the Offered Certificates. Based on AFL's experience with the portfolio of conventional manufactured housing contracts serviced by it, AFL anticipates that a number of Contracts will be prepaid in full prior to their maturity. A number of factors, including homeowner mobility, general and regional economic conditions and prevailing interest rates, may influence prepayments. Natural disasters may also influence prepayments. In addition, repurchases of Contracts on account of certain breaches of representations and warranties will have the effect of prepaying such Contracts and therefore will affect the weighted average life of the Offered Certificates. Most of the Initial Contracts contain provisions that prohibit the owner from selling the Manufactured Home without the prior consent of the holder of the related Initial Contract. Such provisions are similar to "due-on-sale" clauses and may not be enforceable in certain states. See "Certain Legal Aspects of the Contracts -- Transfers of Manufactured Homes; Enforceability of Restrictions on Transfer" herein. Notwithstanding the inclusion of such "due on sale" clauses in the Contract, it is AFL's current policy to permit most sales of Manufactured Homes where the proposed buyer meets AFL's then current underwriting standards and enters into an assumption agreement. See "-- Weighted Average Life of the Offered Certificates" below. The allocation of distributions to the Offered Certificateholders in accordance with the Agreement will have the effect of accelerating the amortization of the Classes of Senior Certificates and delaying the amortization of certain other Classes of Offered Certificates from the amortization that otherwise would be applicable if the principal were distributed pro rata according to the outstanding principal balances of each Offered Certificate. If a purchaser of Offered Certificates purchases them at a discount and calculates its anticipated yield to maturity based on an assumed rate of distributions of principal on the Offered Certificates that is faster than the rate actually realized, such purchaser's actual yield to maturity will be lower than the yield so calculated by such purchaser. See "Description of the Certificates -- Distributions." As described herein under "Description of the Certificates -- Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates" and "-- Losses on Liquidated Contracts," to the extent that, on any Remittance Date, the Amount Available is not sufficient to permit a full distribution of the principal to the Offered Certificateholders, the effect will be to cause the Offered Certificates to be amortized more slowly than they otherwise would have been amortized, and losses on Liquidated Contracts and delinquencies on the Contracts will be borne by the Offered Certificateholders in the manner described thereunder and as described below. The distribution of Accelerated Principal Payments to create and thereafter maintain the Overcollateralization Amount at the Required Overcollateralization Amount will accelerate the amortization of the Non-IO Certificates relative to the amortization of the Contract Pool. It is possible that, under certain scenarios and with respect to certain Remittance Dates, if the Required Overcollateralization Amount is reduced and Overcollateralization Reduction Amounts (as defined herein) are paid to the holders of the Class C Certificates, the holders of the Senior, Class A-6, Class B-1 and Class B-2 Certificates may receive no, or reduced, distributions of principal. See "Description of the Certificates - Class C Distributions, Overcollateralization Amounts." The Servicer (whether or not AFL remains the Servicer) has the option to repurchase the Contracts and any other property constituting the Trust if on any Remittance Date the Pool Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal Balance. See "Description of the Certificates -- Optional Termination" herein. If the Servicer does not exercise such option on the first S-34 Remittance Date on which such option may be exercised, the Trustee will be required to conduct an auction sale as described herein. See "Description of the Certificates -- Auction Sale" herein. Although Contract Rates on the Contracts vary, in the event that, with respect to the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class B-1 and Class B-2 Certificates, a large number of Contracts having Net Contract Rates equal to or higher than the applicable Remittance Rate (without giving effect to the maximum rate) were to prepay while Contracts having Net Contract Rates lower than such Remittance Rate did not prepay, with the result that the interest collections on the remaining Contracts were not sufficient to support such Remittance Rate, then the Remittance Rate for such Class of Certificates would be equal to the weighted average of the Net Contract Rates on each Contract remaining in the Contract Pool. The "Net Contract Rate" is the contractual rate of interest payable under a Contract (the "Contract Rate"), less, if AFL is no longer the Servicer, the Monthly Servicing Fee allocable to such Contract for such Collection Period. Obligors are not required to pay interest on the Contracts after the date of full prepayment of principal or the date of a partial prepayment of principal (to the extent of such partial prepayment). As a result, partial or full prepayments in advance of the related Due Dates for such Contracts in any Collection Period will reduce the amount of interest received from the related Obligors during such Collection Period to less than one month's interest. However, when a Contract is prepaid in full during any Collection Period, but after the Due Date for such Contract in such Collection Period, the effect will be to increase the amount of interest received from the related Obligor during such Collection Period to more than one month's interest. If a sufficient amount of partial prepayments are made or a sufficient number of Contracts are prepaid in full in a given Collection Period in advance of their respective Due Dates, interest received on all of the Contracts during that Collection Period, after netting out the Monthly Servicing Fee (and other expenses of the Trust), may be less than the interest payable on the Senior and/or Subordinate Certificates with respect to such Collection Period. As a result, the Amount Available for the related Remittance Date may not be sufficient to distribute the interest on the Offered Certificates in the full amount set forth herein under "Description of the Certificates -- Distributions on the Certificates" and to make a full distribution of the Formula Principal Distribution Amount to the Senior and/or Subordinate Certificateholders. Although no assurance can be given in this matter, Receivables Corp. does not anticipate that the net shortfall of interest received because of partial prepayments or prepayments in full in any Collection Period would be great enough, in the absence of delinquencies or liquidation losses, to reduce the Amount Available for a Remittance Date below the amount that would have been required to be distributed to Offered Certificateholders on that Remittance Date in the absence of such prepayment interest shortfalls. Because the Contracts are actuarial Contracts, the outstanding principal balances thereof will reduce, for purposes of accrual of interest thereon, by a precomputed amortization amount on each Due Date whether or not the Scheduled Payment for such Due Date is received in advance of or subsequent to such Due Date. Thus, the effect of delinquent Scheduled Payments, even if they are ultimately paid by the Obligor, will be to reduce the yields on such Contracts below their respective Contract Rates (because interest will not have accrued on the principal portion of any Scheduled Payment while it is delinquent). If the Servicer does not make a Monthly Advance with respect to such delinquent Contracts as described herein, the result will be to reduce the effective yield to the Trust derived from such Initial Contracts to a yield below their Contract Rates. Under certain circumstances, such yield reductions could cause the aggregate yield to the Trust derived from the Contract Pool to be insufficient to support the distribution of interest on the Offered Certificates, after netting out other expenses of the Trust. To the extent that on any Remittance Date the Class A-6 Remaining Amount Available, Class B-1 Remaining Amount Available or Class B-2 Remaining Amount Available is not sufficient to pay to the holders of the Class A-6 Certificates, Class B-1 Certificates or Class B-2 Certificates, respectively, all payments of interest to which such Certificateholders are entitled on such Remittance Date, the Trustee will withdraw the amount of such deficiency from the Certificate Account from funds, if any, which would otherwise constitute a portion of the Amount Available for the following Remittance Date and distribute such funds to the Class A-6, Class B-1 and Class B-2 Certificateholders, as the case may be. S-35 In such event, the Amount Available to be distributed to all Certificateholders, including the holders of the Senior Certificates, on the next Remittance Date will be reduced by such amount. The yield to Offered Certificateholders will be below that otherwise produced by the applicable remittance rates because, while, in the absence of losses or delinquencies, one month's interest on the Contracts will be collected during each Collection Period, the portion of such interest to which the Offered Certificateholders are entitled will not be distributed until the ____ day (or, if such day is not a business day, the next business day) of the month following the Collection Period. [Mandatory Prepayment Of the maximum original Pre-Funding Amount of $ , maximum amounts of $ will be funded from the proceeds of the sale of the Class A Certificates, and may be used to acquire Subsequent Contracts. In the event that, on the 199_ Payment Date, not all of the $ funded from the proceeds of the sale of the Class A Certificates, has been used to acquire Subsequent Contracts, then the Class A Certificates will be prepaid in part on such date, on a pro rata basis with respect to the Owners of individual Certificates, from and to the extent of such remaining amounts. Although no assurances can be given, it is anticipated by AFL that the principal amount of Subsequent Contracts sold to the Trust will require the application of substantially all the amount on deposit in the Pre-Funding Account and that there should be no material principal prepaid to the Class A Certificateholders.] Weighted Average Lives of the Offered Certificates The following information is given solely to illustrate the effect of prepayments of the Contracts on the weighted average lives of the Offered Certificates under the stated assumptions and is not a prediction of the prepayment rate that might actually be experienced by the Contracts. Weighted average life refers to the average amount of time from the date of issuance of a security until each dollar of principal of such security will be repaid to the investor. The weighted average life of an Offered Certificate is determined by (i) multiplying the amount of cash distributions in reduction of the Principal Balance of such Certificate by the number of years from the date of issuance of such Certificate to the stated Remittance Date, (ii) adding the results, and (iii) dividing the sum by the Original Principal Balance of such Certificate. The weighted average life of the Offered Certificates will be affected by the rate at which principal on the Contracts is paid. Principal payments on Contracts may be in the form of scheduled amortization or prepayments (for this purpose, the term "prepayment" includes repayments (other than from scheduled amortization) and liquidations due to default or other dispositions of Contracts). Prepayments on Contracts may be measured by a prepayment standard or model. The model used in this Prospectus Supplement ("Prepayment Model") is based on an assumed rate of prepayment each month of the then unpaid principal balance of a pool of new contracts. 100% of the Prepayment Model assumes constant prepayment rates of 3.7% per annum of the then unpaid principal balance of such Contracts in the first month of the life of the Contracts and an additional 0.1% per annum in each month thereafter until the 24th month. Beginning in the 24th month and in each month thereafter during the life of the Contracts, 100% of the Prepayment Model assumes a constant prepayment rate of 6% per annum. As used in the following table, "0% of the Prepayment Model" assumes no prepayments on the Contracts; "75% of the Prepayment Model" assumes the Contracts will prepay at rates equal to 75% of the Prepayment Model assumed prepayment rates; "100% of the Prepayment Model" assumes the Contracts will prepay at rates equal to 100% of the Prepayment Model assumed prepayment rates; "150% of the Prepayment Model" assumes the Contracts will prepay at rates equal to 150% of the Prepayment Model assumed prepayment rates; "200% of the Prepayment Model" assumes the Contracts will prepay at rates equal to 200% of the Prepayment Model assumed prepayment rates; and "300% of the Prepayment Model" assumes the Contracts will prepay at rates equal to 300% of the Prepayment Model assumed prepayment rates. S-36 There is no assurance, however, that prepayments of the Contracts will conform to any level of the Prepayment Model, and no representation is made that the Contracts will prepay at the prepayment rates shown or any other prepayment rate. The rate of principal payments on pools of manufactured housing contracts is influenced by a variety of economic, geographic, social and other factors, including the level of interest rates and the rate at which manufactured homeowners sell their manufactured homes or default on their contracts. Other factors affecting prepayment of such contracts include changes in obligors' housing needs, jobs transfers, unemployment and obligors' net equity in the manufactured homes. In the case of mortgage loans secured by site-built homes, in general, if prevailing interest rates fall significantly below the interest rates on such mortgage loans, the mortgage loans are likely to be subject to higher prepayments rates than if prevailing interest rates remained at or above the rates borne by such mortgage loans. Conversely, if prevailing interest rates rise above the interest rates on such mortgage loans, the rate of prepayment would be expected to decrease. In the case of manufactured housing contracts, however, because the outstanding principal balances are, in general, much smaller than mortgage loan balances and the original term to maturity of each such contract is generally shorter, the reduction or increase in the size of the monthly payments on contracts of the same maturity and principal balance arising from a change in the interest rate there on is generally much smaller. Consequently, changes in prevailing interest rates may not have a similar effect, or may have a similar effect, but to a smaller degree, on the prepayment rates on manufactured housing contracts. The percentages and weighted average lives in the following tables were determined assuming that (i) scheduled interest and principal payments on the Contracts are received in a timely manner and prepayments are made at the indicated percentages of the Prepayment Model set forth in the tables; (ii) the Servicer does not exercise its right of optional termination described above; (iii) the Contracts, as of the Cut-off Date, will be grouped into eight groups having the additional characteristics set forth in the table entitled 'Assumed Contract Characteristics' below; (iv) the Original Principal Balance and Remittance Rate of each Class of Certificates is as described herein; (v) no interest shortfalls will arise in connection with prepayment in full of the Contracts; (vi) there will be no losses on the Contract Pool; (vii) a servicing fee of % per annum will be paid to the Servicer after distribution on the Offered Certificates; (viii) amounts, including Accelerated Principal Payments, will be distributed on account of each class of Certificates in accordance with the payment priorities described herein; (ix) distributions are made on the Certificates on the 15th day of each month commencing on , (x) the Closing Date for the issuance of the Certificates is and (xi) the Class B-2 Remittance Rate is %. The tables assume that there are no losses or delinquencies on the Contracts. No representation is made that losses or delinquencies on the Contracts will be experienced at the rate assumed in the preceding sentence or at any other rate. Assumed Contract Characteristics
Original Remaining Principal Term to Maturity Term to Maturity Pool Balance Contract Rate (Months) (Months) - ---------------- --------- ------------- ---------------- ---------------- 1.............. $ % 2.............. 3.............. 4.............. 5.............. 6.............. 7.............. 8.............. --------- $ =========
Since the tables were prepared on the basis of the assumptions in the preceding paragraph, there are discrepancies between the characteristics of the actual Contracts and the characteristics of the S-37 Contracts assumed in preparing the tables. Any such discrepancy may have an effect upon the percentages of the Original Class A-1 Principal Balance, Original Class A-2 Principal Balance, Original Class A-3 Principal Balance, Original Class A-4 Principal Balance, Original Class A-5 Principal Balance, Original Class A-6 Principal Balance and Original Class B-1 Principal Balance outstanding and weighted average lives of such Certificates set forth in the tables. In addition, since the actual Contracts and the Trust have characteristics which differ from those assumed in preparing the tables set forth below, the distributions of principal on the Senior Certificates may be made earlier or later than indicated in the tables. It is not likely that Contracts will prepay at any constant percentage of the Prepayment Model to maturity or that all Contracts will prepay at the same rate. In addition, the diverse remaining terms to maturity of the Contracts (which include recently originated Contracts) could produce slower distributions of principal than indicated in the tables at the various percentages of the Prepayment Model specified even if the weighted average remaining term to maturity of the Contracts is months. Investors are urged to make their investment decisions on a basis that includes their determination as to anticipated prepayment rates under a variety of the assumptions discussed herein. Based on the foregoing assumptions, the following tables indicate the resulting weighted average lives of the Offered Certificates and set forth the percentage of the Original Class A-1 Balance, Original Class A-2 Principal Balance, Original Class A-3 Principal Balance, Original Class A-4 Principal Balance, Original Class A-5 Principal Balance, Original Class A-6 Principal Balance and Original Class B-1 Principal Balance that would be outstanding after each of the dates shown at the indicated percentages of the Prepayment Model. [Remainder of page intentionally left blank] S-38 Percent of the Original Class A-1 Principal Balance at the Respective Percentages of the Prepayment Model Prepayments (% of Prepayment Model)
Date 0% 75% 100% 150% 200% 300% - ---- -- --- ---- ---- ---- ---- Initial Percentage....... Weighted Average Life (1) (years)...............
