-----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, IbOHbVlwGg8FiwKCRs02nuqRfX+FEw31DhQQBcDbzIVx0nIxZzrM8vByc5PdqmKg Ng3/oKe90+wnFrcD8Yixfg== 0000891092-97-000273.txt : 19970722 0000891092-97-000273.hdr.sgml : 19970722 ACCESSION NUMBER: 0000891092-97-000273 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970721 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIT GROUP SECURITIZATION CORP III CENTRAL INDEX KEY: 0001034336 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 510374926 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 424B5 SEC ACT: 1933 Act SEC FILE NUMBER: 333-22283 FILM NUMBER: 97642820 BUSINESS ADDRESS: STREET 1: 650 CIT DRIVE CITY: LIVINGSTON STATE: NJ ZIP: 07039 BUSINESS PHONE: 2015353512 MAIL ADDRESS: STREET 1: 650 CIT DRIVE CITY: LIVINGSTON STATE: NJ ZIP: 07039 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIT GROUP HOLDINGS INC /DE/ CENTRAL INDEX KEY: 0000020388 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 132994534 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B5 SEC ACT: 1933 Act SEC FILE NUMBER: 333-22283-01 FILM NUMBER: 97642821 BUSINESS ADDRESS: STREET 1: 1211 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2125361950 MAIL ADDRESS: STREET 1: 1211 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 FORMER COMPANY: FORMER CONFORMED NAME: CIT FINANCIAL CORP/OLD/ DATE OF NAME CHANGE: 19860512 424B5 1 FORM 424B5 PROSPECTUS SUPPLEMENT PROSPECTUS SUPPLEMENT (To Prospectus dated April 8, 1997) $500,000,000 CIT Home Equity Loan Trust 1997-1 Home Equity Loan Asset Backed Certificates, Series 1997-1 THE CIT GROUP SECURITIZATION CORPORATION III Depositor THE CIT GROUP/CONSUMER FINANCE, INC. Seller and Master Servicer The Home Equity Loan Asset Backed Certificates, Series 1997-1 will consist of (i) 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, the Class A-7 Certificates, the Class A-8 Certificates and the Class A-9 Certificates (collectively, the "Class A Certificates"), (ii) the Class M-1 Certificates and the Class M-2 Certificates (collectively, the "Mezzanine Certificates"), (iii) the Class B-1 Certificates and the Class B-2 Certificates (collectively, the "Class B Certificates" and collectively with the Mezzanine Certificates, the "Subordinate Certificates"), and (iv) the residual class of certificates (the "Class R Certificates"). Only the Class A Certificates, the Mezzanine Certificates and the Class B-1 Certificates (collectively, the "Offered Certificates") are offered hereby. Distributions on the Class M-1 Certificates will be subordinated to distributions on the Class A Certificates, distributions on the Class M-2 Certificates will be subordinated to distributions on the Class M-1 Certificates and the Class A Certificates, distributions on the Class B-1 Certificates will be subordinated to distributions on the Mezzanine Certificates and the Class A Certificates and distributions on the Class B-2 Certificates will be subordinated to distributions on the Class B-1 Certificates, the Mezzanine Certificates and the Class A Certificates, in each case, to the extent described herein. The Certificates will represent the entire beneficial ownership interest in a trust fund (the "Trust Fund" or "Trust"), designated as the CIT Home Equity Loan Trust 1997-1, to be created pursuant to a Pooling and Servicing Agreement, dated as of July 1, 1997, among The CIT Group Securitization Corporation III (the "Depositor"), The CIT Group/Consumer Finance, Inc., as master servicer (referred to herein as "CIT Consumer Finance," or the "Master Servicer," as applicable), The CIT Group/Consumer Finance, Inc. (the "Seller") and The Bank of New York, as trustee (the "Trustee"). PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK FACTORS" ON PAGE S-26 HEREIN AND ON PAGE 22 IN THE ACCOMPANYING PROSPECTUS. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY THE UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY. 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 SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Original Certificate Discounts Proceeds to Balance Pass-Through Rate Price to Public and Commissions Depositor (1) -------------------- --------------------- ------------------ ----------------- --------------- Per Class A-1 Certificate ....... $90,000,000 5.93%(2) 100.000000% 0.1255% 99.874500% Per Class A-2 Certificate ....... $36,000,000 6.17%(2) 100.000000% 0.1500% 99.850000% Per Class A-3 Certificate ....... $61,000,000 6.25%(2) 99.984375% 0.2000% 99.784375% Per Class A-4 Certificate ....... $40,000,000 6.37%(2) 99.968750% 0.3250% 99.643750% Per Class A-5 Certificate ....... $15,000,000 6.55%(2) 99.906250% 0.3750% 99.531250% Per Class A-6 Certificate ....... $15,000,000 6.67%(2) 99.906250% 0.4000% 99.506250% Per Class A-7 Certificate ....... $33,000,000 6.95%(2) 99.906250% 0.4500% 99.456250% Per Class A-8 Certificate ....... $30,000,000 6.65%(2) 99.968750% 0.4000% 99.568750% Per Class A-9 Certificate ....... $90,000,000 (3) 100.000000% 0.3000% 99.700000% Per Class M-1 Certificate ....... $30,000,000 6.85%(2) 99.937500% 0.4500% 99,487500% Per Class M-2 Certificate ....... $32,500,000 7.10%(2) 99.968750% 0.4700% 99.498750% Per Class B-1 Certificate ....... $22,500,000 7.45%(2) 99.937500% 0.5500% 99.387500% Total ........................... $495,000,000 $494,866,563 $1,485,200 $493,381,363
- ------------------ (1) Before deducting expenses, estimated to be $757,000. (2) The Pass-Through Rate with respect to the Offered Certificates (other than the Class A-9 Certificates) will on any Distribution Date equal the lesser of (x) the Pass-Through Rate for such Class set out above and (y) the Fixed Rate Group Available Funds Cap Rate (as defined herein) applicable to such Distribution Date. (3) On each Distribution Date, the Pass-Through Rate on the Class A-9 Certificates will be equal to the least of (x) with respect to any Distribution Date which occurs on or prior to the Clean-up Call Date (as defined herein), One-month LIBOR (as defined herein) plus 0.19% per annum and for any Distribution Date thereafter, One-month LIBOR plus 0.50% per annum, (y) the Adjustable Rate Group Available Funds Cap Rate (as defined herein) applicable to such Distribution Date and (z) 20% per annum. The Offered Certificates are offered by the Underwriters, subject to prior sale, when, as and if 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 will be made in book-entry form only through the facilities of The Depository Trust Company ("DTC") in the United States or through Centrale de Livraison de Valeurs Mobiliers, S.A. ("CEDEL") and the Euroclear System ("Euroclear") in Europe on or about July 23, 1997. MORGAN STANLEY DEAN WITTER FIRST CHICAGO CAPITAL MARKETS, INC. LEHMAN BROTHERS SALOMON BROTHERS INC July 16, 1997 The Underwriters intend to make a secondary market in the Offered Certificates but have no obligation to do so. There is currently no secondary market for the Offered Certificates and there can be no assurance that such a market will develop or, if it does develop, that it will continue. ------------------- This Prospectus Supplement does not contain complete information about the offering of the Certificates. Additional information is contained in the Prospectus of the Depositor dated April 8, 1997 (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. To the extent, if any, that any statement in the final Prospectus Supplement is inconsistent with statements contained in this Prospectus Supplement, the statements in the final Prospectus Supplement shall control. Terms used and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Prospectus. Until ninety days after the date of this Prospectus Supplement, all dealers effecting transactions in the Offered Certificates, whether or not participating in this distribution, may be required to deliver a Prospectus Supplement and the Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus Supplement and the Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE OFFERED CERTIFICATES. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." ------------------- SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain of the matters discussed under the caption "The Portfolio of Mortgage Loans -- Delinquency and Loss Experience" may constitute forward-looking statements within the meaning of Section 7A of the Securities Act of 1933, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of CIT Consumer Finance's mortgage loan portfolio to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. AVAILABLE INFORMATION The Depositor 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 Offered Certificates offered pursuant to the Prospectus dated April 8, 1997 and this Prospectus Supplement. 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 at The Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains a site on the World Wide Web containing reports, proxy materials, information statements and other items. 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. REPORTS TO THE CERTIFICATEHOLDERS So long as the Offered Certificates are in book-entry form, monthly and annual reports concerning the Certificates and the Trust will be sent by the Trustee to Cede & Co., as the nominee of DTC and as registered holder of the Offered Certificates pursuant to the Pooling and Servicing Agreement. DTC will supply such reports to the Certificateholders in accordance with its procedures. See "Risk Factors--Book-Entry Registration" in the Prospectus and "Description of the Certificates--Book-Entry Certificates" herein and in the Prospectus. The Depositor will file or cause to be filed with the Commission such periodic reports with respect to the Trust as are required under the Securities Exchange Act of 1934 and the rules and regulations of the Commission thereunder. It is the Depositor's intent to suspend the filing of such reports as soon as such reports are no longer statutorily required. S-2 - -------------------------------------------------------------------------------- SUMMARY OF TERMS This Summary of Terms is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus Supplement and in the accompanying Prospectus. Certain capitalized terms used in this Summary of Terms are defined elsewhere in this Prospectus Supplement or in the Prospectus. Reference is made to the Index to Defined Terms for the location herein of the definitions of certain capitalized terms used herein. Issuer ..................... CIT Home Equity Loan Trust 1997-1 (the "Issuer"). Depositor .................. The CIT Group Securitization Corporation III (the "Depositor"), a Delaware corporation and a limited purpose finance subsidiary of The CIT Group Holdings, Inc. ("CIT"), a Delaware corporation. See "The CIT Group Securitization Corporation III, The Depositor" herein and in the Prospectus. Seller ..................... The CIT Group/Consumer Finance, Inc. ("CIT Consumer Finance" or "Seller," as applicable). The Mortgage Loans (as defined herein) were originated or acquired by the Seller or its affiliates and were acquired by the Depositor from the Seller in a privately negotiated transaction. Master Servicer ............ CIT Consumer Finance (in its capacity as master servicer of the Mortgage Loans, the "Master Servicer"). The Master Servicer will be responsible for the servicing of the Mortgage Loans. See "Servicing of Mortgage Loans" herein. Sub-Servicer ............... The CIT Group/Sales Financing, Inc. ("CITSF") will be appointed as a Sub-Servicer for all of the Mortgage Loans in the Mortgage Pool (as defined herein), and as a Sub-Servicer, will perform all or most of the servicing responsibilities described under "The Pooling and Servicing Agreement" herein and in the Prospectus and "Servicing of Mortgage Loans" herein, unless it is replaced as described under "The CIT Group/Consumer Finance, Inc., Seller and Master Servicer" herein. Cut-off Date ............... July 1, 1997 (the "Cut-off Date"). Closing Date ............... On or about July 23, 1997 (the "Closing Date"). Trustee .................... The Bank of New York, a New York banking corporation, not in its individual capacity but solely as trustee on behalf of the holders of the Certificates (the "Trustee"). The Certificates ........... The Home Equity Loan Asset-Backed Certificates, Series 1997-1 (the "Certificates") will consist of the Offered Certificates (as defined herein), the Class B-2 Certificates and a class of residual certificates (the "Class R Certificates"). The Class B-2 Certificates and the Class R Certificates are not offered hereby. The Certificates will be issued pursuant to a pooling and servicing agreement (the "Pooling and Servicing Agreement") to be dated as of July 1, 1997 among the Depositor, the Seller, the Master Servicer and the Trustee. Only the Offered Certificates are offered hereby. The Depositor will initially retain the Class B-2 Certificates. Any information contained herein with respect to the Class B-2 Certificates is provided only to permit a better understanding of the Offered Certificates. - -------------------------------------------------------------------------------- S-3 - -------------------------------------------------------------------------------- Denominations .............. The Offered Certificates will be issued in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof except that one Certificate in each Class (as defined herein) may be issued in a different denomination. Each Offered Certificate and each Class B-2 Certificate will represent a percentage interest (a "Percentage Interest") in the respective Class determined as of any date of determination by dividing the Certificate Balance (as defined herein) of such Certificate by the Certificate Balance for the related Class. The Trust Property ......... The Certificates will represent the entire beneficial ownership interest in a trust fund (the "Trust" or the "Trust Fund"), which will consist primarily of a pool (the "Mortgage Pool" or "Pool") of certain mortgage related assets (the "Mortgage Assets") consisting of fixed and adjustable rate mortgage loans (each, a "Mortgage Loan") evidenced by promissory notes (each, a "Mortgage Note") secured by mortgages, deeds of trust or similar security instruments (each, a "Mortgage") creating first or subordinate liens on one- to four-family residential properties (each, a "Mortgaged Property"). The Mortgage Pool will consist of two groups of Mortgage Loans (each, a "Mortgage Loan Group"). One Mortgage Loan Group consists of a group of Fixed Rate Mortgage Loans (as defined herein) (the "Fixed Rate Group") and the other Mortgage Loan Group consists of a group of Adjustable Rate Mortgage Loans (as defined herein) (the "Adjustable Rate Group"). Pass-Through Rates and Certificate Balances ................ Home Equity Loan Asset Backed Certificates, Series 1997-1, to be issued in the following Classes (each, a "Class") and Certificate Balances as of the Closing Date, set forth below: Pass- Through Certificate Class Rate Balance ----- -------- ---------- Class A-1 Certificates 5.93%(1) $90,000,000 Class A-2 Certificates 6.17%(1) $36,000,000 Class A-3 Certificates 6.25%(1) $61,000,000 Class A-4 Certificates 6.37%(1) $40,000,000 Class A-5 Certificates 6.55%(1) $15,000,000 Class A-6 Certificates 6.67%(1) $15,000,000 Class A-7 Certificates 6.95%(1) $33,000,000 Class A-8 Certificates 6.65%(1) $30,000,000 Class A-9 Certificates (2) $90,000,000 Class M-1 Certificates 6.85%(1) $30,000,000 Class M-2 Certificates 7.10%(1) $32,500,000 Class B-1 Certificates 7.45%(1) $22,500,000 Class B-2 Certificates 8.78%(1) $ 5,000,000 (1) The Pass-Through Rate with respect to the Offered Certificates and the Class B-2 Certificates (other than the Class A-9 Certificates) will on any Distribution Date equal the lesser of (x) the Pass-Through Rate for such Class set out above and (y) the Fixed Rate Group Available Funds Cap Rate (as defined herein) applicable to such Distribution Date. (2) On each Distribution Date, the Pass-Through Rate on the Class A-9 Certificates will be equal to the least of (x) with respect to any Distribution Date which occurs on or prior to the Clean-up Call Date (as defined herein), One-month LIBOR (as defined herein) plus 0.19% per annum and for any Distribution Date thereafter, One-month LIBOR plus 0.50% per annum, (y) the Adjustable Rate Group Available Funds Cap Rate (as defined herein) applicable to such Distribution Date and (z) 20% per annum (the " Maximum Variable Rate"). - -------------------------------------------------------------------------------- S-4 - -------------------------------------------------------------------------------- The Fixed Rate Group Available Funds Cap Rate and the Adjustable Rate Group Available Funds Cap Rate are structured to take into account in certain circumstances the Mortgage Rates on Mortgage Loans which are not in the related Mortgage Loan Group. Consequently, under certain loss and prepayment scenarios, the amount of Current Interest payable on one or more Classes of Fixed Rate Certificates on any Distribution Date may be more or less than the amount of Current Interest that would have been payable if the Fixed Rate Group Available Funds Cap Rate were based solely on the Mortgage Rates on the Mortgage Loans in the Fixed Rate Group; similarly, the amount of Current Interest payable on the Variable Rate Certificates on any Distribution Date may be more or less than the amount of Current Interest that would have been payable if the Adjustable Rate Group Available Funds Cap Rate were based solely on the Mortgage Rates on the Mortgage Loans in the Adjustable Rate Group. The "Fixed Rate Group Available Funds Cap Rate" means as of any Distribution Date (as defined herein), an amount, expressed as a per annum rate (calculated on the basis of a 360 day year assumed to consist of twelve 30-day months), equal to (i) the weighted average interest rate on (A) all of the Mortgage Loans in the Fixed Rate Group as of the first day of the related Due Period and (B) a portion of each Mortgage Loan in the Adjustable Rate Group based on a fraction (which shall in no event be greater than one), the numerator of which is an amount equal to the excess of the Certificate Balance of the Fixed Rate Certificates as of the first day of the related Due Period over the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group as of the first day of the related Due Period and the denominator of which is equal to the aggregate Principal Balance of the Mortgage Loans in the Adjustable Rate Group as of the first day of the related Due Period, minus (ii) the Master Servicing Fee (as defined herein), expressed as a per annum rate, minus (iii) the Weighted Carve Out Fixed Rate. The "Weighted Carve Out Fixed Rate" means, as of any Distribution Date, an amount, expressed as a per annum rate, equal to: (I) if the Certificate Balance of the Fixed Rate Certificates as of the first day of the related Due Period is less than or equal to the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group as of the first day of the related Due Period, 0.50%; or (II) if the Certificate Balance of the Fixed Rate Certificates as of the first day of the related Due Period is greater than the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group as of the first day of the related Due Period, the sum of: (i) the product of (x) a fraction the numerator of which is the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group as of the first day of the related Due Period and the denominator of which is an amount equal to the Certificate Balance of the Fixed Rate Certificates as of the first day of the related Due Period and (y) 0.50%, and - -------------------------------------------------------------------------------- S-5 - -------------------------------------------------------------------------------- (ii) the product of (x) a fraction the numerator of which is an amount equal to the aggregate Principal Balance of the fraction of the Mortgage Loans in the Adjustable Rate Group as described in clause (B) of the definition of Fixed Rate Group Available Funds Cap Rate and the denominator of which is an amount equal to the Certificate Balance of the Fixed Rate Certificates as of the first day of the related Due Period and (y) 0.50%. The "Adjustable Rate Group Available Funds Cap Rate" means as of any Distribution Date, an amount, expressed as a per annum rate, equal to: (x) the sum of (i)(a) the amount of interest due and collected (or advanced) on all of the Mortgage Loans in the Adjustable Rate Group for the related Due Period, minus (b) the product of (A) 1/12 of the weighted average interest rate on all of the Mortgage Loans in the Adjustable Rate Group as of the first day of the related Due Period and (B) the Principal Balance of the fractional Mortgage Loans in the Adjustable Rate Group described in clause (B) in the definition of the Fixed Rate Group Available Funds Cap Rate determined as of such Distribution Date, plus (ii) the excess, if any, of the amount of interest due and collected (or advanced) on all of the Mortgage Loans in the Fixed Rate Group for the related Due Period and on the fractional Mortgage Loans for such Due Period described in clause (i)(b) above over the amount of interest due on the Fixed Rate Certificates on such Distribution Date, minus (iii) the Master Servicing Fee payable on such Distribution Date, minus (iv) the Weighted Carve Out Adjustable Amount, divided by (y) the Certificate Balance of the Class A-9 Certificates as of the first day of the related Due Period, multiplied by (z) twelve. The "Weighted Carve Out Adjustable Amount" means, as of any Distribution Date, an amount equal to (x) the product of (i) 0.50% and (ii) the Principal Balance of the Mortgage Loans in the Mortgage Pool as of the first day of the related Due Period divided by (y) twelve. 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, the Class A-7 Certificates, the Class A-8 Certificates and the Class A-9 Certificates are collectively referred to herein as the "Class A Certificates." The Class M-1 Certificates and the Class M-2 Certificates are collectively referred to as the "Mezzanine Certificates." The Class B-1 Certificates and the Class B-2 Certificates are collectively referred to as the "Class B Certificates." The Mezzanine Certificates and the Class B Certificates are collectively referred to as the "Subordinate Certificates." The Class A Certificates, the Mezzanine Certificates and the Class B-1 Certificates are collectively referred to as the "Offered Certificates." In addition, the Class A Certificates (other than the Class A-9 Certificates), the Mezzanine Certificates and the Class B Certificates are collectively referred to as the "Fixed Rate Certificates" and the - -------------------------------------------------------------------------------- S-6 - -------------------------------------------------------------------------------- Class A-9 Certificates are referred to herein as the "Variable Rate Certificates." The Subordinate Certificates are subordinate in right of distribution to the Class A Certificates to the extent described herein. The Class M-1 Certificates are subordinate in right of distribution to the Class A Certificates to the extent described herein. The Class M-2 Certificates are subordinate in right of distribution to the Class A Certificates and the Class M-1 Certificates to the extent described herein. The Class B-1 Certificates are subordinate in right of distribution to the Class A Certificates and the Mezzanine Certificates to the extent described herein. The Class B-2 Certificates are subordinate in right of distribution to the Class A Certificates, the Mezzanine Certificates and the Class B-1 Certificates to the extent described herein. On any date after the Closing Date, the "Aggregate Certificate Balance" is the sum of the Certificate Balance of all Classes of the Offered Certificates and the Class B-2 Certificates. The Mortgage Loans ......... The statistical information presented herein is based on the number and the Principal Balances of the Mortgage Loans as of the Cut-off Date. Unless otherwise noted, all statistical percentages presented herein are approximate and measured by the aggregate Principal Balance of the Mortgage Loans in the Trust, in relation to the Mortgage Loans in the applicable Mortgage Loan Group or of all the Mortgage Loans in the Trust, in each case as of the Cut-off Date. The aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group is $410,062,866.73 and the aggregate Principal Balance of the Mortgage Loans in the Adjustable Rate Group is $90,005,693.10. The Mortgage Pool will consist of conventional adjustable rate and fixed rate mortgage loans secured by first and subordinate liens on the Mortgaged Properties. As of the Cut-off Date, 75.05% of the Mortgage Pool consists of Mortgage Loans secured by first liens on the Mortgaged Properties, and 24.95% of the Mortgage Pool consists of Mortgage Loans secured by subordinate liens on the Mortgaged Properties. The interest rate on each Mortgage Loan (the "Mortgage Rate") is either fixed (a "Fixed Rate" and a Mortgage Loan relating thereto is a "Fixed Rate Mortgage Loan") or adjustable semi-annually or annually (an "Adjustable Rate" and a Mortgage Loan relating thereto is an "Adjustable Rate Mortgage Loan"). During either the first six, twelve, twenty-four or thirty-six months following origination, each such Adjustable Rate Mortgage Loan will bear interest at a Mortgage Rate fixed at origination. Thereafter, each Adjustable Rate Mortgage Loan will bear interest at a Mortgage Rate equal to either (i) the yield on U.S. Treasury securities adjusted to a constant maturity of one year ("One-year CMT") or (ii) the London interbank offered rate for six-month United States dollar deposits ("Six-month LIBOR") plus a fixed percentage (the "Gross Margin") set forth in the related Mortgage Note, subject to the limitation that the Mortgage Rate will not increase or decrease by more than a specified percentage on any Adjustment Date (as defined herein) (the "Periodic Rate Cap"). In addition, adjustments - -------------------------------------------------------------------------------- S-7 - -------------------------------------------------------------------------------- to the Mortgage Rate for each Adjustable Rate Mortgage Loan are subject to a lifetime maximum interest rate (the "Maximum Rate"). Payment of a substantial portion of the original principal balance of certain Mortgage Loans ("Balloon Loans") will be due on maturity ("Balloon Payments"). Certain of the Mortgage Loans permit the mortgagee to require the Mortgagor (as defined in the Prospectus) to pay the full principal balance of the Mortgage Loan on a specified date (the "Call Date") prior to the maturity of the Mortgage Loan ("Call Loans"). Final Scheduled Distribution Dates ....... The Final Scheduled Distribution Dates (each, a "Final Scheduled Distribution Date") for each of the respective Classes of Offered Certificates are as follows, although it is anticipated that the actual final Distribution Date for each Class will occur earlier than the Final Scheduled Distribution Date. See "Yield and Prepayment Considerations" herein. Final Scheduled Class Distribution Date ----- ------------------ Class A-1 Certificates: April 15, 2006 Class A-2 Certificates: October 15, 2008 Class A-3 Certificates: September 15, 2011 Class A-4 Certificates: March 15, 2012 Class A-5 Certificates: March 15, 2012 Class A-6 Certificates: December 15, 2015 Class A-7 Certificates: January 15, 2027 Class A-8 Certificates: March 15, 2012 Class A-9 Certificates: February 15, 2027 Class M-1 Certificates: July 15, 2027 Class M-2 Certificates: July 15, 2027 Class B-1 Certificates: July 15, 2027 Business Day ............... Any day other than a Saturday, Sunday or any day on which banking institutions or trust companies in the states of New York, New Jersey or Oklahoma are authorized by law, regulation or executive order to be closed (each, a "Business Day"). Distribution Date .......... The 15th day of each month or, if such day is not a Business Day, on the first Business Day thereafter, commencing on August 15, 1997 (each, a "Distribution Date"). Determination Date ......... The third Business Day prior to each Distribution Date (each, a "Determination Date"). Record Date ................ The calendar day preceding each Distribution Date or, if Definitive Certificates (as defined herein) are issued, the last Business Day of the month preceding the month of such Distribution Date (each, a "Record Date"). Due Period ................. With respect to any Distribution Date, the "Due Period" is the period during which principal, interest and other amounts will be collected on the Mortgage Loans for application towards the payment of principal - -------------------------------------------------------------------------------- S-8 - -------------------------------------------------------------------------------- and interest to the Certificateholders and the payment of fees on such Distribution Date. The "Due Period" will be the calendar month immediately preceding the Distribution Date. The first Due Period will commence on and include July 1, 1997 and will end on and include July 31, 1997. Distributions--General ..... For each Distribution Date, interest due with respect to the Certificates will be the interest which has accrued thereon at the applicable Pass-Through Rate (subject to the Fixed Rate Group Available Funds Cap Rate or, in the case of the Class A-9 Certificates, determined by taking into account the Adjustable Rate Group Available Funds Cap Rate and the Maximum Variable Rate as described herein) from the preceding Distribution Date (or from the Closing Date in the case of the first Distribution Date) to and including the date prior to the current Distribution Date (the " Accrual Period"). All calculations of interest on the Fixed Rate Certificates will be made on the basis of a 360-day year assumed to consist of twelve 30-day months. All calculations of interest on the Variable Rate Certificates will be made on the basis of the actual number of days elapsed in the related Accrual Period and a 360-day year. Interest ................... On each Distribution Date, the Interest Remittance Amount will be distributed in the following order of priority: First, to the holders of the Class A Certificates, the Class A Current Interest plus the Interest Carry Forward Amount with respect to each such Class of Class A Certificates without any priority among such Class A Certificates; provided, that if the Interest Remittance Amount is not sufficient to make a full distribution of interest with respect to all Classes of the Class A Certificates, the Interest Remittance Amount will be distributed among the outstanding Classes of Class A 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 with accrued interest at the applicable Pass-Through Rate; Second, to the extent of the Interest Remittance Amount then remaining, to the holders of the Class M-1 Certificates, the Class M-1 Current Interest; Third, to the extent of the Interest Remittance Amount then remaining, to the holders of the Class M-2 Certificates, the Class M-2 Current Interest; Fourth, to the extent of the Interest Remittance Amount then remaining, to the holders of the Class B-1 Certificates, the Class B-1 Current Interest; Fifth, to the extent of the Interest Remittance Amount then remaining, to the holders of the Class B-2 Certificates, the Class B-2 Current Interest; and Sixth, the sum of (x) the amount, if any, of the Interest Remittance Amount remaining in the Certificate Account after application with respect to the priorities set forth above plus (y) the amount of any - -------------------------------------------------------------------------------- S-9 - -------------------------------------------------------------------------------- Overcollateralization Release Amount for such Distribution Date (such amounts, the "Monthly Excess Cashflow Amount" for a Distribution Date) shall be applied, first, to pay the Master Servicing Fee to the Master Servicer if CIT Consumer Finance or one of its affiliates is the Master Servicer and, second, as described below under "Credit Enhancement--Application of Monthly Excess Cashflow Amounts" in this Summary. "Current Interest" with respect to each Class of Offered Certificates and the Class B-2 Certificates means, with respect to any Distribution Date, the aggregate amount of interest accrued during the related Accrual Period on the Certificate Balance of the related Class of Offered Certificates and the Class B-2 Certificates at the applicable Pass-Through Rate (subject to the Fixed Rate Group Available Funds Cap Rate or, in the case of the Class A-9 Certificates, determined by taking into account the Adjustable Rate Group Available Funds Cap Rate and the Maximum Variable Rate as described herein). The "Interest Remittance Amount" means, as of any Distribution Date, the sum of (i) all interest collected or advanced by the Master Servicer during the related Due Period on the Mortgage Loans, including any late fees, prepayment fees and other similar fees on the Mortgage Loans (less the Master Servicing Fee if CIT Consumer Finance or one of its affiliates is not the Master Servicer), (ii) all Compensating Interest (as defined herein) paid by the Master Servicer with respect to such Due Period; (iii) the portion of any Substitution Adjustment (as defined herein) relating to interest delivered by the Seller in connection with a substitution of a Mortgage Loan with respect to the related Due Period, (iv) the interest portion of any Purchase Price (as defined herein) with respect to each Mortgage Loan that was repurchased from the Trust during the related Due Period and (v) all Liquidation Proceeds (as defined herein) actually collected by the Master Servicer during the related Due Period (to the extent such Liquidation Proceeds related to interest). The "Interest Carry Forward Amount" with respect to any Class of the Offered Certificates and the Class B-2 Certificates for any Distribution Date is the sum of (x) the amount, if any, by which (i) the Current Interest as of the immediately preceding Distribution Date plus the Interest Carry Forward Amount from the immediately preceding Distribution Date for such Class exceeded (ii) the amount of the actual distribution with respect to interest made to the holders of such Class of Offered Certificates and the Class B-2 Certificates on such immediately preceding Distribution Date plus (y) interest on such amount calculated for the related Accrual Period at the related Pass-Through Rate in effect with respect to such Class of Offered Certificates and the Class B-2 Certificates. Principal Before the Stepdown Date or if a Trigger Event is in Effect ............... On each Distribution Date (a) before the Stepdown Date (as defined herein) or (b) on or after the Stepdown Date if a Trigger Event (as defined herein) is in effect, - -------------------------------------------------------------------------------- S-10 - -------------------------------------------------------------------------------- (I) the holders of the Class A Certificates will be entitled to receive payment of 100% of an amount equal to the Variable Rate Principal Distribution Amount (as defined herein) for such Distribution Date in the following amounts and priorities: First, to the holders of the Class A-9 Certificates until the Class A-9 Certificate Balance has been reduced to zero; Second, to the holders of the Class A-8 Certificates, in an amount equal to the Class A-8 Lockout Distribution Amount; Third, to the holders of the Class A Certificates (other than the Class A-8 Certificates and the Class A-9 Certificates) in sequential order until the Certificate Balance of each such Class of Class A Certificates has been reduced to zero; and Fourth, to the holders of the Class A-8 Certificates until the Class A-8 Certificate Balance has been reduced to zero; and (II) the holders of the Class A Certificates will be entitled to receive payment of an amount equal to 100% of the Fixed Rate Principal Distribution Amount (as defined herein) for such Distribution Date in the following amounts and priorities: First, to the extent not previously distributed, to the holders of the Class A-8 Certificates in an amount equal to the Class A-8 Lockout Distribution Amount; Second, to the holders of the Class A Certificates (other than the Class A-8 Certificates and the Class A-9 Certificates) in sequential order until the Certificate Balance of each such Class of Class A Certificates has been reduced to zero; Third, to the holders of the Class A-8 Certificates until the Class A-8 Certificate Balance has been reduced to zero; and Fourth, to the holders of the Class A-9 Certificates until the Class A-9 Certificate Balance is reduced to zero. Until the Stepdown Date, on each Distribution Date, no principal will be distributed to the Subordinate Certificates. Thereafter, principal will be distributed to the Subordinate Certificates only if a Trigger Event is not in effect. "Fixed Rate Principal Distribution Amount" means, as of any Distribution Date, the sum of (i) the Principal Remittance Amount (as defined herein) with respect to the Fixed Rate Group, minus, for Distribution Dates occurring on and after the related Stepdown Date, the Fixed Rate Group Overcollateralization Release Amount and (ii) the Fixed Rate Group Extra Principal Distribution Amount. "Variable Rate Principal Distribution Amount" means, as of any Distribution Date, the sum of (i) the Principal Remittance Amount with respect to the Adjustable Rate Group, minus, for Distribution Dates occurring on and after the related Stepdown Date,the Adjustable Rate Group Overcollateralization Release Amount and (ii) the Adjustable Rate Group Extra Principal Distribution Amount. - -------------------------------------------------------------------------------- S-11 - -------------------------------------------------------------------------------- "Extra Principal Distribution Amount" means, as of any Distribution Date, the lesser of (x) the Monthly Excess Interest Amount for such Distribution Date and (y) the Overcollateralization Deficiency (as defined herein) for such Distribution Date. The "Fixed Rate Group Extra Principal Distribution Amount" is equal to the sum of (x) the greater of (i) zero or (ii) the lesser of (I) the Extra Principal Distribution Amount or (II) the product of (1) an amount equal to (A) the Realized Losses for the Fixed Rate Group in the preceding Due Period divided by the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group minus (B) the Realized Losses for the Adjustable Rate Group in the preceding Due Period divided by the aggregate Principal Balance of the Mortgage Loans in the Adjustable Rate Group and (2) the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group and (y) a pro-rata portion, based on the aggregate Principal Balance of the Mortgage Loans in the related Mortgage Loan Group, of any Extra Principal Distribution Amount remaining after taking into account clause (x) of this definition and clause (x) of the definition of the Adjustable Rate Group Extra Principal Distribution Amount. The "Adjustable Rate Group Extra Principal Distribution Amount" is equal to the sum of (x) the greater of (i) zero or (ii) the lesser of (I) the Extra Principal Distribution Amount or (II) the product of (1) an amount equal to (A) the Realized Losses for the Adjustable Rate Group in the preceding Due Period divided by the aggregate Principal Balance of the Mortgage Loans in the Adjustable Rate Group minus (B) the Realized Losses for the Fixed Rate Group in the preceding Due Period divided by the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group and (2) the aggregate Principal Balance of the Mortgage Loans in the Adjustable Rate Group and (y) a pro-rata portion, based on the aggregate Principal Balance of the Mortgage Loans in the related Mortgage Loan Group, of any Extra Principal Distribution Amount remaining after taking into account clause (x) of this definition and clause (x) of the definition of the Fixed Rate Group Extra Principal Distribution Amount. The "Fixed Rate Group Overcollateralization Release Amount" is equal to the sum of (x) the greater of (i) zero or (ii) the lesser of (I) the Overcollateralization Release Amount or (II) the product of (1) an amount equal to (A) the Realized Losses for the Adjustable Rate Group in the preceding Due Period divided by the aggregate Principal Balance of the Mortgage Loans in the Adjustable Rate Group minus (B) the Realized Losses for the Fixed Rate Group in the preceding Due Period divided by the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group and (2) the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group and (y) a pro-rata portion, based on the aggregate Principal Balance of the Mortgage Loans in the related Mortgage Loan Group, of any Overcollateralization Release Amount remaining after taking into account clause (x) of this definition and clause (x) of the definition of the Adjustable Rate Group Overcollateralization Release Amount. The "Adjustable Rate Group Overcollateralization Release Amount" is equal to the sum of (x) the greater of (i) zero or (ii) the lesser of (I) the - -------------------------------------------------------------------------------- S-12 - -------------------------------------------------------------------------------- Overcollateralization Release Amount or (II) the product of (1) an amount equal to (A) the Realized Losses for the Fixed Rate Group in the preceding Due Period divided by the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group minus (B) the Realized Losses for the Adjustable Rate Group in the preceding Due Period divided by the aggregate Principal Balance of the Mortgage Loans in the Adjustable Rate Group and (2) the aggregate Principal Balance of the Mortgage Loans in the Adjustable Rate Group and (y) a pro-rata portion, based on the aggregate Principal Balance of the Mortgage Loans in the related Mortgage Loan Group, of any Overcollateralization Release Amount remaining after taking into account clause (x) of this definition and clause (x) of the definition of the Fixed Rate Group Overcollateralization Release Amount. The "Class A-8 Lockout Distribution Amount" for any Distribution Date will be the product of (i) the applicable Class A-8 Lockout Percentage for such Distribution Date and (ii) the Class A-8 Lockout Pro Rata Distribution Amount for such Distribution Date. The "Class A-8 Lockout Percentage" for each Distribution Date shall be as follows: Distribution Dates Lockout Percentage ------------------ ------------------ August 1997 - July 2000 0% August 2000 - July 2002 45% August 2002 - July 2003 80% August 2003 - July 2004 100% August 2004 and thereafter 300% In no event shall the Class A-8 Lockout Distribution Amount for a Distribution Date exceed the Fixed Rate Principal Distribution Amount for such Distribution Date. The "Class A-8 Lockout Pro Rata Distribution Amount" for any Distribution Date will be an amount equal to the product of (x) a fraction, the numerator of which is the Certificate Balance of the Class A-8 Certificates immediately prior to such Distribution Date and the denominator of which is the aggregate Certificate Balance of all Classes of the Class A Certificates (other than the Class A-9 Certificates) immediately prior to such Distribution Date and (y) the Class A Principal Distribution Amount minus the Class A Variable Allocation Amount (as defined herein) for such Distribution Date. The Class A Certificates (other than the Class A-9 Certificates and the Class A-8 Certificates) are "sequential pay" classes such that the holders of the Class A-7 Certificates will receive no payments of principal until the Class A-6 Certificate Balance is reduced to zero, the holders of the Class A-6 Certificates will receive no payments of principal until the Class A-5 Certificate Balance is reduced to zero, the holders of the Class A-5 Certificates will receive no payments of principal until the Class A-4 Certificate Balance has been reduced to zero, the holders of the Class A-4 Certificates will receive no payments of principal until the Class A-3 Certificate Balance has been reduced to zero, the holders of the Class A-3 Certificates will receive no payments - -------------------------------------------------------------------------------- S-13 - -------------------------------------------------------------------------------- of principal until the Class A-2 Certificate Balance has been reduced to zero, and the holders of the Class A-2 Certificates will receive no payments of principal until the Class A-1 Certificate Balance has been reduced to zero; provided, however, that on any Distribution Date on which the sum of the Certificate Balance of the Subordinate Certificates and the Overcollateralization Amount is zero, any amounts of principal payable to the holders of the Class A Certificates on such Distribution Date shall be distributed pro rata and not sequentially. Principal on or After the Stepdown Date if No Trigger Event is in Effect ................ On each Distribution Date (a) on or after the Stepdown Date and (b) as long as a Trigger Event is not in effect, the holders of all Classes of the Offered Certificates and the Class B-2 Certificates will be entitled to receive payments of principal, in the amounts and the priorities set forth below and to the extent of the Variable Rate Principal Distribution Amount and the Fixed Rate Principal Distribution Amount as follows: First, an amount equal to (i) the lesser of (x) the Variable Rate Principal Distribution Amount and (y) the Class A Principal Distribution Amount, shall be distributed in the following amounts and priorities: (1) to the holders of the Class A-9 Certificates until the Class A-9 Certificate Balance has been reduced to zero (such distribution amount, the "Class A Variable Allocation Amount"); (2) to the holders of the Class A-8 Certificates, in an amount equal to the Class A-8 Lockout Distribution Amount; (3) to the holders of the Class A Certificates (other than the Class A-8 Certificates and the Class A-9 Certificates) in sequential order until the Certificate Balance of each such Class of Class A Certificates has been reduced to zero; and (4) to the holders of the Class A-8 Certificates until the Class A-8 Certificate Balance has been reduced to zero; and an amount equal to (ii) the lesser of (x) the Fixed Rate Principal Distribution Amount and (y) the Class A Principal Distribution Amount minus the amount distributed in clause (i) above, shall be distributed in the following amounts and priorities: (1) to the extent not previously distributed, to the holders of the Class A-8 Certificates, in an amount equal to the Class A-8 Lockout Distribution Amount; (2) to the holders of the Class A Certificates (other than the Class A-8 Certificates and the Class A-9 Certificates) in sequential order until the Certificate Balance of each such Class of Class A Certificates has been reduced to zero; (3) to the holders of the Class A-8 Certificates until the Class A-8 Certificate Balance has been reduced to zero; and (4) to the holders of the Class A-9 Certificates until the Class A-9 Certificate Balance is reduced to zero; - -------------------------------------------------------------------------------- S-14 - -------------------------------------------------------------------------------- Second, the lesser of (x) the excess, if any, of (i) the sum of (A) the Fixed Rate Principal Distribution Amount and (B) the Variable Rate Principal Distribution Amount over (ii) the amount distributed to the holders of the Class A Certificates in clause "First" above and (y) the Class M-1 Principal Distribution Amount, shall be distributed to the holders of the Class M-1 Certificates, until the Class M-1 Certificate Balance has been reduced to zero; Third, the lesser of (x) the excess, if any, of (i) the sum of (A) the Fixed Rate Principal Distribution Amount and (B) the Variable Rate Principal Distribution Amount over (ii) the sum of the amount distributed to the holders of the Class A Certificates in clause "First" above and the amount distributed to the holders of the Class M-1 Certificates in clause "Second" above and (y) the Class M-2 Principal Distribution Amount, shall be distributed to the holders of the Class M-2 Certificates, until the Class M-2 Certificate Balance has been reduced to zero; Fourth, the lesser of (x) the excess, if any, of (i) the sum of (A) the Fixed Rate Principal Distribution Amount and (B) the Variable Rate Principal Distribution Amount over (ii) the sum of the amount distributed to the holders of the Class A Certificates pursuant to clause "First" above, the amount distributed to the holders of the Class M-1 Certificates pursuant to clause "Second" above and the amount distributed to the holders of the Class M-2 Certificates pursuant to clause "Third" above and (y) the Class B-1 Principal Distribution Amount, shall be distributed to the holders of the Class B-1 Certificates, until the Class B-1 Certificate Balance has been reduced to zero; Fifth, the lesser of (x) the excess, if any, of (i) the sum of (A) the Fixed Rate Principal Distribution Amount and (B) the Variable Rate Principal Distribution Amount over (ii) the sum of the amount distributed to the holders of the Class A Certificates pursuant to clause "First" above, the amount distributed to the holders of the Class M-1 Certificates pursuant to clause "Second" above, the amount distributed to the holders of the Class M-2 Certificates pursuant to clause "Third" above and the amount distributed to the holders of the Class B-1 Certificates pursuant to clause "Fourth" above and (y) the Class B-2 Principal Distribution Amount, shall be distributed to the holders of the Class B-2 Certificates, until the Class B-2 Certificate Balance has been reduced to zero; and Sixth, any portion of the Principal Distribution Amount remaining after making all of the distributions in clauses "First," "Second," "Third," "Fourth" and "Fifth" above above shall be a part of the Monthly Excess Cashflow Amount and shall be applied as described below under "Credit Enhancement--Application of Monthly Excess Cashflow Amounts" in this summary. The holders of the Class A-8 Certificates are entitled to receive, from funds available therefor, payments of the Class A-8 Lockout Distribution Amount specified herein; provided, that if on any Distribution Date the Certificate Balance of the Class A Certificates (other than the Class A-8 and the Class A-9 Certificates) is zero, the - -------------------------------------------------------------------------------- S-15 - -------------------------------------------------------------------------------- holders of the Class A-8 Certificates will be entitled to receive the entire Class A Principal Distribution Amount for such Distribution Date, and on any Distribution Date that the Certificate Balance of the Class A Certificates (other than the Class A-8 and Class A-9 Certificates) have been reduced to zero, the holders of the Class A-8 Certificates will be entitled to receive any remaining Class A Principal Distribution Amount. "Principal Remittance Amount" means for a Mortgage Loan Group and as of any Distribution Date, the sum of (i) the principal actually collected by the Master Servicer on the Mortgage Loans in such Mortgage Loan Group during the related Due Period, (ii) the Principal Balance of each Mortgage Loan in such Mortgage Loan Group that was repurchased from the Trust with respect to the related Due Period, (iii) the portion of any Substitution Adjustment relating to principal delivered by the Seller in connection with a substitution of a Mortgage Loan in such Mortgage Loan Group with respect to the related Due Period, and (iv) all Liquidation Proceeds actually collected by the Master Servicer during the related Due Period with respect to Mortgage Loans in such Mortgage Loan Group (to the extent such Liquidation Proceeds related to principal). A "Trigger Event" has occurred with respect to a Distribution Date if the percentage obtained by dividing (x) the aggregate outstanding Principal Balance of the Mortgage Loans as to which payments aggregating at least $65 are 60 days or more delinquent by (y) the aggregate outstanding Principal Balance of the Mortgage Loans, in each case as of the last day of the immediately preceding Due Period, equals or exceeds 48% of the Senior Specified Enhancement Percentage (as defined herein). Once a Trigger Event has occurred it will be in effect until the Stepped Up Enhancement Level has been met on a succeeding Distribution Date. The "Stepped Up Enhancement Level" has been met, with respect to a Distribution Date, if two times the percentage obtained by dividing (x) the aggregate outstanding Principal Balance of the Mortgage Loans as to which payments aggregating at least $65 are 60 days or more delinquent by (y) the aggregate outstanding Principal Balance of the Mortgage Loans, in each case as of the last day of the immediately preceding Due Period, is less than 48% of the Senior Specified Enhancement Percentage. "Stepdown Date" means the earlier to occur of (i) the later to occur of (x) the Distribution Date in August 2000 and (y) the first Distribution Date on which the Senior Enhancement Percentage (after taking into account distributions of principal on such Distribution Date) is greater than or equal to the Senior Specified Enhancement Percentage (as defined herein) and (ii) the Distribution Date on which the Certificate Balance of the Class A Certificates has been reduced to zero. "Class A Principal Distribution Amount" means as of any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect, 100% of the sum of (A) the Fixed Rate Principal Distribution Amount and (B) the Variable Rate Principal Distribution Amount and (b) on or after the Stepdown Date and as long as a Trigger Event is not in effect, the greater of (I) the lesser of (a) the - -------------------------------------------------------------------------------- S-16 - -------------------------------------------------------------------------------- Certificate Balance of the Class A-9 Certificates and (b) the Variable Rate Principal Distribution Amount and (II) the excess of (x) the aggregate Certificate Balance of the Class A Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) 59.3% and (ii) the outstanding Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the outstanding Principal Balance of the Mortgage Loans as of the last day of the related Due Period minus $2,500,000. "Class M-1 Principal Distribution Amount" means as of any Distribution Date on or after the Stepdown Date and as long as a Trigger Event is not in effect, the excess of (x) the sum of (i) the aggregate Certificate Balance of the Class A Certificates (after taking into account the payment of the Class A Principal Distribution Amount on such Distribution Date) and (ii) the Class M-1 Certificate Balance immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) 71.3% and (ii) the outstanding Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the outstanding Principal Balance of the Mortgage Loans as of the last day of the related Due Period minus $2,500,000. "Class M-2 Principal Distribution Amount" means as of any Distribution Date on or after the Stepdown Date and as long as a Trigger Event is not in effect, the excess of (x) the sum of (i) the aggregate Certificate Balance of the Class A Certificates (after taking into account the payment of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Class M-1 Certificate Balance (after taking into account the payment of the Class M-1 Principal Distribution Amount on such Distribution Date) and (iii) the Class M-2 Certificate Balance immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) 84.3% and (ii) the outstanding aggregate Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the outstanding Principal Balance of the Mortgage Loans as of the last day of the related Due Period minus $2,500,000. "Class B-1 Principal Distribution Amount" means as of any Distribution Date on or after the Stepdown Date and as long as a Trigger Event is not in effect, the excess of (x) the sum of (i) the aggregate Certificate Balance of the Class A Certificates (after taking into account the payment of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Class M-1 Certificate Balance (after taking into account the payment of the Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the Class M-2 Certificate Balance (after taking into account the payment of the Class M-2 Principal Distribution Amount on such Distribution Date) and (iv) the Class B-1 Certificate Balance immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) 93.3% and (ii) the outstanding aggregate Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the outstanding Principal Balance of the Mortgage Loans as of the last day of the related Due Period minus $2,500,000. "Class B-2 Principal Distribution Amount" means as of any Distribution Date on or after the Stepdown Date and as long as a Trigger - -------------------------------------------------------------------------------- S-17 - -------------------------------------------------------------------------------- Event is not in effect, the excess of (x) the sum of (i) the aggregate Certificate Balance of the Class A Certificates (after taking into account the payment of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Class M-1 Certificate Balance (after taking into account the payment of the Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the Class M-2 Certificate Balance (after taking into account the payment of the Class M-2 Principal Distribution Amount on such Distribution Date), (iv) the Class B-1 Certificate Balance (after taking into account the payment of the Class B-1 Principal Distribution Amount on such Distribution Date) and (v) the Class B-2 Certificate Balance immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) 95.3% and (ii) the outstanding aggregate Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the outstanding Principal Balance of the Mortgage Loans as of the last day of the related Due Period minus $2,500,000. "Overcollateralization Amount" means as of any Distribution Date the excess, if any, of (x) the Principal Balance of the Mortgage Loans as of the last day of the immediately preceding Due Period over (y) the Aggregate Certificate Balance on such Distribution Date (after taking into account all distributions of principal on such Distribution Date). "Senior Enhancement Percentage" for any Distribution Date is the percentage obtained by dividing (x) the sum of (i) the aggregate Certificate Balance of the Subordinate Certificates and (ii) the Overcollateralization Amount, in each case after taking into account the distribution of the Principal Distribution Amount on such Distribution Date by (y) the aggregate Principal Balance of the Mortgage Loans as of the last day of the related Due Period. "Senior Specified Enhancement Percentage" means 40.7%. "Overcollateralization Deficiency" means, as of any Distribution Date, the excess, if any, of (x) the Targeted Overcollateralization Amount for such Distribution Date over (y) the Overcollateralization Amount for such Distribution Date, calculated for this purpose after taking into account the reduction on such Distribution Date of the Certificate Balance of all Classes of the Offered Certificates and the Class B-2 Certificates resulting from the distribution of the Principal Remittance Amount on such Distribution Date, but prior to taking into account any Realized Loss with respect to the related Due Period. "Overcollateralization Release Amount" means as of any Distribution Date, the lesser of (x) the related Principal Remittance Amount for such Distribution Date and (y) the excess of (i) the Overcollateralization Amount for such Distribution Date, assuming that 100% of the Principal Remittance Amount is applied on such Distribution Date to the payment of principal on the Offered Certificates and the Class B-2 Certificates, and (ii) the Targeted Overcollateralization Amount (as defined herein) for such Distribution Date. "Targeted Overcollateralization Amount" means, as of any Distribution Date, (x) prior to the Stepdown Date, $11,750,000 and (y) on and after the Stepdown Date, the greater of (i) 4.7% of the aggregate outstanding - -------------------------------------------------------------------------------- S-18 - -------------------------------------------------------------------------------- Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (ii) $2,500,000. Notwithstanding the foregoing, upon the occurrence and during the continuance of a "Cumulative Realized Loss Trigger Event," the Targeted Overcollateralization Amount shall be $14,000,000. A "Cumulative Realized Loss Trigger Event" has occurred if at dates specified in the Pooling and Servicing Agreement, the cumulative aggregate amount of Realized Losses (net of any subsequent recoveries) equals or exceeds a certain percentage (specified in the Pooling and Servicing Agreement) of the Principal Balance of the Mortgage Loans in the Mortgage Pool as of the Cut-off Date. Credit Enhancement ......... The Credit Enhancement provided for the benefit of the holders of the Class A Certificates consists of the subordination of the Subordinate Certificates, the priority of application of Realized Losses (as defined herein) and the application of Monthly Excess Cashflow Amounts. Distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class M-1 Certificates will be subordinated to distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class A Certificates, distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class M-2 Certificates will be subordinated to distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class M-1 Certificates and the Class A Certificates, distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class B-1 Certificates will be subordinated to distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Mezzanine Certificates and the Class A Certificates, and distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class B-2 Certificates will be subordinated to distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class B-1 Certificates, the Mezzanine Certificates and the Class A Certificates, in each case to the extent described herein. Subordination of Subordinate Certificates. The rights of the holders of the Subordinate Certificates and the Class R Certificates to receive distributions will be subordinated, to the extent described herein, to such rights of the holders of the Class A Certificates. This subordination is intended to enhance the likelihood of regular receipt by the holders of the Class A Certificates of the full amount of their scheduled monthly payment of interest and principal and to afford such holders protection against Realized Losses. The protection afforded to the holders of the Class A Certificates by means of the subordination of the Subordinate Certificates and the Class R Certificates will be accomplished by the preferential right of the holders of the Class A Certificates to receive, prior to any distribution of interest being made on a Distribution Date in respect of such Subordinate Certificates, the amounts of interest due them and, prior to any distribution of principal being made on a Distribution Date in respect of such Subordinate Certificates, the amounts of principal - -------------------------------------------------------------------------------- S-19 - -------------------------------------------------------------------------------- due them, and, if necessary, by the right of the holders of the Class A Certificates to receive future distributions of amounts that would otherwise be payable to the holders of the Subordinate Certificates and the Class R Certificates. In addition, the rights of the holders of the Class M-2, Class B-1, Class B-2 and Class R Certificates to receive distributions will be subordinated, to the extent described herein, to such rights of the holders of the Class A and Class M-1 Certificates. This subordination is intended to enhance the likelihood of regular receipt by the holders of the Class A and Class M-1 Certificates of the amount of interest due them and principal available for distribution and to afford such holders with protection against Realized Losses. The rights of the holders of the Class B-1, Class B-2 and the Class R Certificates to receive distributions will be subordinated in the same manner to such rights of the holders of the Class A, Class M-1 and Class M-2 Certificates, the rights of the holders of the Class B-2 Certificates and the Class R Certificates to receive distributions will be subordinated in the same manner to such rights of the holders of the Class A, Class M-1, Class M-2 and Class B-1 Certificates, and the rights of holders of the Class R Certificates to receive distributions will be subordinated in the same manner to such rights of the holders of the Offered Certificates and the Class B-2 Certificates. Application of Realized Losses. To the extent that the Mortgage Loans experience Realized Losses, such Realized Losses will reduce the aggregate outstanding Principal Balance of the Mortgage Loans (i.e., a reduction in the collateral balance will occur). Since the Overcollateralization Amount is the excess, if any, of the aggregate Principal Balance of the Mortgage Loans over the Aggregate Certificate Balance, any Realized Losses will in the first instance reduce the Overcollateralization Amount. The Pooling and Servicing Agreement requires that the Overcollateralization Amount be initially increased to, and thereafter maintained at, the Targeted Overcollateralization Amount. This increase and subsequent maintenance are intended to be accomplished by the application of Monthly Excess Interest Amounts (if any) to the funding of the related Extra Principal Distribution Amounts. Such Extra Principal Distribution Amounts, which are funded from interest collections on the collateral but are distributed as principal on the Offered Certificates and the Class B-2 