(1) The weighted average life of a Class A-1 Certificate is determined by (i) multiplying the amount of cash distributions in reduction of the principal balance of such Certificate by the number of years from the date of issuance of such Class A-1 Certificate to the stated Remittance Date, (ii) adding the results, and (iii) dividing the sum by the initial principal balance of such Class A-1 Certificate. S-39 Percent of the Original Class A-2 Principal Balance at the Respective Percentages of the Prepayment Model Prepayments (% of Prepayment Model)
Date 0% 75% 100% 150% 200% 300% - ---- -- --- ---- ---- ---- ---- Initial Percentage Weighted Average Life (1) (years)
(1) The weighted average life of a Class A-2 Certificate is determined by (i) multiplying the amount of cash distributions in reduction of the principal balance of such Certificate by the number of years from the date of issuance of such Class A-2 Certificate to the stated Remittance Date, (ii) adding the results, and (iii) dividing the sum by the initial principal balance of such Class A-2 Certificate. S-40 Percent of the Original Class A-3 Principal Balance at the Respective Percentages of the Prepayment Model Prepayments (% of Prepayment Model)
Date 0% 75% 100% 150% 200% 300% - ---- -- --- ---- ---- ---- ---- Initial Percentage Weighted Average Life (1) (years)
(1) The weighted average life of a Class A-3 Certificate is determined by (i) multiplying the amount of cash distributions in reduction of the principal balance of such Certificate by the number of years from the date of issuance of such Class A-3 Certificate to the stated Remittance Date, (ii) adding the results, and (iii) dividing the sum by the initial principal balance of such Class A-3 Certificate. * This figure is less than 0.5% but greater than 0%. S-41 Percent of the Original Class A-4 Principal Balance at the Respective Percentages of the Prepayment Model Prepayments (% of Prepayment Model)
Date 0% 75% 100% 150% 200% 300% - ---- -- --- ---- ---- ---- ---- Initial Percentage Weighted Average Life (1) (years)
(1) The weighted average life of a Class A-4 Certificate is determined by (i) multiplying the amount of cash distributions in reduction of the principal balance of such Certificate by the number of years from the date of issuance of such Class A-4 Certificate to the stated Remittance Date, (ii) adding the results, and (iii) dividing the sum by the initial principal balance of such Class A-4 Certificate. S-42 Percent of the Original Class A-5 Principal Balance at the Respective Percentages of the Prepayment Model Prepayments (% of Prepayment Model)
Date 0% 75% 100% 150% 200% 300% - ---- -- --- ---- ---- ---- ---- Initial Percentage Weighted Average Life (1) (years)
(1) The weighted average life of a Class A-5 Certificate is determined by (i) multiplying the amount of cash distributions in reduction of the principal balance of such Certificate by the number of years from the date of issuance of such Class A-5 Certificate to the stated Remittance Date, (ii) adding the results, and (iii) dividing the sum by the initial principal balance of such Class A-5 Certificate. S-43 Percent of the Original Class A-6 Principal Balance at the Respective Percentages of the Prepayment Model Prepayments (% of Prepayment Model)
Date 0% 75% 100% 150% 200% 300% - ---- -- --- ---- ---- ---- ---- Initial Percentage Weighted Average Life (1) (years)
(1) The weighted average life of a Class A-6 Certificate is determined by (i) multiplying the amount of cash distributions in reduction of the principal balance of such Certificate by the number of years from the date of issuance of such Class A-6 Certificate to the stated Remittance Date, (ii) adding the results, and (iii) dividing the sum by the initial principal balance of such Class A-6 Certificate. S-44 Percent of the Original Class B-1 Principal Balance at the Respective Percentages of the Prepayment Model Prepayments (% of Prepayment Model)
Date 0% 75% 100% 150% 200% 300% - ---- -- --- ---- ---- ---- ---- Initial Percentage Weighted Average Life (1) (years)
(1) The weighted average life of a Class B-1 Certificate is determined by (i) multiplying the amount of cash distributions in reduction of the principal balance of such Certificate by the number of years from the date of issuance of such Class B-1 Certificate to the stated Remittance Date, (ii) adding the results, and (iii) dividing the sum by the initial principal balance of such Class B-1 Certificate. * This figure is less than 0.5% but greater than 0.0%. S-45 ACCESS FINANCIAL LENDING CORP. General Access Financial Lending Corp. ("AFL"), a Delaware corporation, provides housing finance programs to consumers throughout the United States through its Mortgage Lending and Manufactured Housing Programs. AFL is the successor by merger of Access Financial Lending Corp., a Delaware corporation (formerly Equicon Corporation), whose principal business was the purchase of non-conforming mortgages, and Access Financial Corp., whose principal business was the retail financing of manufactured housing. The merger occurred on July 1, 1996. The Company is a wholly-owned subsidiary of Access Financial Holding Corp. ("AFH"), which is a Delaware corporation and wholly-owned subsidiary of Cargill Financial Services Corporation. AFH was formed in January 1996 to facilitate the continued growth of the housing finance business. The Company maintains its principal offices at 400 Highway 169 South, Suite 400, St. Louis Park, Minnesota 55426-0365. AFL is engaged in the business of, among other things, purchasing, originating, selling and servicing installment sales contracts and installment loan agreements for manufactured housing (hereinafter referred to as "contracts" or "manufactured housing contracts"). AFL purchases and originates manufactured housing contracts through regional offices throughout the United States, servicing states. In addition to its purchases of manufactured housing contracts from dealers, since August 1995, AFL has originated certain contracts through brokers. Each broker will solicit potential obligors to refinance contracts on used manufactured homes with AFL. All broker-originated contracts must meet AFL's underwriting criteria, as described below. Underwriting Policies General. All manufactured housing contracts that are purchased by AFL from dealers or originated by AFL through a broker are written on forms provided by AFL and are purchased or underwritten, as the case may be, on an individually approved basis. With respect to each retail manufactured housing contract to be purchased from a dealer or submitted by a broker and underwritten, as the case may be, AFL's general practice is to have the dealer or broker submit the customer's credit application, manufacturer's invoice (if the contract is for a new home) and certain other information relating to the contract to the applicable regional office of AFL. Personnel at the regional office make an analysis of the creditworthiness of the customer and of other aspects of the proposed transaction. If the creditworthiness of the customer and other aspects of the transaction are approved by the regional office, AFL purchases the contract after the manufactured home is delivered and set up. Because manufactured homes generally depreciate in value, AFL's management believes that the creditworthiness of a potential obligor under a manufactured housing contract should be the most important criterion in determining whether to approve the purchase or origination of such manufactured housing contract. In this regard, AFL uses an underwriting guideline matrix based upon each applicant's credit history, residence history, employment history, debt-to-income ratio and down payment percentage. Although, with respect to certain of these criteria, AFL has minimum requirements, AFL management does not believe that these minimum requirements are themselves generally sufficient to warrant a credit approval of an applicant. Thus, there were and are no requirements on the basis of which, if they are met, credit is routinely approved, and if they are not met, credit is routinely denied. Rather, if an applicant has a low rating with respect to one of the criteria mentioned above, there generally must be a compensating higher rating with respect to other items in order for such applicant to be approved. In S-46 addition, in certain cases, credit applications are approved even if certain of the minimum criteria are not met. The ultimate decision to approve or reject a credit application is thus the result of a judgment made by either regional management or AFL senior management. AFL's policy is to approve or reject each credit application within 72 hours of receipt. Thus, there is generally less time for credit investigation than is the case, for instance, with loans for site-built homes. Although AFL's management believes that the 72 hour period for approval or rejection of each credit application is in line with industry practice, no assurance can be given that any credit application that was approved in 72 hours would have been approved if a longer period had been provided for credit investigation. The qualifications of all regional office personnel authorized to approve or reject credit applications are reviewed by the President and/or the Chief Executive Officer of AFL. All such personnel have certain lending limits applicable to their approval authority. AFL has no set qualifications for any employees to whom authority to approve or reject credit applications may be delegated. The credit review and approval practices of each regional office are subject to internal reviews and audits that, through sampling, examine the nature of the verification of credit histories, residence histories, employment histories and debt-to-income ratios of the applicants and evaluate the credit risks associated with the contracts purchased through such regional office by rating the obligors on such contracts according to their credit histories, residence histories, employment histories, debt-to-income ratios and down payment percentage. Selection of underwriting files for review is generally made by the personnel performing the examination, without prior knowledge on the part of regional office personnel of the files to be selected for review. However, AFL has no requirement that any specific random selection procedures be followed, and no assurance can be given that the files reviewed in any examination process are representative of the contract originations in the related regional office. In addition, no statistical analysis is performed on the results of any such examination of underwriting files. AFL currently purchases or originates only conventional manufactured housing contracts (that is, contracts that are not insured or guaranteed by a governmental agency or instrumentality). Underwriting policies for the origination or purchase on an individual basis of manufactured housing contracts are established by AFL's management and are applicable to all regional offices in AFL's manufactured housing regional office system. Except as described above, during the period in which any Contracts were originated or purchased on an individual basis by AFL there were no significant changes in the aspects of such policies that are described above. S-47 Certain Origination Statistics. The volume of manufactured housing contracts originated by AFL or purchased by AFL from dealers on an individual basis for the periods indicated below and certain other information at the end of such periods are as follows: S-48 Contracts Originated or Purchased on an Individual Basis
Months Months Ended Ended -------- -------- (Dollars in Thousands) Principal balance of contracts purchased..................... $ $ Number of contracts purchased................................ Average contract size(1)..................................... $ $ Average interest rate(1)(2).................................. % % Number of regional offices(3)................................
(1) As of period end. (2) Weighted average gross coupon. (3) Includes regional offices originating or purchasing manufactured housing contracts as of the end of the time period. Servicing AFL services all of the manufactured housing contracts that it purchases or originates. AFL plans to retain servicing responsibilities with respect to contracts sold by it. Generally, such servicing responsibilities are also carried out through AFL's centralized servicing facility and regional offices. Servicing responsibilities include collecting principal and interest payments, taxes, insurance premiums and other payments from obligors and, where such contracts have been sold, remitting principal and interest payments to the holders thereof, to the extent such holders are entitled thereto. Collection procedures include repossession and resale of manufactured homes securing defaulted contracts and, if deemed advisable by AFL, entering into workout arrangements with obligors under certain defaulted contracts. Although decisions as to whether to repossess any manufactured home are made on an individual basis, AFL's general policy is to institute repossession procedures promptly after AFL personnel determine that it is unlikely that a defaulted contract will be brought current, and thereafter to diligently pursue the resale of such manufactured homes if the market is favorable. In addition, AFL may enter into arrangements, pursuant to which it will service manufactured housing contracts held by other entities. Such contracts would not be purchased by AFL or sold to such other entities by AFL. The following tables show the size of the portfolio of manufactured housing contracts originated and serviced by AFL, together with certain delinquency, loan loss and liquidation experience on the dates indicated: Size of Serviced Portfolio
As of As of (1) --------- ---------- (Dollars in Thousands) Unpaid principal balance of contracts being serviced.... $ $ Average unpaid principal balance............................ $ $ Number of contracts being serviced.........................
(1) S-49 Delinquency Experience
As of As of ----------------- --------------------- (Dollars in Thousands) Number of Contracts Outstanding(1)................................. Number of Contracts Delinquent:(2) 30 - 59 Days................................................... 60 - 89 Days................................................... 90 Days or More................................................ Total Contracts Delinquent......................................... Delinquencies as a Percentage of Contracts Outstanding(3).......... % %
(1) Excludes contracts already held in repossession. (2) The period of delinquency is based on the number of days payments are contractually past due (assuming 30-day months). (3) As a percentage of the total number of contracts outstanding as of period end. Loan Loss and Repossession Experience
For the For the Nine Fiscal Year Months Ending End Ending , , (1) ------------- ---------------- (Dollars in Thousands) Number of Contracts Serviced(1)................................ Principal Balance of Contracts Serviced(1)..................... $ $ Contract Liquidations(2)....................................... % % Net Losses: Dollars(3)................................................. $ $ Percentage(4).............................................. % %
(1) As of period end. Includes contracts already in repossession and stage funding of Land Home contracts. (2) As a percentage of the total number of contracts being serviced as of period end. The percentage for the months ending is not annualized. (3) The calculation of net loss on liquidated contracts included unpaid interest to the date of repossession and all expenses of repossession and liquidation. The dollar amount for the months ending is not annualized. (4) As a percentage of the aggregate principal balance of contracts being serviced as of period end. The percentage for the months ending is not annualized. The data presented in the foregoing tables is for illustrative purposes only. S-50 DESCRIPTION OF THE CERTIFICATES The Offered Certificates will be issued pursuant to the Agreement. A form of the Agreement will be made available to prospective investors upon request (made to AFL at the address specified in the Prospectus under "Incorporation of Certain Documents by Reference") and will be filed with the Securities and Exchange Commission after the initial issuance of the Certificates as an exhibit to a Current Report on Form 8-K. Reference is made to the Prospectus for additional information regarding the terms and conditions of the Agreement. Set forth below are descriptions of the specific terms and provisions pursuant to which the Offered Certificates will be issued. The following does not purport to be complete and are subject to, and are qualified in their entirety by reference to, the provisions of the Agreement. When particular provisions or terms used in the Agreement are referred to, the actual provisions (including definitions of terms) are incorporated by reference. General The Offered Certificates initially will be issued in book-entry form. Persons acquiring beneficial ownership interests in such Offered Certificates ("Beneficial Certificate Owner") may elect to hold their interests through The Depository Trust Company ("DTC"), in the United States, or Cedel Bank, societe anonyme ("CEDEL") or the Euroclear System ("Euroclear"), in Europe. Transfers within DTC, CEDEL or Euroclear, as the case may be, will be in accordance with the usual rules and operating procedures of the relevant system. So long as the Offered Certificates are book-entry certificates, such Offered Certificates will be evidenced by one or more Offered Certificates registered in the name of Cede & Co. ("Cede"), as the nominee of DTC or one of the relevant depositories (collectively, the "European Depositories"). Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and counterparties holding directly or indirectly through CEDEL or Euroclear, on the other, will be effected in DTC through Citibank N.A. ("Citibank") or Morgan Guaranty Trust Company of New York ("Morgan"), the relevant depositories of CEDEL or Euroclear, respectively, and each a participating member of DTC. The Offered Certificates will initially be registered in the name of Cede. The interests of such Beneficial Certificate Owners will be represented by book-entries on the records of DTC and participating members thereof. No Beneficial Certificate Owner will be entitled to receive a definitive certificate representing such person's interest, except under the limited circumstances described herein. All references herein to any Offered Certificates reflect the rights of Beneficial Certificate Owners only as such rights may be exercised through DTC and its participating organizations for so long as such Offered Certificates are held by DTC. See " -- Registration of Offered Certificates" below. The Percentage Interest of a Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 Certificate or Class B-1 Certificate is the percentage obtained from dividing the original denomination of such Certificate by the Original Class A-1 Principal Balance, the Original Class A-2 Principal Balance, the Original Class A-3 Principal Balance, the Original Class A-4 Principal Balance, the Original Class A-5 Principal Balance, the Original Class A-6 Principal Balance or the Original Class B-1 Principal Balance, as appropriate. Definitive Senior Certificates, if issued, will be transferable and exchangeable at the corporate trust office of the Trustee at its Corporate Trust Department in New York or, if it so elects, at the office of an agent in New York, New York. No service charge will be made for any registration of exchange or transfer, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge. The Class B-2 and Class C Certificates are not being offered hereby. The Trust will also issue a residual class in each REMIC created by the Trust (the "Residual Certificates") which are not being offered hereby and will initially be retained by the Seller. The Senior Certificates, the Class A-6 Certificates, the Class B-1 Certificates, the Class B-2 Certificates, the Class C Certificates and the Residual Certificates are collectively referred to as the "Certificates." The Trust includes (i) the Contract Pool, including certain rights to receive payments due on the Contracts on and after the Cut-off Date, (ii) the amounts held from time to time in the "Certificate S-51 Account" (as described herein under " -- Payment on Contracts; Certificate Account") maintained by the Trustee pursuant to the Agreement, [(iii) the amounts held from time to time in the "Pre-Funding Account" maintained by the Trustee pursuant to the Agreement,] (iv) any property which initially secured a Contract and which is acquired in the process of realizing thereon and (v) the obligation of AFL under certain conditions, to repurchase Contracts sold by it with respect to which certain representations and warranties have been breached and not cured. [On the Closing Date, AFL will convey the Initial Contracts to Receivables Corp. and Receivables Corp. will convey the Initial Contracts to the Trust. See "The Contract Pool" herein. Pursuant to the Agreement, following the initial Cut-Off Date, the Trust will be obligated to purchase from time to time on or before 199_, subject to the availability of Subsequent Contracts which will be originated on or before 199_, and acquired by the Seller from AFL for subsequent sale to the Trust pursuant to a Purchase Agreement between the Seller and the Trust. The aggregate principal amounts of Subsequent Contracts which may be acquired by the Trust is $ . In connection with each purchase of Subsequent Contracts, the Trust will be required to pay to the Seller a cash purchase price of 100% of the principal amount thereof from the Pre-Funding Account. Under the Agreement, AFL will be obligated to sell Subsequent Contracts to the Seller for sale to the Trust, and the Trust will be obligated, subject to the satisfaction of certain conditions set forth therein to purchase such Subsequent Contracts. AFL will designate as a Subsequent Cut-Off Date the first day of the month in which the related Subsequent Contracts are conveyed to the Trust. The Trust may purchase the Subsequent Contracts only from the Seller and not from any other person.] AFL, as Servicer, will service the Contracts pursuant to the Agreement. The Contracts will be held by the Trustee. Distributions of principal and interest to the holders of the Offered Certificates will be made on the ____ day of each month, or, if such day is not a business day, the next succeeding business day (each, a "Remittance Date") beginning in , to the persons in whose names the Offered Certificates are registered at the close of business on the last business day of the month preceding the month in which such distribution payment is made (the "Record Date"). Representations and Warranties AFL will make certain warranties with respect to each Contract as of the Closing Date, including that: (a) as of the Cut-off Date the most recent scheduled payment was made or was not delinquent more than 59 days; (b) no provision of a Contract has been waived, altered or modified in any respect, except by instruments or documents contained in the related Contract file; (c) each Contract is a legal, valid and binding obligation of the Obligor and is enforceable in accordance with its terms (except as may be limited by laws affecting creditors' rights generally); (d) no Contract is subject to any right of rescission, set-off, counterclaim or defense; (e) each Manufactured Home securing a Contract is covered by hazard insurance; (f) each Contract has been originated by a manufactured housing dealer or AFL in the ordinary course of such dealer's or AFL's business and, if originated by a manufactured housing dealer, was purchased by AFL in the ordinary course of business; (g) no Contract was originated in or is subject to the laws of any jurisdiction whose laws would make unlawful the transfer of the Contract or an interest therein to the Trust; (h) each Contract complies with all requirements of law; (i) no Contract has been satisfied, subordinated in whole or in part or rescinded and the Manufactured Home securing the Contract has not been released from the lien of the Contract in whole or in part; (j) each Contract creates a valid and enforceable first priority security interest in favor of AFL in the Manufactured Home covered thereby and, with respect to each Land Secured Contract, the lien created thereby has been recorded or will be recorded within six months, and such security interest or lien has been assigned by AFL; (k) all parties to each Contract had capacity to execute such Contract; (l) prior to the transfer of the Contracts by AFL, AFL had good and marketable title to each Contract free and clear of any encumbrance, equity, loan, pledge, charge, claim or security interest, and was the sole owner and had full right to transfer such Contract; (m) as of the Cut-off Date, there was no default, breach, violation or event permitting acceleration under any Contract (except for payment delinquencies permitted by clause (a) above), no event which with notice and the expiration of any grace or cure period would constitute a default, breach, S-52 violation or event permitting acceleration under such Contract, and AFL has not waived any of the foregoing; (n) as of the Closing Date there were no liens or claims which have been filed for work, labor or materials affecting a Manufactured Home or any related real property securing a Contract, which are or may be liens prior or equal to the lien of the Contract; (o) each Contract is a fully-amortizing loan with a fixed Contract Rate and provides for level payments over the term of such Contract; (p) each Contract contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for realization against the collateral of the benefits of the security; (q) the description of each Contract set forth in the list of Contracts delivered to the Trustee is true and correct; (r) there is only one original of each Contract and each Contract (other any Land Secured Contract) constitutes chattel paper within the meaning of the applicable Uniform Commercial Code; (s) none of the Contracts had a loan-to-value ratio at origination greater than ____________________; (t) the principal balance of each Refinanced Contract at the time of origination did not exceed the then outstanding principal balance of the Contract refinanced thereby together with certain insurance and refinancing costs; (u) to the best knowledge of AFL, not less than 95% of the Contract Pool relates to Manufactured Homes which were the related Obligors' primary residence at the time of origination; (v) the related Manufactured Home (other than any Manufactured Home relating to a Land-Home Contract) is not considered or classified as part of the real estate on which it is located under the laws of the jurisdiction in which it is located, and as of the Closing Date such Manufactured Home was free of damage and in good repair and (w) each Contract is a "qualified mortgage" under Section 860G(a)(3) of the Code and each Manufactured Home is "manufactured housing" within the meaning of Section 25(e)(10) of the Code. Subject to AFL's option to effect a substitution as described in the next paragraph, AFL will be obligated to repurchase for the Repurchase Price (as defined below) any Contract on the first business day after the first Determination Date which is more than 90 days after AFL becomes aware, or AFL's receipt of written notice from the Trustee or the Servicer, of a breach of any representation or warranty of AFL that materially adversely affects the Trust's interest in any Contract if such breach has not been cured. The Repurchase Price for any Contract will be the remaining principal amount outstanding on such Contract on the date of repurchase plus accrued and unpaid interest thereon at its Contract Rate to the end of the related Due Date. In lieu of purchasing a Contract as specified in the preceding paragraph, during the two-year period following the Closing Date, AFL may, at its option, substitute an Eligible Substitute Contract (as defined below) for the Contract that it is otherwise obligated to repurchase (referred to herein as the "Replaced Contract"). An Eligible Substitute Contract is a Contract that (a) as of the date of its substitution, satisfies all of the representations and warranties, (b) after giving effect to the scheduled payment due in the month of such substitution has a Scheduled Principal Balance that is not greater than the Scheduled Principal Balance of the Replaced Contract, (c) has a Contract Rate that is at least equal to the Contract Rate of the Replaced Contract and (d) has a remaining term to maturity that is not greater than the remaining term to maturity of the Replaced Contract. AFL will be required to deposit in the Certificate Account cash in the amount, if any, by which the Scheduled Principal Balance of the Replaced Contract exceeds the Scheduled Principal Balance of the Contract being substituted. Payments on Contracts; Certificate Account The Trustee will initially establish and maintain an account (the "Certificate Account") at a depository institution organized under the laws of the United States or any state, the deposits of which are insured to the full extent permitted by law by the Federal Deposit Insurance Corporation (the "FDIC") whose commercial paper, long-term deposits or long-term unsecured senior debt has a rating of F-1 by Fitch and P-1 by Moody's in the case of commercial paper or in one of the two highest rating categories by Fitch and Moody's in the case of long-term deposits or long-term unsecured senior debt, and which is subject to examination by federal or state authorities or a depository institution otherwise acceptable to Fitch and Moody's (an "Eligible Institution"). The funds in the Certificate Account are required to be invested in Eligible Investments that will mature not later than the business day preceding the applicable Remittance Date. "Eligible Investments" include, obligations of the United States or of any agency thereof backed by the full faith and credit of the United States; certificates S-53 of deposit, time deposits and bankers' acceptances sold by eligible financial institutions; commercial paper rated F-1+ by Fitch and P-1 by Moody's; and other obligations acceptable to Fitch and Moody's. All payments in respect of principal and interest on the Contracts received by the Servicer (exclusive of Scheduled Payments due prior to the Cut-off Date), including Liquidation Proceeds (net of Liquidation Expenses), are required to be paid into the Certificate Account not later than the second business day following receipt thereof. Amounts received as late payment fees, extension fees, assumption fees or similar fees may be retained by the Servicer as part of its servicing fees. See " -- Servicing Compensation" herein. In addition, the amount paid by AFL for any Contract repurchased as a result of a breach of a representation or warranty under the Agreement, and amounts required to be deposited upon substitution of an Eligible Substitute Contract because of a breach of a representation or warranty (which amounts will be treated as partial principal prepayments) are required to be paid in the Certificate Account. [On each Remittance Date, the Trustee shall withdraw from the Pre-Funding Account any earnings received on investment of the Pre-Funding Amount held by it in the Pre-Funding Account and deposit such earnings in the Certificate Account. On the , 199_ Payment Date, the Trustee shall withdraw from the Pre-Funding Account any funds theretofore remaining and deposit such funds in the Certificate Account.] On the third business day prior to each Remittance Date (the "Determination Date"), the Servicer will determine the Amount Available and the amounts to be distributed on the Certificates on such Remittance Date. The "Amount Available" for any Remittance Date is (I) the sum of (a) the amount in the Certificate Account on the close of business on the day immediately preceding such Determination Date and (b) the aggregate amount of Delinquency Advances relating to such Remittance Date, together with certain insurance-related amounts to be deposited by the Servicer for such Remittance Date, less (II) the sum of (a) payments on Contracts that have been repurchased as a result of a breach of a representation or warranty, (b) the Amount Held For Future Distribution, (c) any portion of Liquidation Proceeds used to reimburse the Servicer for Servicing Advances and Delinquency Advances previously made by the Servicer with respect to the related Contract, (d) amounts used to reimburse the Servicer with respect to Nonrecoverable Delinquency Advances and Delinquency Advances and Servicing Advances to the extent permitted by the Agreement, (e) if AFL is not the Servicer, the Monthly Servicing Fee, and (f) amounts which may be withdrawn from the Certificate Account as a result of a deposit thereto made in error, or to fund certain rebates or refunds due to Obligors. The "Amount Held For Future Distribution" as of a Determination Date are amounts representing Scheduled Payments or other collections and recoveries which relate to the second following, or any future, Remittance Date. See " -- Advances" below for a description of the Servicer's advancing responsibilities. The Trustee or its Paying Agent will withdraw funds from the Certificate Account on each Remittance Date (but only to the extent of the related Amount Available and, in certain limited circumstances to pay interest on the Subordinate Certificates, from certain other amounts) to make payments to Offered Certificateholders as specified under " -- Distributions" below. As more fully described herein under "The Contract Pool," the day of each month constituting the Due Date of the Scheduled Payments for each Contract will vary from Contract to Contract. In addition, the Contracts may be prepaid in full or in part at any time. Thus, the Amount Available for any Remittance Date (other than the portion thereof consisting of the applicable monthly Delinquency Advance, if any) will have been deposited into the Certificate Account on various days throughout the preceding calendar month. As a result, payments received at any time during a calendar month will not be distributed to the Offered Certificateholders until the day of the succeeding calendar month (or if such day is not a business day, on the next succeeding business day.) See "Prepayment and Yield Considerations" herein and "Yield Considerations" in the Prospectus. From time to time, as provided in the Agreement, the Servicer will also withdraw funds from the Certificate Account to make payments to it as permitted by the Agreement and described in subclauses (ii), (iv) and (v) of clause (b) in the second preceding paragraph. S-54 Distributions On each Remittance Date, distributions on the Offered Certificates will be made in the following order of priority: (i) to the holders of the Senior Certificates, (ii) to the holders of the Class A-6 Certificates, (iii) to the holders of the Class B-1 Certificates, (iv) to the holders of the Class B-2 Certificates, and (v) to the holders of the Class C Certificates, as described below. Distributions of interest and, to the extent specified below, principal to holders of a Class of Senior Certificates will be made on each Remittance Date in an amount equal to the sum of (i) their respective Percentage Interests of the amount of interest calculated as described under "Senior Interest" below and (ii) their respective Percentage Interests, distributed to each Class of Senior Certificates in the order of priority described under "Senior Principal" below, of an amount of principal calculated as described below under "Senior Principal." Distributions on the Senior Certificates will be applied first to the payment of interest and then to the payment of principal. The Senior Distribution Amount for any Remittance Date is intended to be equal to the sum (referred to as the "Senior Formula Distribution Amount") of (i) the amount of interest calculated as set forth under "Senior Interest" below and (ii) the amount of principal described below under "Senior Principal," except that, if the Senior Formula Distribution Amount exceeds the Amount Available in the Certificate Account on such Remittance Date, then the Senior Distribution Amount shall instead equal the Amount Available. Distributions of interest and, to the extent specified below, principal to holders of Class A-6 Certificates will be made on each Remittance Date in an amount equal to their respective Percentage Interests multiplied by the Class A-6 Distribution Amount. Distributions on the Class A-6 Certificates will be applied first to the payment of interest and then to the payment of principal. The Class A-6 Distribution Amount for any Remittance Date is intended to be equal to the sum (referred to as the "Class A-6 Formula Distribution Amount") of (i) the amount of interest calculated as set forth under "Class A-6 Interest" below and (ii) on and after the Remittance Date on which the Senior Principal Balance is reduced to zero, the amount of principal described below under "Class A-6 Principal." If the Amount Available in the Certificate Account available for distribution to the Class A-6 Certificateholders (after giving effect to any distribution made to Senior Certificateholders on such Remittance Date) (the "Class A-6 Remaining Amount Available") is less than the Class A-6 Formula Distribution Amount, then the Class A-6 Distribution Amount will equal the Class A-6 Remaining Amount Available and the amount of such deficiency, to the extent not funded by certain other amounts on deposit in the Certificate Account and available therefor, will be carried forward and added to the amount such holders will be entitled to receive on the next Remittance Date. Distributions of interest and, to the extent specified below, principal to holders of Class B-1 Certificates will be made on each Remittance Date in an amount equal to their respective Percentage Interests multiplied by the Class B-1 Distribution Amount. Distributions on the Class B-1 Certificates will be applied first to the payment of interest and then to the payment of principal. The Class B-1 Distribution Amount for any Remittance Date is intended to be equal to the sum (referred to as the "Class B-1 Formula Distribution Amount") of (a) the amount of interest calculated as set forth under "Class B-1 Interest" below and (b) on and after the Class B Cross-over Date, if each Class B Principal Distribution Test was satisfied on such Remittance Date, the Formula Principal Distribution Amount calculated as described under "Class B-1 Principal" below. If the Amount Available in the Certificate Account available for distribution to the Class B-1 Certificateholders (after giving effect to any distribution made to Senior and Class A-6 Certificateholders on such Remittance Date) (the "Class B-1 Remaining Amount Available") is less than the Class B-1 Formula Distribution Amount, then the Class B-1 Distribution Amount will equal the Class B-1 Remaining Amount Available and the amount of such deficiency, to the extent not funded by certain other amounts on deposit in the Certificate Account and available therefor, will be carried forward and added to the amount such holders will be entitled to receive on the next Remittance Date. Distributions of interest and, to the extent specified below, principal to holders of the Class B-2 Certificates will be made on each Remittance Date in an amount equal to their respective Percentage Interests of the Class B-2 Distribution Amount. The Class B-2 Distribution Amount for any Remittance S-55 Date is intended to equal to the sum (referred to as the "Class B-2 Formula Distribution Amount") of (a) the amount of interest calculated as set forth under "Class B-2 Interest" below and (b) on and after the Remittance Date on which the Class B-1 Principal Balance is reduced to zero, if each Class B Principal Distribution Test was satisfied on such Remittance Date, the amount of principal described below under "Class B-2 Principal" below. Distributions on the Class B-2 Certificates will be applied first to the payment of interest and then to the payment of principal. If the Amount Available in the Certificate Account available for distribution to the Class B-2 Certificateholders (after giving effect to distributions made to Senior, Class A-6 and Class B-1 Certificateholders on such Remittance Date) (the "Class B-2 Remaining Amount Available") is not sufficient to make a full distribution of the Class B-2 Formula Distribution Amount to the Class B-2 Certificateholders, then the Class B-2 Distribution Amount will equal the Class B-2 Remaining Amount Available and the amount of such deficiency, to the extent not funded by certain other amounts on deposit in the Certificate Account and available therefor, will be carried forward and added to the amount such holders will be entitled to receive on the next Remittance Date. The rights of the Subordinate Certificateholders and the Residual Certificateholders to receive distributions are subordinated to the rights of the Senior Certificateholders, the rights of the Class B-1, Class B-2, Class C and Residual Certificateholders to receive distributions are subordinated to the rights of the Class A-6 Certificateholders, the rights of the Class B-2, Class C and Residual Certificateholders to receive distributions are subordinated to the rights of the Class B-1 Certificateholders, in each case, to the extent described herein. The Class C Certificates represent a class of subordinated, "interest-only" certificates, the distributions on which are subordinated to the rights of the Class B-2 Certificateholders and, for so long as AFL is the Servicer, the payment of the Monthly Servicing Fee. The holders of the Residual Certificates will be entitled to receive only miscellaneous amounts not required to be distributed on account of the other classes of Certificates. Each distribution with respect to a Book-Entry Certificate will be paid to DTC, which will credit the amount of such distribution to the accounts of its Participants in accordance with its normal procedures. Each Participant will be responsible for disbursing such distribution to the Certificate Owners that it represents and to each indirect participating brokerage firm (a "brokerage firm" or "indirect participating firm") for which it acts as agent. Each brokerage firm will be responsible for disbursing funds to the Certificate Owners that it represents. All such credits and disbursements with respect to a Book-Entry Certificate are to be made by DTC and the Participants in accordance with DTC's rules. The Servicer will furnish to the Trustee, and the Trustee will send with each distribution on a Remittance Date to each holder of the Offered Certificates, a statement or statements setting forth, among other things, (i) the amount of such distribution allocable to principal (including Principal Prepayments, if any) and (ii) the amount of such distribution allocable to interest. Senior Interest One month's interest (computed on the basis of a 360-day year of twelve 30-day months) will be paid concurrently to the holders of each Class of Senior Certificates on each Remittance Date, to the extent of the Amount Available in the Certificate Account on such date, at the related Remittance Rate on the then outstanding Principal Balance of each Class of Senior Certificates. Interest on each Class of Senior Certificates will accrue with respect to each Remittance Date during the related Accrual Period, commencing . The Remittance Rates for the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates are %, %, %, % and % per annum, respectively, subject to a maximum rate equal to the Weighted Average Net Contract Rate, computed on the basis of a 360-day year of twelve 30-day months. In all but the most unusual prepayment scenarios, it is anticipated that the applicable Remittance Rate on the Senior Certificates will be the Remittance Rate without giving effect to the maximum rate of the Weighted Average Net Contract Rate. In the unlikely event that a large number of Contracts having Net Contract Rates equal to or greater than such applicable Remittance Rate were S-56 to prepay while the Contracts having Net Contract Rates less than such applicable Remittance Rate did not prepay, with the result that interest collections on the remaining Contracts were not sufficient to support such applicable Remittance Rate, then the Remittance Rate for any such Class would be equal to the Weighted Average Net Contract Rate. The Certificate Principal Balance of any Class of Senior Certificates of any Remittance Date is the Original Principal Balance of such Class less all amounts previously distributed to holders of such Class on account of principal. The Senior Principal Balance as of any Remittance Date is the sum of the Class A-1 Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal Balance, the Class A-4 Principal Balance and the Class A-5 Principal Balance. In the event that, on a particular Remittance Date, the Amount Available in the Certificate Account is not sufficient to make a full distribution of interest to the holders of each Class of Senior Certificates, the Amount Available will be distributed among the outstanding Classes of Senior Certificates pro rata based on the aggregate amount of interest due on each such Class, and the amount of shortfall will be carried forward and added to the amount such holders will be entitled to receive on the future Remittance Dates, until paid in full. Such a shortfall could occur, for example, if delinquencies or losses realized on the Contracts were exceptionally high and were concentrated in a particular month. In addition, the Amount Available in the Certificate Account with respect to any Remittance Date may be reduced by the amount of funds, if any, used to cover an interest shortfall on the Class A-6, Class B-1 or Class B-2 Certificates, as described below. Any such amount so carried forward will bear interest at the applicable Remittance Rate for each Class of Senior Certificates, to the extent permitted by law. Senior Principal Holders of a Class of Senior Certificates will be entitled to receive on each Remittance Date as payments of principal, in the order of priority set forth below and to the extent of the Amount Available in the Certificate Account on such date after payment of interest on all Classes of Senior Certificates, the sum of (x) the Senior Percentage of the Formula Principal Distribution Amount for such Remittance Date, and (y) any portion of the amount described in clause (x) preceding which was due to the holders of the Senior Certificates on prior Remittance Dates, but which remains unpaid on such Remittance Date. The Agreement defines the "Formula Principal Distribution Amount" with respect to a Remittance Date as the sum of (i) all scheduled payments of principal due on each outstanding Contract during the related Collection Period, (ii) the Scheduled Principal Balance of each Contract which, during the related Collection Period, was purchased by AFL pursuant to the Agreement on account of certain breaches of its representations and warranties, (iii) all Partial Principal Prepayments applied and all Principal Prepayments in full received during the related Collection Period, (iv) the Scheduled Principal Balance of each Contract that became a Liquidated Contract during such related Collection Period, (v) the Accelerated Principal Payment, if any, for such Remittance Date [and (vi) on the , 199_ Remittance Date, any amount remaining on deposit in the Pre-Funding Account.] When the Certificate Principal Balance of a Class of Senior Certificates is reduced to zero, no further distributions of principal will be made to the holders of such Class. The "Senior Percentage" for any Remittance Date prior to the Class B Cross-over Date, and for any Remittance Date on or after the Class B Cross-over Date on which any Class B Principal Distribution Test is not satisfied (each as described under "Class B-1 Principal" below) will be 100%, and for any Remittance Date on or after the Class B Cross-over Date on which each Class B Principal Distribution Test is satisfied will equal a fraction, expressed as a percentage, the numerator of which is the sum of the Senior Principal Balance and the Class A-6 Principal Balance for such Remittance Date (before giving effect to any distributions on such Remittance Date) and the denominator of which is the Pool Scheduled Principal Balance at the end of the second preceding Collection Period. The Scheduled Principal Balance of a Contract for any Collection Period is its principal balance as specified in its amortization schedule at the time relating thereto (before any adjustment to such schedule by reason of bankruptcy, moratorium or similar waiver or grace period) as of the Due Date in the Collection Period next preceding such Remittance Date, after giving effect to the principal portion of the scheduled payment due on such Due Date and irrespective of any delinquency in payment on such Contract and after giving effect to any S-57 partial prepayments applied and prepayments in full received during the related Collection Period. The "Pool Scheduled Principal Balance" is the aggregate of the Scheduled Principal Balances of all Contracts (other than Liquidated Contracts and Contracts purchased by AFL during such Collection Period) outstanding at the end of such Collection Period. A "Liquidated Contract" is a defaulted Contract as to which all amounts that the Servicer expects to recover through the date of disposition of the Manufactured Home have been received. The principal distribution to be made to the holders of the Senior Certificates on any Remittance Date will be distributed, to the extent of the Amount Available after payment of