Certificates, are intended to increase the Overcollateralization Amount. However, if there are not sufficient Extra Principal Distribution Amounts, the Overcollateralization Amount will not be increased to or maintained at the Targeted Overcollateralization Amount. If, on any Distribution Date after taking into account all Realized Losses experienced during the prior Due Period and after taking into account the distribution of principal (including the Extra Principal Distribution Amount) with respect to the Offered Certificates and the Class B-2 Certificates on such Distribution Date, the Aggregate Certificate Balance exceeds the aggregate Principal Balance of the Mortgage Loans as of the end of the related Due Period (i.e., if the level - -------------------------------------------------------------------------------- S-20 - -------------------------------------------------------------------------------- of overcollateralization is negative), then the Certificate Balance of the Subordinate Certificates will be reduced (in effect, "written down") so that the level of overcollateralization is zero, rather than negative. Such a negative level of overcollateralization is an "Applied Realized Loss Amount," which will be applied as a reduction in the Certificate Balance of the Subordinate Certificates in reverse order of seniority (i.e., first against the Class B-2 Certificate Balance until it is reduced to zero, then against the Class B-1 Certificate Balance until it is reduced to zero, then against the Class M-2 Certificate Balance until it is reduced to zero and then against the Class M-1 Certificate Balance until it is reduced to zero). The Pooling and Servicing Agreement does not permit the "write down" of the Certificate Balance of any Class A Certificate. Once the Certificate Balance of a Class of Subordinate Certificates has been "written down," the amount of such write down will no longer bear interest, nor will such amount thereafter be "reinstated" or "written up," although the amount of such write down may, on future Distribution Dates be paid (without interest) to holders of the Subordinate Certificates which experienced the write down, in direct order of seniority (i.e., first, the Class M-1 Certificates, second, the Class M-2 Certificates, third, the Class B-1 Certificates and, fourth, the Class B-2 Certificates). The source of funding of such payments will be the amount, if any, of the Monthly Excess Cashflow Amount remaining on such future Distribution Dates after the funding of the related Extra Principal Distribution Amounts and after the payment of Interest Carry Forward Amounts with respect to the Subordinate Certificates on such Distribution Date. Application of Monthly Excess Cashflow Amounts. As of the Closing Date, the weighted average Mortgage Rate for the Mortgage Loans is generally expected to be higher than the weighted average of the Pass-Through Rates on the Offered Certificates and the Class B-2 Certificates plus the Master Servicing Fee, thus generating certain excess interest collections which, in the absence of losses, will not be necessary to fund interest distributions on the Offered Certificates and the Class B-2 Certificates. The Pooling and Servicing Agreement provides that this excess interest be applied, to the extent available, to make accelerated payments of principal (i.e., the Extra Principal Distribution Amount) to the Class or Classes then entitled to receive distributions of principal. This application will cause the Aggregate Certificate Balance to amortize more rapidly than the Mortgage Loans, resulting in overcollateralization. This excess interest for a Due Period, together with interest on the Overcollateralization Amount itself, on the related Distribution Date, is the "Monthly Excess Interest Amount" for such Distribution Date. Prepayments and liquidations of Mortgage Loans with higher Mortgage Rates would have the effect of reducing or eliminating this excess interest. The required level of overcollateralization for any Distribution Date is the Targeted Overcollateralization Amount for such Distribution Date. The Targeted Overcollateralization Amount is initially (i.e., prior to the Stepdown Date) $11,750,000 (subject to adjustment upon the occurrence and during the continuance of a Cumulative Realized Loss - -------------------------------------------------------------------------------- S-21 - -------------------------------------------------------------------------------- Trigger Event). Since the actual level of the Overcollateralization Amount as of the Closing Date is expected to be zero, in the early months of the transaction, subject to the availability of Monthly Excess Interest Amounts, Extra Principal Distribution Amounts will be paid, with the result that the Overcollateralization Amount is intended to increase until such time, if ever, as it reaches the Targeted Overcollateralization Amount. Realized Losses which occur after the Targeted Overcollateralization Amount has been reached will result in an Overcollateralization Deficiency since Realized Losses reduce the Principal Balance of the Mortgage Loans without giving rise to a corresponding reduction of the Aggregate Certificate Balance. The cashflow priorities of the Trust require that, in this situation, an Extra Principal Distribution Amount be paid (subject to the availability of any Monthly Excess Interest Amount) for the purpose of re-establishing the Overcollateralization Amount at the required Targeted Overcollateralization Amount at that date. On and after the Stepdown Date, the Targeted Overcollateralization Amount is permitted to decrease or "stepdown" below the $11,750,000 level to a level equal to 4.7% of the then current aggregate outstanding Principal Balance of the Mortgage Loans (subject to a floor of $2,500,000 and subject to adjustment upon the occurrence and during the continuance of a Cumulative Realized Loss Trigger Event). If the Targeted Overcollateralization Amount is permitted to "stepdown" on a Distribution Date, the Pooling and Servicing Agreement permits a portion of the related Principal Remittance Amount for such Distribution Date not to be passed through as a distribution of principal on such Distribution Date. This has the effect of decelerating the amortization of the Offered Certificates and the Class B-2 Certificates relative to the aggregate outstanding Principal Balance of the Mortgage Loans, thereby reducing the actual level of the Overcollateralization Amount to the new, lower Targeted Overcollateralization Amount. This portion of the Principal Remittance Amount not distributed as principal on the Certificates therefore releases overcollateralization from the Trust with respect to the Mortgage Loans. The amount of such releases are the "Overcollateralization Release Amounts." On any Distribution Date, the sum of the Monthly Excess Interest Amount and the Overcollateralization Release Amount is the Monthly Excess Cashflow Amount, which is required to be applied in the following order of priority on such Distribution Date: (1) to fund the Fixed Rate Group Extra Principal Distribution Amount and the Adjustable Rate Group Extra Principal Distribution Amount for such Distribution Date; (2) to fund the Class M-1 Interest Carry Forward Amount, if any; (3) to fund the Class M-1 Realized Loss Amortization Amount (as defined herein) for such Distribution Date; (4) to fund the Class M-2 Interest Carry Forward Amount, if any; (5) to fund the Class M-2 Realized Loss Amortization Amount (as defined herein) for such Distribution Date; (6) to fund the Class B-1 Interest Carry Forward Amount, if any; - -------------------------------------------------------------------------------- S-22 - -------------------------------------------------------------------------------- (7) to fund the Class B-1 Realized Loss Amortization Amount (as defined herein) for such Distribution Date; (8) to fund the Class B-2 Interest Carry Forward Amount, if any; (9) to fund the Class B-2 Realized Loss Amortization Amount (as defined herein) for such Distribution Date; (10) to the Master Servicer to the extent of any unreimbursed Advances; and (11) to the holders of the Class R Certificates. Advances ................... The Master Servicer is obligated to make cash advances (any such advance, an "Advance") with respect to delinquent payments of interest on any Mortgage Loan to the extent described herein. See "Servicing of Mortgage Loans--Advances" herein. Compensating Interest ...... Not later than the close of business on each Determination Date, with respect to each Mortgage Loan as to which the Master Servicer received a principal prepayment in full in advance of the final scheduled due date (a "Principal Prepayment") during the related Due Period, the Master Servicer is required to remit to the Trustee, but only to the extent of the Master Servicing Fee for such Due Period, an amount ("Compensating Interest") equal to any excess of (a) 30 days' interest on the Principal Balance of each such Mortgage Loan as of the beginning of the related Due Period, at the applicable Mortgage Rate over (b) the amount of interest actually received on the related Mortgage Loan during such Due Period. Servicing ................. The Master Servicer is entitled to a servicing fee of 0.50% per annum of the Principal Balance of each Mortgage Loan as of the first day of the related Due Period (the "Master Servicing Fee") and payable monthly from the Interest Remittance Amount. The Master Servicing Fee will be paid on each Distribution Date prior to payment to the Certificateholders and will reduce the Interest Remittance Amount available to pay interest on the Certificates. However, if the Master Servicer is CIT Consumer Finance or an affiliate of CIT Consumer Finance is the Master Servicer, the Master Servicing Fee will be paid on each Distribution Date only from the Interest Remittance Amount remaining after all interest payments due on the Certificates on such Distribution Date have been made. Registration of the Offered Certificates ..... The Offered Certificates will initially be issued in book-entry form. Persons acquiring beneficial ownership interests in the Offered Certificates (each, a "beneficial owner") may elect to hold their Certificate interests through The Depository Trust Company ("DTC") in the United States, or through 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 Offered Certificates are Book-Entry Certificates (as defined herein), such Certificates will be evidenced by one or more Certificates registered in the name of Cede & - -------------------------------------------------------------------------------- S-23 - -------------------------------------------------------------------------------- Co. ("Cede"), as the nominee of DTC. Crossmarket transfers between persons holding directly or indirectly through DTC, on the one hand, and persons 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 and Euroclear, respectively, and each a participating member of DTC. The Offered Certificates will initially be registered in the name of Cede. The interests of the holders of the Offered Certificates will be represented by book entries on the records of DTC and participating members thereof. No person will be entitled to receive a Definitive Certificate representing such person's interest, except in the event that Definitive Certificates are issued under the limited circumstances described herein and in the Prospectus. See "Risk Factors--Book-Entry Registration" in the Prospectus, "Description of the Certificates--Book-Entry Certificates" herein and in the Prospectus and "ANNEX I" attached hereto. Optional Termination ....... On any Distribution Date on which the outstanding aggregate Principal Balances of the Mortgage Loans in the Trust have declined to 10% or less of the aggregate Principal Balances of the Mortgage Loans as of the Cut-off Date, the Master Servicer will have the option to purchase, in whole, the Mortgage Loans and the REO Property (as defined in the Prospectus), if any, remaining in the Trust Fund as of that date (the first such Distribution Date, the "Clean-up Call Date"). See "The Pooling and Servicing Agreement--Optional Termination" herein. Auction Sale ............... Within ten days after the first Distribution Date on which the outstanding aggregate Principal Balances of the Mortgage Loans in the Trust have declined to 5% or less of the aggregate Principal Balances of the Mortgage Loans as of the Cut-off Date, the Trustee shall solicit bids for the purchase of the Mortgage Loans and the REO Property remaining in the Trust. In the event that satisfactory bids are received as described under "The Pooling and Servicing Agreement--Auction Sale" herein, the net sale proceeds will be distributed to Certificateholders on the second Distribution Date succeeding such Due Period. Any purchaser of the Mortgage Loans and the REO Property must agree to the continuation of CIT Consumer Finance as Master Servicer (if at such time it is the Master Servicer) on terms substantially similar to those in the Pooling and Servicing Agreement. Any such sale will cause early retirement of the Certificates. Federal Income Tax Considerations .......... An election will be made to treat certain assets of the Trust Fund as a "real estate mortgage investment conduit" ("REMIC") for federal income tax purposes. The Offered Certificates and the Class B-2 Certificates will constitute "regular interests" in the REMIC and the Class R Certificates will constitute the sole class of " residual interests" in the REMIC. See "Certain Federal Income Tax Consequences" herein and in the Prospectus. - -------------------------------------------------------------------------------- S-24 - -------------------------------------------------------------------------------- ERISA Considerations ....... As described under "ERISA Considerations" herein, the Class A Certificates may be purchased by employee benefit plans that are subject to ERISA. The Subordinate Certificates may not be purchased by employee benefit plans that are subject to ERISA. See "ERISA Considerations" herein and in the Prospectus. Legal Investment ........... The Offered Certificates will not constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). In addition, institutions whose activities are subject to review by federal or state regulatory authorities may be or may become subject to restrictions, which may be retroactively imposed by such regulatory authorities, on the investment by such institutions in certain forms of mortgage related securities. All investors whose investment authority is subject to legal restrictions should consult their own legal advisors to determine whether, and to what extent, the Certificates will constitute legal investments for them. Ratings .................... It is a condition of issuance of the Offered Certificates that each Class of the Certificates receive ratings from Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") as set forth below: Class Moody's Rating S&P Rating ----- -------------- ---------- Class A Aaa AAA Class M-1 Aa2 AA Class M-2 A2 A- Class B-1 Baa2 BBB- 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 rating agency. The ratings do not address the likelihood of the payment of Interest Carry Forward Amounts. Use of Proceeds ............ Substantially all of the net proceeds to be received from the sale of the Offered Certificates will be received by the Depositor, which will apply such proceeds to pay to the Seller the purchase price for the Mortgage Loans and to pay certain expenses of the offering. Risk Factors ............... For a discussion of certain factors that should be considered by prospective investors in the Offered Certificates, see "Risk Factors" herein and in the Prospectus. - -------------------------------------------------------------------------------- S-25 RISK FACTORS Prospective investors in the Offered Certificates should consider, among other things, the following risk factors in connection with the purchase of the Offered Certificates: 1. Limited Obligations. The Certificates will not represent an interest in or obligation of the Trustee, the Depositor, CITSF, CIT Consumer Finance, CIT or any of their respective affiliates. The Certificates will not be insured or guaranteed by any government agency or instrumentality, nor by the Trustee, the Depositor, CITSF, CIT Consumer Finance, CIT or any of their respective affiliates. CIT will not provide a guarantee or assume other obligations with respect to the Certificates. 2. Limited Liquidity. There can be no assurance that a secondary market will develop for the Certificates or, if it does develop, that it will provide the holders of the Certificates with liquidity of investment or that it will remain for the term of such Certificates. Although the holders of the Certificates will receive monthly statements containing certain statistical information with respect to the Mortgage Pool, the Depositor publishes no information relating to the Certificates or any Mortgage Pool. The limited availability of any such published information may decrease the liquidity of the Certificates. 3. Subordination of Payment. The rights of the holders of the Class M-1 Certificates to receive distributions with respect to the Mortgage Loans will be subordinate to the rights of the holders of the Class A Certificates to receive such distributions, the rights of holders of the Class M-2 Certificates to receive distributions with respect to the Mortgage Loans will be subordinate to the rights of the holders of the Class A and the Class M-1 Certificates to receive such distributions, the rights of the holders of the Class B-1 Certificates to receive distributions with respect to the Mortgage Loans will be subordinate to the rights of the holders of the Class A, Class M-1 and Class M-2 Certificates to receive such distributions and the rights of the holders of the Class B-2 Certificates to receive distributions with respect to the Mortgage Loans will be subordinate to the rights of the holders of the Class A, Class M-1, Class M-2 and Class B-1 Certificates to receive such distributions. The subordination of the Subordinate Certificates relative to the Class A Certificates (and of the lower-ranking Classes of the Subordinate Certificates to the higher-ranking Classes thereof) is intended to enhance the likelihood of regular receipt by the holders of the Class A Certificates of the full amount of the monthly distributions allocable to them and consequently decreases the likelihood of receipt by the holders of the Subordinate Certificates of amounts otherwise allocable to them. See "Risk Factors -- Subordination" in the Prospectus. 4. Risk of Mortgage Loan Rates or the Maximum Variable Rate Reducing the Pass-Through Rate on the Variable Rate Certificates. The calculation of the Pass-Through Rate on the Variable Rate Certificates is based upon (i) the value of an index (One-month LIBOR) which is different from the value of the index applicable to the Mortgage Loans in the Adjustable Rate Group as described under "The Mortgage Pool--Adjustable Rate Group" (either as a result of the use of a different index, rate determination date or rate adjustment date or a combination of all of the foregoing) and (ii) in part, the weighted average of the Mortgage Rates of the Mortgage Loans in the Adjustable Rate Group which are subject to periodic adjustment caps and maximum rate caps. The Pass-Through Rate on the Variable Rate Certificates adjusts monthly based upon LIBOR as described under "Description of the Certificates--Calculation of LIBOR" herein, subject to the Adjustable Rate Group Available Funds Cap Rate and the Maximum Variable Rate. However, 69.99% of the Mortgage Loans in the Adjustable Rate Group by aggregate Principal Balance as of the Cut-off Date adjust semi-annually based upon the London interbank offered rate for six-month United States dollar deposits ("Six-month LIBOR") and 30.01% adjust annually based upon the one-year constant maturity treasury ("One-year CMT"). Consequently, the interest which becomes due on the Mortgage Loans in the Adjustable Rate Group (net of the Master Servicing Fee if CIT Consumer Finance or one of its affiliates is not the Master Servicer and certain required reductions) during any Due Period may not equal the amount of interest that would accrue at One-month LIBOR plus the margin on the Variable Rate Certificates during the related Accrual Period. In addition, 39.63% of the Mortgage Loans in the Adjustable Rate Group by aggregate Principal Balance as of the Cut-off Date provide for a fixed interest rate for a period of approximately two years following origination and 4.47% of the Mortgage Loans in the Adjustable Rate Group by aggregate Principal Balance as of the Cut-off Date provide for a fixed interest rate for a period of approximately three years following origination. Since the Pass-Through Rate on the Variable Rate Certificates adjusts monthly, while the interest rates of the Mortgage Loans in the Adjustable Rate Group adjust less frequently, the Adjustable Rate Group Available Funds Cap Rate may limit increases in the Pass-Through Rate on the Variable Rate Certificates for extended periods in a rising interest rate environment. In addition, One-month LIBOR, Six-month LIBOR and One-year CMT may respond differently to economic and market factors so that there may not necessarily be a correlation among them. Thus, it is possible, for example, that One-month LIBOR S-26 may rise during a period in which Six-month LIBOR or One-year CMT is stable or is falling or that, even if One-month LIBOR, Six-month LIBOR and One-year CMT rise during the same period, One-month LIBOR may rise more rapidly than Six-month LIBOR or the One-year CMT. Furthermore, if the Adjustable Rate Group Available Funds Cap Rate or the Maximum Variable Rate determines the Pass-Through Rate on the Variable Rate Certificates for a Distribution Date, the value of the Variable Rate Certificates will be temporarily or permanently reduced. Moreover, if interest on the Variable Rate Certificates determined at the Adjustable Rate Available Funds Cap Rate (or at the Maximum Variable Rate) is less than interest at the Pass-Through Rate applicable to the Class A-9 Certificates shown on the cover page, such excess will be foregone permanently. 5. Prepayments on Fixed Rate Group May Affect Current Interest. The Pass-Through Rate on each Class of Fixed Rate Certificates is subject to the Fixed Rate Available Funds Cap Rate. Disproportionate prepayments (including prepayments due to liquidations and repurchases or purchases by the Seller or the Master Servicer as required by the Pooling and Servicing Agreement) of Mortgage Loans with relatively high Mortgage Rates in comparison to the Pass-Through Rate for a Class of Offered Certificates and the Class B-2 Certificates will increase the possibility that the Pass-Through Rate for such Class of Offered Certificates and the Class B-2 Certificates will be limited by the Fixed Rate Available Funds Cap Rate. As a result, if interest determined at the applicable fixed Pass-Through Rate shown on the cover page is more than interest determined at the Fixed Rate Available Funds Cap Rate, such excess will be foregone permanently. 6. Yield and Prepayment Considerations. The yield to maturity of the Offered Certificates will depend on the rate of payment of principal (including prepayments due to liquidations and repurchases or purchases by the Seller or the Master Servicer as required by the Pooling and Servicing Agreement) on the Mortgage Loans and the price paid by holders of the Offered Certificates. Such yield may be adversely affected by a higher or lower than anticipated rate of prepayments on the Mortgage Loans. The yield to maturity on Offered Certificates purchased at premiums or discounts to par will be extremely sensitive to the rate of prepayments on the related Mortgage Loans. The yields to maturity on the Mezzanine Certificates and Class B Certificates will be sensitive, in varying degrees, to the frequency and number of defaults on the Mortgage Loans. Investors should fully consider that the risks associated with an investment in the Mezzanine Certificates or Class B Certificates include the possibility that they may not fully recover their initial investment as a result of Realized Losses on the Mortgage Loans. 7. Yields on Subordinated Certificates will be Adversely Affected by Losses. The weighted average lives of, and the yields to maturity on, the Subordinate Certificates will be sensitive to the rate and timing of defaults and the severity of ensuing losses on the Mortgage Loans. The sensitivity of the yields on the Subordinate Certificates will increase as the payment priority of the related Class decreases so that the Class B-2 Certificates will be more sensitive than the Class B-1 Certificates, the Class B-1 Certificates will be more sensitive than the Class M-2 Certificate and the Class M-2 Certificates will be more sensitive than the Class M-1 Certificates. If the actual rate and severity of losses on the Mortgage Loans is higher than those assumed by a holder of a Subordinate Certificate, the actual yield to maturity of such Certificates will be lower than the yield expected by such holder based on such assumption. The timing of losses on the Mortgage Loans will also affect an investor's actual yield to maturity, even if the rate of defaults and severity of losses over the life of the Mortgage Pool are consistent with an investor's expectations. In general, the earlier a loss occurs, the greater the effect on an investor's yield to maturity. 8. Geographic Concentration of Mortgaged Properties. As of the Cut-off Date, approximately 20% (by aggregate Principal Balance of the related Mortgage Loan) of the Mortgaged Properties in the Fixed Rate Group are located in the States of California and Ohio and approximately 38% (by aggregate Principal Balance of the related Mortgage Loan) of the Mortgaged Properties in the Adjustable Rate Group are located in the States of Ohio, Michigan and California. As of the Cut-off Date, approximately 20% (by aggregate Principal Balance of the related Mortgage Loan) of the Mortgaged Properties (in the Mortgage Pool) are located in the States of Ohio and California. An overall decline in these residential real estate markets could adversely affect the values of the Mortgaged Properties securing such Mortgage Loans so that the Principal Balances of the related Mortgage Loans could equal or exceed the value of such Mortgaged Properties. As many factors influence the residential real estate market, including the general condition of the economy and interest rates, residential real estate markets may weaken. If residential real estate markets experience an overall decline in property values after the dates of origination of the Mortgage Loans, the rates of losses on the Mortgage Loans would be expected to increase, and the increase could be substantial. 9. Risk of Losses Associated with Balloon and Call Loans. 15.68% of the Mortgage Loans in the Fixed Rate Group by Principal Balance as of the Cut-Off Date represent Balloon Loans.15.04% and 8.09% of the Mortgage S-27 Loans in the Fixed Rate Group and the Adjustable Rate Group, respectively, by Principal Balance as of the Cut-Off Date represent Call Loans. See "Risk Factors--Risk of Losses Associated with Balloon and Call Loans" in the Prospectus. 10. Risk of Losses Associated with Junior Liens. 29.62% and 3.67% of the Mortgage Loans in the Fixed Rate Group and the Adjustable Rate Group, respectively, by Principal Balance as of the Cut-Off Date represent Mortgage Loans secured by subordinate mortgages. See "Risk Factors--Risk of Losses Associated with Junior Liens" in the Prospectus. 11. ERISA Considerations. An investment in the Certificates by Plans (as defined herein) may give rise to a prohibited transaction under ERISA (as defined herein) Section 406 and be subject to tax under Code (as defined herein) Section 4975 unless a statutory or administrative exemption is available. Accordingly, fiduciaries of any employee benefit plan or other retirement arrangement should consult their counsel before purchasing any class of Certificates. The Subordinate Certificates will not be eligible for purchase by Plans. See "ERISA Considerations" herein and in the Prospectus. 12. Certain Other Aspects of the Mortgage Loans.A variety of factors may limit the ability of the holders of the Certificates to realize upon the Mortgaged Properties securing the Mortgage Loans or may limit the amount realized to less than the amount due. See "Risk Factors" and "Certain Legal Aspects of the Mortgage Loans" in the Prospectus. Each Mortgage Loan is secured by a Mortgage on a Mortgaged Property. Mortgages in the Mortgaged Properties and enforcement of rights to realize upon the value of the Mortgaged Properties as collateral for the Mortgage Loans are subject to each state's real estate laws and other laws. See " Certain Legal Aspects of the Mortgage Loans" in the Prospectus. CIT Consumer Finance and the Depositor will not deliver to the Trustee assignments of the Mortgage Loans securing the Mortgaged Properties. In the absence of the recordation of an assignment to the Trustee of the Mortgage Loans securing the Mortgaged Properties, the assignment to the Trustee may not be effective against creditors of CIT Consumer Finance, the Depositor or a trustee in the bankruptcy of CIT Consumer Finance or the Depositor. As a result, the Trust would not be able to claim the Mortgaged Property as collateral for a Mortgage Loan. See "The Pooling and Servicing Agreement--Assignment of the Mortgage Loans" herein. CIT Consumer Finance is not obligated to maintain hazard insurance policies, and does not currently pay hazard insurance premiums if a Mortgagor has not paid insurance premiums to maintain in effect the hazard insurance policy for the related Mortgaged Property. As a result, there may be Mortgaged Properties not covered by hazard insurance policies. To the extent such Mortgaged Properties suffer Realized Losses as a result of insurable hazards and such Realized Losses are not covered by overcollateralization or Monthly Excess Cashflow Amounts, such Realized Losses will be allocated to the Certificates as described herein. See "The Home Equity Lending Program--Underwriting-Other Issues" and "The Pooling and Servicing Agreement--Hazard Insurance" in the Prospectus. 13. Risks Associated with the Structure. Certain features of the structure may pose additional risks to investors. All of the Subordinate Certificates are Fixed Rate Certificates. The Subordinate Certificates provide credit support for both the Fixed Rate Certificates and the Variable Rate Certificates. Consequently, although the Subordinate Certificates are Fixed Rate Certificates, they may be written down as a result of losses on Mortgage Loans in the Adjustable Rate Group. In addition, the Interest Remittance Amount is comprised of collections of interest from all Mortgage Loans and consequently, the amount available to pay interest due on the Offered Certificates and the Class B-2 Certificates in either Mortgage Loan Group will depend, in part, on the payments of interest on the Mortgage Loans in the other Mortgage Loan Group. In addition, the Fixed Rate Group Available Funds Cap Rate and the Adjustable Rate Group Available Funds Cap Rate are structured to take into account in certain circumstances the Mortgage Rates on Mortgage Loans which are not in the related Mortgage Loan Group. Consequently, under certain loss and/or prepayment scenarios, the amount of Current Interest payable on one or more Classes of Offered Certificates and the Class B-2 Certificates on any Distribution Date may be more or less than the amount of Current Interest that would have been payable if the related Cap Rate were based solely on the Mortgage Rates on the Mortgage Loans in the related Mortgage Loan Group. Although the Principal Remittance Amount is based on principal received with respect to the related Mortgage Loan Group, principal collected with respect to one Mortgage Loan Group may be distributed on Certificates relating to the other Mortgage Loan Group. Moreover, because of the cross-collateralization features, the amortization of the Fixed Rate Certificates may be affected by the rate and timing of payments on the Adjustable Rate Group; similarly, the amortization of the Variable Rate Certificates may be affected by the rate and timing of payments on the Fixed Rate Group. In making any investment in Certificates, an investor should consider the potential effects of the other Mortgage Loan Group on the credit quality and expected yield on its Class of Offered Certificates. S-28 THE PORTFOLIO OF MORTGAGE LOANS General CIT Consumer Finance, as the Master Servicer, is responsible for causing the Mortgage Loans to be serviced in accordance with the terms set forth in the Pooling and Servicing Agreement. Prior to the issuance of the Certificates, the Master Servicer will enter into a subservicing agreement with CITSF (the "Subservicing Agreement") pursuant to which CITSF will agree to perform most of the servicing responsibilities of the Master Servicer under the Pooling and Servicing Agreement (except that CIT Consumer Finance will not delegate to CITSF the responsibility of confirming that the Mortgages are properly recorded and that title policies, if required, are properly issued, recording Mortgage releases and similar documents and maintaining loan files). The Trustee will be an intended third-party beneficiary of the Subservicing Agreement and will have the right to enforce such Subservicing Agreement as if it were a party thereto. Currently, CIT Consumer Finance only performs those limited servicing functions in connection with its portfolio described above. In the future, CIT Consumer Finance may determine that it will perform all or a material portion of the other servicing responsibilities or that CIT Consumer Finance will retain another third party to perform all or a material portion of these servicing responsibilities, instead of CITSF. The Pooling and Servicing Agreement provides that CIT Consumer Finance may not permit CITSF to resign as Sub-Servicer nor may CIT Consumer Finance terminate or replace CITSF as Sub-Servicer, or materially reduce the duties of CITSF as Sub-Servicer in connection with collections, lockbox arrangements, payment processing or foreclosure activities, unless (i) a Termination Event has occurred and is continuing, in which event the Trustee may terminate both CIT Consumer Finance and CITSF (See "The Pooling and Servicing Agreement--Termination Events"), or (ii) the Rating Agency Condition is satisfied. "Rating Agency Condition" means the condition that each Rating Agency shall have been given at least 30 days prior notice of a contemplated action and that each of the Rating Agencies shall not have notified the Depositor, the Master Servicer and the Trustee in writing that such action will result in a downgrade or withdrawal of the then current rating of the Offered Certificates. Notwithstanding any such subservicing arrangement, the Master Servicer will remain liable for its servicing duties and obligations under the Pooling and Servicing Agreement as if the Master Servicer alone were servicing the Mortgage Loans. See "The CIT Group/Sales Financing, Inc., Sub-Servicer" and "The Home Equity Lending Program--Servicing and Collections" in the Prospectus. As of March 31, 1997, CITSF serviced or subserviced for itself and others approximately 43,400 residential first and second mortgages, representing an outstanding balance of approximately $1.91 billion. CIT Consumer Finance currently does not service mortgages on behalf of other owners. Delinquency and Loss Experience The following tables set forth the delinquency and loss experience with respect to CIT Consumer Finance's entire portfolio of conventional mortgage loans secured by first or subordinate liens on mortgaged properties, including home equity lines of credit and Institutional Bulk Portfolios (as defined in the Prospectus) which are excluded from the Mortgage Pool. CIT Consumer Finance commenced origination of mortgage loans in December 1992 and therefore, information prior to 1993 is not available. Delinquency Experience (Dollar amounts in millions)