interest on all Classes of Senior Certificates, first to the Class A-1 Certificateholders until the Class A-1 Principal Balance has been reduced to zero, then to the Class A-2 Certificateholders until the Class A-2 Principal Balance has been reduced to zero, then to the Class A-3 Certificateholders until the Class A-3 Principal Balance has been reduced to zero, then to the Class A-4 Certificateholders until the Class A-4 Principal Balance has been reduced to zero, then to the Class A-5 Certificateholders until the Class A-5 Principal Balance has been reduced to zero. If, on any Remittance Date prior to the Class A-5 Principal Balance being reduced to zero, the Pool Scheduled Principal Balance at the close of business on the last day of the related Collection Period would be less than the sum of the Class A-1 Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal Balance, the Class A-4 Principal Balance and the Class A-5 Principal Balance on such Remittance Date after giving effect to distributions of principal to be made on such date, then the Amount Available remaining after distribution of interest on the Senior Certificates will be distributed to the Classes of Senior Certificates on a pro rata basis as a distribution of the Senior Percentage of the Formula Principal Distribution Amount, and the amount of the shortfall will be allocated pro rata among the outstanding Classes of Senior Certificates, based upon their respective outstanding Certificate Principal Balances. As hereinafter described, all Realized Losses will be absorbed first, by the Residual Certificates, second, by the Class C Certificates, third, by the Monthly Servicing Fee otherwise payable to AFL in its capacity as Servicer, fourth, by the Class B-2 Certificates, fifth, by the Class B-1 Certificates and sixth, by the Class A-6 Certificates. If the Amount Available on any Remittance Date is less than the Senior Distribution Amount, the Amount Available will be applied first to the payment of interest pro rata to the outstanding Senior Certificates, based on the aggregate amount of interest then payable on each Class of Senior Certificates and then to the payment of principal to the Class of Senior Certificates then entitled thereto. Class A-6 Interest Interest will be paid to the Class A-6 Certificateholders on each Remittance Date, to the extent of the Class A-6 Remaining Amount Available, if any. Interest on the outstanding Class A-6 Principal Balance will accrue with respect to each Remittance Date during the related Accrual Period, commencing . On each Remittance Date, to the extent of the Class A-6 Remaining Amount Available, if any, on such Remittance Date after payment of the Senior Distribution Amount, interest will be paid to the Class A-6 Certificateholders at the Class A-6 Remittance Rate on the Class A-6 Principal Balance (before giving effect to any distributions on such Remittance Date). The Class A-6 Principal Balance is the Original Class A-6 Principal Balance less the sum of all amounts previously distributed to Class A-6 Certificateholders on account of principal. In the event that, on a particular Remittance Date, the Class A-6 Remaining Amount Available in the Certificate Account is not sufficient to make a full distribution of interest to the Class A-6 Certificateholders, funds in the Certificate Account representing collections received after the related Collection Period will be applied to such deficiency, and any remaining deficiency will be carried forward and added to the amount such holders will be entitled to receive on the next Remittance Date. Any such amount so carried forward will bear interest at the Class A-6 Remittance Rate, to the extent permitted by law. The Class A-6 Remittance Rate on each Remittance Date will be % per annum, subject to a maximum rate equal to the Weighted Average Net Contract Rate, computed on the basis of a 360-day S-58 year of twelve 30-day months. In all but the most unusual prepayment scenarios, it is anticipated that the Class A-6 Remittance Rate will be %. In the unlikely event that a large number of Contracts having Net Contract Rates equal to or higher than % (which Contracts represent approximately % of the Cut-off Date Pool Principal Balance) were to prepay while the Contracts having Net Contract Rates lower than % did not prepay, with the result that the interest collections on the remaining Contracts were not sufficient to support a Class A-6 Remittance Rate of %, then the Class A-6 Remittance Rate would be equal to the Weighted Average Net Contract Rate. Class A-6 Principal On each Remittance Date on or after the date on which the Senior Principal Balance has been reduced to zero, Class A-6 Certificateholders will be entitled to receive, as payments of principal, the sum of (i) the Senior Percentage of the Formula Principal Distribution Amount, and (ii) any portion of the amount described in clause (i) preceding which was due to the Class A-6 Certificateholders on prior Remittance Dates, but which remains unpaid on such Remittance Date; such amount will only be distributed to the extent of the Class A-6 Remaining Amount Available in the Certificate Account on such Remittance Date, after payment of all interest payable on the Class A-6 Certificates. On each Remittance Date on or after the Class B Cross-over Date on which each Class B Principal Distribution Test is satisfied, payments of principal will be made to Class B-1 or Class B-2 Certificateholders, even if Class A-6 Certificateholders are not yet entitled to receive payments of principal because the Senior Principal Balance has not been reduced to zero. Class B-1 Interest Interest will be paid to the Class B-1 Certificateholders on each Remittance Date, to the extent of the Class B-1 Remaining Amount Available if any. Interest on the outstanding Class B-1 Principal Balance will accrue with respect to each Remittance Date during the related Accrual Period, commencing . On each Remittance Date, to the extent of the Class B-1 Remaining Amount Available, if any, on such Remittance Date after payment of the Senior Distribution Amount and the Class A-6 Distribution Amount, interest will be paid to the Class B-1 Certificateholders at the Class B-1 Remittance Rate on the Class B-1 Principal Balance (before giving effect to any distributions on such Remittance Date). The Class B-1 Principal Balance is the Original Class B-1 Principal Balance less the sum of all amounts previously distributed to Class B-1 Certificateholders on account of principal. In the event that, on a particular Remittance Date, the Class B-1 Remaining Amount Available is not sufficient to make a full distribution of interest to the Class B-1 Certificateholders, funds in the Certificate Account representing collections received after the related Collection Period will be applied to such deficiency, and any remaining deficiency will be carried forward and added to the amount such holders will be entitled to receive on the next Remittance Date. The Class B-1 Remittance Rate on each Remittance Date will be % per annum, subject to a maximum rate equal to the Weighted Average Net Contract Rates, computed on the basis of a 360-day year of twelve 30-day months. In all but the most unusual prepayment scenarios, it is anticipated that the Class B-1 Remittance Rate will be %. In the unlikely event that a large number of Contracts having Net Contract Rates equal to or higher than % (which Contracts represent approximately % of the Cut-off Date Pool Principal Balance) were to prepay while the Contracts having Net Contract Rates lower than % did not prepay, with the result that the interest collections on the remaining Contracts were not sufficient to support a Class B-1 Remittance Rate of %, then the Class B-1 Remittance Rate would be equal to the Weighted Average Net Contract Rate. Class B-1 Principal Prior to the Class B Cross-over Date, there will be no distributions of principal on the Class B-1 Certificates. The Class B Cross-over Date will be the later of (A) the Remittance Date in or the first Remittance Date on which the sum of (i) the Senior Principal Balance on such Remittance Date (before taking into account any distributions to be made on such Remittance Date) and (ii) the Class A-6 Principal Balance on such Remittance Date (before taking into account any distributions to be made on S-59 such Remittance Date) (such sum expressed as a percentage of the Pool Scheduled Principal Balance at the end of the second preceding Collection Period) is less than %. On each Remittance Date on or after the Class B Cross-over Date and prior to the Remittance Date on which the Senior Principal Balance and the Class A-6 Principal Balance are reduced to zero, holders of Class B-1 and Class B-2 Certificates will be entitled to distributions of principal only if each of the following tests (each a "Class B Principal Distribution Test") is satisfied on such Remittance Date: (i) the Average Sixty-Day Delinquency Ratio (as defined below) as of such Remittance Date must not exceed %; (ii) the Average Thirty-Day Delinquency Ratio (as defined below) as of such Remittance Date must not exceed %; (iii) the Cumulative Realized Losses (as defined below) as of such Remittance Date must not exceed a certain specified percentage of the Cut-off Date Pool Principal Balance, depending on the year in which such Remittance Date occurs; (iv) the Current Realized Loss Ratio (as defined below) as of such Remittance Date must not exceed % if AFL is the Servicer, or % if AFL is not the Servicer; (v) the sum of (a) the Senior Principal Balance on such Remittance Date and (b) the Class A-6 Principal Balance divided by the Pool Scheduled Principal Balance at the end of the second preceding Collection Period must be less than %; and (vi) the sum of (a) the Class B-1 and Class B-2 Principal Balance and (b) the Overcollateralization Amount must not be less than % of the Aggregate Principal Balance of the Contracts as of the Cut-off Date. The "Average Sixty-Day Delinquency Ratio" for any Remittance Date will be equal to the arithmetic average, for such Remittance Date and for the two immediately preceding Remittance Dates, of a fraction, expressed as a percentage, the numerator of which is the aggregate of the Scheduled Principal Balance of all Contracts (including Contracts in repossession) that were delinquent 60 days or more as of the end of the Collection Period preceding such Remittance Date, and the denominator of which is the Pool Scheduled Principal Balance as of such date. The "Average Thirty-Day Delinquency Ratio" for any Remittance Date will be equal to the arithmetic average, for such Remittance Date and for the two immediately preceding Remittance Dates, of a fraction, expressed as a percentage, the numerator of which is the aggregate of the Scheduled Principal Balance of all Contracts (including Contracts in repossession) that were delinquent 30 days or more as of the end of the Collection Period preceding such date, and the denominator of which is the Pool Scheduled Principal Balance as of such date. The "Current Realized Loss Ratio" for any Remittance Date will be equal to a fraction, expressed as a percentage, the numerator of which is the aggregate of all Realized Losses during the twelve immediately preceding Collection Periods, and the denominator of which is the arithmetic average of the Pool Scheduled Principal Balance as of the last day of the twelfth preceding Collection Period and the Pool Scheduled Principal Balance as of the last day of the immediately preceding Collection Period. The "Cumulative Realized Losses" for any Remittance Date will be equal to the sum of all liquidation losses of all Contracts that became Liquidated Contracts since the Cut-off Date. On each Remittance Date on or after the Class B Cross-over Date, if each Class B Principal Distribution Test is satisfied on such Remittance Date (unless the Senior Principal Balance and the Class A-6 Principal Balance have been reduced to zero in which event none of the Class B Distribution Tests need be satisfied), Class B-1 Certificateholders will be entitled to receive, as payments of principal, the sum of (i) the Class B Percentage of the Formula Principal Distribution Amount and (ii) any portion of the amount described in clause (i) preceding which was due to the Class B-1 Certificateholders on prior Remittance Dates but which remains unpaid on such Remittance Date; such amount will only be distributed to the extent of the Class B-1 Remaining Amount Available in the Certificate Account on such date after payment of all interest payable on the Class B-1 Certificates. The Agreement provides that in no event shall an amount of principal be distributed to the holders of the Class B-1 or Class B-2 Certificates if, after paying such amount, the test set forth in clause (vi) of "Class B Principal Distribution Test" would be violated; any such principal not so distributed shall instead be distributed to the Class of Senior Certificates or the Class A-6 Certificates, whichever is then entitled to receive distributions of principal. The Class B-2 Certificateholders will not be entitled to any distributions of principal until the Class B-1 Principal Balance has been reduced to zero. The Class B Percentage for any Remittance Date on or after the Class B Cross-over Date on which each Class B Principal Distribution Test has been satisfied will be equal to 100% minus the Senior Percentage. The Class B Percentage for each S-60 Remittance Date, if any, after the Senior Principal Balance and the Class A-6 Principal Balance have both been reduced to zero, will be equal to 100%. Class B-2 Interest Interest will be paid to the Class B-2 Certificateholders on each Remittance Date, to the extent of the Class B-2 Remaining Amount Available, if any. Interest on the outstanding Class B-2 Principal Balance will accrue with respect to each Remittance Date during the Related Accrual Period, commencing . On each Remittance Date, to the extent of the Class B-2 Remaining Amount Available, if any, for a Remittance Date after payment of the Senior Distribution Account, the Class A-6 Distribution Amount and the Class B-1 Distribution Amount, interest will be paid to the Class B-2 Certificateholders on such Remittance Date at the Class B-2 Remittance Rate on the Class B-2 Principal Balance (before giving effect to any distributions on such Remittance Date). The Class B-2 Principal Balance is the Original Class B-2 Principal Balance less the sum of all amounts previously distributed to Class B-2 Certificateholders on account of principal. In the event that, on a particular Remittance Date, the Class B-2 Remaining Amount Available is not sufficient to make a full distribution of interest to the Class B-2 Certificateholders, funds in the Certificate Account representing collections received after the related Collection Period will be applied to such deficiency and any remaining deficiency will be carried forward and added to the amount such holders will be entitled to receive on the next Remittance Date. For purposes of this Prospectus Supplement, the Class B-2 Remittance Rate on each Remittance Date has been assumed to be % per annum, subject to a maximum rate equal to the Weighted Average Net Contract Rates, computed on the basis of a 360-day year of twelve 30-day months. Class B-2 Principal Prior to the Remittance Date on which the Class B-1 Principal Balance is reduced to zero, there will be no distributions of principal on the Class B-2 Certificates. Prior to the Class B Cross-over Date, there will be no distributions of principal on the Class B-1 Certificates. On each Remittance Date, on or after the date on which the Class B-1 Principal Balance has been reduced to zero and on which each Class B Principal Distribution Test is satisfied (unless the Senior Principal Balance and the Class A-6 Principal Balance have been reduced to zero in which event none of the Class B Distribution Tests need be satisfied), the Class B-2 Certificateholders will be entitled to receive, as payments of principal, the sum of (i) the Class B Percentage of the Formula Principal Distribution Amount and (ii) any portion of the amount described in clause (i) preceding which was due to the Class B-2 Certificateholders on prior Remittance Dates but which remains unpaid on such Remittance Date; such amount will only be distributed to the extent of the Class B-2 Remaining Amount Available in the Certificate Account on such date, after payment of all interest payable on the Class B-2 Certificates. The Agreement provides that in no event shall an amount of principal be distributed to the holders of the Class B-1 or Class B-2 Certificates if, after paying such amount, the test set forth in clause (vi) of "Class B Principal Distribution Test" would be violated; any such principal not so distributed shall instead be distributed to the Class of Senior Certificates or the Class A-6 Certificates, whichever is then entitled to receive distributions of principal. Class C Distributions; Overcollateralization Amount The Weighted Average Net Contract Rate for the Contract Pool is expected generally to be higher than the weighted average of the fixed Remittance Rates applicable to the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class B-1 and Class B-2 Certificates (collectively, the "Non-IO Certificates"), thus generating certain excess interest collections which, in the absence of losses and delinquencies, will not be necessary to fund distributions on the Non-IO Certificates. The Agreement provides that this excess interest, together with, if AFL is then the Servicer, the Monthly Servicing Fee then otherwise due to AFL, be applied, to the extent available, to make accelerated payments of principal to the Class or Classes then entitled to receive distributions of principal. Such accelerated payments are expected to cause the aggregate Principal Balance of the Non-IO Certificates to amortize more rapidly than the Contract Pool, resulting in "overcollateralization" (i.e., the excess of the Pool Scheduled S-61 Principal Balance over the aggregate Principal Balance of the Non-IO Certificates). This excess interest for a Collection Period, together with interest on the overcollateralization amount itself, on the related Remittance Date is the "Class C Formula Distribution Amount" for such Remittance Date. On any Remittance Date, the "Overcollateralization Amount" will be an amount equal to the difference between the Pool Scheduled Principal Balance as of the end of the immediately preceding Collection Period and the aggregate Certificate Principal Balance of the Non-IO Certificates on such Remittance Date (and after taking into account all other distributions to be made on such Remittance Date). The amounts available to fund the Class C Formula Distribution Amount (which amount will be the Class B-2 Remaining Amount Available less the Class B-2 Distribution Amount and less the Monthly Servicing Fee for such Remittance Date, such amount being the "Class C Distribution Amount") will be applied, together with the Monthly Servicing Fee if AFL is the Servicer, to make such accelerated payments of principal on each Remittance Date until the Overcollateralization Amount is equal to approximately $ (the "Initial Overcollateralization Amount"). Thereafter, the Class C Distribution Amount will be available to make distributions of the Class C Formula Distribution Amount to the holders of the Class C Certificates, unless, due to losses, the Overcollateralization Amount is decreased, in which event such applications will commence to the extent necessary to increase the actual Overcollateralization Amount to the Required Overcollateralization Amount. The level of the Required Overcollateralization Amount is equal to, for any Remittance Date, (x) prior to the Class B Cross-over Date, the Initial Required Overcollateralization Amount, (y) on and after the Class B Cross-over Date, and as long as each Class B Principal Distribution Test is then satisfied, the lesser of (i) the Initial Required Overcollateralization Amount and (ii) the greater of (a) % of the then Scheduled Pool Principal Balance and (b) % of the Cut-off Date Pool Principal Balance and (z) on and after the Class B Crossover Date, if any Class B Distribution Test is not satisfied, the required level as of the immediately preceding Remittance Date. If, on any Remittance Date, the level of Required Overcollateralization Amount is permitted to be reduced, the "Excess Overcollateralization Amount" (the excess of (x) the actual Overcollateralization Amount on such Remittance Date (after taking into account all other distributions on such Remittance Date) over (y) the Required Overcollateralization Amount for such Remittance Date) will be paid to the Class C Certificateholders from the Formula Principal Distribution Amount otherwise payable to the holders of the Non-IO Certificates on such Remittance Date (any such amount so paid to the Class C Certificateholders, an "Overcollateralization Reduction Amount"). The Overcollateralization Reduction Amount, if any, on any Remittance Date shall be funded first, from the Class B Percentage of the Formula Principal Distribution Amount otherwise distributable to the holders of the Class B-1 or Class B-2 Certificates on such Remittance Date, and, if such amount is insufficient to fund in full the Overcollateralization Reduction Amount on such Remittance Date, then, second, from the Senior Percentage of the Formula Principal Distribution Amount otherwise distributable to the holders of the Senior or Class A-6 Certificates on such Remittance Date. The Agreement provides that in no event shall an Overcollateralization Reduction Amount be paid to the Class C Certificateholders if, after paying such amount, the test set forth in clause (vi) of the definition of "Class B Principal Distribution Test" would be violated. The amount, if any, of the Class C Distribution Amount actually applied as an accelerated payment of principal on any Remittance Date (such amount to be the lesser of (x) the excess of (i) the Required Overcollateralization Amount over (ii) the actual Overcollateralization Amount on such Remittance Date and (y) the Class C Distribution Amount and the Monthly Servicing Fee if AFL is the Servicer for the immediately preceding Collection Period) is the "Accelerated Principal Payment" for such Remittance Date. Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates The rights of the holders of the Class A-6, the Class B-1, the Class B-2, Class C Certificates and the Residual Certificates to receive distributions with respect to the Contracts in the Trust will be subordinated to such rights of the Senior Certificateholders. This subordination is intended to enhance the likelihood of regular receipt by the holders of the Senior Certificates of the full amount of their scheduled monthly payments of principal and interest and to afford such holders protection against losses on Liquidated Contracts. The protection afforded to the Senior Certificateholders by means of the S-62 subordination feature will be accomplished by the preferential right of the Senior Certificateholders to receive, prior to any distribution being made on a Remittance Date in respect of the Class A-6, the Class B-1, the Class B-2, the Class C Certificates and the Residual Certificates, the amount of principal and interest due them on each Remittance Date out of the Amount Available on deposit on such date in the Certificate Account and by the right of the Senior Certificateholders to receive future distributions on the Contracts that would otherwise be payable to the holders of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates. On each Remittance Date the Class A-6 Certificateholders will be entitled to receive only amounts described above under "Class A-6 Interest" and "Class A-6 Principal," the Class B-1 Certificateholders will be entitled to receive only amounts described above under "Class B-1 Interest" and "Class B-1 Principal," and the Class B-2 Certificateholders will be entitled to receive only amounts described above under "Class B-2 Interest" and "Class B-2 Principal." In addition, the rights of the holders of the Class B-1, the Class B-2, the Class C and the Residual Certificates to receive distributions will be subordinate to such rights of the Class A-6 Certificateholders. This subordination is intended to enhance the likelihood of regular receipt by the holders of the Class A-6 Certificates of the full amount of their scheduled monthly payments of principal and interest and to afford such holders protection against losses on Liquidated Contracts. The protection afforded to the Class A-6 Certificateholders by means of the subordination feature will be accomplished by the preferential right of the Class A-6 Certificateholders to receive, prior to the distribution being made on a Remittance Date in respect of the Class B-1, the Class B-2, the Class C and the Residual Certificates, the amount of principal and interest due them on each Remittance Date out of the Class A-6 Remaining Amount Available on deposit on such date in the Certificate Account and by the right of the Class A-6 Certificate holders to receive future distributions on the Contracts that would otherwise be payable to the holders of Class B-1, Class B-2, Class C and Residual Certificates. In addition, the rights of the holders of the Class B-2, the Class C and the Residual Certificates to receive distributions will be subordinate to such rights of the Class B-1 Certificateholders. This subordination is intended to enhance the likelihood of regular receipt by the holders of the Class B-1 Certificates of the full amount of their scheduled monthly payments of principal and interest and to afford such holders protection against losses on Liquidated Contracts. The protection afforded to the Class B-1 Certificateholders by means of the subordination feature will be accomplished by the preferential right of the Class B-1 Certificateholders to receive, prior to any distribution being made on a Remittance Date in respect of the Class B-2, the Class C and the Residual Certificates, the amount of principal and interest due them on each Remittance Date out of the Class B-1 Remaining Amount Available on deposit on such date in the Certificate Account and by the right of the Class B-1 Certificateholders to receive future distributions on the Contracts that would otherwise be payable to the holders of Class B-1, Class B-2, Class C and Residual Certificates. The rights of the holders of the Class C Certificates to receive distributions with respect to the Contracts on each Remittance Date will be subordinated to the rights of the holders of the Senior Certificates, Class A-6 Certificates, Class B-1 Certificates and Class B-2 Certificates, and to the payment of the Monthly Servicing Fee. The rights of the Residual Certificateholders to receive distributions will be subordinated to the rights of the holders of all other classes of Certificates and to the payment of the Monthly Servicing Fee. On each Remittance Date the Residual Certificateholders will receive the remaining Amount Available, if any, after payment of the amount distributed to the Senior, Class A-6, Class B-1, Class B-2 and Class C Certificateholders as described above (less the Monthly Servicing Fee and less amounts retained by the Servicer to reimburse itself for taxes paid in respect of prohibited transactions) plus aggregate Repossession Profits (as defined in the Agreement). Losses on Liquidated Contracts As described above, the distribution of principal to the Senior and the Class A-6 Certificateholders and to the Class B-1 Certificateholders is intended to include the Senior Percentage and the Class B Percentage, respectively, of the Scheduled Principal Balance of each Contract that became S-63 a Liquidated Contract during the preceding Collection Period. If the Net Liquidation Proceeds (as defined below) from a Liquidated Contract are less than the Scheduled Principal Balance of such Liquidated Contract plus accrued and unpaid interest thereon plus amounts reimbursable to the Servicer for advances of certain taxes and insurance premiums, the deficiency (a "Realized Loss") will, in effect, be absorbed first, by the Residual Certificateholders, second, by the Class C Certificateholders (both through the application of the Class C Distribution Amount to fund such deficiency and through a reduction in the Overcollateralization Amount), third, by the Monthly Servicing Fee (so long as AFL is the Servicer), fourth, by the Class B-2 Certificateholders, fifth, by the Class B-1 Certificateholders and sixth, by the Class A-6 Certificateholders, since a portion of the Amount Available equal to such deficiency and otherwise distributable to them will be paid to the Senior Certificateholders. If AFL is no longer the Servicer, then the Monthly Servicing Fee will become senior to all Certificateholders distributions. "Liquidation Proceeds" means cash (including insurance proceeds) received in connection with the liquidation of defaulted Contracts, whether through repossession, foreclosure sale or otherwise. 'Net Liquidation Proceeds' means, as to a Liquidated Contract, all Liquidation Proceeds received on or prior to the last day of the Collection Period in which such Contract became a Liquidated Contract, net of Liquidation Expenses. "Liquidation Expenses" means out-of-pocket expenses (exclusive of any overhead expenses) which are incurred by the Servicer in connection with the liquidation of any defaulted Contract, on or prior to the date on which the related Manufactured Home is disposed of, including, without limitation, legal fees and expenses, and any related and unreimbursed expenditures for property taxes, property preservation or restoration of the property to marketable condition. If the Amount Available is not sufficient to cover the entire principal portion of the Senior Formula Distribution Amount due to the Senior Certificateholders or the entire principal portion of the Class A-6 Formula Distribution Amount due to the Class A-6 Certificateholders on a particular Remittance Date, then (i) if the Senior Percentage is less than 100%, the Senior Percentage on future Remittance Dates will be increased and the Class B Percentage on future Remittance Dates will be reduced as a result of such deficiency and (ii) the amount of the deficiency will be carried forward as an amount the Senior Certificateholders or the Class A-6 Certificateholders are entitled to receive on future Remittance Dates, until paid in full. If the Amount Available is sufficient to cover the entire principal portion of the Senior Formula Distribution Amount due to the Senior Certificateholders and the entire principal portion of the Class A-6 Formula Distribution Amount due to the Class A-6 Certificateholders on a particular Remittance Date but is not sufficient to cover the entire principal portion of the Class B-1 Formula Distribution Amount due to the Class B-1 Certificateholders, the amount of the deficiency will be carried forward as an amount that the Class B-1 Certificateholders are entitled to receive on the next Remittance Date. As a result of the subordination of the Class B-1 and the Class B-2 Certificates, the Monthly Servicing Fee (so long as AFL is the Servicer), and the subordination of the Class C and Residual Certificates, the Class A-6 Certificateholders will not absorb (i) losses resulting from Realized Losses or (ii) delinquent payments on the Contracts, at least to the extent that such subordination has not been exhausted. See " -- Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates" and "Prepayment and Yield Considerations." As a result of the subordination of the Class B-2 Certificates, the Monthly Servicing Fee (so long as AFL is the Servicer), and the subordination of the Class C and Residual Certificates, the Class B-1 Certificateholders will not absorb (i) losses resulting from Realized Losses or (ii) delinquent payments on the Contracts, at least to the extent that such subordination has not been exhausted. See " -- Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates" and "Prepayment and Yield Considerations." As a result of the subordination of the Monthly Servicing Fee (so long as AFL is the Servicer) and of the Class C and Residual Certificates, the Class B-2 Certificateholders will not absorb (i) losses resulting from Realized Losses or (ii) delinquent payments on the Contracts at least to the extent that such subordination has not been exhausted. See " -- Subordination of Class A-6, Class B-1, Class B-2, Class C and Residual Certificates" and "Prepayment and Yield Considerations." S-64 Reports to Certificateholders The Servicer will furnish to the Trustee, and the Trustee will include with each distribution to a Offered Certificateholder, a statement in respect of the related Remittance Date setting forth, among other things: (a) the amount of such distribution to holders of each Class of Certificates allocable to interest (separately identifying any unpaid interest shortfall included); (b) the amount of such distribution to holders of each Class of Certificates allocable to principal (separately identifying the aggregate amount of any principal prepayments included); (c) the amount of any shortfall in the Formula Principal Distribution Amount allocated to each Class of Certificateholders for such Remittance Date, as applicable; (d) the Principal Balance of each Class of Certificates after giving effect to the distribution of principal on such Remittance Date; (e) the Senior Percentage for the following Remittance Date; (f) the Pool Scheduled Principal Balance of the Contracts for the following Remittance Date; (g) the Pool Factor (a percentage derived from a fraction the numerator of which is (f) and the denominator of which is the Cut-off Date Pool Principal Balance); (h) the number and aggregate principal balance of Contracts delinquent (i) 30-59 days and (ii) 60 or more days; (i) the number of Manufactured Homes that were repossessed during the Collection Period ending immediately prior to such Remittance Date; (j) the number of Manufactured Homes that were repossessed but remain in inventory as of the last day of the Collection Period ending immediately prior to such Remittance Date; (k) the Weighted Average Net Contract Rate of all outstanding Contracts; and (l) the Overcollateralization Amount and any Overcollateral Reduction Amount for such Remittance Date. Information furnished pursuant to clauses (a) through (d) will be expressed as dollar amounts for a Senior Certificate with a 1% Percentage Interest or per $1,000 denomination of Certificate. In addition, within a reasonable period of time after the end of each calendar year, the Servicer will furnish a report to each Certificateholder of record at any time during such calendar year as to the aggregate of amounts reported pursuant to (a) and (b) above for such calendar year. Optional Termination The Agreement provides that on any Remittance Date after the first Remittance Date on which the Pool Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal Balance, the Servicer will have the option to repurchase, upon giving notice mailed no earlier than the and no later than the day of the month next preceding the month of the exercise of such option, all outstanding Contracts at a price equal to the greater of (i) the sum of (w) 100% of the Scheduled Principal Balance of each Contract (other than any Contract as to which the related Manufactured Home has been acquired S-65 and not yet disposed of and whose fair market value is included pursuant to clause (x) below) as of the final Remittance Date; (x) the fair market value of such acquired property (as determined by the Servicer); (y) the aggregate amount of any unreimbursed Delinquency Advances and unreimbursed Servicing Advances and (z) any unpaid interest on the Certificates due on prior Remittance Dates as well as one month's interest, at a rate equal to the related remittance rate borne by any outstanding Class of Certificates plus the Monthly Servicing Fee, on the Scheduled Principal Balance of each Contract (including any Contract as to which the related Manufactured Home has been repossessed and not yet disposed of), but in no event less than the amount necessary to pay all Classes of Certificates in full, including accrued and unpaid interest thereon (the amount described in this clause (i) being the "Termination Price") and (ii) the sum of (x) the aggregate fair market value (as determined by the Servicer) of all of the assets of the Trust and (y) the amount described in clause (i)(z) above. Auction Sale The Agreement requires that, within ninety days following a Remittance Date as of which the Pool Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal Balance, if the Servicer has not exercised its optional termination rights by such date, the Trustee shall solicit bids for the purchase of all Contracts remaining in the Trust. In the event that satisfactory bids are received as described in the Agreement, the net sale proceeds will be distributed to Certificateholders, in the same order of priority as collections received in respect of the Contracts. The Trustee, however, will not accept any bid for the Contracts unless certain requirements are met, including the requirement that such bid is in an amount at least equal to the Termination Price. The sale of the Contracts must be for an amount no less than fair market value. If satisfactory bids are not received, the Trustee shall decline to sell the Contracts and shall not be under any obligation to solicit any further bids or otherwise negotiate any further sale of the Contracts. Such sale and consequent termination of the Trust must constitute a "qualified liquidation" of each REMIC established by the Trust under Section 860F of the Internal Revenue Code of 1986, as amended, including, without limitation, the requirement that the qualified liquidation takes place over a period not to exceed 90 days. Termination of the Agreement The Agreement will terminate upon the last action required to be taken by the Trustee on the final Remittance Date following the later of (i) the purchase by the Servicer of all Contracts and all property acquired in respect of any Contract remaining in the Trust as described above under "-- Optional Termination", (ii) the sale of the Contracts as described under "-- Auction Sale" or (iii) the final payment or other liquidation (or any advance with respect thereto) of the last Contract remaining in the Trust or the disposition of all property acquired upon repossession of any Manufactured Home. Upon presentation and surrender of the Certificates, the Trustee shall cause to be distributed, to the extent of funds available, to such Certificateholders on the final Remittance Date in proportion to their respective Percentage Interests an amount equal to the respective unpaid Principal Balances of the Certificates, together with any unpaid interest on such Certificates due on prior Remittance Dates and one month's interest at the applicable Remittance Rates on such unpaid Principal Balances. If the Agreement is then being terminated, any amount which remains on deposit in the Certificate Account (other than amounts retained to meet claims) after distribution to the Certificateholders will be distributed to the Residual Certificateholders. Amendment The Agreement may be amended by Receivables Corp., the Servicer and the Trustee without the consent of the Certificateholders (i) to cure any ambiguity, (ii) to correct or supplement any provision therein that may be inconsistent with any other provision therein, (iii) to add to the duties or obligations of the Servicer, (iv) to obtain a rating from a nationally recognized rating agency or to maintain or improve the ratings of any Class of the Offered Certificates then given by any rating agency (it being understood that, after obtaining the rating of the Offered Certificates from _____ and _____, neither the Trustee nor the Servicer is obligated to obtain, maintain or improve any rating assigned to the Offered S-66 Certificates), or (v) to make any other provisions with respect to matters or questions arising under such Agreement, provided that such action will not, as evidenced by an opinion of counsel, adversely affect in any material respect the interests of the Certificateholders. The Agreement may also be amended by Receivables Corp., the Servicer and the Trustee with the consent of the holders of Certificates of each Class affected thereby evidencing, as to such Class, Percentage Interests aggregating not less than 51% for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of such Agreement or of modifying in any manner the rights of the Certificateholders; provided, however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, any distributions which are required to be made on any Certificate without the consent of the holder of each Certificate affected thereby or (ii) reduce the aforesaid percentage of Certificates the holders of which are required to consent to any such amendment, without the consent of the holders of all Certificates then outstanding, and no such amendment shall adversely affect the status of the Trust as a REMIC. The Agreement may also be amended from time to time, without the consent of any Certificateholders, by the Trustee, Receivables Corp., and the Servicer to modify, eliminate or add to the provisions of the Agreement to (i) maintain the qualification of the Trust as a REMIC under the Code or avoid, or minimize the risk of, the imposition of any tax on the Trust under the Code that would be a claim against the Trust assets, provided that an opinion of counsel is delivered to the Trustee to the effect that such action is necessary or appropriate to maintain such qualification or avoid any such tax or minimize the risk of its imposition, or (ii) prevent the Trust from entering into any "prohibited transaction" as defined in Section 860F of the Code, provided that an opinion of counsel is delivered to the Trustee to the effect that such action is necessary or appropriate to prevent the Trust from entering into such prohibited transaction. Servicing Compensation For its servicing of the Contracts, the Servicer will be entitled to receive a monthly servicing fee equal to 1/12th of the product of % and the Pool Scheduled Principal Balance for the related Remittance Date (the "Monthly Servicing Fee"). The Amount Available will be net of the Monthly Servicing Fee if AFL is not the Servicer; if AFL is the Servicer, the Monthly Servicing Fee will be subordinate to distributions on account of the Certificates except distributions to the Class C and Residual Certificateholders. See "-- Payments on the Contracts; Certificate Account" herein. Advances Delinquency Advances. The Servicer will be required, not later than each Remittance Date, to deposit into the Certificate Account an amount equal to the Scheduled Payments due, but not collected, with respect to delinquent Contracts during the prior Collection Period, but only if, in its good faith business judgment, the Servicer believes that such amounts will ultimately be recovered on or with respect to the related Contract. Any such amounts so advanced are "Delinquency Advances." The Servicer will be permitted to fund its payment of Delinquency Advances on any Remittance Date from collections on any Contract deposited to the Certificate Account subsequent to the related Collection Period not required to be distributed to Certificateholders on the related Remittance Date, and will be required to reimburse the Certificate Account for such amounts from its own funds or from payments collected on the Contracts in a Collection Period that are not otherwise distributable on the related Remittance Date. Delinquency Advances are intended to maintain a regular flow of scheduled interest and principal payments to Certificateholders rather than to guarantee or insure against losses. A Contract is "delinquent" if any payment due thereon is not made by the close of business on its Due Date. The Servicer is permitted to reimburse itself for Delinquency Advances funded from its own funds only from subsequent collections on the related delinquent Contract, unless the Servicer determines that any unreimbursed Delinquency Advance constitutes a Nonrecoverable Delinquency Advance, in which event it will be reimbursable to the Servicer from collections on the Contract Pool generally. S-67 A "Nonrecoverable Delinquency Advance" is a Delinquency Advance previously made by the Servicer but which the Servicer subsequently, in its good faith business judgment, determines not to be recoverable from the related Contract. Servicing Advances. The Agreement requires the Servicer to pay, from its own funds, all reasonable and customary out-of-pocket costs and expenses incurred in connection with its servicing duties, including property preservation expenses, the costs of enforcing the Contracts, the security interests in the related Manufactured Homes, the management and liquidation of repossessed Manufactured Homes, advances for taxes, insurance, ground rents and similar types of charges (all such amounts, "Servicing Advances"). The Servicer will be required to make a Servicing Advance only if it believes that such amount will be recoverable with respect to the related Contract, or, if the related Manufactured Home is being liquidated, if such amount will increase the related Net Liquidation Proceeds. Servicing Advances are reimbursable to the Servicer only from the related Contract or related Liquidation Proceeds, and, except as otherwise provided in the Agreement, not from collections on the Contract Pool generally. Both unreimbursed Delinquency Advances and unreimbursed Servicing Advances are a priority claim against subsequent collections on or with respect to the related Contract, and the payment of such claims thus will reduce the Amount Available. Servicer Termination Events Events of Termination under the Agreement will include the following (i) any failure by the Servicer to distribute to the Certificateholders any required payment which continues unremedied for 5 days after the giving of written notice; (ii) any failure by the Servicer duly to observe or perform in any material respect any other of its covenants or agreements in the Agreement that materially and adversely affects the interests of Certificateholders, which, in either case, continues unremedied for 30 days after the giving of written notice of such failure of breach; (iii) any assignment or delegation by the Servicer of its duties or rights under the Agreement, except as specifically permitted under the Agreement, or any attempt to make such an assignment or delegation; (iv) certain events of insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings regarding the Servicer, and (v) the Servicer is no longer an Eligible Servicer (as defined in the Agreement). Notice as used herein shall mean notice to the Servicer by the Trustee or AFL, or to AFL, the Servicer, if any, and the Trustee by the holders of Certificates representing interests aggregating not less than 25% of the Trust. The Trustee (the "Trustee") has its corporate trust offices at . The Trustee may resign at any time, in which event Receivables Corp. will be obligated to appoint a successor Trustee. Receivables Corp. may also remove the Trustee if the Trustee ceases to be eligible to continue as such under the Agreement or if the Trustee becomes insolvent. In such circumstances, Receivables Corp. will also be obligated to appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee will not become effective until acceptance of the appointment by the successor Trustee. The Agreement requires the Trustee to maintain, at its own expense, an office or agency in __________ where Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Trustee and the Certificate Registrar in respect of the Certificates pursuant to the Agreement may be served. The Trustee, or any of its affiliates, in its individual or any other capacity, may become the owner or pledgee of Certificates with the same rights as it would if it were not Trustee. The Trustee will also act as Certificate Administrator under the Agreement. In such capacity it will act as Paying Agent, Certificate Registrar and Authenticating Agent. S-68 Registration of Offered Certificates The Offered Certificates will be book-entry certificates (the "Book-Entry Certificates"). The Beneficial Certificate Owners may elect to hold their Offered Certificates through DTC in the United States, or CEDEL or Euroclear (in Europe) if they are participants of such systems ("Participants"), or indirectly through organizations which are Participants in such systems. The Book-Entry Certificates will be issued in one or more certificates per class of Offered Certificates which in the aggregate equal the principal balance of such Offered Certificates and will initially be registered in the name of Cede, the nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of their Participants through customers' securities accounts in CEDEL's and Euroclear's names on the books of their respective depositaries which in turn will hold such positions in customers' securities accounts in the depositaries' names on the books of DTC. Citibank will act as depositary for CEDEL and Morgan will act as depositary for Euroclear (in such capacities, individually the "Relevant Depositary" and collectively the "European Depositaries"). Investors may hold such beneficial interests in the Book-Entry Certificates in minimum denominations representing principal amounts of $1,000. Except as described below, no Beneficial Certificate Owner will be entitled to receive a physical certificate representing such Certificate (a "Definitive Certificate"). Unless and until Definitive Certificates are issued, it is anticipated that the only "Owner" of such Offered Certificates will be Cede, as nominee of DTC. Beneficial Certificate Owners will not be Owners as that term is used in the Pooling Agreement. Beneficial Certificate Owners are only permitted