December 31, March 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ----------- ---------- ------------ ------------ Number of Accounts (in thousands) ......... 55.3 52.6 27.1 13.2 3.5 Principal Balance ......................... $2,143.8 $2,005.5 $1,039.0 $570.8 $131.3 Principal Balance of Delinquent Accounts (1) 30-59 Days Past Due .................. $ 52.5 $ 50.2 $ 18.7 $ 3.5 $ 0.1 60-89 Days Past Due .................. 17.1 14.6 7.2 0.6 -- 90 Days or More Past Due ............. 31.7 27.4 9.6 0.5 -- -------- -------- -------- ------ ------ Total ..................................... $ 101.3 $ 92.2 $ 35.5 $ 4.6 $ 0.1 ======== ======== ======== ====== ====== Principal Balance of Delinquent Accounts As a percentage of Principal Balance ...... 4.73% 4.60% 3.42% 0.81% 0.02% REO Property(2) Number of Properties ...................... 47 43 -- -- -- Book Value(2) ............................. $ 1.96 $ 1.98 -- -- --
- ------------------ (1) Amounts include balances for which the underlying collateral is currently in the foreclosure process. (2) REO Property represents properties that secured mortgage loans that were acquired by foreclosure or deed in lieu of foreclosure. Book value of REO Properties is adjusted to reflect estimated fair value of property at time of foreclosure. S-29 Loss Experience (Dollar amounts in thousands) Three months Year Ended December 31, Ended --------------------------------- March 31, 1997 1996 1995 1994 1993 ---------------- ------- ------- ------ ------ Charge-offs(1) ................ $1,953 $4,706 $ 783 $ 54 $103 Valuation Reserve (Net) (2) ... 2,433 3,474 630 14 (43) ------ ------ ------ ----- ---- Total Net Losses ........... $4,386 $8,180 $1,413 $ 68 $ 60 ====== ====== ====== ===== ==== Total Net Losses as a percentage of average principal balance outstanding ........ 0.85%(3) 0.61% 0.18% 0.02% 0.11% Units Charged-off ............. 75 176 36 6 5 - ---------------- (1) Represents actual losses (including all expenses of foreclosure and liquidation but not including accrued interest) recorded at time of liquidation net of recoveries. (2) Represents net change in valuation reserves recorded against delinquent mortgage loans and REO Property. (3) Annualized. This ratio has been annualized and may not reflect the actual loss experience for the entire year. The data presented in the foregoing tables are for illustrative purposes only. CIT Consumer Finance's mortgage loan portfolio has experienced significant growth over the periods presented and the delinquency and loss percentages may be affected by its size and relative lack of seasoning. In addition, such data relates to the performance of CIT Consumer Finance's entire mortgage loan portfolio, and is not historical data regarding solely the portion of CIT Consumer Finance's portfolio constituting the Mortgage Pool. While the above delinquency and loss rates represent recent experience, there can be no assurance that the future delinquency and loss experience on the Mortgage Pool will be similar. Historically, several factors have influenced CIT Consumer Finance's delinquency and loss experience on its portfolio of mortgage loans. These factors include the seasoning of a growing portfolio, varying economic conditions (which may or may not impact real property values) and changes to its business and underwriting strategy made in October 1995 summarized in the Prospectus under "The Home Equity Lending Program -- Underwriting Policies and Procedure -- Overview." The increase in delinquency at March 31, 1997 and at December 31, 1996 reflects the seasoning of the portfolio as well as the aforementioned changes to CIT Consumer Finance's business and underwriting strategies. The effects of these factors may result in different delinquency and loss experience than is shown in the above tables since the mortgage loans included in such tables include mortgage loans which were originated using CIT Consumer Finance's former underwriting guidelines. In addition, in October 1995, minimum credit scores were raised for applicants of mortgage loans with a Combined Loan-to-Value Ratio equal to or greater than 80% ("HLTV"). The increase in net loss experience for the three months ended March 31, 1997 and the full year ended December 31, 1996 reflects portfolio seasoning and unfavorable loss experience on certain HLTV mortgage loans originated prior to the above noted changes in business and underwriting strategy of HLTV mortgage loans. All of the mortgage loans to be included in the Mortgage Pool were originated or acquired utilizing the revised underwriting guidelines adopted in October 1995. Underwriting Standards The underwriting policies employed by CIT Consumer Finance during the period when the Mortgage Loans were originated were substantially similar to those described in the Prospectus. See "The Home Equity Lending Program--Underwriting Policies and Procedures" in the Prospectus. S-30 THE MORTGAGE POOL General The Certificates will represent the entire beneficial ownership interest in a trust fund (the "Trust Fund" or the "Trust"). The assets of the Trust Fund will consist primarily of a pool ("Mortgage Pool" or "Pool") of certain mortgage related assets (the "Mortgage Assets") consisting of fixed and adjustable rate mortgage loans (each, a "Mortgage Loan") evidenced by promissory notes (each, a "Mortgage Note") secured by mortgages, deeds of trust or similar security instruments (each, a "Mortgage") creating first or subordinate liens on one- to four-family residential properties or condominium units in condominium buildings together with such condominium units' appurtenant interests in the common elements of the condominium buildings (each, a "Mortgaged Property"). Depositor and Seller Recourse The Depositor will purchase the Mortgage Loans from the Seller pursuant to the Purchase Agreement, dated as of the Cut-off Date, between the Seller and the Depositor (the "Purchase Agreement"), and will assign the Mortgage Loans to the Trustee, for the benefit of Certificateholders, pursuant to the Pooling and Servicing Agreement. Under the Purchase Agreement and the Pooling and Servicing Agreement, the Seller will make certain representations, warranties and covenants relating to, among other things, the due execution and enforceability of the Purchase Agreement and the Pooling and Servicing Agreement and certain characteristics of the Mortgage Loans. Subject to the limitations described under "The Pooling and Servicing Agreement--Assignment of the Mortgage Loans," the Seller will be obligated to repurchase or substitute a conforming mortgage loan for any Mortgage Loan as to which there exists an uncured material deficiency in the documentation or an uncured material breach of any such representation, warranty or covenant. The Seller will represent and warrant that the Mortgage Loans were selected from among the outstanding adjustable and fixed rate one- to four-family mortgage loans in the Seller's portfolio at the Closing Date and that the Seller selected the Mortgage Loans in a manner that would not adversely affect the interests of the Certificateholders. See "The Pooling and Servicing Agreement -- Representations by Sellers; Repurchases" in the Prospectus. Under the Pooling and Servicing Agreement, the holders of the Certificates (the "Certificateholders") will have the benefit of all of the Seller's representations, warranties and covenants (including the Seller's repurchase obligation). The Depositor will make no representations or warranties with respect to the Mortgage Loans and will have no obligation to repurchase Mortgage Loans with deficient documentation or which are otherwise defective. CIT Consumer Finance, in its capacity as Seller of the Mortgage Loans to the Depositor, is selling such Mortgage Loans without recourse. Therefore, CIT Consumer Finance's only obligations as Seller of the Mortgage Loans arise out of its representations, warranties, covenants and repurchase obligations. The obligations of CIT Consumer Finance, as Master Servicer under the Pooling and Servicing Agreement, are limited to the Master Servicer's contractual servicing obligations under the Pooling and Servicing Agreement. Mortgage Pool Characteristics The statistical information presented herein is based on the number and the Principal Balances of the Mortgage Loans as of the Cut-off Date. Unless otherwise noted, all statistical percentages presented herein are approximate and measured by the aggregate Principal Balance of the Mortgage Loans in the Trust, in relation to the Mortgage Loans in the applicable Mortgage Loan Group or of all the Mortgage Loans in the Trust, in each case as of the Cut-off Date. The Mortgage Pool is expected to consist of 9,555 Mortgage Loans with an initial aggregate Principal Balance expected to be $500,068,559.83. The "Principal Balance" of any Mortgage Loan will be the unpaid principal balance of such Mortgage Loan as of the Cut-off Date, after deducting any principal payments due and paid before the Cut-off Date, reduced by all principal payments previously distributed with respect to such Mortgage Loan and reported as allocable to principal. The Mortgage Loans provide for the amortization of the amount financed over a series of monthly payments, which payments are due as of various days during each month. The Seller or its affiliates acquired or originated the Mortgage Loans to be included in the Mortgage Pool substantially in accordance with the underwriting criteria specified herein and in the Prospectus. At origination, all of the Mortgage Loans in the Mortgage Pool had a stated maturity of not more than 360 months. S-31 The Mortgage Pool will consist of two groups of Mortgage Loans (each, a "Mortgage Loan Group"). One Mortgage Loan Group consists of a group of Fixed Rate Mortgage Loans (as defined herein) (the "Fixed Rate Group") and the other Mortgage Loan Group consists of a group of Adjustable Rate Mortgage Loans (as defined herein) (the "Adjustable Rate Group"). As of the Cut-off Date, the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group is $410,062,866.73 and the aggregate Principal Balance of the Mortgage Loans in the Adjustable Rate Group is $90,005,693.10. As of the Cut-off Date, 93.32% of the Mortgage Loans are Simple Interest Loans (as defined in the Prospectus). As of the Cut-off Date, 6.68% of the Mortgage Loans are Scheduled Accrual Loans (as defined in the Prospectus). The Mortgage Pool will include Mortgage Loans secured by Mortgages which create first liens on one- to four-family residential properties and Mortgages which create subordinate liens (which may be second, third or fourth liens) on such properties. Payment of a substantial portion of the original principal balance of certain Mortgage Loans ("Balloon Loans") will be due on maturity ("Balloon Payments"). Certain of the Mortgage Loans permit the mortgagee to require the Mortgagor to pay the full principal balance of the loan on a specified date (the "Call Date") prior to the maturity of the loan ("Call Loans"). As of the Cut-off Date, the aggregate Principal Balance of Balloon Loans is $64,313,369.78 and the aggregate Principal Balance of Call Loans is $68,942,188.87. As of the Cut-off Date, no Mortgage Loan was delinquent more than 30 days. No Mortgage Loan had a Combined Loan-to-Value Ratio (as defined herein) of more than 100.05% as of the time of its origination. The weighted average of the Combined Loan-to-Value Ratios (as of the time of their origination) of the Mortgage Loans was 78.25%. The "Combined Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio, expressed as a percentage, determined by dividing (x) the sum of the original Principal Balance of the Mortgage Loan plus the then-current Principal Balance of any loan or loans secured by a senior lien on the Mortgaged Property, by (y) the value of the related Mortgaged Property, based upon the appraisal or other valuation made at the time of origination of the Mortgage Loan. 11.07% and 9.89% of the Mortgage Loans (by Principal Balance as of the Cut-off Date) will be secured by Mortgaged Properties located in Ohio and California, respectively. Otherwise, no more than 5.72% of the Mortgage Loans (by Principal Balance as of the Cut-off Date) will be secured by Mortgaged Properties located in any one state. No more than 0.28% of the Mortgage Loans (by Principal Balance as of the Cut-off Date) will be secured by Mortgaged Properties located in any one postal zip code area. The Mortgage Pool includes Mortgage Loans originated or acquired by CIT Consumer Finance under its No Income Verification program, No Income Qualify program and Lite Documentation program. See "The Home Equity Lending Program -- Specialized Underwriting Programs" in the Prospectus. In the following tables the references to "Full Documentation Loans" are to Mortgage Loans which were not originated or acquired under these specialized programs. The Mortgage Pool also includes Mortgage Loans originated or acquired under CIT Consumer Finance's specialized high loan to value loan program (see "The Home Equity Lending Program -- Underwriting Policies and Procedures -- Overview"), as shown in the following tables entitled "Distribution of CLTVs." The Mortgage Pool includes 40 Mortgage Loans (with Principal Balances as of the Cut-off Date aggregating $1,790,547.25) which are refinancings and which are secured by Mortgages on manufactured homes and the related real property. Each such Mortgage Loan is represented in the following tables as a single family residence. Fixed Rate Group Each Fixed Rate Mortgage Loan was originated or acquired by CIT Consumer Finance on or after December 26, 1996. As of the Cut-off Date, the latest date on which any Fixed Rate Mortgage Loan matures is July 5, 2027 and the earliest stated maturity date of any Fixed Rate Mortgage Loan is February 1, 2000. S-32 As of the Cut-off Date, 70.38% of the Fixed Rate Mortgage Loans (by Principal Balance) were secured by first mortgages, and 29.62% of the Fixed Rate Mortgage Loans (by Principal Balance) were "subordinate mortgages" subject to senior mortgages. The weighted average of the Combined Loan-to-Value Ratios (as of the time of their origination) of the Fixed Rate Mortgage Loans was approximately 78.09%. 9.96% and 9.56% of the Fixed Rate Mortgage Loans (by Principal Balance as of the Cut-off Date) were secured by Mortgaged Properties located in California and Ohio, respectively. Otherwise, no more than 6.22% of the Fixed Rate Mortgage Loans (by Principal Balance as of the Cut-off Date) were secured by Mortgaged Properties located in any one state. No more than 0.27% of the Fixed Rate Mortgage Loans (by Principal Balance as of the Cut-off Date) were secured by Mortgaged Properties located in any one postal zip code area. The following information sets forth in tabular format certain information, as of the Cut-off Date, relating to the Fixed Rate Mortgage Loans. S-33 Fixed Rate Group Geographic Distribution of Mortgaged Properties
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage State Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- California 731 $ 40,835,397.86 9.96% 10.714% $55,862 79.277% 84.68% 95.43% Ohio 778 39,210,133.22 9.56 10.818 50,399 78.302 97.44 96.03 Pennsylvania 532 25,493,601.97 6.22 10.258 47,920 78.261 95.95 98.96 Indiana 602 24,212,236.75 5.90 10.644 40,220 74.967 95.20 97.79 Florida 483 24,102,227.93 5.88 11.018 49,901 74.969 85.48 94.50 New York 298 20,874,871.82 5.09 11.121 70,050 75.542 91.81 90.74 Kentucky 493 20,214,817.77 4.93 10.644 41,004 77.278 96.19 98.32 New Jersey 336 18,442,541.83 4.50 11.470 54,889 78.132 93.72 98.41 Georgia 305 14,773,656.74 3.60 10.915 48,438 80.609 91.55 98.34 Arizona 334 14,021,744.95 3.42 10.883 41,981 78.083 87.92 97.64 North Carolina 302 13,617,331.54 3.32 10.610 45,091 78.390 97.91 99.53 Maryland 244 13,320,664.61 3.25 11.119 54,593 82.070 96.08 98.97 Colorado 262 13,019,747.87 3.18 10.738 49,694 83.223 91.93 99.20 Washington 262 12,585,044.80 3.07 10.859 48,035 80.739 87.15 96.98 Michigan 228 11,521,760.13 2.81 12.075 50,534 79.161 94.02 97.44 Illinois 264 11,306,024.18 2.76 10.843 42,826 75.480 95.31 99.04 Tennessee 218 11,078,688.35 2.70 11.620 50,820 78.106 96.29 98.87 Utah 241 10,819,916.89 2.64 10.832 44,896 78.761 81.89 97.32 Oklahoma 254 10,750,308.38 2.62 10.263 42,324 78.001 96.70 96.50 Wisconsin 180 9,752,644.00 2.38 11.581 54,181 75.699 96.69 96.47 Missouri 215 8,417,598.84 2.05 10.982 39,152 76.335 95.54 98.41 Nevada 173 7,596,751.92 1.85 11.020 43,912 83.075 91.99 94.90 Oregon 165 7,589,454.28 1.85 10.985 45,997 78.680 73.46 98.78 Louisiana 78 3,263,339.61 0.80 12.771 41,838 73.866 97.77 95.46 Connecticut 52 3,075,351.90 0.75 11.065 59,141 76.436 88.76 99.14 South Carolina 70 2,901,421.56 0.71 12.356 41,449 73.443 96.48 99.21 Idaho 58 2,312,532.44 0.56 10.470 39,871 81.673 93.17 94.99 Mississippi 58 2,100,454.79 0.51 13.003 36,215 77.191 100.00 96.38 New Mexico 39 1,783,064.56 0.43 10.702 45,720 77.189 89.95 100.00 Delaware 35 1,715,508.09 0.42 10.930 49,015 77.959 100.00 95.64 Minnesota 32 1,644,844.25 0.40 12.296 51,401 74.188 87.15 100.00 Virginia 30 1,579,253.41 0.39 11.785 52,642 81.751 100.00 100.00 Kansas 41 1,196,396.47 0.29 10.959 29,180 77.001 92.18 100.00 Montana 34 1,150,628.16 0.28 10.628 33,842 82.370 97.18 100.00 Iowa 27 1,116,549.61 0.27 10.714 41,354 73.530 93.03 97.49 Massachusetts 11 776,527.00 0.19 11.079 70,593 73.444 100.00 78.76 Nebraska 15 693,128.02 0.17 11.983 46,209 80.792 87.81 100.00 Wyoming 21 613,733.80 0.15 11.302 29,225 80.776 84.02 100.00 West Virginia 7 276,304.00 0.07 12.452 39,472 80.924 85.56 100.00 District of Columbia 4 218,481.77 0.05 11.704 54,620 73.153 100.00 100.00 Rhode Island 1 74,499.22 0.02 13.990 74,499 97.620 100.00 100.00 South Dakota 1 13,681.44 0.00 9.100 13,681 37.840 100.00 100.00 - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------ Total 8,514 $410,062,866.73 100.00% 10.942% $48,163 78.090% 92.25% 97.03% - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------
S-34 Fixed Rate Group Distribution by Current Principal Balances
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Current Balance Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- $ 1 - $ 10,000 56 $ 523,978.68 0.13% 12.247% $ 9,357 71.668% 98.87% 98.21% $ 10,001 - $ 20,000 1,314 20,767,257.54 5.06 11.810 15,805 73.515 95.98 97.31 $ 20,001 - $ 30,000 1,693 42,674,020.95 10.41 11.516 25,206 75.896 94.81 95.40 $ 30,001 - $ 40,000 1,458 51,187,431.85 12.48 11.453 35,108 76.753 95.08 96.69 $ 40,001 - $ 50,000 1,082 48,839,183.74 11.91 11.169 45,138 76.689 93.90 96.37 $ 50,001 - $ 60,000 872 48,037,049.51 11.71 10.891 55,088 77.595 93.86 97.84 $ 60,001 - $ 70,000 529 34,284,388.74 8.36 10.795 64,810 78.391 94.64 98.14 $ 70,001 - $ 80,000 388 28,979,637.08 7.07 10.672 74,690 79.742 90.39 98.42 $ 80,001 - $ 90,000 259 22,031,318.73 5.37 10.549 85,063 79.003 91.92 98.12 $ 90,001 - $100,000 216 20,537,719.49 5.01 10.591 95,082 80.090 88.43 97.72 $100,001 - $120,000 270 29,540,630.66 7.20 10.537 109,410 79.416 91.17 96.60 $120,001 - $140,000 130 16,883,822.37 4.12 10.412 129,876 79.925 88.67 96.13 $140,001 - $160,000 99 14,865,152.79 3.63 10.433 150,153 83.403 89.04 97.99 $160,001 - $180,000 51 8,641,051.72 2.11 10.331 169,432 80.981 84.00 97.95 $180,001 - $200,000 35 6,642,294.82 1.62 10.364 189,780 82.170 91.51 97.03 $200,001 - $220,000 16 3,317,605.53 0.81 9.976 207,350 80.200 80.68 93.72 $220,001 - $240,000 17 3,903,392.62 0.95 10.407 229,611 81.019 64.76 100.00 $240,001 - $260,000 9 2,251,594.60 0.55 10.541 250,177 76.338 66.29 100.00 $260,001 - $280,000 6 1,622,335.26 0.40 9.676 270,389 85.179 83.13 100.00 $280,001 - $300,000 6 1,743,633.61 0.43 10.253 290,606 77.884 100.00 83.18 $300,001 - $320,000 1 312,529.73 0.07 8.990 312,530 79.810 100.00 100.00 $320,001 - $340,000 3 997,502.20 0.24 10.506 332,501 78.184 100.00 66.23 $340,001 - $360,000 2 691,341.63 0.17 8.739 345,671 77.109 50.38 100.00 $360,001 - $380,000 1 367,764.74 0.09 9.990 367,765 99.590 100.00 100.00 Over $400,000 1 420,228.14 0.10 11.990 420,228 74.910 100.00 100.00 - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------ Total 8,514 $410,062,866.73 100.00% 10.942% $ 48,163 78.090% 92.25% 97.03% - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------
Fixed Rate Group Distribution by Mortgage Rates
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Mortgage Rates Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 7.501% - 8.000% 14 $ 1,778,556.08 0.43% 7.915% $127,040 73.619% 100.00% 100.00% 8.001% - 8.500% 64 4,420,753.61 1.08 8.424 69,074 73.911 100.00 100.00 8.501% - 9.000% 377 26,174,462.15 6.38 8.864 69,428 74.322 96.04 98.70 9.001% - 9.500% 656 36,026,852.55 8.79 9.336 54,919 74.031 96.22 99.17 9.501% - 10.000% 1,073 64,538,275.05 15.74 9.847 60,148 77.310 92.43 98.15 10.001% - 10.500% 1,085 56,583,016.57 13.80 10.334 52,150 78.070 91.00 94.91 10.501% - 11.000% 1,309 64,726,952.07 15.78 10.833 49,448 77.665 87.08 95.23 11.001% - 11.500% 630 29,861,509.17 7.28 11.338 47,399 77.970 89.67 94.96 11.501% - 12.000% 912 38,977,681.90 9.51 11.861 42,739 78.583 91.10 97.58 12.001% - 12.500% 722 27,051,130.33 6.60 12.338 37,467 81.506 95.12 97.06 12.501% - 13.000% 627 24,123,229.20 5.88 12.840 38,474 82.154 94.55 97.50 13.001% - 13.500% 346 11,901,704.76 2.90 13.342 34,398 85.146 95.53 98.29 13.501% - 14.000% 393 13,134,058.80 3.21 13.835 33,420 84.931 95.57 98.87 14.001% - 14.500% 119 4,585,991.69 1.12 14.302 38,538 78.868 96.89 98.59 14.501% - 15.000% 91 3,295,522.44 0.81 14.860 36,215 74.772 83.24 98.61 15.001% - 15.500% 35 1,278,027.27 0.31 15.364 36,515 77.013 100.00 96.39 15.501% - 16.000% 26 699,939.67 0.17 15.794 26,921 71.933 100.00 96.70 16.001% - 16.500% 9 216,281.59 0.05 16.246 24,031 59.274 100.00 100.00 16.501% - 17.000% 9 246,281.08 0.06 16.780 27,365 63.507 85.48 100.00 17.001% - 17.500% 9 258,638.64 0.06 17.330 28,738 58.861 100.00 100.00 17.501% - 18.000% 5 105,278.32 0.03 17.821 21,056 55.374 100.00 100.00 18.001% - 18.500% 1 15,496.87 0.00 18.250 15,497 50.000 100.00 100.00 18.501% - 19.000% 1 44,823.18 0.01 18.750 44,823 65.000 100.00 100.00 19.501% - 20.000% 1 18,403.74 0.00 19.700 18,404 52.860 100.00 100.00 - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------ Total 8,514 $410,062,866.73 100.00% 10.942% $ 48,163 78.090% 92.25% 97.03% - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------
S-35 Fixed Rate Group Distribution by Remaining Months to Stated Maturity
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Remaining Months Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage to Stated Maturity Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 25 - 36 3 $ 38,656.31 0.01% 9.613% $12,885 62.319% 100.00% 100.00% 37 - 48 4 105,115.27 0.03 9.273 26,279 43.806 100.00 100.00 49 - 60 93 1,790,398.97 0.44 10.812 19,252 65.379 93.85 100.00 61 - 72 7 173,043.86 0.04 10.586 24,721 67.332 91.42 100.00 73 - 84 41 1,616,299.30 0.39 11.026 39,422 76.452 94.40 87.59 85 - 96 5 138,459.54 0.03 11.133 27,692 76.888 100.00 100.00 97 - 108 4 78,938.02 0.02 10.706 19,735 75.456 100.00 100.00 109 - 120 637 15,140,711.45 3.69 11.217 23,769 75.738 97.82 98.58 121 - 132 3 99,802.20 0.03 10.191 33,267 71.931 100.00 64.17 133 - 144 20 730,802.76 0.18 11.017 36,540 75.607 100.00 93.82 145 - 156 7 283,494.39 0.07 11.095 40,499 66.228 100.00 100.00 157 - 168 9 305,700.26 0.07 10.701 33,967 76.723 100.00 100.00 169 - 180 5,267 218,829,826.78 53.36 11.329 41,547 78.131 91.72 97.06 181 - 192 1 34,138.76 0.01 11.800 34,139 54.440 100.00 100.00 193 - 204 2 64,617.68 0.02 9.990 32,309 69.259 100.00 43.74 205 - 216 1 48,391.34 0.01 12.500 48,391 78.130 100.00 100.00 229 - 240 708 38,720,133.36 9.44 10.765 54,689 75.697 95.62 96.56 253 - 264 2 145,758.29 0.04 10.965 72,879 79.524 100.00 100.00 277 - 288 1 75,759.00 0.02 9.750 75,759 79.750 100.00 100.00 289 - 300 25 1,494,675.15 0.37 9.911 59,787 76.846 96.49 97.66 337 - 348 1 57,390.58 0.01 9.240 57,391 64.160 100.00 100.00 349 - 360 1,673 130,090,753.46 31.72 10.326 77,759 79.328 91.27 97.04 - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------ Total 8,514 $410,062,866.73 100.00% 10.942% $48,163 78.090% 92.25% 97.03% - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------
Fixed Rate Group Distribution by Number of Months of Seasoning
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Months of Seasoning Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 0 103 $ 4,613,745.86 1.13% 10.662% $44,794 75.014% 98.33% 96.50% 1 - 6 7,868 376,643,258.97 91.85 10.928 47,870 78.002 92.03 97.04 7 - 12 536 28,424,972.43 6.93 11.148 53,032 79.889 94.36 96.91 13 - 18 3 96,961.22 0.02 11.522 32,320 86.790 100.00 100.00 19 - 24 1 48,391.34 0.01 12.500 48,391 78.130 100.00 100.00 25 - 30 1 76,567.70 0.02 14.250 76,568 48.230 100.00 100.00 31 - 36 1 68,491.55 0.02 11.500 68,492 45.450 100.00 100.00 37 - 42 1 90,477.66 0.02 10.500 90,478 76.460 0.00 100.00 - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------ Total 8,514 $410,062,866.73 100.00% 10.942% $48,163 78.090% 92.25% 97.03% - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------
S-36 Fixed Rate Group Distribution by Original Combined Loan-to-Value Ratios
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Original Combined Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Loan-to-Value Ratios Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 5.01% - 10.00% 2 $ 34,737.64 0.01% 10.982% $17,369 7.920% 100.00% 100.00% 10.01% - 15.00% 24 519,035.53 0.13 10.631 21,626 13.261 73.56 88.24 15.01% - 20.00% 29 666,158.20 0.16 10.672 22,971 17.367 74.19 97.03 20.01% - 25.00% 40 1,023,694.69 0.25 10.653 25,592 22.410 95.83 92.63 25.01% - 30.00% 65 1,912,556.30 0.47 10.716 29,424 27.806 87.15 88.26 30.01% - 35.00% 82 2,309,967.70 0.56 10.922 28,170 32.726 81.06 96.80 35.01% - 40.00% 94 2,918,442.65 0.71 10.773 31,047 37.461 91.40 94.79 40.01% - 45.00% 139 4,666,106.86 1.14 10.955 33,569 42.708 89.86 97.55 45.01% - 50.00% 166 6,391,957.05 1.56 11.040 38,506 48.037 88.75 96.31 50.01% - 55.00% 205 7,826,758.05 1.91 10.843 38,179 52.958 79.44 96.40 55.01% - 60.00% 279 11,796,091.54 2.87 11.224 42,280 57.861 82.11 95.22 60.01% - 65.00% 393 17,671,102.89 4.31 10.794 44,965 63.122 83.89 90.66 65.01% - 70.00% 636 30,007,065.93 7.32 11.156 47,181 68.442 87.15 91.14 70.01% - 75.00% 1,084 53,529,357.36 13.05 11.006 49,381 73.630 84.03 92.76 75.01% - 80.00% 1,940 105,034,564.74 25.61 10.535 54,142 79.071 94.79 98.01 80.01% - 85.00% 1,515 80,166,142.33 19.55 10.384 52,915 84.211 94.83 99.92 85.01% - 90.00% 414 22,533,707.81 5.50 11.299 54,429 89.133 96.88 99.91 90.01% - 95.00% 330 14,513,247.59 3.54 12.098 43,980 93.046 100.00 99.85 95.01% - 100.00% 999 42,665,343.94 10.40 12.154 42,708 99.038 100.00 100.00 100.01% - 101.00% 78 3,876,827.93 0.95 11.435 49,703 100.028 100.00 100.00 - --------------------- ----- --------------- ------ ------ ------- ------- ------ ------ Total 8,514 $410,062,866.73 100.00% 10.942% $48,163 78.090% 92.25% 97.03% - --------------------- ----- --------------- ------ ------ ------- ------- ------ ------
Fixed Rate Group Distribution by Original Loan-to-Value Ratios
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Original Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Loan-to-Value Ratios Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 0.01% - 5.00% 18 $ 349,022.46 0.09% 11.207% $ 19,390 73.951% 90.75% 100.00% 5.01% - 10.00% 235 5,171,208.71 1.26 11.569 22,005 78.002 80.71 99.55 10.01% - 15.00% 694 17,157,543.63 4.18 11.579 24,723 78.998 85.76 99.00 15.01% - 20.00% 894 25,345,240.63 6.18 11.766 28,350 82.194 88.48 99.46 20.01% - 25.00% 768 24,810,589.75 6.05 11.581 32,305 80.626 91.93 97.67 25.01% - 30.00% 565 20,111,846.02 4.90 11.500 35,596 78.375 91.30 98.19 30.01% - 35.00% 329 11,843,647.83 2.89 11.446 35,999 74.714 89.05 98.37 35.01% - 40.00% 267 11,054,592.16 2.70 11.316 41,403 72.250 84.89 98.33 40.01% - 45.00% 212 8,611,532.83 2.10 11.099 40,620 63.670 90.30 98.01 45.01% - 50.00% 186 7,835,112.73 1.91 11.227 42,124 60.260 87.89 96.49 50.01% - 55.00% 192 8,346,400.81 2.04 10.882 43,471 60.939 85.89 97.29 55.01% - 60.00% 229 10,930,746.11 2.67 11.241 47,733 60.796 83.91 94.27 60.01% - 65.00% 293 14,559,757.86 3.55 10.790 49,692 64.354 90.13 89.65 65.01% - 70.00% 442 23,535,132.55 5.74 11.176 53,247 68.938 92.20 89.59 70.01% - 75.00% 698 40,441,523.99 9.86 11.004 57,939 73.787 89.25 91.67 75.01% - 80.00% 1,271 83,914,319.17 20.46 10.452 66,022 79.233 95.56 97.85 80.01% - 85.00% 782 56,069,179.27 13.67 10.205 71,700 84.283 96.08 99.88 85.01% - 90.00% 195 15,441,285.78 3.77 10.928 79,186 89.355 97.43 99.86 90.01% - 95.00% 63 5,849,910.23 1.43 11.032 92,856 93.182 100.00 99.64 95.01% - 100.00% 163 16,617,869.09 4.05 10.862 101,950 99.334 100.00 100.00 100.01% - 101.00% 18 2,066,405.12 0.50 10.368 114,800 100.025 100.00 100.00 - --------------------- ----- --------------- ------ ------ -------- ------- ------ ------ Total 8,514 $410,062,866.73 100.00% 10.942% $ 48,163 78.090% 92.25% 97.03% - --------------------- ----- --------------- ------ ------ -------- ------- ------ ------
S-37 Fixed Rate Group Distribution by Junior Lien Ratios