to exercise their rights indirectly through Participants and DTC. The Beneficial Certificate Owner's ownership of a Book-Entry Certificate will be recorded on the records of the brokerage firm, bank, thrift institution or other financial intermediary (each, a "Financial Intermediary") that maintains the Beneficial Certificate Owner's account for such purpose. In turn, the Financial Intermediary's Ownership of such Book-Entry Certificate will be recorded on the records of DTC (or of a participating firm that acts as agent for the Financial Intermediary, whose interest will in turn be recorded on the records of DTC, if the Beneficial Certificate Owner's Financial Intermediary is not a DTC Participant and on the records of CEDEL or Euroclear, as appropriate). Beneficial Certificate Owners will receive all distributions of principal of, and interest on, the Offered Certificates from the Trustee through DTC and DTC Participants. While such Offered Certificates are outstanding (except under the circumstances described below), under the rules, regulations and procedures creating and affecting DTC and its operations (the "Rules"), DTC is required to make book-entry transfers among Participants on whose behalf it acts with respect to such Offered Certificates and is required to receive and transmit distributions of principal of, and interest on, such Offered Certificates. Participants and indirect participants with whom Beneficial Certificate Owners have accounts with respect to Offered Certificates are similarly required to make book-entry transfers and receive and transmit such distributions on behalf of their respective Beneficial Certificate Owners. Accordingly, although Beneficial Certificate Owners will not possess certificates, the Rules provide a mechanism by which Beneficial Certificate Owners will receive distributions and will be able to transfer their interest. Beneficial Certificate Owners will not receive or be entitled to receive certificates representing their respective interests in the Offered Certificates, except under the limited circumstances described below. Unless and until Definitive Certificates are issued, Beneficial Certificate Owners who are not Participants may transfer ownership of Offered Certificates only through Participants and indirect participants by instructing such Participants and indirect participants to transfer such Offered Certificates, by book-entry transfer, through DTC for the account of the purchasers of such Offered Certificates, which account is maintained with their respective Participants. Under the Rules and in accordance with DTC's normal procedures, transfers of ownership of such Offered Certificates will be executed through DTC and the accounts of the respective Participants at DTC will be debited and credited. Similarly, the Participants and indirect participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing Beneficial Certificate Owners. Because of time zone differences, credits of securities received in CEDEL or Euroclear as a result of a transaction with a Participant will be made during subsequent securities settlement processing and dated the business day following the DTC settlement date. Such credits or any transactions in such S-69 securities settled during such processing will be reported to the relevant Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL Participant (as defined below) or Euroclear Participant (as defined below) to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant CEDEL or Euroclear cash account only as of the business day following settlements in DTC. For information with respect to tax documentation procedures relating to the Certificates, see "Federal Income Tax Consequences -- Foreign Investors" and " -- Backup Withholding" in the Prospectus and "Global Clearance, Settlement and Tax Documentation Procedures -- Certain U.S. Federal Income Tax Documentation Requirements" in Annex I hereto. Transfers between Participants will occur in accordance with DTC rules. Transfers between CEDEL Participants and Euroclear Participants will occur in accordance with their respective rules and operating procedures. Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through CEDEL Participants or Euroclear Participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of the relevant European international clearing system by the Relevant Depositary; however, such cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to the Relevant Depositary to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same day funds settlement applicable to DTC. CEDEL Participants and Euroclear Participants may not deliver instructions directly to the European Depositaries. DTC, which is a New York-chartered limited purpose trust company, performs services for its Participants ("DTC Participants"), some of which (and/or their representatives) own DTC. In accordance with its normal procedures, DTC is expected to record the positions held by each DTC Participant in the Book-Entry Certificates, whether held for its own account or as a nominee for another person. In general, beneficial ownership of Book-Entry Certificates will be subject to the rules, regulations and procedures governing DTC and DTC Participants as in effect from time to time. CEDEL is incorporated under the laws of Luxembourg as a professional depositary. CEDEL holds securities for its participant organizations ("CEDEL Participants") and facilitates the clearance and settlement of securities transactions between CEDEL Participants through electronic book-entry changes in accounts of CEDEL Participants, thereby eliminating the need for physical movement of certificates. Transactions may be settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL provides to its CEDEL Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. CEDEL interfaces with domestic markets in several countries. As a professional depositary, CEDEL is subject to regulation by the Luxembourg Monetary Institute. CEDEL Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to CEDEL is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a CEDEL Participant, either directly or indirectly. Euroclear was created in 1968 to hold securities for participants of Euroclear ("Euroclear Participants") and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Transactions may now be settled in any of 31 currencies, including United States dollars. Euroclear includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian cooperative S-70 corporation (the "Cooperative"). All operations are conducted by the Euroclear Operator, and all Euroclear Securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear operator, not the Cooperative. The Cooperative establishes policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly. The Euroclear Operator is the Belgian branch of a New York banking corporation which is a member bank of the Federal Reserve System. As such, it is regulated and examined by the Board of Governors of the Federal Reserve System and the New York State Banking Department, as well as the Belgian Banking Commission. Securities clearance accounts and cash accounts with the Euroclear operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System and applicable Belgian law (collectively, the "Terms and Conditions"). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no record of or relationship with persons holding through Euroclear Participants. Distributions on the Book-Entry Certificates will be made on each Remittance Date by the Trustee to DTC. DTC will be responsible for crediting the amount of such payments to the accounts of the applicable DTC Participants in accordance with DTC's normal procedures. Each DTC Participant will be responsible for disbursing such payment to the Beneficial Certificate Owners of the Book-Entry Certificates that it represents and to each Financial Intermediary for which it acts as agent. Each such Financial Intermediary will be responsible for disbursing funds to the Beneficial Certificate Owners of the Book-Entry Certificates that it represents. Under a book-entry format, Beneficial Certificate Owners of the Book-Entry Certificates may experience some delay in their receipt of payments, since such payments will be forwarded by the Trustee to Cede. Distributions with respect to Offered Certificates held through CEDEL or Euroclear will be credited to the cash accounts of CEDEL Participants or Euroclear Participants in accordance with the relevant system's rules and procedures, to the extent received by the Relevant Depositary. Such distributions will be subject to tax reporting in accordance with relevant United States tax laws and regulations. Because DTC can only act on behalf of Financial Intermediaries, the ability of a Beneficial Certificate Owner to pledge Book-Entry Certificates, to persons or entities that do not participate in the Depository system, or otherwise take actions in respect of such Book-Entry Certificates, may be limited due to the lack of physical certificates for such Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in book-entry form may reduce the liquidity of such Certificates in the secondary market since certain potential investors may be unwilling to purchase Certificates for which they cannot obtain physical certificates. Monthly and annual reports on the Trust provided by the Servicer to Cede, as nominee of DTC, may be made available to Beneficial Certificate Owners upon request, in accordance with the rules, regulations and procedures creating and affecting the Depository, and to the Financial Intermediaries to whose DTC accounts the Book-Entry Certificates of such Beneficial Certificate Owners are credited. DTC has advised the Trustee that, unless and until Definitive Certificates are issued, DTC will take any action permitted to be taken by the holders of the Book-Entry Certificates under the Pooling Agreement only at the direction of one or more Financial Intermediaries to whose DTC accounts the Book-Entry Certificates are credited, to the extent that such actions are taken on behalf of Financial Intermediaries whose holdings include such Book-Entry Certificates. CEDEL or the Euroclear Operator, as the case may be, will take any action permitted to be taken by an Owner under the Pooling Agreement S-71 on behalf of a CEDEL Participant or Euroclear Participant only in accordance with its relevant rules and procedures and subject to the ability of the Relevant Depositary to effect such actions on its behalf through DTC. DTC may take actions, at the direction of the related Participants, with respect to some Offered Certificates which conflict with actions taken with respect to other Offered Certificates. Definitive Certificates will be issued to Beneficial Certificate Owners of the Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC or the Depositor advises the Trustee in writing that DTC is no longer willing, qualified or able to discharge properly its responsibilities as a nominee and depository with respect to the Book-Entry Certificates and the Depositor or the Trustee is unable to locate a qualified successor, (b) the Depositor, at its sole option, elects to terminate a book-entry system through DTC or (c) DTC, at the direction of the Beneficial Certificate Owners representing a majority of the outstanding Percentage Interests of the Offered Certificates, advises the Trustee in writing that the continuation of a book-entry system through DTC (or a successor thereto) is no longer in the best interests of Beneficial Certificate Owners. Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of Certificates among Participants of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue to perform such procedures and such procedures may be discontinued at any time. CERTAIN LEGAL ASPECTS OF THE CONTRACTS General As a result of the assignment of the Contracts in a Contract Pool to the Trustee, the Trust will succeed collectively to all of the rights (including the right to receive payment on such Contracts), and will assume the obligations of the obligee, under such Contracts. Each Contract evidences both (a) the obligation of the Obligor to repay the loan evidenced thereby, and (b) the grant of a security interest in either the Manufactured Home. Certain aspects of both features of the Contracts are described more fully below. The following discussion focuses on issues relating generally to AFL's or any lender's interest in manufactured housing contracts. See "-- Security Interests in the Manufactured Homes" herein for a discussion of certain issues relating to the transfer to the Trust of the Contracts and the related security interests in the Manufactured Homes. Security Interests in the Manufactured Homes The Manufactured Homes securing the Contracts may be located in all 50 states and the District of Columbia. Security interests in manufactured homes, similar to the ones securing the Contracts, ("manufactured homes") generally may be perfected either by notation of the secured party's lien on the certificate of title or by delivery of the required documents and payment of a fee to the state motor vehicle authority, depending on state law. In some non-title states, perfection pursuant to the provisions of the UCC is required. Generally, with respect to manufactured housing contracts individually originated or purchased by AFL, AFL effects such notation or delivery of the required documents and fees, and obtains possession of the certificate of title or a lien certificate, as appropriate, under the laws of the state in which any manufactured home securing a manufactured housing conditional sales contract is registered. If AFL fails, due to clerical errors or otherwise, to effect such notation or delivery, or files the security interest under the wrong law (for example, under a motor vehicle title statute rather than under the UCC, in a few states), AFL may not have a first-priority security interest in the manufactured home securing a contract. As manufactured homes have become larger and often have been attached to their sites without any apparent intention to move them, courts in many states have held that manufactured homes, under certain circumstances, may become subject to real estate title and recording laws. As a result, a security interest in a manufactured home could be rendered subordinate to the interests of other parties claiming an interest in the home under applicable state real estate law. In order to perfect a security interest in a manufactured home under real estate laws, the holder of the security interest must S-72 file either a "fixture filing" under the provisions of the UCC or a real estate mortgage under the real estate laws of the state where the home is located. These filings must be made in the real estate records office of the county where the home is located. Most of the Contracts in any Contract Pool will contain provisions prohibiting the Obligor from permanently attaching the Manufactured Home to its site if it was not so attached on the date of the Contract. As long as each Manufactured Home was not so attached on the date of the Contract and the Obligor does not violate this agreement, a security interest in the Manufactured Home will be governed by the certificate of title laws or the UCC, and the notation of the security interest on the certificate of title or the filing of a UCC financing statement will be effective to maintain the priority of AFL's security interest in the Manufactured Home. Upon the conveyance of each Contract to the Seller, AFL will represent that it had obtained a perfected first-priority security interest in the Manufactured Home securing the related Contract. Such representation, however, will not be based upon an inspection of the site of any Manufactured Home to determine if the Manufactured Home had become permanently attached to its site. In the absence of fraud, forgery or permanent affixation of a manufactured home to its site by the manufactured home owner, or administrative error by state recording officials, the notation of the lien of AFL on the certificate of title or delivery of the required documents and fees (or if applicable, perfection under the UCC) will be sufficient to protect AFL against the rights of subsequent purchasers of a manufactured home or subsequent lenders who take a security interest in the manufactured home. If there are any manufactured homes as to which the security interest in favor of AFL is not perfected, such security interest would be subordinate to the claims of, among others, subsequent purchasers for value of and holders of perfected security interests in such manufactured homes. In the event that the owner of a manufactured home moves it to a state other than the state in which such manufactured home initially is registered, under the laws of most states, the perfected security interest in the manufactured home would continue for four months after such relocation and thereafter until the owner registers the manufactured home in such state. If the owner were to relocate a manufactured home to another state and were to re-register the manufactured home in such state, and if steps are not taken to re-perfect an existing security interest in such state, the security interest in the manufactured home would cease to be perfected. A majority of states generally require surrender of a certificate of title to such manufactured home. AFL must therefore surrender possession if it holds the certificate of title to such manufactured home or, in the case of manufactured homes registered in states which provide for notation of lien, AFL would receive notice of surrender if its security interest in the manufactured home is noted on the certificate of title. Accordingly, AFL would have the opportunity to re-perfect its security interest in the manufactured home in the state of relocation. In states which do not require a certificate of title for registration of a manufactured home, re-registration could defeat the perfection. In the ordinary course of servicing its manufactured housing contracts, AFL takes steps to effect such re-perfection upon receipt of notice of re-registration or information from the obligor as to relocation. Similarly, when an obligor under a contract sells a manufactured home, AFL must surrender possession of the certificate of title or AFL will receive notice as a result of its lien noted thereon and accordingly AFL will have an opportunity to require satisfaction of the related contract before release of the lien. Such protections generally would not be available in the case of security interests in manufactured homes located in non-title states where perfection of such security interest is achieved by appropriate filings under the UCC (as in effect in such state). Under the laws of most states, liens for repairs performed on a manufactured home and liens for personal property taxes take priority over a perfected security interest in the manufactured home. Upon the conveyance of each Contract to the Seller, AFL will represent that it had obtained a perfected first-priority security interest in the Manufactured Home securing the related Contract. The Seller will, in turn, warrant in the Agreement that, as of the date of initial issuance of such Series of Certificates, no Manufactured Home was subject to any such lien. However, such warranties will not be based on any lien searches or other review. In addition, such liens could arise after the date of initial issuance of the Certificates. Notice may not be given to Receivables Corp., the Servicer, the Trustee or Certificateholders in the event such a lien arises. Enforcement of Security Interests in Manufactured Homes S-73 The Servicer on behalf of the Trustee, to the extent required by the related Agreement, may take action to enforce the Trustee's security interest with respect to Contracts in default by repossession and resale of the Manufactured Homes securing such defaulted Contracts. In general, as long as a manufactured home has not become subject to the real estate law, a creditor can repossess a manufactured home by voluntary surrender, by "self-help" repossession that is "peaceful" (i.e., without breach of the peace) or, in the absence of voluntary surrender and the ability to repossess without breach of the peace, by judicial process. The holder of a manufactured housing contract generally must give the obligor a number of days' notice prior to commencement of any repossession. The UCC and consumer protection laws in most states place restrictions on repossession sales, including requiring prior notice to the obligor and commercial reasonableness in effecting such a sale. The law in most states also requires that the obligor be given notice of any sales prior to resale of the unit so that the obligor may redeem at or before such resale. Under the laws applicable in most states, a creditor is entitled to obtain a deficiency judgment from an obligor for any deficiency on repossession and resale of the manufactured home securing such obligor's contract. However, some states impose prohibitions or limitations on deficiency judgments, and in many cases the defaulting obligor would have no assets with which to pay a judgment. Certain other statutory provisions, including federal and state bankruptcy and insolvency laws and general equitable principles, may limit or delay AFL's ability to repossess and resell any Manufactured Home or enforce a deficiency judgment. Land Secured Contracts General. The Land Secured Contract will, to the extent described under "The Contract Pool," be secured by Mortgages on the property on which the related Manufactured Homes are located. The Mortgages will either be mortgages or deeds of trust, depending on the general real estate practice in the state in which the Mortgaged Property is located. A mortgage creates a lien upon the real property described in the mortgage. There are two parties to a mortgage: the mortgagor, who is the borrower, and the mortgagee, who is the lender. The mortgagor delivers to the mortgagee a note or bond evidencing the loan and the mortgage. A deed of trust normally has three parties: the real property owner called the trustor (similar to a mortgagor), a lender called the beneficiary (similar to the mortgagee) and a third-party grantee called the trustee. Under a deed of trust, the trustor grants the property, irrevocably until the debt is paid, "in trust with power of sale" to the trustee to secure payment of the obligation. Non-Recordation. Because of the expenses and administrative inconvenience involved, the assignment of mortgages or deeds of trust to the Trustee will not be recorded with respect to the Mortgages securing each Land Secured Contract. The failure to record the assignments to the Trustee of the Mortgage securing Land Secured Contracts may result in the sale of such Contracts or the Trustee's rights in the land secured by the Mortgage being ineffective against creditors of AFL or against a trustee in bankruptcy of AFL or against a subsequent purchaser of such Contracts from AFL or Receivables Corp., without notice of the sale to the Trustee. Foreclosure. Foreclosure of a mortgage is generally accomplished by judicial action. The action is initiated by the service of legal pleadings upon all parties having an interest of record in the real property. Delays in completion of the foreclosure occasionally may result from difficulties in locating and serving necessary parties. Judicial foreclosure proceedings are generally not contested by any of the parties due to the lack of the mortgagor's equity in the property. However, when the mortgagee's right to foreclosure is contested, the legal proceedings necessary to resolve the issue can be time consuming and expensive. After the completion of a judicial foreclosure proceeding, the court issues a judgment of foreclosure and a court officer conducts the sale of the property. Foreclosure of a deed of trust is generally accomplished by a non-judicial trustee's sale under a specific provision in the deed of trust that authorizes the trustee to sell the property to a third party upon any default by the borrower under the terms of the note or deed of trust. In certain states, such S-74 foreclosure also may be accomplished by judicial action in the manner provided for foreclosure of mortgages. In some states, the borrower-trustor has the right to reinstate the loan at any time following default until shortly before the trustee's sale. In general, the borrower, or any other person having a junior encumbrance on the real estate, may, during a reinstatement period, cure the default by paying the entire amount in arrears plus the costs and expenses incurred in enforcing the obligation. Certain state laws control the amount of foreclosure expenses and costs, including attorneys' fees, which may be recovered by a lender. The sale must be conducted by public auction and must be held in the county where all or some part of the property subject to the mortgage is located. However, because of the difficulty a potential buyer at the sale would have in determining the exact status of title and because the physical condition of the property may have deteriorated during the foreclosure proceedings, it is not common for a third party to purchase the property at the foreclosure sale. Rather, the lender generally purchases the property for an amount equal to the unpaid principal amount of the note, accrued and unpaid interest and the expenses of foreclosure. Thereafter, subject to the right of the borrower in some states to remain in possession during the redemption period, the lender will assume the burdens of ownership, including obtaining hazard insurance and making such repairs at its own expense as are necessary to render the property suitable for sale. The lender commonly will obtain the services of a real estate broker and pay the broker a commission in connection with the sale of the property. Depending upon market conditions, the ultimate proceeds of the sale of the property may not equal the lender's investment in the property. Rights of Redemption. In some states, after a sale pursuant to a deed of trust or a foreclosure of a mortgage, the borrower and certain foreclosed junior lienors are given a statutory period in which to redeem the property from the foreclosure sale. Redemption may occur upon payment of the entire principal balance of the loan, accrued statutory interest and expenses of foreclosure. The effect of a right of redemption is to diminish the ability of the lender to sell the foreclosed property. The exercise of a right of redemption would defeat the title of any purchaser from the lender subsequent to foreclosure and before expiration of the redemption period. Consequently, the practical effect of the redemption right is to force the lender to maintain the property, and pay the expenses of ownership until the redemption period has expired. Anti-Deficiency Legislation and Other Limitations on Lenders. Certain states have imposed statutory restrictions that limit the remedies of a mortgagee under a mortgage relating to a single family residence. In some states, statutes limit the right of the lender to obtain a deficiency judgment against the borrower following foreclosure or sale under a deed of trust. A deficiency judgment is a personal judgment against the borrower equal in most cases to the difference between the amount due to the lender and the net amount realized upon the foreclosure sale. Some state statutes may require the lender to exhaust the security afforded under a mortgage or deed of trust by foreclosure in an attempt to satisfy the full debt before bringing a personal action against the borrower. In certain other states, the lender has the option of bringing a personal action against the borrower on the debt without first exhausting such security; however, in some of these states, the lender, following judgment on such personal action, may be deemed to have elected a remedy and may be precluded from exercising remedies with respect to the security. Other statutory provisions may limit any deficiency judgment against the former borrower following a foreclosure sale to the excess of the outstanding debt over the fair market value of the property at the time of such sale. The purpose of these statutes is to prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment against the former borrower as a result of low or no bids at the foreclosure sale. In some states, exceptions to the anti-deficiency statutes are provided for in certain instances where the value of the lender's security has been impaired by acts or omissions of the borrower, for example, in the event of waste of the property. S-75 In addition to anti-deficiency and related legislation, numerous other federal and state, statutory provisions, including the federal bankruptcy laws, the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws affording relief to debtors, may interfere with or affect the ability of a secured mortgage lender to realize upon its security. A bankruptcy court may grant the debtor a reasonable time to cure a payment default, and in the case of a mortgage loan not secured by the debtor's principal residence, also may reduce the monthly payments due under such mortgage loan, change the rate of interest and alter the mortgage loan repayment schedule. Certain court decisions have applied such relief to claims secured by, the debtor's principal residence. The Code provides priority to certain tax liens over the lien of the mortgage or deed of trust. The laws of some states provide priority to certain tax liens over the lien of the mortgage or deed of trust. Numerous federal and some state consumer protection laws impose substantive requirements upon mortgage lenders in connection with the origination, servicing and enforcement of mortgage loans. These laws include the federal Truth in Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and related statutes and regulations. These federal laws and state laws impose specific statutory liabilities upon lenders who originate or service mortgage loans and who fail to comply with the provisions of the law. In some cases, this liability may affect assignees of the mortgage loans. Consumer Protection Laws The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is intended to defeat the ability of the transferor of a consumer credit contract which is the seller of goods which gave rise to the transaction (and certain related lenders and assignees) to transfer such contract free of notice of claims by the obligor thereunder. The effect of this rule is to subject the assignee of such a contract to all claims and defenses which the obligor could assert against the seller of goods. Liability under this rule is limited to amounts paid under such a contract; however, the obligor also may be able to assert the rule to set off remaining amounts due as a defense against a claim brought by the assignee against such obligor. Generally, this rule will apply to any Contracts conveyed to the Trustee and to any claims made by the Servicer on behalf of the Trustee, as the assignee of Receivables Corp., and in turn AFL. Numerous other federal and state consumer protection laws impose requirements applicable to the origination and lending pursuant to such Contracts, including the Truth in Lending Act, the Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the Uniform Consumer Credit Code. In the case of some of these laws, the failure to comply with their provisions may affect the enforceability of the related Contract or create liability for the Trust. Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act"), if so required by a obligor under a manufactured housing contract who enters military service after the origination of such obligor's contract (including a obligor who is a member of the National Guard or is in reserve status at the time of the origination of the contract and is later called to active duty), such obligor may not be charged interest above an annual rate of 6% during the period of such obligor's active duty status, unless a court orders otherwise upon application of the lender. In addition, the Relief Act imposes limitations which would impair the ability of any lender to foreclose on an affected contract during the obligor's period of active duty status. It is possible that application of the Relief Act to certain of the Contracts could have an effect, for an indeterminate period of time, on the ability of the Servicer to collect full amounts of interest or foreclose on such Contracts and to the extent not covered by a Credit Facility, could result in delays in payment or losses to the holders of the related Certificates. Neither AFL nor Receivables Corp. will make any representation or warranty as to whether any Contract is or could become subject to the Relief Act. Transfers of Manufactured Homes; Enforceability of Restrictions on Transfer The Contracts comprising any Contract Pool generally will prohibit the sale or transfer of the related Manufactured Homes without the consent of the obligee and permit the acceleration of the maturity of the Contracts by the obligee upon any such sale or transfer that is not consented to. Under S-76 the Agreement, AFL as Servicer is required to consent to any such transfer and to permit the assumption of the related Contract if the proposed buyer meets the Servicer's underwriting standards and enters into an assumption agreement, the Servicer determines that permitting such assumption will not materially increase the risk of nonpayment of the Contract and such action will not adversely affect or jeopardize any coverage under any insurance policy required by the Agreement. If the Servicer determines that these conditions have not been fulfilled, then it is required to withhold its consent to the transfer, but only to the extent permitted under the Contract and applicable law and governmental regulations and only to the extent that such action will not adversely affect or jeopardize any coverage under any insurance policy required by the Agreement. In certain cases, a delinquent Obligor may attempt to transfer a Manufactured Home in order to avoid a repossession proceeding with respect to such Manufactured Home. In the case of a transfer of a Manufactured Home after which the obligee desires to accelerate the maturity of the related Contract, the obligee's ability to do so will depend on the enforceability under state law of the clause permitting acceleration on transfer. The Garn-St. Germain Depositary Institutions Act of 1982 preempts, subject to certain exceptions and conditions, state laws prohibiting enforcement of such clauses applicable to manufactured homes. To the extent such exceptions and conditions apply in some states, the Servicer may be prohibited from enforcing such a clause in respect of certain Manufactured Homes. Applicability of Usury Laws Title V of the Depository Institutions Deregulation and Monetary Controls Act of 1980, as amended ("Title V"), provides that, subject to the following conditions, state usury limitations shall not apply to any loan which is secured by a first lien on certain kinds of manufactured housing. The Contracts would be covered under Title V if, among other things, they satisfy certain conditions governing the terms of any prepayments, late charges and deferral fees and requiring a 30-day notice period prior to instituting any action leading to repossession of the related unit. Title V authorized any state to reimpose limitations on interest rates and finance charges by adopting before April 1, 1983 a law or constitutional provision which expressly rejects application of the federal law. Fifteen states adopted such a law prior to the April 1, 1983 deadline. In addition, even where Title V was not so rejected, any state is authorized by the law to adopt a provision limiting discount points or other charges on loans covered by Title V. Upon the conveyance of each Contract to the Trust, Receivables Corp. will represent that such Contract complied with applicable usury laws. FEDERAL INCOME TAX CONSEQUENCES The following discussion of certain of the material federal income tax consequences of the purchase, ownership and disposition of the Offered Certificates is to be considered only in connection with "Federal Income Tax Considerations" in the Prospectus. The discussion herein and in the Prospectus is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. The discussion below and in the Prospectus does not purport to deal with all federal tax consequences applicable to all categories of investors, some of which may be subject to special rules. Investors should consult their own tax advisors in determining the federal, state, local and any other tax consequences to them of the purchase, ownership and disposition of the Offered Certificates. REMIC Elections The Trustee will cause one or more elections to be made with respect to certain specified assets of the Trust as real estate mortgage investment conduits ("REMICs") within the meaning of Code Section 860D. _______________, special tax counsel, will advise that, in its opinion, for federal income tax purposes, assuming the REMIC elections are made and compliance with the Pooling and Servicing Agreement, each Class of the Class A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the Class A-4 Certificates, the Class A-5 Certificates, the Class A-6 Certificates and the Class B-1 Certificates will each be treated as a "regular interest" in a REMIC. S-77 For federal income tax purposes, regular interests in a REMIC are treated as debt instruments issued by the REMIC on the date on which those interests are created, and not as ownership interests in the REMIC or its assets. Owners of Class A Certificates that otherwise report income under a cash method of accounting will be required to report income with respect to such Certificates under an accrual method. The prepayment assumption that will be used in determining the rate of accrual of original issue discount on the Class A Certificates is ___% of the "Prepayment Assumption." See "Maturity, Prepayment and Yield Considerations" herein. herein and "Federal Income Tax Considerations - - - Discount and Premium" in the Prospectus. Taxation of Foreign Investors In general, foreign investors will not be subject to U.S. withholding on income from the Offered Certificates. See "Federal Income Tax Considerations -- Foreign Investors -- Grantor Trust Securities and REMIC Regular Securities" in the Prospectus. ERISA CONSIDERATIONS The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), imposes certain fiduciary restrictions on employee benefit plans that are subject to ERISA and on persons who are fiduciaries with respect to such plans. In addition, such plans, as well as certain plans or other retirement arrangements not subject to ERISA, but which are subject to Section 4975 of the Code (such as individual retirement accounts) and any entity whose underlying assets include plan assets by reason of a plan or account investing in such entity (collectively, "Plans") are subject to prohibited transaction restrictions. See "ERISA Considerations" in the Prospectus. Purchasers that are insurance companies should consult with their counsel with respect to the recent United States Supreme Court case interpreting the fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust & Savings Bank, 114 S. Ct. 517 (1993). In John Hancock, the Supreme Court ruled that assets held in an insurance company's general account may be deemed to be "plan assets" for purposes of ERISA under certain circumstances. Prospective Plan investors should consult with their legal advisors concerning the impact of ERISA and the Code, the applicability of the Exemption (defined below) and other administrative exemptions under ERISA and the potential consequences in their specific circumstances, prior to making an investment in the Offered Certificates. Moreover, each Plan fiduciary should determine whether under the general fiduciary standards of investment prudence and diversification an investment in the Offered Certificates is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan's investment portfolio. Senior Certificates The Department of Labor ("DOL") has granted to each of and an administrative exemption, Prohibited Transaction Exemption and Prohibited Transaction Exemption , respectively (each, an "Exemption"), from certain of the prohibited transaction rules of ERISA. The Exemption exempts from the prohibitions of Sections 406(a) and 407(a) of ERISA, and the related excise tax provisions of Section 4975 of the Code, the purchase, holding, and resale by Plans of pass-through certificates representing interests in trusts that hold assets consisting primarily of certain receivables, loans, and other obligations that meet the general conditions described below. The receivables covered by the Exemption include manufactured housing installment sales contracts and installment loan agreements secured by manufactured homes such as the Contracts. Among the general conditions which must be satisfied for the Exemption to apply to the acquisition, holding and resale by a Plan of the Senior Certificates are the following: S-78 (1) The acquisition of the Senior Certificates by a Plan is on terms (including the price for the Senior Certificates) that are at least as favorable to the Plan as they would be in an arm's-length transaction with an unrelated party. (2) The rights and interests evidenced by the Senior Certificates acquired by the Plan are not subordinated to the rights and interests evidenced by other certificates of the Trust. (3) The Senior Certificates acquired by the Plan have received a rating at the time of such acquisition that is in one of the three highest generic rating categories from Moody's, Fitch, Duff & Phelps Rating Co. or Standard & Poor's Corporation. (4) The Trustee is not an affiliate of the Underwriters, Receivables Corp., AFL, any obligor with respect to Contracts included in the Trust constituting more than 5% of the aggregate unamortized principal balance of the assets in the Trust, or any affiliate of such parties. (Such parties and the Trustee and its affiliates, are sometimes referred to herein collectively as the "Restricted Group"). As of the date hereof, no Obligor with respect to Contracts included in the Trust is an Obligor with respect to Contracts constituting more than 5% of the aggregate unamortized principal balance of the assets of the Trust. (5) The sum of all payments made to and retained by the Underwriters in connection with the distribution of the Senior Certificates represents not more than reasonable compensation for underwriting the Senior Certificates. The sum of all payments made to and retained by Receivables Corp. pursuant to the sale of the Contracts to the Trust represents not more than the fair market value of such Contracts. The sum of all payments made to and retained by AFL represents not more than reasonable compensation for AFL's services under the Agreement and reimbursement of AFL's reasonable expenses in connection therewith. (6) The Plan is an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission under the Securities Act of 1933. In addition, the Exemption exempts from the prohibitions of Sections 406(a), 406(b) and 407(a) of ERISA, and the related excise tax provisions of Section 4975 of the Code, transactions undertaken in connection with the servicing, management and operation of such a trust pursuant to a binding pooling and servicing agreement, subject to the foregoing general conditions and to certain additional requirements. The Exemption also exempts from the prohibition of Sections 406(b)(1) and 406(b)(2) of ERISA the related excise tax provisions of Section 4975 of the Code, the direct or indirect sale, exchange or transfer of Senior Certificates between Receivables Corp. or the Underwriters and a Plan when the person who has discretionary authority or renders investment advice with respect to the investment of the Plan's assets in the Senior Certificates (the "Fiduciary") is (a) an obligor with respect to 5 percent or less of the fair market value of Contracts in the Trust or (b) an affiliate or any such person, subject to the general conditions described above and to the following additional requirements: (1) No member of the Restricted Group is a sponsor of the Plan. (2) In connection with the initial issuance of Senior Certificates, at least 50% in Percentage Interests of each Class of Senior Certificates is acquired by persons independent of the Restricted Group and at least 50% of the aggregate interest in the Trust is acquired by persons independent of the Restricted Group. (3) The Plan's investment in the Senior Certificates does not exceed 25% in Percentage Interests of any Class of Senior Certificates outstanding at the time of acquisition. (4) Immediately after the acquisition of the Senior Certificates, no more than 25% of the assets of the Plan with respect to which the Fiduciary has discretionary authority or renders S-79 investment advice are invested in certificates representing an interest in a trust containing assets sold or serviced by the same entity. The exemption also applies to the direct or indirect acquisition or disposition of Senior Certificates by a Plan in the secondary market if certain conditions are met and the continued holding of Senior Certificates acquired in initial or secondary markets. [Prior to the earlier of (i) the date on which the Funding Period expires and (ii) the date on which the DOL amends the Exemption to permit the use of pre-funding accounts thereunder, Plans will not be permitted to purchase the Senior Certificates. On the earlier to occur of such dates, the Exemption may be available for the purchase of Senior Certificates by Plans.] Before purchasing a Senior Certificate, a fiduciary of a Plan should make its own determination as to the availability of the exemptive relief provided in the Exemption, and whether the conditions of such Exemption will be applicable to the Certificate. Any fiduciary of a Plan considering whether to purchase a Senior Certificate should also carefully review with its own legal advisors the applicability of the fiduciary duty and prohibited transaction provisions of ERISA and the Code to such investment. See "ERISA Considerations" in the Prospectus. Subordinate Certificates As indicated above, one of the general conditions for use of the Exemption is that the rights and interests evidenced by certificates acquired by the Plan not be subordinated to the rights and interests evidenced by other certificates of the Trust. Accordingly, the Subordinated Certificates could not generally be purchased or held by a Plan or a person using plan assets in reliance on the Exemption. However, Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60") provides an exemption for an insurance company general account purchaser of a certificate issued by an asset-backed pool trust if, among other conditions, the trust is covered by an administrative exemption granted to the underwriter (such as the Exemption) and the conditions for such exemption are met except for the general conditions described in (2) and (3) above. Thus, if the conditions of the Exemption are satisfied with respect to the Senior Certificates, the Class A-6 and Class B-1 Certificates may be acquired by an insurance company using general account assets provided the conditions of PTCE 95-60 are satisfied. Before purchasing a Class A-6 or Class B-1 Certificate, an insurance company general account purchaser should make its own determination as to the availability of the exemptive relief provided in the Exemption and in PTCE 95-60, and whether the conditions of the Exemption and PTCE 95-60 will be applicable to the Certificate. Any insurance company considering whether to purchase a Class A-6 or B-1 Certificate should also carefully review with its own legal advisors the applicability of the fiduciary duty and prohibited transaction provisions of ERISA and the Code to such investment. RATINGS It is a condition to the issuance of the Senior Certificates that they be rated " " by (" ") and " " by (" "). It is a condition to the issuance of the Class A-6 Certificates that they be rated at least " " by and " " by . It is a condition to the issuance of the Class B-1 Certificates that they be rated at least " " by and " " by . A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. The ratings assigned by and to pass-through certificates address the likelihood of the receipt by the related certificateholders of their allocable share of principal and interest on the underlying assets. and ratings take into consideration the credit quality of the related underlying assets, any credit support arrangements, structural and legal aspects associated with such certificates, and the extent to which the payment stream on such underlying assets are adequate to make payments required by such certificates. and ratings on such certificates do not, however, constitute a statement S-80 regarding frequency of prepayments on the underlying assets or as to whether yield may be adversely affected as a result thereof. Receivables Corp. has not requested a rating on the Offered Certificates by any rating agency other than and . However, there can be no assurance as to whether any other rating agency will rate any or all of the Offered Certificates, or if it did, what rating would be assigned to the Offered Certificates by any such other rating agency. A rating on any or all of the Offered Certificates by certain other rating agencies, if assigned at all, may be lower than the rating assigned to such Certificates by and . PLAN OF DISTRIBUTION Subject to the terms and conditions of the Underwriting Agreement dated (the "Underwriting Agreement"), the Seller has agreed to sell, and and (the "Underwriters") have agreed to purchase from the Seller, the Offered Certificates. In the Underwriting Agreement, each of the Underwriters has agreed, subject to the terms and conditions set forth therein, to purchase, the principal amount of the Offered Certificates set forth opposite its name below.