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Junior Lien Ratio Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 0.01% - 5.00% 3 $ 62,210.94 0.05% 11.873% $20,737 86.562% 100.00% 100.00% 5.01% - 10.00% 96 1,932,332.30 1.59 11.844 20,128 85.175 82.55 100.00 10.01% - 15.00% 419 9,824,580.76 8.09 11.925 23,448 86.763 88.79 100.00 15.01% - 20.00% 695 18,180,604.20 14.97 12.061 26,159 88.057 92.62 99.27 20.01% - 25.00% 668 20,340,953.68 16.74 11.821 30,451 85.877 89.50 99.60 25.01% - 30.00% 544 17,689,157.10 14.56 11.677 32,517 83.385 91.33 99.44 30.01% - 35.00% 424 15,193,898.71 12.51 11.411 35,835 82.179 90.48 97.16 35.01% - 40.00% 259 9,485,833.64 7.81 11.363 36,625 80.897 87.29 99.68 40.01% - 45.00% 182 7,641,382.88 6.29 11.156 41,986 79.005 88.37 97.73 45.01% - 50.00% 124 4,841,877.57 3.99 11.293 39,047 77.733 88.95 99.48 50.01% - 55.00% 80 3,826,962.26 3.15 11.000 47,837 75.114 77.28 98.60 55.01% - 60.00% 67 2,891,298.68 2.38 11.190 43,154 74.459 75.64 97.56 60.01% - 65.00% 38 1,918,122.17 1.58 11.212 50,477 70.347 76.06 100.00 65.01% - 70.00% 43 2,001,482.20 1.65 11.024 46,546 71.881 78.12 100.00 70.01% - 75.00% 34 1,630,217.73 1.34 10.483 47,948 66.139 95.05 97.58 75.01% - 80.00% 34 1,561,262.78 1.29 10.744 45,919 65.233 98.59 95.13 80.01% - 85.00% 20 1,011,296.97 0.83 10.597 50,565 68.513 93.57 96.15 85.01% - 90.00% 13 684,696.54 0.56 10.278 52,669 66.170 100.00 100.00 90.01% - 95.00% 10 457,555.35 0.37 10.358 45,756 77.228 100.00 94.05 95.01% - 100.00% 4 300,963.45 0.25 10.551 75,241 55.467 100.00 100.00 - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------ Total 3,757 $121,476,689.91 100.00% 11.572% $32,333 82.313% 89.16% 98.95% - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------
Fixed Rate Group Distribution by Property Type
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Property Type Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- Single Family Residence 7,974 $384,513,198.93 93.77% 10.943% $48,221 78.378% 92.18% 97.72% 2-4 Family 215 12,508,538.74 3.05 10.881 58,179 69.820 94.34 78.72 Townhouse 186 7,614,593.67 1.86 10.947 40,939 76.931 96.51 92.63 Condo 139 5,426,535.39 1.32 10.972 39,040 78.362 86.40 96.29 - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------ Total 8,514 $410,062,866.73 100.00% 10.942% $48,163 78.090% 92.25% 97.03% - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------
Fixed Rate Group Distribution by Loan Purpose
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Loan-Purpose Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- Purchase 269 $ 18,196,854.77 4.44% 11.006% $67,646 78.560% 94.57% 93.71% Refinance and/or Cashout 8,245 391,866,011.96 95.56 10.939 47,528 78.068 92.14 97.18 - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------ Total 8,514 $410,062,866.73 100.00% 10.942% $48,163 78.090% 92.25% 97.03% - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------
Fixed Rate Group Distribution by Occupancy Status
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Occupancy Status Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- Owner Occupied 8,248 $397,878,002.92 97.03% 10.939% $48,239 78.398% 92.01% 100.00% Non-Owner Occupied 266 12,184,863.81 2.97 11.030 45,808 68.029 100.00 0.00 - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------ Total 8,514 $410,062,866.73 100.00% 10.942% $48,163 78.090% 92.25% 97.03% - --------------------- ----- --------------- ------ ------ ------- ------ ------ ------
S-38 Adjustable Rate Group Other than during the first six, twelve, twenty-four or thirty-six months following origination, during which time each Adjustable Rate Mortgage Loan will bear interest at a Mortgage Rate fixed at origination, each Adjustable Rate Mortgage Loan has a Mortgage Rate subject to semi-annual or annual adjustment on the day of the month specified in the related Mortgage Note (each such date, an "Adjustment Date") to equal the sum of (i) either (x) the yield on United States Treasury securities adjusted to a constant maturity of one year ("One-year CMT") generally calculated as the one-year constant maturity treasury index as published in The Wall Street Journal as a Key Interest Rate each week (usually on Tuesday) or (y) the London interbank offered rate for six-month United States dollar deposits ("Six-month LIBOR" and, together with the CMT Index, the "Index") generally calculated as the average of interbank offered rates for six-month U.S. dollar-denominated deposits in the London market, as published in The Wall Street Journal and (ii) a fixed percentage amount specified in the related Mortgage Note (the "Gross Margin"); provided, however, that the Mortgage Rate will not increase or decrease by more than a fixed percentage on any Adjustment Date (the "Periodic Rate Cap"). Generally, the Adjustable Rate Mortgage Loans provide that over the life of the Adjustable Rate Mortgage Loan the Mortgage Rate will in no event be more than the initial Mortgage Rate plus a fixed percentage (such rate, the "Maximum Rate"). Effective with the first payment due on an Adjustable Rate Mortgage Loan after each related Adjustment Date, the monthly payment will be adjusted to an amount which will fully amortize the outstanding principal balance of the Adjustable Rate Mortgage Loan over its remaining term. If the index ceases to be published or is otherwise unavailable, the Master Servicer will select an alternative index for mortgage loans on single-family residential properties, based upon comparable information, over which it has no control and which is readily verifiable by mortgagors. Each Adjustable Rate Mortgage Loan was originated or acquired by CIT Consumer Finance on or after January 2, 1997. As of the Cut-off Date, the latest date on which any Adjustable Rate Mortgage Loan matures is July 8, 2027 and the earliest stated maturity date of any Adjustable Rate Mortgage Loan is January 21, 2000. 96.33% of the Adjustable Rate Mortgage Loans (by Principal Balance as of the Cut-off Date) were secured by first mortgages, and 3.67% of the Adjustable Rate Mortgage Loans (by Principal Balance as of the Cut-off Date) were "subordinate mortgages" subject to senior mortgages. The weighted average of the Combined Loan-to-Value Ratios (as of the time of their origination) of the Adjustable Rate Mortgage Loans was 78.99%. 17.93% and 10.07% of the Adjustable Rate Mortgage Loans (by Principal Balance as of the Cut-off Date) were secured by Mortgaged Properties located in Ohio and Michigan, respectively. Otherwise, no more than 9.57% of the Adjustable Rate Mortgage Loans (by Principal Balance as of the Cut-off Date) were secured by Mortgaged Properties located in any one state. No more than 0.80% of the Adjustable Rate Mortgage Loans (by Principal Balance as of the Cut-off Date) were secured by Mortgaged Properties located in any one postal zip code area. S-39 The following information sets forth in tabular format certain information, as of the Cut-off Date, relating to the Adjustable Rate Mortgage Loans. Adjustable Rate Group Geographic Distribution of Mortgaged Properties
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage State Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- Ohio 231 $16,141,374.85 17.93% 9.651% $ 69,876 78.592% 95.82% 99.63% Michigan 145 9,065,665.83 10.07 10.629 62,522 77.746 93.90 99.06 California 55 8,617,937.60 9.57 8.980 156,690 82.460 87.73 100.00 Washington 66 7,310,299.96 8.12 9.138 110,762 79.586 80.64 100.00 Colorado 51 5,728,376.57 6.36 8.750 112,321 80.176 93.00 100.00 Oregon 44 4,921,947.15 5.47 9.293 111,862 77.573 78.00 93.26 Utah 41 4,192,453.44 4.66 9.062 102,255 80.073 98.01 98.56 Indiana 54 3,783,723.94 4.21 9.726 70,069 77.874 90.38 100.00 Pennsylvania 40 3,126,176.36 3.47 8.764 78,154 78.214 100.00 98.27 Arizona 27 2,684,750.58 2.98 9.378 99,435 81.283 75.90 100.00 Maryland 21 2,627,942.49 2.92 8.379 125,140 78.511 99.00 100.00 Kentucky 37 2,551,783.73 2.84 9.498 68,967 78.320 100.00 100.00 Wisconsin 32 2,542,106.92 2.82 9.815 79,441 79.512 100.00 100.00 New York 19 2,450,374.74 2.72 9.568 128,967 81.232 87.97 85.51 Nevada 16 2,060,847.14 2.29 8.911 128,803 79.077 81.70 95.52 Missouri 24 1,783,764.19 1.98 9.041 74,324 79.578 93.76 100.00 North Carolina 23 1,378,274.71 1.53 8.955 59,925 73.449 96.15 100.00 New Jersey 10 1,368,529.39 1.52 9.896 136,853 75.953 94.09 100.00 Georgia 13 1,114,787.65 1.24 10.212 85,753 79.265 93.90 100.00 Florida 17 1,060,736.93 1.18 9.589 62,396 76.307 91.52 100.00 Illinois 16 955,660.17 1.06 10.299 59,729 77.762 100.00 100.00 Oklahoma 12 924,808.59 1.03 9.047 77,067 79.031 100.00 100.00 Connecticut 8 914,004.14 1.02 8.981 114,251 69.962 100.00 100.00 Idaho 10 734,849.71 0.82 9.192 73,485 80.688 83.39 100.00 Minnesota 6 449,880.43 0.50 10.526 74,980 78.897 100.00 100.00 Kansas 7 345,959.49 0.38 9.614 49,423 78.940 90.98 73.36 Iowa 3 257,992.86 0.29 10.317 85,998 83.063 100.00 100.00 Virginia 4 213,931.75 0.24 10.812 53,483 72.778 100.00 100.00 New Mexico 2 196,100.00 0.22 9.047 98,050 81.039 100.00 100.00 Massachusetts 1 155,000.00 0.17 8.750 155,000 73.810 100.00 100.00 Montana 2 137,950.00 0.15 8.989 68,975 68.262 67.38 32.62 South Carolina 2 87,817.25 0.10 10.283 43,909 64.757 100.00 100.00 Louisiana 1 60,384.54 0.07 7.900 60,385 84.450 100.00 100.00 Tennessee 1 59,500.00 0.07 8.900 59,500 85.000 100.00 100.00 - --------------------- ----- -------------- ------ ----- -------- ------ ----- ----- Total 1,041 $90,005,693.10 100.00% 9.429% $ 86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ----- -------- ------ ----- -----
S-40 Adjustable Rate Group Distribution by Current Principal Balances
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Current Balance Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- $ 10,001 - $ 20,000 19 $ 286,695.32 0.32% 10.589% $ 15,089 60.522% 83.28% 100.00% $ 20,001 - $ 30,000 56 1,436,381.52 1.60 10.099 25,650 65.258 90.93 100.00 $ 30,001 - $ 40,000 77 2,754,452.22 3.06 10.180 35,772 70.278 98.87 98.85 $ 40,001 - $ 50,000 96 4,411,460.22 4.90 10.157 45,953 75.028 95.81 100.00 $ 50,001 - $ 60,000 151 8,339,820.16 9.27 9.884 55,231 77.111 95.50 98.63 $ 60,001 - $ 70,000 116 7,533,032.46 8.37 9.885 64,940 78.188 95.54 97.55 $ 70,001 - $ 80,000 73 5,506,396.76 6.12 9.740 75,430 79.151 93.08 98.66 $ 80,001 - $ 90,000 75 6,367,330.13 7.07 9.402 84,898 80.519 94.62 98.67 $ 90,001 - $100,000 69 6,590,557.34 7.32 9.465 95,515 79.455 97.13 95.77 $100,001 - $120,000 109 11,974,566.01 13.30 9.188 109,858 80.394 96.38 99.16 $120,001 - $140,000 61 7,849,426.39 8.72 9.186 128,679 80.151 86.61 100.00 $140,001 - $160,000 46 6,889,758.83 7.65 8.991 149,777 81.729 93.43 100.00 $160,001 - $180,000 31 5,278,635.80 5.86 9.190 170,279 81.075 80.49 100.00 $180,001 - $200,000 21 4,001,685.72 4.45 9.356 190,556 76.996 76.35 100.00 $200,001 - $220,000 9 1,851,910.68 2.06 9.410 205,768 81.511 66.80 100.00 $220,001 - $240,000 14 3,216,895.57 3.57 8.608 229,778 83.172 92.66 100.00 $240,001 - $260,000 4 985,640.36 1.10 8.517 246,410 81.190 49.78 100.00 $260,001 - $280,000 4 1,059,443.92 1.18 8.883 264,861 83.702 100.00 100.00 $300,001 - $320,000 5 1,537,665.99 1.71 8.928 307,533 80.663 80.44 100.00 $340,001 - $360,000 1 355,133.39 0.39 9.350 355,133 59.810 100.00 0.00 $360,001 - $380,000 1 374,629.64 0.42 9.500 374,630 75.000 100.00 100.00 Over $400,000 3 1,404,174.67 1.56 8.489 468,058 84.251 100.00 100.00 - --------------------- ----- -------------- ------ ----- -------- ------ ----- ------ Total 1,041 $90,005,693.10 100.00% 9.429% $ 86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ----- -------- ------ ----- ------
Adjustable Rate Group Distribution by Current Mortgage Rates
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Current Mortgage Rate Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 6.501% - 7.000% 2 $ 242,052.96 0.27% 6.957% $121,026 79.714% 100.00% 100.00% 7.001% - 7.500% 26 3,343,120.28 3.72 7.382 128,582 80.621 100.00 100.00 7.501% - 8.000% 55 6,988,017.26 7.77 7.803 127,055 81.352 94.81 96.74 8.001% - 8.500% 84 8,894,536.53 9.88 8.391 105,887 80.782 96.60 98.95 8.501% - 9.000% 183 16,711,825.62 18.57 8.869 91,321 80.022 91.71 99.45 9.001% - 9.500% 155 14,093,554.75 15.66 9.339 90,926 78.737 89.66 97.48 9.501% - 10.000% 199 17,427,096.31 19.36 9.816 87,573 79.107 87.70 99.45 10.001% - 10.500% 142 10,722,505.61 11.91 10.302 75,511 79.484 92.61 98.70 10.501% - 11.000% 99 5,719,942.76 6.36 10.833 57,777 75.328 92.69 97.90 11.001% - 11.500% 37 2,469,092.54 2.74 11.291 66,732 76.578 94.40 100.00 11.501% - 12.000% 32 2,074,713.95 2.31 11.766 64,835 72.754 78.70 95.16 12.001% - 12.500% 6 292,271.15 0.32 12.214 48,712 70.134 76.55 100.00 12.501% - 13.000% 7 433,807.79 0.48 12.749 61,973 72.409 100.00 100.00 13.001% - 13.500% 2 64,217.42 0.07 13.400 32,109 51.228 100.00 100.00 13.501% - 14.000% 4 172,177.04 0.19 13.813 43,044 64.981 100.00 100.00 14.001% - 14.500% 3 165,936.71 0.18 14.151 55,312 50.322 59.05 100.00 14.501% - 15.000% 5 190,824.42 0.21 14.677 38,165 54.889 100.00 100.00 - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $ 86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------
S-41 Adjustable Rate Group Distribution by Gross Margins
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Gross Margin Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 3.001% - 3.500% 16 $ 2,181,880.21 2.42% 8.411% $136,368 179.468% 100.00% 100.00% 3.501% - 4.000% 51 7,337,074.33 8.15 8.411 143,864 87.210 96.68 100.00 4.001% - 4.500% 37 5,319,495.07 5.91 8.923 143,770 80.336 68.10 100.00 4.501% - 5.000% 109 11,368,312.10 12.63 8.813 104,296 78.247 92.94 95.59 5.001% - 5.500% 186 16,501,656.47 18.34 8.958 88,719 80.278 91.28 99.63 5.501% - 6.000% 149 12,216,539.65 13.57 9.252 81,990 78.730 93.01 98.14 6.001% - 6.500% 147 12,158,885.39 13.51 9.633 82,714 78.158 93.75 99.24 6.501% - 7.000% 287 18,825,229.91 20.92 10.562 65,593 76.623 95.89 98.96 7.001% - 7.500% 31 2,011,820.23 2.24 10.411 64,897 75.506 82.46 97.02 7.501% - 8.000% 18 1,145,340.36 1.27 10.765 63,630 73.893 76.61 92.58 8.001% - 8.500% 4 353,408.18 0.39 10.516 88,352 62.248 49.14 100.00 8.501% - 9.000% 6 586,051.20 0.65 12.117 97,675 71.388 64.55 100.00 - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $ 86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------
Adjustable Rate Group Distribution by Maximum Mortgage Rates
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Maximum Mortgage Rate Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 11.501% - 12.000% 1 $ 198,000.00 0.22% 10.000% $198,000 90.000% 100.00% 100.00% 12.001% - 12.500% 1 133,992.25 0.15 8.380 133,992 84.960 100.00 100.00 12.501% - 13.000% 2 242,052.96 0.27 6.957 121,026 79.714 100.00 100.00 13.001% - 13.500% 25 3,163,185.01 3.51 7.375 126,527 80.086 100.00 100.00 13.501% - 14.000% 48 6,105,809.69 6.79 7.796 127,204 81.251 95.89 99.01 14.001% - 14.500% 85 9,118,087.84 10.13 8.443 107,272 81.047 94.63 100.00 14.501% - 15.000% 179 16,599,713.87 18.44 8.878 92,736 80.336 92.39 98.44 15.001% - 15.500% 144 12,947,915.37 14.39 9.293 89,916 78.252 88.75 96.54 15.501% - 16.000% 196 17,062,430.16 18.96 9.756 87,053 78.965 87.08 99.63 16.001% - 16.500% 140 10,619,603.05 11.80 10.234 75,854 79.618 94.90 98.69 16.501% - 17.000% 104 6,390,326.79 7.10 10.559 61,445 75.982 93.03 98.56 17.001% - 17.500% 43 3,089,519.07 3.43 10.882 71,849 77.404 92.96 100.00 17.501% - 18.000% 41 2,585,304.94 2.87 11.429 63,056 73.760 85.93 93.78 18.001% - 18.500% 8 412,150.96 0.46 11.669 51,519 69.770 83.37 100.00 18.501% - 19.000% 9 705,311.43 0.78 12.424 78,368 74.724 70.54 100.00 19.001% - 19.500% 3 103,351.54 0.12 12.946 34,451 62.123 100.00 100.00 19.501% - 20.000% 4 172,177.04 0.19 13.813 43,044 64.981 100.00 100.00 20.001% - 20.500% 3 165,936.71 0.18 14.151 55,312 50.322 59.05 100.00 20.501% - 21.000% 5 190,824.42 0.21 14.677 38,165 54.889 100.00 100.00 - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $ 86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------
S-42 Adjustable Rate Group Distribution by Month of Next Adjustment Date
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Month of Next Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Adjustment Date Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- July 1997 16 $ 1,151,319.62 1.28% 8.806% $ 71,957 80.494% 100.00% 100.00% August 1997 29 2,671,712.80 2.97 8.834 92,128 80.358 92.22 100.00 September 1997 28 2,059,548.05 2.29 9.120 73,555 78.762 100.00 97.09 October 1997 98 7,159,497.59 7.95 10.373 73,056 78.957 95.36 100.00 November 1997 131 9,474,615.81 10.53 10.102 72,325 77.945 95.07 98.94 December 1997 64 4,680,673.47 5.20 10.088 73,136 78.295 100.00 98.18 January 1998 36 2,827,634.83 3.14 8.674 78,545 77.048 100.00 87.53 February 1998 46 4,786,038.39 5.32 8.301 104,044 80.375 100.00 100.00 March 1998 60 4,881,908.52 5.42 8.729 81,365 80.613 94.10 98.76 April 1998 64 5,632,846.80 6.26 9.044 88,013 77.501 93.99 93.70 May 1998 28 2,753,858.11 3.06 9.189 98,352 83.005 79.37 100.00 June 1998 25 2,078,772.51 2.31 8.775 83,151 77.817 80.16 100.00 July 1998 2 154,150.00 0.17 9.525 77,075 81.370 100.00 100.00 October 1998 1 23,896.47 0.03 10.700 23,896 79.570 100.00 100.00 December 1998 2 76,884.36 0.09 11.606 38,442 82.455 100.00 100.00 March 1999 15 1,929,788.59 2.14 9.042 128,653 79.092 77.78 100.00 April 1999 98 9,342,706.39 10.38 9.351 95,334 78.338 86.10 99.66 May 1999 101 9,101,234.36 10.11 9.555 90,111 80.378 89.37 99.30 June 1999 147 13,963,922.73 15.51 9.592 94,993 79.096 90.50 100.00 July 1999 15 1,232,003.38 1.37 9.591 82,134 79.812 93.00 100.00 January 2000 1 145,349.33 0.16 11.300 145,349 80.000 100.00 100.00 May 2000 6 664,095.66 0.74 9.089 110,683 80.826 100.00 100.00 June 2000 26 2,905,252.33 3.23 9.263 111,740 78.175 74.26 96.06 July 2000 2 307,983.00 0.34 9.113 153,992 48.366 64.94 100.00 - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $ 86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------
Adjustable Rate Group Distribution by Remaining Months to Stated Maturity
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Remaining Months Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage to Stated Maturity Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 25 - 36 1 $ 25,142.36 0.03% 7.110% $25,142 45.900% 100.00% 100.00% 49 - 60 2 46,007.41 0.05 8.555 23,004 54.270 100.00 100.00 109 - 120 8 303,186.40 0.34 9.186 37,898 73.704 100.00 100.00 145 - 156 1 32,765.86 0.04 10.700 32,766 56.900 100.00 100.00 169 - 180 91 5,071,457.53 5.63 9.171 55,730 74.238 86.11 93.00 229 - 240 21 1,220,722.25 1.36 9.195 58,130 75.762 89.84 100.00 289 - 300 1 39,345.73 0.04 9.360 39,346 42.890 100.00 100.00 349 - 360 916 83,267,065.56 92.51 9.449 90,903 79.398 91.89 98.96 - --------------------- ----- -------------- ------ ------ ------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ ------- ------ ------ ------
Adjustable Rate Group Distribution by Number of Months of Seasoning
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Months of Seasoning Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 0 24 $ 2,125,123.75 2.36% 9.338% $88,547 74.625% 90.86% 87.75% 1 - 6 1,007 87,338,984.43 97.04 9.430 86,732 79.105 91.55 98.90 7 - 12 10 541,584.92 0.60 9.640 54,158 77.982 100.00 100.00 - --------------------- ----- -------------- ------ ------ ------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ ------- ------ ------ ------
S-43 Adjustable Rate Group Distribution by Original Combined Loan-to-Value Ratios
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Principal Original of Full of Owner Number of Principal Balance Weighted Average Combined Documentation Occupied Original Combined Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Loan-to-Value Ratios Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 5.01% - 10.00% 1 $ 44,200.00 0.05% 9.350% $ 44,200 5.110% 100.00% 100.00% 10.01% - 15.00% 2 50,378.57 0.06 10.739 25,189 14.437 100.00 100.00 15.01% - 20.00% 1 25,426.23 0.03 9.870 25,426 15.280 0.00 100.00 20.01% - 25.00% 3 74,742.45 0.08 11.150 24,914 23.784 33.45 100.00 25.01% - 30.00% 2 222,025.78 0.25 8.432 111,013 28.347 100.00 100.00 30.01% - 35.00% 4 141,964.04 0.16 10.726 35,491 33.005 100.00 100.00 35.01% - 40.00% 6 170,436.89 0.19 10.480 28,406 37.645 100.00 100.00 40.01% - 45.00% 10 395,511.24 0.44 10.296 39,551 42.455 76.15 100.00 45.01% - 50.00% 14 561,589.48 0.62 10.679 40,114 47.809 90.72 100.00 50.01% - 55.00% 11 599,012.90 0.66 9.408 54,456 53.229 100.00 89.99 55.01% - 60.00% 18 1,468,414.70 1.63 9.986 81,579 58.534 75.03 63.19 60.01% - 65.00% 51 3,149,287.94 3.50 10.077 61,751 63.499 85.00 97.05 65.01% - 70.00% 51 4,117,829.76 4.57 9.784 80,742 68.394 77.60 100.00 70.01% - 75.00% 148 11,332,351.92 12.59 9.753 76,570 74.244 81.97 97.85 75.01% - 80.00% 371 32,114,767.16 35.68 9.503 86,563 79.275 94.07 99.11 80.01% - 85.00% 245 24,162,273.80 26.85 9.134 98,622 84.320 93.63 100.00 85.01% - 90.00% 84 9,234,396.22 10.26 9.126 109,933 89.482 98.83 100.00 90.01% - 95.00% 17 1,987,367.92 2.21 8.475 116,904 90.612 100.00 100.00 95.01% - 100.00% 2 153,716.10 0.17 9.730 76,858 98.778 100.00 100.00 - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $ 86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------
Adjustable Rate Group Distribution by Original Loan-to-Value Ratios
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Principal Original of Full of Owner Number of Principal Balance Weighted Average Combined Documentation Occupied Original Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Loan-to-Value Ratios Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- --------- ------- ------------- -------------- -------- 0.01% - 5.00% 1 $ 44,200.00 0.05% 9.350% $ 44,200 5.110% 100.00% 100.00% 5.01% - 10.00% 8 171,031.18 0.19 9.829 21,379 82.553 54.00 100.00 10.01% - 15.00% 15 659,837.56 0.73 8.725 43,989 64.207 82.31 100.00 15.01% - 20.00% 12 664,830.34 0.74 9.647 55,403 78.448 84.90 100.00 20.01% - 25.00% 15 974,598.65 1.08 9.511 64,973 71.337 96.94 63.56 25.01% - 30.00% 6 375,928.85 0.42 9.162 62,655 41.945 71.18 100.00 30.01% - 35.00% 8 327,720.91 0.36 10.254 40,965 56.201 100.00 100.00 35.01% - 40.00% 9 441,905.14 0.49 10.001 49,101 65.206 54.92 100.00 40.01% - 45.00% 9 357,477.02 0.40 10.872 39,720 47.626 80.99 100.00 45.01% - 50.00% 12 493,362.89 0.55 10.795 41,114 47.995 100.00 100.00 50.01% - 55.00% 13 730,512.29 0.81 9.377 56,193 59.097 100.00 91.79 55.01% - 60.00% 15 1,075,275.41 1.19 10.208 71,685 58.090 65.90 82.75 60.01% - 65.00% 48 3,055,411.25 3.39 10.045 63,654 63.725 86.35 96.96 65.01% - 70.00% 50 4,073,086.16 4.53 9.782 81,462 68.385 78.46 100.00 70.01% - 75.00% 138 10,888,319.21 12.10 9.729 78,901 74.272 82.58 97.77 75.01% - 80.00% 357 31,302,569.51 34.78 9.519 87,682 79.316 93.98 99.08 80.01% - 85.00% 230 23,532,357.12 26.15 9.131 102,315 84.309 94.36 100.00 85.01% - 90.00% 78 8,780,994.41 9.76 9.112 112,577 89.483 98.77 100.00 90.01% - 95.00% 15 1,902,559.10 2.11 8.423 126,837 90.613 100.00 100.00 95.01% - 100.00% 2 153,716.10 0.17 9.730 76,858 98.778 100.00 100.00 - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $ 86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------
S-44 Adjustable Rate Group Distribution by Junior Lien Ratios
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Junior Lien Ratio Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- 5.01% - 10.00% 3 $ 93,157.48 2.82% 9.949% $ 31,052 84.672% 45.65% 100.00% 10.01% - 15.00% 8 200,981.40 6.08 9.118 25,123 83.813 86.05 100.00 15.01% - 20.00% 7 375,491.42 11.36 8.166 53,642 76.908 88.08 100.00 20.01% - 25.00% 12 745,352.19 22.55 9.643 62,113 84.657 93.49 100.00 25.01% - 30.00% 8 295,872.55 8.95 9.268 36,984 80.485 100.00 100.00 30.01% - 35.00% 3 156,692.83 4.74 10.161 52,231 60.718 66.75 100.00 35.01% - 40.00% 4 195,182.79 5.90 8.864 48,796 43.683 86.48 100.00 40.01% - 45.00% 4 514,381.40 15.56 9.702 128,595 63.992 89.69 30.96 45.01% - 50.00% 4 299,915.57 9.07 9.795 74,979 77.332 15.13 100.00 50.01% - 55.00% 1 48,775.12 1.48 9.750 48,775 74.510 100.00 100.00 55.01% - 60.00% 4 138,602.34 4.19 10.106 34,651 69.226 100.00 100.00 60.01% - 65.00% 1 19,883.28 0.60 10.990 19,883 22.770 0.00 100.00 65.01% - 70.00% 2 124,847.99 3.77 9.344 62,424 79.964 100.00 100.00 75.01% - 80.00% 1 21,921.30 0.66 8.960 21,921 38.120 100.00 100.00 80.01% - 85.00% 1 74,913.75 2.27 8.750 74,914 75.020 100.00 100.00 - --------------------- ----- ------------- ------ ------ -------- ------ ------ ------ Total 63 $3,305,971.41 100.00% 9.413% $ 52,476 74.046% 82.52% 89.26% - --------------------- ----- ------------- ------ ------ -------- ------ ------ ------
Adjustable Rate Group Distribution by Property Type
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Property Type Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- Single Family Residence 996 $86,116,742.19 95.68% 9.430% $86,463 79.000% 91.61% 98.75% Condo 20 1,722,361.69 1.91 9.803 86,118 76.741 91.36 96.87 2-4 Family 13 1,250,824.28 1.39 9.150 96,217 79.486 88.82 92.57 Townhouse 12 915,764.94 1.02 8.955 76,314 81.875 92.83 100.00 - --------------------- ----- -------------- ------ ------ ------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ ------- ------ ------ ------
Adjustable Rate Group Distribution by Loan Purpose
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Loan Purpose Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- Purchase 142 $15,525,978.07 17.25% 9.125% $109,338 82.047% 92.11% 98.41% Refinance and/or Cashout 899 74,479,715.03 82.75 9.492 82,847 78.356 91.47 98.69 - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $ 86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ -------- ------ ------ ------
Adjustable Rate Group Distribution by Occupancy Status
Percentage of Weighted Mortgage Pool Average Percent Percent Aggregate by Aggregate Original of Full of Owner Number of Principal Principal Balance Weighted Average Combined Documentation Occupied Mortgage Balance of Mortgage Average Current Loan-to-Value Mortgage Mortgage Occupancy Status Loans Outstanding Loans Coupon Balance Ratio Loans Loans - ---------------------- --------- --------------- ----------------- -------- ------- ------------- -------------- -------- Owner Occupied 1,028 $88,782,343.51 98.64% 9.428% $86,364 79.152% 91.46% 100.00% Non-Owner Occupied 13 1,223,349.59 1.36 9.456 94,104 67.426 100.00 0.00 - --------------------- ----- -------------- ------ ------ ------- ------ ------ ------ Total 1,041 $90,005,693.10 100.00% 9.429% $86,461 78.993% 91.58% 98.64% - --------------------- ----- -------------- ------ ------ ------- ------ ------ ------
S-45 YIELD AND PREPAYMENT CONSIDERATIONS The weighted average life of, and, if purchased at other than par, the yield to maturity on an Offered Certificate will be directly related to the rate of payment of principal of the Mortgage Loans, including for this purpose voluntary payment in whole of the Mortgage Loans prior to stated maturity, liquidations due to defaults, casualties and condemnations, and repurchases or purchases of Mortgage Loans by the Seller or the Master Servicer. 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 mortgage loans, the extent of the mortgagors' equity in such properties, and changes in the mortgagors' housing needs, job transfers and unemployment. The timing of changes in the rate of prepayments may significantly affect the actual yield to investors, even if the average rate of principal prepayments is consistent with the expectations of investors. In general, the earlier the payment of principal of the Mortgage Loans, the greater the effect on an investor's yield to maturity. As a result, the effect on an investor's yield of prepayments occurring at a rate higher (or lower) than the rate anticipated by the investor during the period immediately following the issuance of the Offered Certificates will not be offset by a subsequent like reduction (or increase) in the rate of principal prepayments. Investors must make their own decisions as to the appropriate prepayment assumptions to be used in deciding whether to purchase any of the Offered Certificates. The Depositor makes no representations or warranties as to the rate of prepayment or the factors to be considered in connection with such determination. Projected Prepayments and Yields for Offered Certificates If purchased at other than par, the yield to maturity on an Offered Certificate will be affected by the rate of the payment of principal of the Mortgage Loans. If the actual rate of payments on the Mortgage Loans is slower than the rate anticipated by an investor who purchases an Offered Certificate of the related class 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 is faster than the rate anticipated by an investor who purchases an Offered Certificate of the related class at a premium, the actual yield to such investor will be lower than such investor's anticipated yield. The Mortgage Loans in the Fixed Rate Group are all fixed rate mortgage loans. The rate of prepayments with respect to conventional fixed rate mortgage loans has fluctuated significantly in recent years. In general, if prevailing interest rates fall significantly below the interest rates on fixed rate mortgage loans, such mortgage loans are likely to be subject to higher prepayment rates than if prevailing rates remain at or above the interest rate on such mortgage loans. However, the monthly payment on mortgage loans similar to the Mortgage Loans is often lower than the monthly payment on a purchase-money first mortgage loan. Consequently, a decrease in the interest rate payable as a result of a refinancing would result in a relatively small reduction in the amount of the mortgagor's monthly payment, as a result of the relatively small loan balance. Conversely, if prevailing interest rates rise appreciably above the interest rates on fixed rate mortgage loans, such mortgage loans may experience a lower prepayment rate than if prevailing rates remain at or below the interest rates on such mortgage loans. 54.12% of the Mortgage Loans with respect to the Fixed Rate Group by aggregate principal balance had prepayment penalties. All of the Mortgage Loans in the Adjustable Rate Group 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 rate. 69.30% of the Adjustable Rate Group by aggregate principal balance were subject to prepayment penalties. The level and rate of prepayments on the Mortgage Loans in the Fixed Rate Group and Adjustable Rate Group are subject to the factors described above and are difficult to predict. Moreover, because the Mortgage Loan Groups are cross-collateralized, prepayments (including as a result of liquidations) in the Fixed Rate Group S-46 may affect the rate and timing of payments on the Variable Rate Certificates and prepayments (including as a result of liquidations) in the Adjustable Rate Group may affect the timing and amount of payments on the Fixed Rate Certificates. In addition to the foregoing factors affecting the weighted average life of each Class of the Offered Certificates, the overcollateralization provisions of the Trust result in an additional reduction of the Certificate Balances of the Class A Certificates relative to the amortization of the Mortgage Loans in the early months of the transaction. The accelerated amortization is achieved by the application of the Monthly Excess Interest Amount to the payment of the Certificate Balance of the Classes of the Offered Certificates and the Class B-2 Certificates. This creates overcollateralization which results from the excess of the aggregate Principal Balances of the Mortgage Loans over the Aggregate Certificate Balance. Once the Targeted Overcollateralization Amount is reached, the application of the Monthly Excess Interest Amount to pay down principal will cease, unless necessary to maintain the Targeted Overcollateralization Amount. "Weighted average life" refers to the average amount of time that will elapse from the date of issuance of a security until each dollar of principal of such security will be repaid to the investor. The weighted average life of the Offered Certificates of each class will be influenced by the rate at which principal payments on the Mortgage Loans are paid, which may be in the form of scheduled amortization, accelerated amortization or prepayments or as a result of an early termination of the Trust. The Fixed Rate Group Available Funds Cap Rate and the Adjustable Rate Group Available Funds Cap Rate on a Distribution Date will depend, in part, on the weighted average of the then-current Mortgage Rates of the outstanding Mortgage Loans. If the Mortgage Loans bearing higher Mortgage Rates were to prepay, the weighted average Mortgage Rate of the Mortgage Loans, and consequently, the Fixed Rate Group Available Funds Cap Rate and the Adjustable Rate Group Available Funds Cap Rate, would be lower than otherwise would be the case. The following table sets forth, with respect to all home equity mortgage loans originated or acquired by CIT Consumer Finance (excluding whole loan sales, Institutional Bulk Portfolios and home equity lines of credit which are not included in the Mortgage Pool) in each year since 1993, the aggregate initial principal balance of the mortgage loans originated or acquired in that year, the approximate aggregate principal balance outstanding on the mortgage loans originated at the end of such year and at the end of each subsequent fiscal quarter. Information Regarding Principal Reduction of Home Equity Mortgage Loans Originated or Acquired by CIT Consumer Finance (Dollar amounts in Millions) Year of Origination or Acquisition 1993 1994 1995 1996 ------------------------------ ---- ---- ---- ---- Volume (1) ......................... $110.5 $388.7 $590.5 $756.4 Aggregate Principal Balance as of (2) 12/31/93 ......................... $102.3 3/31/94 ......................... 95.9 6/30/94 ......................... 90.9 9/30/94 ......................... 86.3 12/31/94 ......................... 81.7 $387.0 3/31/95 ......................... 78.4 368.2 6/30/95 ......................... 74.0 346.2 9/30/95 ......................... 69.7 324.8 12/31/95 ......................... 65.8 302.2 $577.0 3/31/96 ......................... 61.0 278.5 540.4 6/30/96 ......................... 56.8 255.2 498.2 9/30/96 ......................... 52.4 236.5 464.0 12/31/96 ......................... 48.6 214.7 429.1 $741.6 3/31/97 ......................... 44.4 196.7 397.9 710.6 - ------------------- (1) Volume represents the aggregate initial principal balance of each mortgage loan originated or acquired in a particular year which was not subsequently sold in a whole loan sale. Also excluded are all Institutional Bulk Portfolios and home equity lines of credit. (2) Represents the approximate aggregate principal balance outstanding as of each date for the mortgages included in the volume reported for each year of origination or acquisition. S-47 The model used 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 assumes conditional prepayment rates of 4% per annum of the then outstanding principal balance of the Mortgage Loans in the first month of the life of the mortgage loans and an additional 1.455% per annum in each month thereafter until the twelfth month. Beginning in the twelfth month and in each month thereafter during the life of the mortgage loans, 100% Prepayment Assumption assumes a conditional prepayment rate of 20% per annum each month. As used in the table 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 Depositor believes that no existing statistics of which it is aware provide a reliable basis for holders of Offered Certificates to predict the amount or the timing of receipt of prepayments on the Mortgage Loans. Since the tables were prepared on the basis of the assumptions in the following paragraph, 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 Certificate Balances outstanding and weighted average lives of the Offered 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 distributions of principal on the Offered Certificates may be made earlier or later than as indicated in the tables. For the purpose of the tables below, it is assumed that: (i) the Mortgage Loans of each Mortgage Loan Group which consist of pools of mortgage loans with level-pay and balloon amortization methodologies, Principal Balances, gross mortgage rates, net mortgage rates, original and remaining terms to maturity, and original amortization terms, as applicable, are as set forth in the "Representative Loan Pools" table below, (ii) the Closing Date for the Certificates occurs on July 23, 1997, (iii) distributions on the Certificates are made on the 15th day of each month regardless of the day on which the Distribution Date actually occurs, commencing August 15, 1997, in accordance with the priorities described herein, (iv) the difference between the Gross Mortgage Rate and the Net Mortgage Rate is equal to the Master Servicing Fee, (v) the Mortgage Loans' prepayment rates with respect to the Fixed Rate Group are a multiple of the applicable Prepayment Assumption and with respect to the Adjustable Rate Group are constant percentages of conditional prepayment rates ("CPR") each as stated in the "Prepayment Scenarios" table below; (vi) prepayments include 30 days' interest thereon, (vii) no optional termination or auction sale is exercised, (viii) Call Loans are not called on their Call Date, (ix) the Targeted Overcollateralization Amount is set initially as specified in this Prospectus Supplement and the Pooling and Servicing Agreement and thereafter decreases in accordance with its provisions, (x) the Mortgage Rate for each Mortgage Loan in the Adjustable Rate Group is adjusted on its next Adjustment Date (and on subsequent Adjustment Dates, if necessary) to equal the sum of (a) the assumed level of the applicable Index and (b) the respective Gross Margin (such sum being subject to the applicable Periodic Rate Cap and Maximum Rate) and (xi) the Pass-Through Rate for each Class of the Variable Rate Certificates remains constant at its respective initial rates up to and including the Clean-Up Call Date and, thereafter, at its respective initial rates plus the step-up required after the Clean-Up Call Date. PREPAYMENT SCENARIOS
Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI ---------- ----------- ------------ ----------- ---------- ----------- Fixed Rate Group (1) .......... 0% 50% 85% 100% 125% 150% Adjustable Rate Group (2) ..... 0% 15% 20% 25% 30% 40%
- --------------- (1) As a percentage of the Prepayment Assumption. (2) As a conditional prepayment rate (CPR) percentage. S-48 REPRESENTATIVE LOAN POOLS FIXED RATE GROUP
Orginal Remaining Original Gross Net Term to Term to Amortization Pool Principal Mortgage Mortgage Maturity Maturity Term Amortization Number Balance Rate Rate (in months) (in months) (in months) Method - ------- -------- -------- -------- --------- ---------- ------------- ----------- 1 62,950,532.84 11.818 11.318 180 353 357 Balloon 2 1,352,977.06 11.045 10.545 96 354 360 Balloon 3 17,725,720.25 11.148 10.648 112 108 112 Level Pay 4 157,332,373.01 11.131 10.631 180 176 180 Level Pay 5 38,794,276.48 10.765 10.265 240 236 240 Level Pay 6 131,844,120.36 10.321 9.821 358 354 358 Level Pay
ADJUSTABLE RATE GROUP
Current Next Original Remaining Gross Net Months Periodic Periodic Maximum Term to Term to Pool Principal Mortgage Mortgage to Rate Gross Rate Rate Mortgage Maturity Maturity Amortization Number Balance Rate Rate Change Margin Cap Cap Rate (in months)(in months) Method - ------- -------- -------- -------- ------- ------- ------- ------- --------- ---------- ---------- ----------- 1 3,822,790.60 8.825 8.325 1 5.537 1.227 1.238 14.976 343 338 Level Pay 2 2,059,417.78 9.120 8.620 2 5.869 1.224 1.175 15.255 344 340 Level Pay 3 7,159,044.73 10.373 9.873 3 6.598 1.763 1.763 16.486 358 355 Level Pay 4 9,474,016.52 10.102 9.602 4 6.441 1.563 1.537 16.117 357 355 Level Pay 5 4,626,573.67 10.103 9.603 5 6.578 1.192 1.192 15.961 355 354 Level Pay 6 430,960.11 8.709 8.209 6 6.222 1.000 1.000 15.463 360 360 Level Pay 7 34,935,296.15 9.501 9.001 22 5.477 1.288 1.012 15.594 350 348 Level Pay 8 479,811.99 9.984 9.484 33 5.161 1.000 1.000 15.717 352 349 Level Pay 9 2,450,299.60 8.671 8.171 6 5.484 1.895 1.895 14.625 333 327 Level Pay 10 21,019,174.96 8.803 8.303 9 5.309 1.987 1.987 14.834 338 335 Level Pay 11 3,542,613.89 9.204 8.704 35 4.592 2.000 2.000 15.190 321 320 Level Pay
S-49 The following tables set forth the percentages of the initial principal amount of the Offered Certificates that would be outstanding after each of the dates shown, based on prepayment scenarios described in the table entitled "Prepayment Scenarios." The percentages have been rounded to the nearest 1%. PERCENTAGE OF INITIAL CERTIFICATE BALANCE
Class A-1 Class A-2 Scenario Scenario --------------------------------------------- ---------------------------------------------- Distribution Date I II III IV V VI I II III IV V VI --- --- --- --- --- --- --- --- --- --- --- --- Initial Percent 100 100 100 100 100 100 100 100 100 100 100 100 8/15/98 81 44 18 6 0 0 100 100 100 100 69 22 8/15/99 72 0 0 0 0 0 100 88 0 0 0 0 8/15/00 62 0 0 0 0 0 100 0 0 0 0 0 8/15/01 51 0 0 0 0 0 100 0 0 0 0 0 8/15/02 39 0 0 0 0 0 100 0 0 0 0 0 8/15/03 26 0 0 0 0 0 100 0 0 0 0 0 8/15/04 12 0 0 0 0 0 100 0 0 0 0 0 8/15/05 0 0 0 0 0 0 98 0 0 0 0 0 8/15/06 0 0 0 0 0 0 62 0 0 0 0 0 8/15/07 0 0 0 0 0 0 27 0 0 0 0 0 8/15/08 0 0 0 0 0 0 0 0 0 0 0 0 8/15/09 0 0 0 0 0 0 0 0 0 0 0 0 8/15/10 0 0 0 0 0 0 0 0 0 0 0 0 8/15/11 0 0 0 0 0 0 0 0 0 0 0 0 8/15/12 0 0 0 0 0 0 0 0 0 0 0 0 8/15/13 0 0 0 0 0 0 0 0 0 0 0 0 8/15/14 0 0 0 0 0 0 0 0 0 0 0 0 8/15/15 0 0 0 0 0 0 0 0 0 0 0 0 8/15/16 0 0 0 0 0 0 0 0 0 0 0 0 8/15/17 0 0 0 0 0 0 0 0 0 0 0 0 8/15/18 0 0 0 0 0 0 0 0 0 0 0 0 8/15/19 0 0 0 0 0 0 0 0 0 0 0 0 8/15/20 0 0 0 0 0 0 0 0 0 0 0 0 8/15/21 0 0 0 0 0 0 0 0 0 0 0 0 8/15/22 0 0 0 0 0 0 0 0 0 0 0 0 8/15/23 0 0 0 0 0 0 0 0 0 0 0 0 8/15/24 0 0 0 0 0 0 0 0 0 0 0 0 8/15/25 0 0 0 0 0 0 0 0 0 0 0 0 8/15/26 0 0 0 0 0 0 0 0 0 0 0 0 8/15/27 0 0 0 0 0 0 0 0 0 0 0 0 Weighted Average Life to 3.94 0.93 0.64 0.57 0.49 0.43 9.36 2.36 1.52 1.33 1.09 0.93 Maturity Years)(1) Weighted Average Life to Optional Call 3.94 0.93 0.64 0.57 0.49 0.43 9.36 2.36 1.52 1.33 1.09 0.93 (Years)(1)
Class A-3 Class A-4 Scenario Scenario --------------------------------------------- ---------------------------------------------- Distribution Date I II III IV V VI I II III IV V VI --- --- --- --- --- --- --- --- --- --- --- --- Initial Percent 100 100 100 100 100 100 100 100 100 100 100 100 8/15/98 100 100 100 100 100 100 100 100 100 100 100 100 8/15/99 100 100 79 50 2 0 100 100 100 100 100 35 8/15/00 100 88 0 0 0 0 100 100 88 32 0 0 8/15/01 100 34 0 0 0 0 100 100 17 0 0 0 8/15/02 100 0 0 0 0 0 100 79 0 0 0 0 8/15/03 100 0 0 0 0 0 100 42 0 0 0 0 8/15/04 100 0 0 0 0 0 100 15 0 0 0 0 8/15/05 100 0 0 0 0 0 100 2 0 0 0 0 8/15/06 100 0 0 0 0 0 100 0 0 0 0 0 8/15/07 100 0 0 0 0 0 100 0 0 0 0 0 8/15/08 91 0 0 0 0 0 100 0 0 0 0 0 8/15/09 63 0 0 0 0 0 100 0 0 0 0 0 8/15/10 29 0 0 0 0 0 100 0 0 0 0 0 8/15/11 0 0 0 0 0 0 86 0 0 0 0 0 8/15/12 0 0 0 0 0 0 0 0 0 0 0 0 8/15/13 0 0 0 0 0 0 0 0 0 0 0 0 8/15/14 0 0 0 0 0 0 0 0 0 0 0 0 8/15/15 0 0 0 0 0 0 0 0 0 0 0 0 8/15/16 0 0 0 0 0 0 0 0 0 0 0 0 8/15/17 0 0 0 0 0 0 0 0 0 0 0 0 8/15/18 0 0 0 0 0 0 0 0 0 0 0 0 8/15/19 0 0 0 0 0 0 0 0 0 0 0 0 8/15/20 0 0 0 0 0 0 0 0 0 0 0 0 8/15/21 0 0 0 0 0 0 0 0 0 0 0 0 8/15/22 0 0 0 0 0 0 0 0 0 0 0 0 8/15/23 0 0 0 0 0 0 0 0 0 0 0 0 8/15/24 0 0 0 0 0 0 0 0 0 0 0 0 8/15/25 0 0 0 0 0 0 0 0 0 0 0 0 8/15/26 0 0 0 0 0 0 0 0 0 0 0 0 8/15/27 0 0 0 0 0 0 0 0 0 0 0 0 Weighted Average Life to 12.36 3.73 2.34 2.02 1.65 1.39 14.41 5.94 3.51 2.98 2.33 1.95 Maturity (Years)(1) Weighted Average Life to Optional Call 12.36 3.73 2.34 2.02 1.65 1.39 14.41 5.94 3.51 2.98 2.33 1.95 (Years)(1)
- ---------------- (1) The weighted average life of the Offered Certificates is determined by (i) multiplying the amount of each principal payment by the number of years from the date of issuance to the related Distribution Date, (ii) adding the results, and (iii) dividing the sum by the initial respective Certificate Balance for such Class of Offered Certificates. S-50 PERCENTAGE OF INITIAL CERTIFICATE BALANCE
Class A-5 Class A-6 Scenario Scenario --------------------------------------------- ---------------------------------------------- Distribution Date I II III IV V VI I II III IV V VI --- --- --- --- --- --- --- --- --- --- --- --- Initial Percent 100 100 100 100 100 100 100 100 100 100 100 100 8/15/98 100 100 100 100 100 100 100 100 100 100 100 100 8/15/99 100 100 100 100 100 100 100 100 100 100 100 100 8/15/00 100 100 100 100 0 0 100 100 100 100 59 0 8/15/01 100 100 100 67 0 0 100 100 100 100 33 0 8/15/02 100 100 39 0 0 0 100 100 100 61 0 0 8/15/03 100 100 0 0 0 0 100 100 62 0 0 0 8/15/04 100 100 0 0 0 0 100 100 5 0 0 0 8/15/05 100 100 0 0 0 0 100 100 0 0 0 0 8/15/06 100 60 0 0 0 0 100 100 0 0 0 0 8/15/07 100 16 0 0 0 0 100 100 0 0 0 0 8/15/08 100 0 0 0 0 0 100 71 0 0 0 0 8/15/09 100 0 0 0 0 0 100 27 0 0 0 0 8/15/10 100 0 0 0 0 0 100 0 0 0 0 0 8/15/11 100 0 0 0 0 0 100 0 0 0 0 0 8/15/12 0 0 0 0 0 0 78 0 0 0 0 0 8/15/13 0 0 0 0 0 0 63 0 0 0 0 0 8/15/14 0 0 0 0 0 0 41 0 0 0 0 0 8/15/15 0 0 0 0 0 0 16 0 0 0 0 0 8/15/16 0 0 0 0 0 0 0 0 0 0 0 0 8/15/17 0 0 0 0 0 0 0 0 0 0 0 0 8/15/18 0 0 0 0 0 0 0 0 0 0 0 0 8/15/19 0 0 0 0 0 0 0 0 0 0 0 0 8/15/20 0 0 0 0 0 0 0 0 0 0 0 0 8/15/21 0 0 0 0 0 0 0 0 0 0 0 0 8/15/22 0 0 0 0 0 0 0 0 0 0 0 0 8/15/23 0 0 0 0 0 0 0 0 0 0 0 0 8/15/24 0 0 0 0 0 0 0 0 0 0 0 0 8/15/25 0 0 0 0 0 0 0 0 0 0 0 0 8/15/26 0 0 0 0 0 0 0 0 0 0 0 0 8/15/27 0 0 0 0 0 0 0 0 0 0 0 0 Weighted Average Life to 14.64 9.25 4.92 4.17 2.77 2.31 16.52 11.49 6.26 5.20 3.60 2.53 Maturity (Years)(1) Weighted Average Life to Optional Call 14.64 9.25 4.92 4.17 2.77 2.31 16.52 11.49 6.26 5.20 3.60 2.53 (Years)(1)
Class A-7 Class A-8 Scenario Scenario --------------------------------------------- ---------------------------------------------- Distribution Date I II III IV V VI I II III IV V VI --- --- --- --- --- --- --- --- --- --- --- --- Initial Percent 100 100 100 100 100 100 100 100 100 100 100 100 8/15/98 100 100 100 100 100 100 100 100 100 100 100 100 8/15/99 100 100 100 100 100 100 100 100 100 100 100 100 8/15/00 100 100 100 100 100 35 100 100 100 100 100 100 8/15/01 100 100 100 100 100 35 98 91 88 91 97 100 8/15/02 100 100 100 100 72 26 97 82 80 81 84 95 8/15/03 100 100 100 96 49 13 93 72 67 66 66 71 8/15/04 100 100 100 74 35 9 88 62 54 51 48 49 8/15/05 100 100 95 72 35 9 70 39 26 23 24 30 8/15/06 100 100 82 61 33 9 54 24 12 10 9 17 8/15/07 100 100 68 50 27 9 42 15 6 4 3 8 8/15/08 100 100 55 39 21 9 31 9 3 2 1 2 8/15/09 100 100 43 30 15 4 21 5 1 1 0 0 8/15/10 100 93 33 23 11 0 12 3 1 0 0 0 8/15/11 100 75 25 17 5 0 6 1 0 0 0 0 8/15/12 100 41 13 8 0 0 0 0 0 0 0 0 8/15/13 100 36 10 5 0 0 0 0 0 0 0 0 8/15/14 100 31 9 2 0 0 0 0 0 0 0 0 8/15/15 100 26 5 0 0 0 0 0 0 0 0 0 8/15/16 95 22 3 0 0 0 0 0 0 0 0 0 8/15/17 84 19 1 0 0 0 0 0 0 0 0 0 8/15/18 79 16 0 0 0 0 0 0 0 0 0 0 8/15/19 73 14 0 0 0 0 0 0 0 0 0 0 8/15/20 66 12 0 0 0 0 0 0 0 0 0 0 8/15/21 59 9 0 0 0 0 0 0 0 0 0 0 8/15/22 51 5 0 0 0 0 0 0 0 0 0 0 8/15/23 42 2 0 0 0 0 0 0 0 0 0 0 8/15/24 32 0 0 0 0 0 0 0 0 0 0 0 8/15/25 22 0 0 0 0 0 0 0 0 0 0 0 8/15/26 7 0 0 0 0 0 0 0 0 0 0 0 8/15/27 0 0 0 0 0 0 0 0 0 0 0 0 Weighted Average Life to 24.61 16.57 11.95 10.32 7.59 4.34 9.63 7.52 6.85 6.79 6.82 7.22 Maturity (Years)(1) Weighted Average Life to Optional Call 24.14 14.05 9.90 8.19 6.04 3.76 9.63 7.52 6.79 6.66 6.36 5.74 (Years)(1)
- ---------------- (1) The weighted average life of the Offered Certificates is determined by (i) multiplying the amount of each principal payment by the number of years from the date of issuance to the related Distribution Date, (ii) adding the results, and (iii) dividing the sum by the initial respective Certificate Balance for such Class of Offered Certificates. S-51 PERCENTAGE OF INITIAL CERTIFICATE BALANCE
Class A-9 Class M-1 Scenario Scenario --------------------------------------------- ---------------------------------------------- Distribution Date I II III IV V VI I II III IV V VI --- --- --- --- --- --- --- --- --- --- --- --- Initial Percent 100 100 100 100 100 100 100 100 100 100 100 100 8/15/98 97 82 77 72 67 57 100 100 100 100 100 100 8/15/99 96 69 61 53 46 33 100 100 100 100 100 100 8/15/00 96 58 48 39 31 19 100 100 100 100 100 100 8/15/01 95 49 38 29 22 11 100 100 88 75 59 83 8/15/02 94 41 30 21 15 6 100 100 71 58 42 29 8/15/03 93 34 24 16 10 3 100 89 57 44 30 19 8/15/04 92 29 19 12 7 2 100 77 45 34 22 13 8/15/05 91 24 15 8 5 1 100 65 35 26 15 8 8/15/06 90 20 12 6 3 0 100 55 28 19 11 6 8/15/07 89 17 9 4 2 0 100 47 22 15 8 4 8/15/08 87 14 7 3 1 0 100 40 17 11 5 0 8/15/09 86 11 5 2 0 0 100 33 13 8 4 0 8/15/10 84 9 4 1 0 0 100 27 10 6 0 0 8/15/11 82 8 3 1 0 0 100 22 7 4 0 0 8/15/12 80 6 2 0 0 0 80 13 4 0 0 0 8/15/13 78 5 2 0 0 0 76 11 3 0 0 0 8/15/14 75 4 1 0 0 0 72 9 0 0 0 0 8/15/15 72 3 1 0 0 0 68 8 0 0 0 0 8/15/16 68 2 0 0 0 0 63 6 0 0 0 0 8/15/17 64 2 0 0 0 0 58 5 0 0 0 0 8/15/18 60 1 0 0 0 0 54 4 0 0 0 0 8/15/19 55 1 0 0 0 0 50 4 0 0 0 0 8/15/20 49 0 0 0 0 0 45 1 0 0 0 0 8/15/21 43 0 0 0 0 0 39 0 0 0 0 0 8/15/22 36 0 0 0 0 0 33 0 0 0 0 0 8/15/23 28 0 0 0 0 0 27 0 0 0 0 0 8/15/24 20 0 0 0 0 0 19 0 0 0 0 0 8/15/25 10 0 0 0 0 0 11 0 0 0 0 0 8/15/26 3 0 0 0 0 0 3 0 0 0 0 0 8/15/27 0 0 0 0 0 0 0 0 0 0 0 0 Weighted Average Life to 20.68 5.38 4.07 3.18 2.59 1.80 21.50 10.69 7.53 6.49 5.52 5.12 Maturity (Years)(1) Weighted Average Life to Optional Call 20.43 5.12 3.80 3.03 2.46 1.76 21.25 10.02 6.95 5.94 5.04 4.70 (Years)(1)
Class M-2 Class B-1 Scenario Scenario --------------------------------------------- ---------------------------------------------- Distribution Date I II III IV V VI I II III IV V VI --- --- --- --- --- --- --- --- --- --- --- --- Initial Percent 100 100 100 100 100 100 100 100 100 100 100 100 8/15/98 100 100 100 100 100 100 100 100 100 100 100 100 8/15/99 100 100 100 100 100 100 100 100 100 100 100 100 8/15/00 100 100 100 100 100 100 100 100 100 100 100 100 8/15/01 100 100 88 75 59 43 100 100 88 75 59 43 8/15/02 100 100 71 58 42 29 100 100 71 58 42 29 8/15/03 100 89 57 44 30 19 100 89 57 44 30 19 8/15/04 100 77 45 34 22 13 100 77 45 34 22 11 8/15/05 100 65 35 26 15 8 100 65 35 26 15 4 8/15/06 100 55 28 19 11 5 100 55 28 19 8 0 8/15/07 100 47 22 15 8 0 100 47 22 14 2 0 8/15/08 100 40 17 11 4 0 100 40 17 8 0 0 8/15/09 100 33 13 8 1 0 100 33 12 3 0 0 8/15/10 100 27 10 5 0 0 100 27 6 0 0 0 8/15/11 100 22 7 2 0 0 100 22 2 0 0 0 8/15/12 80 13 2 0 0 0 80 12 0 0 0 0 8/15/13 76 11 0 0 0 0 76 8 0 0 0 0 8/15/14 72 9 0 0 0 0 72 5 0 0 0 0 8/15/15 68 8 0 0 0 0 68 2 0 0 0 0 8/15/16 63 6 0 0 0 0 63 0 0 0 0 0 8/15/17 58 4 0 0 0 0 58 0 0 0 0 0 8/15/18 54 2 0 0 0 0 54 0 0 0 0 0 8/15/19 50 0 0 0 0 0 50 0 0 0 0 0 8/15/20 45 0 0 0 0 0 45 0 0 0 0 0 8/15/21 39 0 0 0 0 0 39 0 0 0 0 0 8/15/22 33 0 0 0 0 0 33 0 0 0 0 0 8/15/23 27 0 0 0 0 0 27 0 0 0 0 0 8/15/24 19 0 0 0 0 0 19 0 0 0 0 0 8/15/25 11 0 0 0 0 0 8 0 0 0 0 0 8/15/26 0 0 0 0 0 0 0 0 0 0 0 0 8/15/27 0 0 0 0 0 0 0 0 0 0 0 0 Weighted Average Life to 21.49 10.60 7.48 6.46 5.39 4.73 21.44 10.35 7.35 6.30 5.21 4.46 Maturity (Years)(1) Weighted Average Life to Optional Call 21.25 10.02 6.95 5.93 4.95 4.35 21.25 10.02 6.95 5.93 4.91 4.20 (Years)(1)
- ------------------- (1) The weighted average life of the Offered Certificates is determined by (i) multiplying the amount of each principal payment by the number of years from the date of issuance to the related Distribution Date, (ii) adding the results, and (iii) dividing the sum by the initial respective Certificate Balance for such Class of Offered Certificates. S-52 THE CIT GROUP SECURITIZATION CORPORATION III, THE DEPOSITOR The CIT Group Securitization Corporation III (the "Depositor") was incorporated in the State of Delaware on April 8, 1996 and is a wholly-owned, limited purpose finance subsidiary of CIT. The Depositor maintains its principal office at 650 CIT Drive, Livingston, New Jersey 07039. Its telephone number is (201) 535-3514. The Depositor will have no ongoing servicing obligations or responsibilities with respect to any Mortgage Loans. CIT Consumer Finance is an affiliate of the Depositor. The Depositor will acquire the Mortgage Loans in a privately negotiated transaction from CIT Consumer Finance. Neither CIT nor any of its affiliates, including the Depositor and CIT Consumer Finance, will be obligated with respect to the Certificates. Accordingly, the Depositor has determined that the financial condition of CIT Consumer Finance and its affiliates, including the Depositor, is not material to the offering of the Certificates. THE CIT GROUP/CONSUMER FINANCE, INC., SELLER AND MASTER SERVICER The Mortgage Loans and any other applicable Mortgage Assets will be purchased by the Depositor, either directly or through affiliates, from CIT Consumer Finance or its affiliates, as Seller. The Mortgage Loans so acquired by the Depositor will have been originated or purchased by CIT Consumer Finance or its affiliates in accordance with the underwriting criteria specified herein and in the Prospectus. CIT Consumer Finance will be appointed pursuant to the Pooling and Servicing Agreement as the master servicer for the Trust (the "Master Servicer"). CIT Consumer Finance is a Delaware corporation and a wholly-owned subsidiary of CIT. It has its principal executive office at 650 CIT Drive, Livingston, New Jersey 07039, and its telephone number is (201) 740-5000. CIT Consumer Finance offers loans to consumers secured by first and subordinate mortgages on residential real estate (including condominiums). Business is generated through several distribution channels across the country. CIT Consumer Finance originates loans directly to consumers, using both its own employees and mortgage brokers. CIT Consumer Finance also purchases loans from mortgage bankers and other mortgage lenders, often referred to as "correspondents." CIT Consumer Finance purchases loans individually and in larger batches, including bulk portfolio purchases. CIT Consumer Finance is the master servicer for the loans held in its portfolio. CITSF performs most of the servicing functions for CIT Consumer Finance as its Sub-Servicer from CITSF's Asset Service Center as described below. CIT Consumer Finance has a network of offices nationwide which handle business origination, credit, administration and management. In addition, CIT Consumer Finance maintains its quality control department and its original document retention and processing facility at its Marlton, New Jersey office. Prior to the issuance of the Certificates, the Master Servicer will enter into a subservicing agreement with CITSF (the "Subservicing Agreement") pursuant to which CITSF will agree to perform all of the servicing responsibilities of the Master Servicer under the Pooling and Servicing Agreement (except that CIT Consumer Finance will not delegate to CITSF the responsibility of confirming that the Mortgages are properly recorded and that title policies, if required, are properly issued, recording Mortgage releases and similar documents and maintaining loan files). The Trustee will be an intended third-party beneficiary of the Subservicing Agreement and will have the right to enforce such Subservicing Agreement as if it were a party thereto. Currently, CIT Consumer Finance only performs those limited servicing functions in connection with its portfolio described above. In the future, CIT Consumer Finance may determine that it will perform all or a material portion of the other servicing responsibilities or that CIT Consumer Finance will retain another third party to perform all or a material portion of these servicing responsibilities, instead of CITSF. The Pooling and Servicing Agreement provides that CIT Consumer Finance may not permit CITSF to resign as Sub-Servicer nor may CIT Consumer Finance terminate or replace CITSF as Sub-Servicer, or materially reduce the duties of CITSF as Sub-Servicer, in connection with collections, lockbox arrangements, payment processing or foreclosure activities unless (i) a Termination Event has occurred and is continuing, in which event the Trustee may terminate both CIT Consumer Finance and CITSF (See "The Pooling and Servicing Agreement--Termination Events" herein), or (ii) the Rating Agency Condition is satisfied. S-53 THE CIT GROUP/SALES FINANCING, INC., SUB-SERVICER CITSF will be appointed as a Sub-Servicer for all of the Mortgage Loans in each Mortgage Pool, and as a Sub-Servicer, will perform all or most of the servicing responsibilities described under "The Pooling and Servicing Agreement" herein and in the Prospectus. CITSF is a Delaware corporation and a wholly-owned subsidiary of CIT. It has its principal executive office at 650 CIT Drive, Livingston, New Jersey 07039 and its telephone number is (201) 740-5000. CITSF originates, purchases and services retail installment sales contracts, direct loans and mortgages for manufactured housing, recreational vehicles, recreational marine and other consumer goods throughout the United States and services mortgage loans originated and purchased by CIT Consumer Finance and other affiliates of CIT. CITSF has a centralized asset service facility (the "Asset Service Center") in Oklahoma City, Oklahoma. CITSF services, on behalf of other owners, retail installment contracts, direct loans and mortgage loans that were not originated by CITSF. These servicing arrangements may be made with respect to the portfolios of other lending institutions or finance companies, the portfolios of governmental agencies or instrumentalities, or portfolios that have been sold by CITSF or others to securitization trusts. The Asset Service Center of CITSF services consumer credit transactions in 50 states and the District of Columbia. It provides full servicing for retail installment contracts, direct loans and mortgages. In order to service these transactions, CITSF uses sub-servicers, outside collectors and field remarketers located throughout the United States. At March 31, 1997, CITSF serviced approximately 215,000 consumer finance accounts (including recreational vehicle, marine, manufactured housing and mortgage receivables) at its Asset Service Center. In addition to expected growth in its serviced portfolio, in 1997 CITSF will take over servicing of approximately 43,000 additional recreational vehicle and marine consumer contracts for another financial institution, which CITSF will also service at its Asset Service Center. The addition of these contracts to its servicing portfolio will require CITSF to increase staffing levels at the Asset Service Center to support these contracts. The effect of this increase on CITSF's performance as a servicer or subservicer cannot be determined at this time. SERVICING OF MORTGAGE LOANS Servicing Compensation and Payment of Expenses The servicing fees for each Mortgage Loan are generally payable out of the interest payments on such Mortgage Loan. The servicing compensation payable to the Master Servicer in respect of its master servicing activities (the "Master Servicing Fee") will be payable on each Distribution Date in an amount equal to 1/12 of the product of 0.50% per annum and the Principal Balance of each Mortgage Loan as of the first day of the related Due Period. If CIT Consumer Finance or one of its affiliates is no longer the Master Servicer, the Master Servicing Fee will be payable before any distributions are made on the Certificates on a Distribution Date, and will reduce the amount of available funds to make distributions of interest and principal on the Certificates. However, if the Master Servicer is CIT Consumer Finance or an affiliate of CIT Consumer Finance is the Master Servicer, the Master Servicing Fee will be paid on each Distribution Date only from the Interest Remittance Amount remaining after all interest payments due on the Certificates on such Distribution Date have been made. The Master Servicer will be responsible for the compensation of the Sub-Servicer. The Master Servicer is obligated to pay certain ongoing expenses associated with the Trust Fund and incurred by the Master Servicer in connection with its responsibilities under the Pooling and Servicing Agreement. The Master Servicer will pay these amounts out of the Master Servicing Fee. The Master Servicer is also entitled to retain all investment income earned on amounts on deposit in the Certificate Account. Compensating Interest When a Mortgage Loan is prepaid between monthly payment dates ("Due Dates"), the Mortgagor is required to pay interest on the amount prepaid to the date of prepayment and not thereafter. Prepayments received during a calendar month will be distributed to Certificateholders on the Distribution Date in the month following the month of receipt. Pursuant to the Pooling and Servicing Agreement, the Master Servicer will pay to the Trust, but only to the extent of the Master Servicing Fee for such month, with respect to each Mortgage Loan as to which S-54 the Master Servicer received a Principal Prepayment during the related Due Period an amount ("Compensating Interest") equal to the excess of (i) 30 days' interest on the Principal Balance of each such Mortgage Loan as of the beginning of the related Due Period at the Mortgage Rate over, (ii) the amount of interest actually received on the related Mortgage Loan during such Due Period. Any shortfalls in interest as a result of prepayments which cause the Compensating Interest to exceed the amount of the Master Servicing Fee for the month, or any shortfalls in interest due to a partial prepayment, will reduce the amount of interest available to be distributed to Certificateholders from the amount which would otherwise have been available. In addition, with respect to each Simple Interest Loan, when a Mortgagor makes a principal prepayment that exceeds the principal portion of the scheduled payment, but the Mortgagor does not intend to satisfy the Mortgage Loan in full or to cure a delinquency, interest will cease to accrue on the principal so prepaid as of the date of prepayment. Moreover, if a Mortgagor makes a scheduled payment on a Simple Interest Loan prior to its scheduled due date, the Mortgagor pays less than 30 days' interest at the Mortgage Rate in such Due Period with respect to such Mortgage Loan. These types of prepayments and early payments will reduce the amount of interest available to be distributed to Certificateholders from the amount which would otherwise have been available. Advances The Master Servicer will be required to make an advance of its own funds no later than the day prior to the Distribution Date and in no event earlier than the seventh Business Day of such month, in the amount, if any, by which 30 days' interest at the Mortgage Rate on the then outstanding Principal Balance of a Mortgage Loan exceeds the amount received by the Master Servicer in respect of interest on the Mortgage Loan during the related Due Period (any such advance, an "Advance"), subject to limitations set forth below. Advances are intended to maintain a regular flow of scheduled interest payments on the Certificates and not to guarantee or insure against losses. The Master Servicer is obligated to make Advances with respect to delinquent payments of interest on each Mortgage Loan only if in its judgment, such Advances are reasonably recoverable from future payments and collections of the related Mortgage Loan. If the Master Servicer determines on any Determination Date to make an Advance, such Advance will be included with the distribution to Certificateholders on the related Distribution Date. DESCRIPTION OF THE CERTIFICATES General Persons in whose name an Offered Certificate is registered in the Certificate Register maintained by the Trustee are the "holders" of the Offered Certificates. For so long as the Offered Certificates are in book-entry form with DTC, the only "holder" of the Offered Certificates as the term " holder" is used in the Pooling and Servicing Agreement will be Cede. No person acquiring a Book-Entry Certificate (each, a "beneficial owner") will be entitled to receive a physical certificate representing such Certificate (a "Definitive Certificate"), except in the event that Definitive Certificates are issued under limited circumstances set forth in the Pooling and Servicing Agreement. All references herein to the holders of Offered Certificates shall mean and include the rights of beneficial owners, as such rights may be exercised through DTC and its participating organizations, except as otherwise specified in the Pooling and Servicing Agreement. See "Description of the Certificates--Book-Entry Certificates" herein and in the Prospectus. Book-Entry Certificates The Offered Certificates will be book-entry certificates (the "Book-Entry Certificates"). The beneficial owners may elect to hold their Offered Certificates through DTC in the United States, or CEDEL or Euroclear in Europe if they are Participants (as defined in the Prospectus) of such systems, 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 & Co., 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 depositary S-55 for CEDEL and Morgan will act as depository for Euroclear. Investors may hold such beneficial interests in the Book-Entry Certificates in minimum denominations representing principal amounts of $1,000 and in integral multiples in excess thereof. Except as described below, no beneficial owner will be entitled to receive a Definitive Certificate. Unless and until Definitive Certificates are issued, it is anticipated that the only "holder" of such Offered Certificates will be Cede & Co., as nominee of DTC. Beneficial owners will not be holders as that term is used in the Pooling and Servicing Agreement. Beneficial owners are only permitted to exercise their rights indirectly through Participants and DTC. See "Description of the Certificates--Book-Entry Certificates" in the Prospectus. Definitive Certificates will be issued to beneficial owners of Book-Entry Certificates, or their nominees, rather than to DTC, only if (i) DTC or the Depositor advises the Trustee in writing that DTC is no longer willing, qualified or able to discharge properly its responsibilities as nominee and depository with respect to the Book-Entry Certificates and the Depositor or the Trustee is unable to locate a qualified successor; (ii) the Depositor, at its sole option, elects to terminate the book-entry system through DTC; or (iii) after the occurrence of a Termination Event (as defined in the Pooling and Servicing Agreement), beneficial owners of Certificates representing not less than 51% of the aggregate Percentage Interests evidenced by each Class of Certificates issued as Book-Entry Certificates advise the Trustee and DTC through the Financial Intermediaries (as defined in the Prospectus) in writing that the continuation of a book-entry system through DTC (or a successor thereto) is no longer in the best interests of the beneficial owners. See "Description of the Certificates--Definitive Certificates" in the Prospectus. Distribution Dates Distributions on the Certificates are required to be made on the 15th day of each month or, if such day is not a Business Day, on the first Business Day thereafter (the "Distribution Date") commencing on August 15, 1997, to the holders on each Record Date in an amount equal to the product of such holder's Percentage Interest and the amount distributed in respect of such Certificateholders' Class of such Certificates on such Distribution Date. On each Distribution Date, the holders of each Class of the Offered Certificates and the Class B-2 Certificates will be entitled to receive from amounts then on deposit in the certificate account established and maintained by the Trustee in accordance with the Pooling and Servicing Agreement (the "Certificate Account") and until the Certificate Balance of such Class of Offered Certificates and the Class B-2 Certificates is reduced to zero, and to the extent funds are available therefor, the related Current Interest, any Interest Carry Forward Amount and the portion of the Principal Distribution Amount, if any, allocated therefor as of such Distribution Date, among the Classes of the Offered Certificates and the Class B-2 Certificates as described below. On each Distribution Date on or after the date (if ever) on which Definitive Certificates are issued, distributions will be made in immediately available funds to holders of Offered Certificates and the Class B-2 Certificates by wire transfer, to the account of such holder at a domestic bank or other entity having appropriate facilities therefor, if such holder holds an aggregate Percentage Interest of at least 5% of the Offered Certificates and the Class B-2 Certificates and if such holder so requests pursuant to written instructions delivered to the Trustee at least 10 days prior to such Distribution Date, which instructions, until revised, will remain effective for all Distribution Dates thereafter, or by check mailed to the address of the person entitled thereto as it appears on the register (the "Certificate Register") maintained by the Trustee as registrar (the "Certificate Registrar"). Certificateholders may experience some delay in the receipt of their payments due to the operations of DTC. See "Risk Factors--Book-Entry Registration" in the Prospectus and "Description of the Certificates--Book-Entry Certificates" herein and in the Prospectus. The Pooling and Servicing Agreement will provide that a holder who possesses a physical certificate will be required to send such Certificate to the Trustee in order to receive the final distribution on such holder's Certificate. Each holder of record of the related Class of the Offered Certificates and the Class B-2 Certificates will be entitled to receive such holder's Percentage Interest in the amounts due such Class on such Distribution Date. Distributions Upon receipt from the Master Servicer on the Deposit Date (as defined in the Prospectus), the Trustee will be required to deposit into the Certificate Account with respect to each Mortgage Loan Group (i) the total of the principal and interest collections and any late fees, prepayment fees and other similar fees on the Mortgage Loans, including all cash amounts (net of Liquidation Expenses (as defined in the Prospectus) and net of any unreimbursed hazard insurance premiums paid by the Master Servicer) received and retained in connection with S-56 the liquidation of defaulted Mortgage Loans, by foreclosure or otherwise ("Liquidation Proceeds") and any Advances or Compensating Interest due from the Master Servicer, together with any Substitution Adjustment and any Purchase Price (as defined herein) and (ii) the proceeds of any liquidation of the Trust. The Pooling and Servicing Agreement establishes a pass-through rate on each Class of the Offered Certificates and the Class B-2 Certificates (each, a "Pass-Through Rate") as set forth in the Summary of Terms herein, subject to the Fixed Rate Group Available Funds Cap Rate or, in the case of the Class A-9 Certificates, determined by taking into account the Adjustable Rate Group Available Funds Cap Rate and the Maximum Variable Rate. On each Distribution Date, the Trustee is required to make the following disbursements and transfers from monies then on deposit in the Certificate Account as specified below in the following order of priority of each such transfer and disbursement with respect to interest and principal: Interest: On each Distribution Date, the Interest Remittance Amount will be distributed in the following order of priority: First, to the holders of the Class A Certificates, the Class A Current Interest plus the Class A Interest Carry Forward Amount with respect to each such Class of Class A Certificates without any priority among such Class A Certificates; provided, that if the Interest Remittance Amount is not sufficient to make a full distribution of interest with respect to all Classes of the Class A Certificates, the Interest Remittance Amount will be distributed among the outstanding Classes of Class A 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 with accrued interest at the applicable Pass-Through Rate; Second, to the extent of the Interest Remittance Amount then remaining, to the holders of the Class M-1 Certificates, the Class M-1 Current Interest; Third, to the extent of the Interest Remittance Amount then remaining, to the holders of the Class M-2 Certificates, the Class M-2 Current Interest; Fourth, to the extent of the Interest Remittance Amount then remaining, to the holders of the Class B-1 Certificates, the Class B-1 Current Interest; Fifth, to the extent of the Interest Remittance Amount then remaining, to the holders of the Class B-2 Certificates, the Class B-2 Current Interest; and Sixth, the sum of (x) the amount, if any, of the Interest Remittance Amount remaining in the Certificate Account after application with respect to the priorities set forth above plus (y) the amount of any Overcollateralization Release Amount for such Distribution Date (such amounts, the "Monthly Excess Cashflow Amount" for a Distribution Date) shall be applied, first, to pay the Master Servicing Fee to the Master Servicer if CIT Consumer Finance or one of its affiliates is the Master Servicer and, second, as described under "Credit Enhancement--Application of Monthly Excess Cashflow Amounts." Principal Before the Stepdown Date or if a Trigger Event is in effect. Until the Stepdown Date and then only if a Trigger Event is not in effect on each Distribution Date, no principal shall be distributed to the Subordinate Certificates. On each Distribution Date (a) before the Stepdown Date or (b) on or after the Stepdown Date if a Trigger Event is in effect, (I) the holders of the Class A Certificates will be entitled to receive payment of an amount equal to 100% of the Variable Rate Principal Distribution Amount for such Distribution Date in the following amounts and priorities: First, to the holders of the Class A-9 Certificates until the Class A-9 Certificate Balance has been reduced to zero; Second, to the holders of the Class A-8 Certificates, in an amount equal to the Class A-8 Lockout Distribution Amount; Third, to the holders of the Class A Certificates (other than the Class A-8 Certificates and the Class A-9 Certificates) in sequential order until the Certificate Balance of each such Class of Class A Certificates has been reduced to zero; and Fourth, to the holders of the Class A-8 Certificates until the Class A-8 Certificate Balance has been reduced to zero; and S-57 (II) the holders of the Class A Certificates will be entitled to receive payment of an amount equal to 100% of the Fixed Rate Principal Distribution Amount for such Distribution Date in the following amounts and priorities: First, to the extent not previously distributed, to the holders of the Class A-8 Certificates in an amount equal to the Class A-8 Lockout Distribution Amount; Second, to the holders of the Class A Certificates (other than the Class A-8 Certificates and the Class A-9 Certificates) in sequential order until the Certificate Balance of each such Class of Class A Certificates has been reduced to zero; Third, to the holders of the Class A-8 Certificates until the Class A-8 Certificate Balance has been reduced to zero; and Fourth, to the holders of the Class A-9 Certificates until the Class A-9 Certificate Balance is reduced to zero. The Class A Certificates (other than the Class A-9 Certificates and the Class A-8 Certificates) are "sequential pay" classes such that the holders of the Class A-7 Certificates will receive no payments of principal until the Class A-6 Certificate Balance is reduced to zero, the holders of the Class A-6 Certificates will receive no payments of principal until the Class A-5 Certificate Balance is reduced to zero, the holders of the Class A-5 Certificates will receive no payments of principal until the Class A-4 Certificate Balance has been reduced to zero, the holders of the Class A-4 Certificates will receive no payments of principal until the Class A-3 Certificate Balance has been reduced to zero, the holders of the Class A-3 Certificates will receive no payments of principal until the Class A-2 Certificate Balance has been reduced to zero, and the holders of the Class A-2 Certificates will receive no payments of principal until the Class A-1 Certificate Balance has been reduced to zero; provided, however, that on any Distribution Date on which the sum of the Certificate Balance of the Subordinate Certificates and the Overcollateralization Amount is zero, any amounts of principal payable to the holders of the Class A Certificates on such Distribution Date shall be distributed pro rata and not sequentially. Principal On or After the Stepdown Date if No Trigger Event is in Effect. On each Distribution Date (a) on or after the Stepdown Date and (b) as long as a Trigger Event is not in effect, the holders of all Classes of the Offered Certificates and the Class B-2 Certificates will be entitled to receive payments of principal, in the amounts and the priorities set forth below and to the extent of the Variable Rate Principal Distribution Amount and the Fixed Rate Principal Distribution Amount as follows: First, an amount equal to (i) the lesser of (x) the Variable Rate Principal Distribution Amount and (y) the Class A Principal Distribution Amount, shall be distributed in the following amounts and priorities: (1) to the holders of the Class A-9 Certificates until the Class A-9 Certificate Balance has been reduced to zero (such distribution amount, the "Class A Variable Allocation Amount"); (2) to the holders of the Class A-8 Certificates, in an amount equal to the Class A-8 Lockout Distribution Amount; (3) to the holders of the Class A Certificates (other than the Class A-8 Certificates and the Class A-9 Certificates) in sequential order until the Certificate Balance of each such Class of Class A Certificates has been reduced to zero; and (4) to the holders of the Class A-8 Certificates until the Class A-8 Certificate Balance has been reduced to zero; and an amount equal to (ii) the lesser of (x) the Fixed Rate Principal Distribution Amount and (y) the Class A Principal Distribution Amount minus the amount distributed in clause (i) above, shall be distributed in the following amounts and priorities: (1) to the extent not previously distributed, to the holders of the Class A-8 Certificates, in an amount equal to the Class A-8 Lockout Distribution Amount; (2) to the holders of the Class A Certificates (other than the Class A-8 Certificates and the Class A-9 Certificates) in sequential order until the Certificate Balance of each such Class of Class A Certificates has been reduced to zero; (3) to the holders of the Class A-8 Certificates until the Class A-8 Certificate Balance has been reduced to zero; and S-58 (4) to the holders of the Class A-9 Certificates until the Class A-9 Certificate Balance is reduced to zero; Second, the lesser of (x) the excess, if any, of (i) the sum of (A) the Fixed Rate Principal Distribution Amount and (B) the Variable Rate Principal Distribution Amount over (ii) the amount distributed to the holders of the Class A Certificates in clause "First" above and (y) the Class M 1 Principal Distribution Amount, shall be distributed to the holders of the Class M-1 Certificates, until the Class M-1 Certificate Balance has been reduced to zero; Third, the lesser of (x) the excess, if any, of (i) the sum of (A) the Fixed Rate Principal Distribution Amount and (B) the Variable Rate Principal Distribution Amount over (ii) the sum of the amount distributed to the holders of the Class A Certificates in clause "First" above and the amount distributed to the holders of the Class M-1 Certificates in clause "Second" above and (y) the Class M-2 Principal Distribution Amount, shall be distributed to the holders of the Class M-2 Certificates, until the Class M-2 Certificate Balance has been reduced to zero; Fourth, the lesser of (x) the excess, if any, of (i) the sum of (A) the Fixed Rate Principal Distribution Amount and (B) the Variable Rate Principal Distribution Amount over (ii) the sum of the amount distributed to the holders of the Class A Certificates pursuant to clause "First" above, the amount distributed to the holders of the Class M-1 Certificates pursuant to clause "Second" above and the amount distributed to the holders of the Class M-2 Certificates pursuant to clause "Third" above and (y) the Class B-1 Principal Distribution Amount, shall be distributed to the holders of the Class B-1 Certificates, until the Class B-1 Certificate Balance has been reduced to zero; Fifth, the lesser of (x) the excess, if any, of (i) the sum of (A) the Fixed Rate Principal Distribution Amount and (B) the Variable Rate Principal Distribution Amount over (ii) the sum of the amount distributed to the holders of the Class A Certificates pursuant to clause "First" above, the amount distributed to the holders of the Class M-1 Certificates pursuant to clause "Second" above, the amount distributed to the holders of the Class M-2 Certificates pursuant to clause "Third" above and the amount distributed to the holders of the Class B-1 Certificates pursuant to clause "Fourth" above and (y) the Class B-2 Principal Distribution Amount, shall be distributed to the holders of the Class B-2 Certificates, until the Class B-2 Certificate Balance has been reduced to zero; and Sixth, any portion of the Principal Distribution Amount remaining after making all of the distributions in clauses "First," "Second," "Third," "Fourth" and "Fifth" above shall be a part of the Monthly Excess Cashflow Amount and shall be applied as described below under "Credit Enhancement--Application of Monthly Excess Cashflow Amounts." Notwithstanding the foregoing, in the event that the Certificate Balance of all of the Class A Certificates has been reduced to zero, all amounts of principal that would have been distributed to such Class A Certificates will be distributed to the Subordinate Certificates sequentially in the following order: first, to the Class M-1 Certificates, second, to the Class M-2 Certificates, third, to the Class B-1 Certificates and, fourth, to the Class B-2 Certificates. Similarly, if the Certificate Balance of the Class M-1 Certificates has been reduced to zero, all amounts of principal that would have been distributed to such Class M-1 Certificates will be distributed to the Class M-2, Class B-1 and Class B-2 Certificates in that order. If the Certificate Balance of the Class M-2 Certificates has been reduced to zero, all amounts of principal that would have been distributed on such Class M-2 Certificates will be distributed to the Class B-1 and Class B-2 Certificates in that order. Finally, if the Certificate Balance of the Class B- 1 Certificates has been reduced to zero, all amounts of principal that would have been distributed on such Class B-1 Certificates will be distributed to the Class B-2 Certificates. Once a Trigger Event has occurred it will be in effect until the Stepped Up Enhancement Level has been met on a succeeding Distribution Date. The holders of the Class A-8 Certificates are entitled to receive, from funds available therefor, payments of the Class A-8 Lockout Distribution Amount specified herein; provided, that if on any Distribution Date the Certificate Balance of the Class A Certificates (other than the Class A-8 and the Class A-9 Certificates) is zero, the holders of the Class A-8 Certificates will be entitled to receive the entire Class A Principal Distribution Amount for such Distribution Date, and on any Distribution Date that the Certificate Balance of the Class A Certificates (other than the Class A-8 and the Class A-9 Certificates) have been reduced to zero, the holders of the Class A-8 Certificates will be entitled to receive any remaining Class A Principal Distribution Amount. S-59 Calculation of LIBOR On the second business day preceding each Distribution Date or, in the case of the first Distribution 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 ("One-month LIBOR") for the next Accrual Period for the Variable Rate Certificates on the basis of the offered rates of the Reference Banks for one-month U.S. dollar deposits, as such rates appear in the Telerate Page 3750, as of 11:00 a.m. (London time) on such Interest Determination Date. As used in this section, (i) "business day" means a day on which banks are open for dealing in foreign currency and exchange in London and New York City; (ii) "Telerate Page 3750" means the display page currently so designated on the Dow Jones Telerate Service (or such other page as may replace that page on that service for the purpose of displaying London interbank offered rates of major banks); and (iii) "Reference Banks" means leading banks selected by the Trustee and engaged in transactions in Eurodollar deposits in the international Eurocurrency market. On each Interest Determination Date, One-month LIBOR for the related Accrual Period for the Variable Rate Certificates will be established by the Trustee as follows: (a) If on such Interest Determination Date two or more Reference Banks provides such offered quotations, One-month LIBOR for the related Accrual Period for the Variable Rate 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, One-month LIBOR for the related Accrual Period for the Variable Rate Certificates shall be the higher of (x) One-month 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 (ii) in the event that the Trustee can determine no such arithmetic mean, the lowest one-month U.S. dollar lending rate which New York City banks selected by the Trustee are quoting to leading European banks on such Interest Determination Date. The establishment of One-month LIBOR on each Interest Determination Date by the Trustee and the Trustee's calculation of the rate of interest applicable to the Variable Rate Certificates 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 212-815-2297. CREDIT ENHANCEMENT The Credit Enhancement provided for the benefit of the holders of the Class A Certificates consists of the subordination of the Subordinate Certificates, the priority of application of Realized Losses and the application of Monthly Excess Cashflow Amounts. Distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class M-1 Certificates will be subordinated to distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class A Certificates distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class M-2 Certificates will be subordinated to distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class M-1 Certificates and the Class A Certificates, distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class B-1 Certificates will be subordinated to distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Mezzanine Certificates and the Class A Certificates, and distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class B-2 Certificates will be subordinated to distributions and the priority of the application of Realized Losses and Monthly Excess Cashflow Amounts on the Class B-1 Certificates, the Mezzanine Certificates and the Class A Certificates, in each case to the extent described herein. Subordination of Subordinate Certificates The rights of the holders of the Subordinate Certificates and the Class R Certificates to receive distributions with respect to the Mortgage Loans will be subordinated, to the extent described herein, to such rights of the holders of the Class A Certificates. This subordination is intended to enhance the likelihood of regular receipt by S-60 the holders of the Class A Certificates of the full amount of their scheduled monthly payment of interest and principal and to afford such holders protection against Realized Losses. The protection afforded to the holders of the Class A Certificates by means of the subordination of the Subordinate Certificates and the Class R Certificates will be accomplished by the preferential right of the holders of the Class A Certificates to receive, prior to any distribution of interest being made on a Distribution Date in respect of such Subordinate Certificates, the amounts of interest due them and, prior to any distribution of principal being made on a Distribution Date in respect of such Subordinate Certificates, the amounts of principal due them, and, if necessary, by the right of the holders of the Class A Certificates to receive future distributions of amounts that would otherwise be payable to the holders of the Subordinate Certificates and the Class R Certificates. In addition, the rights of the holders of the Class M-2, Class B and Class R Certificates to receive distributions will be subordinated, to the extent described herein, to such rights of the holders of the Class A and Class M-1 Certificates. This subordination is intended to enhance the likelihood of regular receipt by the holders of the Class A and Class M-1 Certificates of the amount of interest due them and principal available for distribution and to afford such holders with protection against Realized Losses. The rights of the holders of the Class B-1, Class B-2 and Class R Certificates to receive distributions will be subordinated in the same manner to such rights of the holders of the Class A, Class M-1 and Class M-2 Certificates, the rights of the holders of the Class B-2 Certificates and the Class R Certificates to receive distributions will be subordinated in the same manner to such rights of the holders of the Class A, Class M-1, Class M-2 and Class B-1 Certificates, and the rights of holders of the Class R Certificates to receive distributions will be subordinated in the same manner to such rights of the holders of the Offered Certificates and the Class B-2 Certificates. Application of Realized Losses If a Mortgage Loan becomes a Liquidated Mortgage (as defined in the Prospectus) during a Due Period, the Liquidation Proceeds relating thereto and allocated to principal may be less than the Principal Balance of such Mortgage Loan. The Pooling and Servicing Agreement provides that the amount of such insufficiency is a "Realized Loss." Realized Losses which occur will, in effect, be absorbed first, by the Class R Certificates (both through the application of the Monthly Excess Interest Amount to fund such deficiency and through a reduction in the Overcollateralization Amount), second, by the holders of the Class B-2 Certificates, third, by the holders of the Class B-1 Certificates, fourth, by the holders of the Class M-2 Certificates, and, fifth, by the holders of the Class M-1 Certificates. Any Realized Losses on Mortgage Loans will reduce the aggregate outstanding Principal Balance of the Mortgage Loans (i.e., a reduction in the collateral balance will occur). Since the Overcollateralization Amount is the excess, if any, of the aggregate Principal Balance of the Mortgage Loans over the Aggregate Certificate Balance, any Realized Losses will in the first instance reduce the Overcollateralization Amount. The Pooling and Servicing Agreement requires that the Overcollateralization Amount be initially increased to, and thereafter maintained at, the Targeted Overcollateralization Amount. This increase and subsequent maintenance are intended to be accomplished by the application of Monthly Excess Interest Amounts (if any) to the funding of the related Extra Principal Distribution Amounts. Such Extra Principal Distribution Amounts, which are funded from interest collections on the collateral but are distributed as principal on the Offered Certificates and the Class B-2 Certificates, are intended to increase the Overcollateralization Amount. However, if there are not sufficient Extra Principal Distribution Amounts, the Overcollateralization Amount will not be increased to or maintained at the Targeted Overcollateralization Amount. If, on any Distribution Date after taking into account all Realized Losses experienced during the prior Due Period and after taking into account the distribution of principal (including the Extra Principal Distribution Amount) with respect to the Offered Certificates and the Class B-2 Certificates on such Distribution Date, the Aggregate Certificate Balance exceeds the aggregate Principal Balance of the Mortgage Loans as of the end of the related Due Period (i.e., if the level of overcollateralization is negative), then the Certificate Balance of the Subordinate Certificates will be reduced (in effect, "written down") so that the level of overcollateralization is zero, rather than negative. Such a negative level of overcollateralization is an "Applied Realized Loss Amount," which will be applied as a reduction in the Certificate Balance of the Subordinate Certificates in reverse order of S-61 seniority (i.e., first against the Class B-2 Certificate Balance until it is reduced to zero, then against the Class B-1 Certificate Balance until it is reduced to zero, then against the Class M-2 Certificate Balance until it is reduced to zero and then against the Class M-1 Certificate Balance until it is reduced to zero). The Pooling and Servicing Agreement does not permit the "write down" of the Certificate Balance of any Class A Certificate. Once the Certificate Balance of a Class of Subordinate Certificates has been "written down," the amount of such write down will no longer bear interest, nor will such amount thereafter be "reinstated" or "written up," although the amount of such write down may, on future Distribution Dates be paid (without interest) to holders of the Subordinate Certificates which experienced the write down, in direct order of seniority (i.e., first, the Class M-1 Certificates, second, the Class M-2 Certificates, third, the Class B-1 Certificates and, fourth, the Class B-2 Certificates). The source of funding of such payments will be the amount, if any, of the Monthly Excess Cashflow Amount remaining on such future Distribution Dates after the funding of the related Extra Principal Distribution Amounts and after the payment of Interest Carry Forward Amounts with respect to the Subordinate Certificates on such Distribution Date. Application of Monthly Excess Cashflow Amounts As of the Closing Date, the weighted average Mortgage Rate for the Mortgage Loans is generally expected to be higher than the weighted average of the Pass-Through Rates on the Offered Certificates and the Class B-2 Certificates plus the Master Servicing Fee, thus generating certain excess interest collections which, in the absence of losses, will not be necessary to fund interest distributions on the Offered Certificates and the Class B-2 Certificates. The Pooling and Servicing Agreement provides that this excess interest be applied, to the extent available, to make accelerated payments of principal (i.e., the Extra Principal Distribution Amount) to the Class or Classes then entitled to receive distributions of principal. This application will cause the Aggregate Certificate Balance to amortize more rapidly than the Mortgage Loans, resulting in overcollateralization. This excess interest for a Due Period, together with interest on the Overcollateralization Amount itself, on the related Distribution Date is the "Monthly Excess Interest Amount" for such Distribution Date. Prepayments and liquidations of Mortgage Loans with higher Mortgage Rates would have the effect of reducing or eliminating this excess interest. The required level of overcollateralization for any Distribution Date is the Targeted Overcollateralization Amount for such Distribution Date. The Targeted Overcollateralization Amount is initially (i.e., prior to the Stepdown Date) $11,750,000 (subject to adjustment upon the occurrence and during the continuance of a Cumulative Realized Loss Trigger Event). Since the actual level of the Overcollateralization Amount as of the Closing Date is expected to be zero, in the early months of the transaction, subject to the availability of Monthly Excess Interest Amounts, Extra Principal Distribution Amounts will be paid, with the result that the Overcollateralization Amount is intended to increase until such time, if ever, as it reaches the Targeted Overcollateralization Amount. CIT Consumer Finance and its affiliates have no obligation to provide funds to increase the Overcollateralization Amount to the Targeted Overcollateralization Amount or to maintain it at that level. Realized Losses which occur after the Targeted Overcollateralization Amount has been reached will result in an Overcollateralization Deficiency since Realized Losses reduce the Principal Balance of the Mortgage Loans without giving rise to a corresponding reduction of the Aggregate Certificate Balance. The cashflow priorities of the Trust require that, in this situation, an Extra Principal Distribution Amount be paid (subject to the availability of any Monthly Excess Interest Amount) for the purpose of re-establishing the Overcollateralization Amount to the required Targeted Overcollateralization Amount for such date. On and after the Stepdown Date, the Targeted Overcollateralization Amount is permitted to decrease or "step-down" below the $11,750,000 level to a level equal to 4.7% of the then current aggregate outstanding Principal Balance of the Mortgage Loans (subject to a floor of $2,500,000 and subject to adjustment upon the occurrence and during the continuance of a Cumulative Realized Loss Trigger Event). If the Targeted Overcollateralization Amount is permitted to "step-down" on a Distribution Date, the Pooling and Servicing Agreement permits a portion of the Principal Remittance Amount for such Distribution Date not to be passed through as a distribution of principal on such Distribution Date. This has the effect of decelerating the amortization of the Offered Certificates and the Class B-2 Certificates relative to the aggregate outstanding Principal Balance of the Mortgage Loans, thereby reducing the actual level of the related Overcollateralization Amount to the new, lower Targeted Overcollateralization Amount. This portion of the Principal Remittance Amount not distributed as principal on the Certificates therefore releases overcollateralization from the Trust with respect to the Mortgage Loans. The amount of such releases are the "Overcollateralization Release Amounts." S-62 On any Distribution Date, the sum of the Monthly Excess Interest Amount and the Overcollateralization Release Amount is the Monthly Excess Cashflow Amount, which is required to be applied in the following order of priority on such Distribution Date: (1) to fund the Fixed Rate Group Extra Principal Distribution Amount and the Adjustable Rate Group Extra Principal Distribution Amount for such Distribution Date; (2) to fund the Class M-1 Interest Carry Forward Amount, if any; (3) to fund the Class M-1 Realized Loss Amortization Amount for such Distribution Date; (4) to fund the Class M-2 Interest Carry Forward Amount, if any; (5) to fund the Class M-2 Realized Loss Amortization Amount for such Distribution Date; (6) to fund the Class B-1 Interest Carry Forward Amount, if any; (7) to fund the Class B-1 Realized Loss Amortization Amount for such Distribution Date; (8) to fund the Class B-2 Interest Carry Forward Amount, if any; (9) to fund the Class B-2 Realized Loss Amortization Amount for such Distribution Date; (10) to the Master Servicer to the extent of any unreimbursed Advances; and (11) to the holders of the Class R Certificates. The "Certificate Balance" of any Class of the Class A Certificates as of any date of determination is the original Certificate Balance of such Class as reduced by all amounts actually distributed to the holders of such Class of Class A Certificates on account of principal on all prior Distribution Dates. "Class B-1 Applied Realized Loss Amount" means, as to the Class B-1 Certificates and as of any Distribution Date, the lesser of (x) the Class B-1 Certificate Balance (after taking into account the distribution of the Principal Distribution Amount on such Distribution Date, but prior to the application of the Class B-1 Applied Realized Loss Amount, if any, on such Distribution Date) and (y) the excess of (i) the Applied Realized Loss Amount as of such Distribution Date over (ii) the Class B-2 Applied Realized Loss Amount as of such Distribution Date. "Class B-1 Certificate Balance" means, as to the Class B-1 Certificates and as of any date of determination, the original Class