Underwriter Principal Amount of Offered Certificates .......................................................... $ .......................................................... Total................................................ $
The Seller has been advised by the Underwriters that they propose to offer the Offered Certificates to the public initially at the prices set forth on the cover page of this Prospectus Supplement, and to certain dealers at such prices less a concession not to exceed % of the Original Class A-1 Principal Balance, % of the Original Class A-2 Principal Balance, % of the Original Class A-3 Principal Balance, % of the Original Class A-4 Principal Balance, % of the Original Class A-5 Principal Balance, % of the Original A-6 Principal Balance and % of the Original Class B-1 Principal Balance; that the Underwriters and such dealers may allow a discount of % of the Original Class A-1 Principal Balance, % of the Original Class A-2 Principal Balance, % of the Original Class A-3 Principal Balance, % of the Original Class A-4 Principal Balance, % of the Original Class A-5 Principal Balance, % of the Original A-6 Principal Balance and % of the Original Class B-1 Principal Balance to certain other dealers. After the initial public offering of the Offered Certificates, the public offering price and concession and discount to dealers may be changed by the Underwriters. The Underwriting Agreement provides that AFL will indemnify each Underwriter against certain liabilities, including civil liabilities, under the Securities Act of 1933, as amended, or contribute to payments either Underwriter may be required to make in respect thereof. USE OF PROCEEDS Substantially all of the net proceeds to be received from the sale of the Certificates will be used by Receivables Corp. for general corporate purposes, including the purchase of the Contracts, the carrying costs of the Contracts until the sale of the Certificates and to pay other expenses connected with pooling the Contracts and issuing the Certificates. LEGAL MATTERS Certain legal matters relating to the Certificates will be passed upon for AFL and the Seller by . Certain tax matters concerning the issuance of the Certificates will be passed upon by , will act as counsel for the Underwriters. S-81 ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES Except in certain limited circumstances, the globally offered Manufactured Housing Contract Trust Offered Certificates (the "Global Securities") will be available only in book-entry form. Investors in the Global Securities may hold such Global Securities through any of DTC, CEDEL or Euroclear. The Global Securities will be tradeable as home market instruments in both the European and U.S. domestic markets. Initial settlement and all secondary trades will settle in same-day funds. Secondary market trading between investors through CEDEL and Euroclear will be conducted in the ordinary way in accordance with the normal rules and operating procedures of CEDEL and Euroclear and in accordance with conventional eurobond practice (i.e., seven calendar day settlement). Secondary market trading between investors through DTC will be conducted according to DTC's rules and procedures applicable to U.S. corporate debt obligations. Secondary cross-market trading between CEDEL or Euroclear and DTC Participants holding Certificates will be effected on a delivery-against-payment basis through the respective Depositaries of CEDEL and Euroclear (in such capacity) and as DTC Participants. Non-U.S. holders (as described below) of Global Securities will be subject to U.S. withholding taxes unless such holders meet certain requirements and deliver appropriate U.S. tax documents to the securities clearing organizations or their participants. Initial Settlement All Global Securities will be held in book-entry form by DTC in the name of Cede as nominee of DTC. Investors' interests in the Global Securities will be represented through financial institutions acting on their behalf as direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold positions on behalf of their participants through their Relevant Depositary which in turn will hold such positions in their accounts as DTC Participants. Investors electing to hold their Global Securities through DTC will follow DTC settlement practices. Investor securities custody accounts will be credited with their holdings against payment in same-day funds on the settlement date. Investors electing to hold their Global Securities through CEDEL or Euroclear accounts will follow the settlement procedures applicable to conventional eurobonds, except that there will be no temporary global security and no "lock-up" or restricted period. Global Securities will be credited to the securities custody accounts on the settlement date against payment in same-day funds. Secondary Market Trading Since the purchaser determines the place of delivery, it is important to establish at the time of the trade where both the purchaser's and seller's accounts are located to ensure that settlement can be made on the desired value date. Trading between DTC Participants. Secondary market trading between DTC Participants will be settled using the procedures applicable to prior home equity loan asset-backed certificates issues in same-day funds. I-1 Trading between CEDEL and/or Euroclear Participants. Secondary market trading between CEDEL Participants or Euroclear Participants will be settled using the procedures applicable to conventional eurobonds in same-day funds. Trading between DTC, Seller and CEDEL or Euroclear Participants. When Global Securities are to be transferred from the account of a DTC Participant to the account of a CEDEL Participant or a Euroclear Participant, the purchaser will send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at least one business day prior to settlement. CEDEL or Euroclear will instruct the Relevant Depositary, as the case may be, to receive the Global Securities against payment. Payment will include interest accrued on the Global Securities from and including the last coupon payment date to and excluding the settlement date, on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. Payment will then be made by the Relevant Depositary to the DTC Participant's account against delivery of the Global Securities. After settlement has been completed, the Global Securities will be credited to the respective clearing system and by the clearing system, in accordance with its usual procedures, to the CEDEL Participant's or Euroclear Participant's account. The securities credit will appear the next day (European time) and the cash debt will be back-valued to, and the interest on the Global Securities will accrue from, the value date (which would be the preceding day when settlement occurred in New York). If settlement is not completed on the intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt will be valued instead as of the actual settlement date. CEDEL Participants and Euroclear Participants will need to make available to the respective clearing systems the funds necessary to process same-day funds settlement. The most direct means of doing so is to preposition funds for settlement, either from cash on hand or existing lines of credit, as they would for any settlement occurring within CEDEL or Euroclear. Under this approach, they may take on credit exposure to CEDEL or Euroclear until the Global Securities are credited to their account one day later. As an alternative, if CEDEL or Euroclear has extended a line of credit to them, CEDEL Participants or Euroclear Participants can elect not to preposition funds and allow that credit line to be drawn upon to finance settlement. Under this procedure, CEDEL Participants or Euroclear Participants purchasing Global Securities would incur overdraft charges for one day, assuming they cleared the overdraft when the Global Securities were credited to their accounts. However, interest on the Global Securities would accrue from the value date. Therefore, in many cases the investment income on the Global Securities earned during that one-day period may substantially reduce or offset the amount of such overdraft charges, although the result will depend on each CEDEL Participant's or Euroclear Participant's particular cost of funds. Since the settlement is taking place during New York business hours, DTC Participants can employ their usual procedures for crediting Global Securities to the respective European Depositary for the benefit of CEDEL Participants or Euroclear Participants. The sale proceeds will be available to the DTC seller on the settlement date. Thus, to the DTC Participants a cross-market transaction will settle no differently than a trade between two DTC Participants. Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time zone differences in their favor, CEDEL Participants and Euroclear Participants may employ their customary procedures for transactions in which Global Securities are to be transferred by the respective clearing system, through the respective Depository, to a DTC Participant. The seller will send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at least one business day prior to settlement. In these cases CEDEL or Euroclear will instruct the respective Depository, as appropriate, to credit the Global Securities to the DTC Participant's account against payment. Payment will include interest accrued on the Global Securities from and including the last coupon payment to and excluding the settlement date on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. The payment will then be reflected in the I-2 account of CEDEL Participant or Euroclear Participant the following day, and receipt of the cash proceeds in the CEDEL Participant's or Euroclear Participant's account would be back-valued to the value date (which would be the preceding day, when settlement occurred in New York). In the event that the CEDEL Participant or Euroclear Participant have a line of credit with its respective clearing system and elect to be in debt in anticipation of receipt of the sale proceeds in its account, the back-valuation will extinguish any overdraft incurred over that one-day period. If settlement is not completed on the intended value date (i.e., the trade fails), receipt of the cash proceeds in the CEDEL Participant's or Euroclear Participant's account would instead be valued as of the actual settlement date. Finally, day traders that use CEDEL or Euroclear and that purchase Global Securities from DTC Participants for delivery to CEDEL Participants or Euroclear Participants should note that these trades would automatically fail on the sale side unless affirmative action is taken. At least three techniques should be readily available to eliminate this potential problem: (a) borrowing through CEDEL or Euroclear for one day (until the purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in accordance with the clearing system's customary procedures; (b) borrowing the Global Securities in the U.S. from a DTC Participant no later than one day prior to settlement, which would give the Global Securities sufficient time to be reflected in their CEDEL or Euroclear account in order to settle the sale side of the trade; or (c) staggering the value dates for the buy and sell sides of the trade so that the value date for the purchase from the DTC Participant is at least one day prior to the value date for the sale to the CEDEL Participant or Euroclear Participant. Certain U.S. Federal Income Tax Documentation Requirements A beneficial owner of Global Securities holding securities through CEDEL or Euroclear (or through DTC if the holder has an address outside the U.S.) will be subject to the 30% U.S. withholding tax that generally applies to payments of interest (including original issue discount) on registered debt issued by U.S. Persons (as defined below), unless (i) each clearing system, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business in the chain of intermediaries between such beneficial owner and the U.S. entity required to withhold tax complies with applicable certification requirements and (ii) such beneficial owner takes one of the following steps to obtain an exemption or reduced tax rate: Exemption for Non-U.S. Persons (Form W-8). Beneficial Certificate Owners of Global Securities that are Non-U.S. Persons (as defined below) can obtain a complete exemption from the withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If the information shown on Form W-8 changes, a new Form W-8 must be filed within 30 days of such change. Exemption for Non-U.S. Persons with effectively connected income (Form 4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or bank with a U.S. branch, for which the interest income is effectively connected with its conduct of a trade or business in the United States, can obtain an exemption from the withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States). Exemption or reduced rate for non-U.S. Persons resident in treaty countries (Form 1001). Non-U.S. Persons residing in a country that has a tax treaty with the United States can obtain an exemption or reduced tax rate (depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only for a reduced rate, withholding tax will be imposed at that rate unless the filer alternatively files Form W-8. Form 1001 may be filed by Certificate Owners or their agent. I-3 Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete exemption from the withholding tax by filing Form W-9 (Payer's Request for Taxpayer Identification Number and Certification). U.S. Federal Income Tax Reporting Procedure. The Owner of a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by submitting the appropriate form to the person through whom it holds (the clearing agency, in the case of persons holding directly on the books of the clearing agency). Form W-8 and Form 1001 are effective for three calendar years and Form 4224 is effective for one calendar year. On April 22, 1996 the IRS issued proposed regulations relating to (i) withholding income tax on U.S.-source income paid to Non-U.S. Persons; (ii) claiming Non-U.S. Person status to avoid backup withholding; and (iii) reporting to the IRS of payments to Non-U.S. Persons. The proposed regulations would substantially revise some aspects of the current system for withholding on and reporting amounts paid to Non-U.S. Persons. The regulations unify current certification procedures and forms and reliance standards are clarified. Most forms are proposed to be combined into a single form: Form W-8. The regulations are proposed to be effective for payments made after December 31, 1997. Certificates issued, however, on or before the date that is 60 days after the proposed regulations are made final will continue to be valid until they expire. All proposed regulations are subject to change before adoption in their final form. No reliable prediction can be made as to when, if ever, the proposed regulations will be made final and if so, as to their final form. The term "U.S. Person" means (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity organized in or under the laws of the United States or any political subdivision thereof or (iii) an estate or trust that is subject to U.S. federal income tax regardless of the source of its income. The term "Non-U.S. Person" means any person who is not a U.S. Person. This discussion does not deal with all aspects of U.S. Federal income tax withholding that may be relevant to foreign holders of the Global Securities. Investors are advised to consult their own tax advisors for specific tax advice concerning their holding and disposing of the Global Securities. I-4 INDEX OF PRINCIPAL DEFINITIONS
Page Accelerated Principal Payment..................................................................................S-17 Accrual Period .............................................................................................S-11 AFC .........................................................................................S-1, S-3 AFH .............................................................................................S-46 AFL .............................................................................................S-46 Agreement ..............................................................................................S-5 Amount Available .......................................................................................S-10, S-54 Beneficial Certificate Owner.............................................................................S-22, S-51 Book-Entry Certificates........................................................................................S-69 Cede .......................................................................................S-22, S-51 CEDEL .......................................................................................S-22, S-51 CEDEL Participants.............................................................................................S-70 Certificate Account............................................................................................S-53 Certificate Owners..............................................................................................S-2 Certificate Principal Balance..................................................................................S-10 Certificates .........................................................................................S-1, S-8 Citibank .......................................................................................S-22, S-51 Class A-1 Remittance Rate.......................................................................................S-4 Class A-2 Remittance Rate.......................................................................................S-4 Class A-3 Remittance Rate.......................................................................................S-4 Class A-4 Remittance Rate.......................................................................................S-4 Class A-5 Remittance Rate.......................................................................................S-4 Class A-6 Distribution Amount...................................................................................S-9 Class A-6 Formula Distribution Amount.....................................................................S-9, S-55 Class A-6 Principal Balance....................................................................................S-13 Class A-6 Remaining Amount Available......................................................................S-9, S-55 Class A-6 Remittance Rate.......................................................................................S-4 Class B Cross-over Date........................................................................................S-14 Class B Principal Distribution Test............................................................................S-60 Class B-1 Distribution Amount...................................................................................S-9 Class B-1 Formula Distribution Amount.....................................................................S-9, S-55 Class B-1 Interest.............................................................................................S-14 Class B-1 Principal..........................................................................S-14, S-16, S-57, S-61 Class B-1 Principal Balance....................................................................................S-14 Class B-1 Remaining Amount Available.....................................................................S-10, S-55 Class B-1 Remittance Rate.......................................................................................S-4 Class B-2 Distribution Amount..................................................................................S-10 Class B-2 Formula Distribution Amount....................................................................S-10, S-56 Class B-2 Interest.............................................................................................S-15 Class B-2 Principal............................................................................................S-16 Class B-2 Principal Balance....................................................................................S-15 Class B-2 Remaining Amount Available.....................................................................S-10, S-56 Class C Distribution Amount....................................................................................S-17 Class C Formula Distribution Amount............................................................................S-16 Closing Date ..............................................................................................S-3 Code .............................................................................................S-23 Collection Period ..............................................................................................S-5 Contract Pool ..............................................................................................S-1 Contract Rate ..................................................................................S-6, S-27, S-35 Contracts ........................................................................................S-5, S-27 Cooperative .............................................................................................S-71 Cut-off Date ..............................................................................................S-3
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Page Definitive Certificate.........................................................................................S-69 Determination Date.............................................................................................S-54 DOL .............................................................................................S-78 DTC .......................................................................................S-22, S-51 DTC Participants .............................................................................................S-70 Due Date ..................................................................................S-6, S-12, S-27 Eligible Institution...........................................................................................S-53 Eligible Investments...........................................................................................S-53 ERISA .......................................................................................S-23, S-78 Euroclear .......................................................................................S-22, S-51 Euroclear Operator.............................................................................................S-70 Euroclear Participants.........................................................................................S-70 European Depositaries..........................................................................................S-69 European Depositories....................................................................................S-22, S-51 Extras .............................................................................................S-47 FDIC .............................................................................................S-53 Financial Intermediary.........................................................................................S-69 Fitch .......................................................................................S-24, S-80 Funding Period ..............................................................................................S-7 Global Securities ..............................................................................................S-1 Initial Contracts .........................................................................................S-1, S-5 Land Secured Contract...........................................................................................S-5 Land Secured Contracts.........................................................................................S-28 Land-Home Contracts............................................................................................S-28 Land-in-Lieu Contracts.........................................................................................S-27 Liquidated Contract............................................................................................S-12 Liquidation Expenses.....................................................................................S-19, S-64 Liquidation Proceeds...........................................................................................S-19 Manufactured Home ..............................................................................................S-5 Manufactured Home Contract......................................................................................S-5 Monthly Servicing Fee..........................................................................................S-67 Moody's .......................................................................................S-24, S-80 Morgan .......................................................................................S-22, S-51 Mortgage .............................................................................................S-26 NADA .............................................................................................S-47 Non-IO Certificates......................................................................................S-16, S-61 Non-U.S. Person ..............................................................................................S-4 Obligor .............................................................................................S-28 Original Class A-1 Principal Balance............................................................................S-3 Original Class A-2 Principal Balance............................................................................S-3 Original Class A-3 Principal Balance............................................................................S-3 Original Class A-4 Principal Balance............................................................................S-3 Original Class A-5 Principal Balance............................................................................S-4 Original Class A-6 Principal Balance............................................................................S-4 Original Class B-1 Principal Balance............................................................................S-4 Overcollateralization..........................................................................................S-16 Overcollateralization Amount...................................................................................S-16 Overcollateralization Reduction Amount.........................................................................S-62 Participants .............................................................................................S-69 Plans .............................................................................................S-78 Pool Scheduled Principal Balance...............................................................................S-12 Pre-Funded Amount ..............................................................................................S-7 Pre-Funding Account........................................................................................S-1, S-7
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Page Prepayment Model .............................................................................................S-36 Prospectus ..............................................................................................S-1 Purchase Agreement..............................................................................................S-6 Realized Loss .......................................................................................S-19, S-64 Receivables Corp. ..............................................................................................S-1 Record Date ........................................................................................S-4, S-52 Refinanced Contract............................................................................................S-48 Relevant Depositary............................................................................................S-69 Relief Act .......................................................................................S-26, S-76 REMIC ..............................................................................................S-2 REMICs .............................................................................................S-77 Remittance Date ........................................................................................S-4, S-52 Replaced Contract .............................................................................................S-53 Required Overcollateralization Amount....................................................................S-17, S-62 Residual Certificates.....................................................................................S-8, S-51 Residual Distribution Amount....................................................................................S-9 Rules .............................................................................................S-69 Scheduled Payment .............................................................................................S-27 Scheduled Principal Balance....................................................................................S-12 Seller .........................................................................................S-1, S-3 Senior Certificates.............................................................................................S-1 Senior Formula Distribution Amount.............................................................................S-55 Senior Percentage .......................................................................................S-12, S-57 Servicer .........................................................................................S-1, S-3 Servicing Advances.............................................................................................S-68 SMMEA .............................................................................................S-23 Subordinate Certificates........................................................................................S-1 Subsequent Contracts.................................................................................S-2, S-5, S-27 Subsequent Cut-Off Date.........................................................................................S-6 Terms and Conditions...........................................................................................S-71 Title V .............................................................................................S-77 Trust ..............................................................................................S-1 Trustee ........................................................................................S-5, S-68 U.S. Person ..............................................................................................S-4 UCC .............................................................................................S-25 Underwriters ........................................................................................S-2, S-81 Underwriting Agreement.........................................................................................S-81 Weighted Average Net Contract Rate..............................................................................S-4
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