B-1 Certificate Balance as reduced by the sum of (x) all amounts actually distributed to the holders of the Class B-1 Certificates on all prior Distribution Dates on account of principal and (y) the aggregate cumulative amount of Class B-1 Applied Realized Loss Amounts on all prior Distribution Dates. "Class B-1 Realized Loss Amortization Amount" means, as to the Class B-1 Certificates and as of any Distribution Date, the lesser of (x) the Class B-1 Unpaid Realized Loss Amount as of such Distribution Date and (y) the excess of (i) the Monthly Excess Cashflow Amount over (ii) the sum of the Extra Principal Distribution Amount, the Class M-1 Realized Loss Amortization Amount, the Class M-2 Realized Loss Amortization Amount, the Class M-1 Interest Carry Forward Amount, the Class M-2 Interest Carry Forward Amount and the Class B-1 Interest Carry Forward Amount, in each case for such Distribution Date. "Class B-2 Applied Realized Loss Amount" means, as to the Class B-2 Certificates and as of any Distribution Date, the lesser of (x) the Class B-2 Certificate Balance (after taking into account the distribution of the Principal Distribution Amount on such Distribution Date, but prior to the application of the Class B-2 Applied Realized Loss Amount, if any, on such Distribution Date) and (y) the Applied Realized Loss Amount as of such Distribution Date. "Class B-2 Certificate Balance" means, as to the Class B-2 Certificates and as of any date of determination, the original Class B-2 Certificate Balance as reduced by the sum of (x) all amounts actually distributed to the holders of the Class B-2 Certificates on all prior Distribution Dates on account of principal and (y) the aggregate cumulative amount of Class B-2 Applied Realized Loss Amounts on all prior Distribution Dates. "Class B-2 Realized Loss Amortization Amount" means, as to the Class B-2 Certificates and as of any Distribution Date, the lesser of (x) the Class B-2 Unpaid Realized Loss Amount as of such Distribution Date and (y) the excess of (i) the Monthly Excess Cashflow Amount over (ii) the sum of the Extra Principal Distribution Amount, the Class B-1 Realized Loss Amortization Amount, the Class M-1 Realized Loss Amortization Amount, the Class M-2 Realized Loss Amortization Amount, the Class M-1 Interest Carry Forward Amount, the Class M-2 Interest Carry Forward Amount, the Class B-1 Interest Carry Forward Amount and the Class B-2 Interest Carry Forward Amount, in each case for such Distribution Date. S-63 "Class M-1 Applied Realized Loss Amount" means, as to the Class M-1 Certificates and as of any Distribution Date, the lesser of (x) the Class M-1 Certificate Balance (after taking into account the distribution of the Principal Distribution Amount on such Distribution Date, but prior to the application of the Class M-1 Applied Realized Loss Amount, if any, on such Distribution Date) and (y) the excess of (i) the Applied Realized Loss Amount as of such Distribution Date over (ii) the sum of the Class M-2 Applied Realized Loss Amount, the Class B-1 Applied Realized Loss Amount and the Class B-2 Applied Realized Loss Amount, in each case as of such Distribution Date. "Class M-1 Certificate Balance" means, as to the Class M-1 Certificates and as of any date of determination, the original Class M-1 Certificate Balance of such Class as reduced by the sum of (x) all amounts actually distributed to the holders of the Class M-1 Certificates on all prior Distribution Dates on account of principal and (y) the aggregate cumulative amount of Class M-1 Applied Realized Loss Amounts on all prior Distribution Dates. "Class M-1 Realized Loss Amortization Amount" means, as to the Class M-1 Certificates of any Distribution Date, the lesser of (x) the Class M-1 Unpaid Realized Loss Amount as of such Distribution Date and (y) the excess of (i) the Monthly Excess Cashflow Amount over (ii) the sum of the Extra Principal Distribution Amount and the Class M-1 Interest Carry Forward Amount, in each case for such Distribution Date. "Class M-2 Applied Realized Loss Amount" means, as to the Class M-2 Certificates and as of any Distribution Date, the lesser of (x) the Class M-2 Certificate Balance (after taking into account the distribution of the Principal Distribution Amount on such Distribution Date, but prior to the application of the Class M-2 Applied Realized Loss Amount, if any, on such Distribution Date) and (y) the excess of (i) the Applied Realized Loss Amount as of such Distribution Date over (ii) the sum of the Class B-1 Applied Realized Loss Amount and the Class B-2 Applied Realized Loss Amount as of such Distribution Date. "Class M-2 Certificate Balance" means, as to the Class M-2 Certificates and as of any date of determination, the original Class M-2 Certificate Balance of such Class as reduced by the sum of (x) all amounts actually distributed to the holders of the Class M-2 Certificates on all prior Distribution Dates on account of principal and (y) the aggregate cumulative amount of Class M-2 Applied Realized Loss Amounts on all prior Distribution Dates. "Class M-2 Realized Loss Amortization Amount" means, as to the Class M-2 Certificates and as of any Distribution Date, the lesser of (x) the Class M-2 Unpaid Realized Loss Amount as of such Distribution Date and (y) the excess of (i) the Monthly Excess Cashflow Amount over (ii) the sum of the Extra Principal Distribution Amount, the Class M-1 Realized Loss Amortization Amount, the Class M-1 Interest Carry Forward Amount and the Class M-2 Interest Carry Forward Amount, in each case for such Distribution Date. "Unpaid Realized Loss Amount" means, for any Class of the Subordinate Certificates and as of any Distribution Date, the excess of (x) the aggregate cumulative amount of Applied Realized Loss Amounts with respect to such Class for all prior Distribution Dates over (y) the aggregate cumulative amount of Realized Loss Amortization Amounts with respect to such Class for all prior Distribution Dates. THE POOLING AND SERVICING AGREEMENT In addition to the provisions of the Pooling and Servicing Agreement summarized elsewhere in this Prospectus Supplement and the Prospectus, there is set forth below a summary of certain other provisions of the Pooling and Servicing Agreement. Assignment of the Mortgage Loans Pursuant to the Pooling and Servicing Agreement, the Depositor on the Closing Date will sell, transfer, assign, set over and otherwise convey without recourse to the Trustee in trust for the benefit of the Certificateholders all right, title and interest of the Depositor in and to each Mortgage Loan and all right, title and interest in and to all other assets included in the Trust Fund, including all principal and interest received by the Master Servicer on or with respect to the Mortgage Loans on and after the Cut-off Date, exclusive of principal and interest due and paid prior to the Cut-off Date. S-64 In connection with such transfer and assignment, the Seller and the Depositor will deliver or cause to be delivered to the Trustee or a custodian for the Trustee, within 90 days of the Closing Date, among other things, the original Mortgage Note (and any modification or amendment thereto), the original Mortgage with evidence of recording indicated thereon (except for any Mortgage which has been lost or which was not returned from the public recording office, a copy of which (together with a certificate that the original of such Mortgage was delivered to such recording office) shall be delivered initially and the original of which will be delivered to the Trustee as soon as the same is available to the Depositor), and, if applicable, any riders or modifications to such Mortgage Note and Mortgage, any title insurance policies with respect to the Mortgages and any assumption or modification agreement (collectively, the "Mortgage Documents"). Subsequent to the issuance of the Certificates, if CIT's long-term senior debt is rated below A- by S&P or below A3 by Moody's, the Seller will be required to deliver to the Trustee assignments of the related Mortgages in recordable form (at the expense of the Seller), unless opinions of counsel are delivered to the Trustee to the effect that recordation of assignments is not required to protect the interests of the Trustee in the Mortgage Loans and the related Mortgaged Property. The Trustee will be required (at the expense of the Seller) to record such assignments of the related Mortgages in favor of the Trustee. The Seller will be required either (i) to repurchase from the Trustee any Mortgage Loan the related Mortgage of which is not recorded due to defective documentation, at the Purchase Price with respect to repurchases or (ii) to substitute therefor one or more Qualified Substitute Mortgage Loans if within two years from the Closing Date. This repurchase or substitution obligation constitutes the sole remedy available to the Certificateholders or the Trustee for failure of a Mortgage to be recorded. The Trustee (or the custodian) will review each Mortgage Document within 180 days of delivery of such Mortgage Document and if any such document is found to be missing or defective in a material respect, is not properly executed, is unrelated to the Mortgage Loans of the Trust or does not conform in a material respect to the description thereof provided by or on behalf of CIT Consumer Finance, the Trustee will notify the Master Servicer and the Depositor, and the Master Servicer will notify the related Seller. If the Seller does not cure such defect within 90 days after notice thereof from the Trustee or knowledge thereof and the defect materially and adversely affects the interest of the Trust in the related Mortgage Loan, the Seller will be obligated to repurchase the related Mortgage Loan from the Trust Fund at a price (the "Purchase Price") equal to 100% of the outstanding principal balance thereof as of the date of repurchase plus accrued and unpaid interest thereon to the first day of the month in which the Purchase Price is to be distributed at its Mortgage Rate. Rather than repurchase the Mortgage Loan as provided above, the Seller may remove such Mortgage Loan (a "Deleted Mortgage Loan") from the Trust Fund and substitute in its place another Mortgage Loan of like kind (a "Qualified Substitute Mortgage Loan"); however, such substitution is permitted only within two years of the Closing Date, and may not be made unless an opinion of counsel is provided to the effect that such substitution would not disqualify the Trust Fund as a REMIC or result in a "prohibited transaction" tax as defined in Section 860F of the Code. Any Qualified Substitute Mortgage Loan generally will, on the date of substitution, among other characteristics set forth in the Pooling and Servicing Agreement, (i) have a Principal Balance not in excess of the Principal Balance of the Deleted Mortgage Loan (the amount of any shortfall, plus accrued and unpaid interest, to be deposited by the Seller in the Certificate Account not later than the Determination Date and held for distribution to the Certificateholders on the related Distribution Date (a "Substitution Adjustment")), (ii) have a Maximum Rate not less than (and not more than two percentage points greater than) the Maximum Rate of the Deleted Mortgage Loan, (iii) have the same index and Periodic Rate Cap as the Deleted Mortgage Loan and a Gross Margin not less than that of the Deleted Mortgage Loan, (iv) have a Mortgage Rate not lower than 1.00%, and not more than 1.00% per annum higher than, that of the Deleted Mortgage Loan, (v) have a Combined Loan-to-Value Ratio not higher than that of the Deleted Mortgage Loan; (vi) have a remaining term to maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan, (vii) be of the same or better credit risk category under the Seller's underwriting guidelines; and (viii) comply with all of the representations and warranties set forth in the Pooling and Servicing Agreement as of the date of substitution. This cure, repurchase or substitution obligation constitutes the sole remedy available to Certificateholders or the Trustee for omission of, or a material defect in, a Mortgage Document. S-65 Reports to Certificateholders On each Distribution Date, the Master Servicer or the Trustee will furnish to each holder a statement setting forth, among other things: (i) the Interest Remittance Amount, separately identifying Advances, Compensating Interest and the portion of any Substitution Adjustment, Purchase Price and Liquidation Proceeds relating to interest; (ii) the Principal Remittance Amount separately identifying Principal Prepayments, and the portion of any Purchase Price, Substitution Adjustment and Liquidation Proceeds relating to principal by Mortgage Loan Group; (iii) the Fixed Rate Principal Distribution Amount and the Variable Rate Principal Distribution Amount; (iv) the Fixed Rate Group Available Funds Cap Rate and the Adjustable Rate Group Available Funds Cap Rate, if the applicable Pass-Through Rate is limited by such Cap Rate; (v) the amount of the distribution with respect to the each Class of Certificates (based on a Certificate in the original principal amount of $1,000); (vi) the amount of such distribution allocable to principal on each Class of Certificates (based on a Certificate in the original principal amount of $1,000); (vii) the amount of such distribution allocable to interest on each Class of Certificates (based on a Certificate in the original principal amount of $1,000); (viii) the Interest Carry Forward Amount for each Class; (ix) the principal amount of each Class of Certificates (based on a Certificate in the original principal amount of $1,000) which will be outstanding after giving effect to any payment of principal on such Distribution Date; (x) the aggregate Principal Balance of all Mortgage Loans and the aggregate Principal Balance of the Mortgage Loans in each Mortgage Loan Group after giving effect to any payment of principal on such Distribution Date; (xi) the weighted average Mortgage Rate and the weighted average remaining stated term to maturity of the Mortgage Loans in each Mortgage Loan Group; (xii) whether a Trigger Event has occurred; (xiii) the Senior Enhancement Percentage; (xiv) the Overcollateralization Amount, the Targeted Overcollateralization Amount, the Overcollateralization Release Amount and the Overcollateralization Deficiency; and (xv) the amount of any Applied Realized Loss Amount, Realized Loss Amortization Amount and Unpaid Realized Loss Amount for each Class as of the close of such Distribution Date. In addition, on each Distribution Date the Master Servicer or the Trustee will distribute to each holder, together with the information described above, the following information prepared by the Servicer with respect to each Mortgage Loan Group: (a) the number and aggregate Principal Balance of Mortgage Loans (i) 30-59 days delinquent, (ii) 60-89 days delinquent and (iii) 90 or more days delinquent, as of the close of business on the last business day of the calendar month next preceding the Distribution Date and the number and aggregate Principal Balances of the Mortgage Loans and related data; (b) the number and aggregate Principal Balance of all Mortgage Loans in foreclosure proceedings as of the close of business on the last business day of the calendar month preceding such Distribution Date; (c) the book value of any real estate acquired through foreclosure or grant of a deed in lieu of foreclosure as of the close of business on the last business day of the calendar month next preceding the Distribution Date; (d) the amount of cumulative Realized Losses; and (e) the aggregate Principal Balance of Mortgage Loans as to which payments aggregating $65 are 60 days or more delinquent. S-66 Optional Termination On any Distribution Date on which the outstanding aggregate Principal Balances of the Mortgage Loans in the Trust have declined to 10% or less of the aggregate Principal Balances of the Mortgage Loans as of the Cut-off Date, the Master Servicer will have the option to purchase, in whole, the Mortgage Loans and the REO Property (as defined in the Prospectus), if any, remaining in the Trust Fund as of that date (the first such Distribution Date, the "Clean-up Call Date"). Auction Sale Within ten days after the first Distribution Date on which the outstanding aggregate Principal Balances of the Mortgage Loans in the Trust have declined to 5% or less of the aggregate Principal Balances of the Mortgage Loans as of the Cut-off Date, the Trustee shall solicit bids for the purchase of the Mortgage Loans and the REO Property remaining in the Trust. In the event that satisfactory bids are received as described below, the net sale proceeds will be distributed to Certificateholders on the second Distribution Date succeeding such Due Period. Any purchaser of the Mortgage Loans must agree to the continuation of CIT Consumer Finance as Master Servicer (if at such time it is the Master Servicer) on terms substantially similar to those in the Pooling and Servicing Agreement. Any such sale will effect early retirement of the Certificates. The Trustee must receive at least two bids from prospective purchasers which are considered at the time to be competitive participants in the market for home equity mortgage loans. The highest bid may not be less than the fair market value of such Mortgage Loans and REO Property and must equal the sum of (i) the greater of (a) the aggregate Purchase Price for the Mortgage Loans (including Liquidated Mortgages) plus the appraised value of any other property held by the Trust (less Liquidation Expenses), or (b) an amount that when added to amounts on deposit in the Certificate Account available for distribution to Certificateholders for the second succeeding Distribution Date would result in proceeds sufficient to distribute the Aggregate Certificate Balance and interest for such Distribution Date and any unpaid interest with respect to one or more prior Distribution Dates, (ii) the sum of (a) an amount sufficient to reimburse the Master Servicer for any unreimbursed Advances for which it is entitled to reimbursement, and (b) the Master Servicing Fee payable on such final Distribution Date, including any unpaid Master Servicing Fees with respect to one or more prior Due Periods and (iii) the expenses of such auction sale. The Trustee may consult with financial advisors, including any Underwriter, to determine if a bid is equal to or greater than the fair market value of such Mortgage Loans. Upon the receipt of such bids, such Trustee shall sell and assign such Mortgage Loans and REO Property to the highest bidder and the Certificates shall be retired on such second succeeding Distribution Date. If any of the foregoing conditions are not met, the Trustee shall decline to consummate such sale and shall not be under any obligation to solicit any further bids or otherwise negotiate any further sale of Mortgage Loans and REO Property remaining in the Trust. In such event, however, the Trustee may from time to time solicit bids in the future for the purchase of such Mortgage Loans and REO Property upon the same terms described above. Termination Events "Termination Events" will consist of: (i) any failure by the Master Servicer to deposit in the Certificate Account the required amounts or remit to the Trustee any payment (other than an Advance or Servicing Advance (as defined in the Prospectus) required to be made under the terms of the Pooling and Servicing Agreement) which continues unremedied for five Business Days after the giving of written notice of such failure, requiring the same to be remedied, to the Master Servicer by the Trustee or the Depositor or to the Master Servicer and the Trustee by holders of Certificates (or, in the case of Book-Entry Certificates, the beneficial interests therein) of any Class evidencing not less than 51% of the aggregate Percentage Interests constituting such Class; (ii) any failure by the Master Servicer duly to observe or perform in any material respect any other of its covenants or agreements in the Pooling and Servicing Agreement, which failure continues unremedied for 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Master Servicer by the Trustee or the Depositor or to the Master Servicer and the Trustee by holders of Certificates (or, in the case of Book-Entry Certificates, the beneficial interests therein) of any Class evidencing not less than 51% of the aggregate Percentage Interests constituting such Class; (iii) certain events of insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, and certain actions by or on behalf of the Master Servicer indicating its insolvency or inability to pay its obligations; or (iv) any failure of the Master Servicer to S-67 make an Advance or Servicing Advance, to the extent such failure materially or adversely affects the interests of the Certificateholders, which failure continues unremedied for a period of five Business Days after the date on which notice of such failure, requiring the same to be remedied, shall have been given to the Master Servicer by the Trustee. Rights Upon Termination Event So long as a Termination Event remains unremedied, the Depositor or the Trustee may, and upon the receipt of instructions from the holders of Certificates (or, in the case of Book-Entry Certificates, the beneficial interests therein) evidencing not less than 51% of the aggregate Percentage Interests of the Offered Certificates and the Class B-2 Certificates, the Depositor or Trustee shall terminate all of the rights and obligations of the Master Servicer under the Pooling and Servicing Agreement and in and to the Mortgage Loans, whereupon the Trustee will succeed to all of the responsibilities, duties, and liabilities of the Master Servicer under the Pooling and Servicing Agreement, including the obligation to make Advances. No Certificateholder, solely by virtue of such holder's status as a Certificateholder, will have any right under the Pooling and Servicing Agreement to institute any proceeding with respect thereto, unless such holder previously has given to the Trustee written notice of a Termination Event and unless the holders of Certificates evidencing not less than 25% of the aggregate Percentage Interests of the Offered Certificates and the Class B-2 Certificates have made written request to the Trustee to institute such proceeding in its own name as Trustee thereunder and have offered to the Trustee reasonable indemnity, and the Trustee for 60 days has neglected or refused to institute any such proceeding. The Trustee The Bank of New York will be the trustee under the Pooling and Servicing Agreement (the "Trustee"). The Depositor and CIT Consumer Finance may maintain other banking relationships in the ordinary course of business with the Trustee. Certificates may be surrendered to the corporate trust office of the Trustee located at 101 Barclay Street, 12 East, New York, New York 10286, Attention: Mortgage Backed Securities or at such other addresses as the Trustee may designate from time to time. USE OF PROCEEDS The Depositor will apply the net proceeds of the sale of the Offered Certificates to pay to the Seller the purchase price of the Mortgage Loans and to pay certain expenses of the offering. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following is a general discussion of certain of the anticipated federal income tax consequences of the purchase, ownership and disposition of the Offered Certificates. The discussion, and the opinions referred to below, are based on laws, regulations, rulings and decisions now in effect, all of which are subject to change or possibly differing interpretations. The discussion below does not purport to deal with 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 other tax consequences to them of the purchase, ownership and disposition of the Offered Certificates. For purposes of this tax discussion (except with respect to information reporting, or where the context indicates otherwise), the terms "Certificateholder " and "holder" mean the beneficial owner of a Certificate. REMIC Election Under the Internal Revenue Code of 1986, as amended (the "Code"), an election will be made to treat the Trust as a REMIC. The Offered Certificates and the Class B-2 Certificates will be designated as "regular interests" in the REMIC (within the meaning of Section 860G(a)(1) of the Code) and the Class R Certificate will be designated as the "residual interest" in the REMIC (within the meaning of Section 860G(a)(2) of the Code). Qualification as a REMIC. Qualification as a REMIC involves ongoing compliance with certain requirements and the following discussion assumes that such requirements will be satisfied by the Trust as long S-68 as there are any Certificates outstanding. If the Trust fails to comply with one or more of the ongoing requirements for qualification as a REMIC, the Trust will not be treated as a REMIC for the year during which such failure occurs and thereafter unless the Internal Revenue Service (the "Service") determines, in its discretion, that such failure was inadvertent (in which case, the Service may require any adjustments which it deems appropriate). Failure to treat the Trust as a REMIC may cause the Trust to be treated as an association taxable as a corporation. Such treatment could result in income of the Trust being subject to corporate tax and in a reduced amount being available for distribution to Certificateholders as a result of the payment of such taxes. Certificates The Trustee will elect to treat the Trust as a REMIC. Schulte Roth & Zabel LLP, counsel to the Depositor, will deliver its opinion generally to the effect that under existing law and assuming (i) a proper and timely REMIC election, and (ii) ongoing compliance with the provisions of the Pooling & Servicing Agreement and applicable provisions of the Code and applicable Treasury regulations and rulings, and in reliance upon the representations and warranties in the Pooling & Servicing Agreement, the Trust will be a REMIC, the Offered Certificates and the Class B-2 Certificates will be considered to evidence ownership of "regular interests" in the REMIC within the meaning of Section 860G(a)(1) of the Code and the Class R Certificates will be considered to evidence ownership of "residual interests" in the REMIC within the meaning of the Section 860G(a)(2) of the Code. Status of Certificates as Real Property Loans. The Certificates will be "real estate assets" for purposes of Section 856(c)(5)(A) of the Code and a "regular . . . interest in a REMIC" within the meaning of Section 7701(a)(19)(C)(xi) of the Code (assets qualifying under one or more of those sections, applying each section separately, "qualifying assets") to the extent that the REMIC's assets are qualifying assets. However, if at least 95 percent of the REMIC's assets are qualifying assets, then 100 percent of the Certificates will be qualifying assets. Similarly, income on the Certificates 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 limitations of the preceding two sentences. The Mortgage Assets generally will be qualifying assets under the foregoing sections of the Code. However, Mortgage Assets that are not secured by residential real property or real property used primarily for church purposes may not constitute qualifying assets under Section 7701(a)(19)(c)(v) of the Code. The REMIC Regulations treat credit enhancements as part of the mortgage or pool of mortgages to which they relate, and therefore credit enhancements generally should be qualifying assets. Regulations issued in conjunction with the REMIC Regulations provide that amounts paid on Mortgage Assets and held pending distribution to holders of Certificates ("Cashflow investments") will be treated as qualifying assets. In certain instances, the principal balance of a Mortgage Loan may exceed the value of the Mortgaged Property which secures such Mortgage Loan. Although no specific authority addresses this issue, in such instances, the extent to which such a Mortgage Loan may be treated as a qualifying asset and the extent to which interest on such a Mortgage Loan comprises "interest on obligations secured by mortgages on real property" under Section 856(c)(3)(B) of the Code may be limited. Offered Certificates held by a regulated investment company or a real estate investment trust will not constitute "Government Securities" within the meaning of Sections 851(b)(4)(A)(i) and 856(c)(5)(A) of the Code, respectively. Offered Certificates Current Income on Offered Certificates--General. Except as otherwise indicated herein, the Offered Certificates will be treated for federal income tax purposes (but not necessarily for accounting or other purposes) as debt instruments that are issued by the REMIC on the date of issuance of the Offered Certificates and not as ownership interests in the REMIC or the REMIC's assets. Stated interest on an Offered Certificate will be taxable as ordinary income. Holders of Offered Certificates who would otherwise report income under a cash method of accounting will be required to report income with respect to Offered Certificates under an accrual method. Original Issue Discount. Some or all of the Classes of Certificates may be issued with "original issue discount" within the meaning of Section 1273(a) of the Code . Holders of Offered Certificates issued with original issue discount generally must include original issue discount in gross income for federal income tax purposes as it accrues, in advance of receipt of the cash attributable to such income, under a method that takes account of the S-69 compounding of interest. The Code requires that information with respect to the original issue discount accruing on any Offered Certificate be reported periodically to the Service and to certain categories of holders of such Offered Certificates. The Trustee will report original issue discount, if any, to the holders of Offered Certificates based on Sections 1271-1273 and 1275 of the Code, regulations issued thereunder ("OID Regulations") and related legislative history. Certificateholders should be aware that OID Regulations have not yet been issued to address certain issues relevant to prepayable securities such as the Offered Certificates. These rules provide that, in the case of a debt instrument such as an Offered Certificate, (i) the amount and rate of accrual of original issue discount will be calculated based on a reasonable assumed prepayment rate (the "OID Prepayment Assumption"), and (ii) adjustments will be made in the amount and rate of accrual of such discount to reflect differences between the actual prepayment rate and the Prepayment Assumption. The method for determining the appropriate assumed prepayment rate will eventually be set forth in Treasury regulations, but those regulations have not yet been issued. The applicable legislative history indicates, however, that such regulations will provide that the assumed prepayment rate for securities as the Offered Certificates will be the rate used in pricing the initial offering of the securities. The OID Prepayment Assumption for each of the Fixed Rate Certificates and for the Variable Rate Certificates is the respective prepayment rate described in Scenario IV in the "Prepayment Scenarios" table in "Yield and Prepayment Considerations" herein, but no representation is made that the Offered Certificates will, in fact, prepay at a rate based on the OID Prepayment Assumption or at any other rate. In general, an Offered Certificate will be considered to be issued with original issue discount if its stated redemption price at maturity exceeds its issue price. Unless interest payable on an Offered Certificate constitutes "qualified stated interest" for purposes of the OID Regulations, such interest payments will be includable in the stated redemption price at maturity of the Offered Certificate. Interest payments will not qualify as qualified stated interest unless the interest payments are "unconditionally payable" at least annually. Under the OID Regulations, there is some uncertainty as to treating stated interest on a debt obligation like an Offered Certificate as "unconditionally payable." In the absence of authority to the contrary, the Trustee expects to treat stated interest of Offered Certificates as unconditionally payable. The issue price of an Offered Certificate is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of the class of Offered Certificates are sold. If a portion of the initial offering price of an Offered Certificate is allocable to interest that has accrued prior to its date of issue, the issue price of such an Offered Certificate will be computed by including pre-issuance accrued interest. Notwithstanding the general definition of original issue discount, such discount will be considered to be zero for any Offered Certificate on which such discount is de minimis, i.e., less than 0.25% of its stated redemption price at maturity multiplied by its weighted average life. Although there is some uncertainty, in the absence of authority to the contrary, the Trustee expects to compute the weighted average life of an Offered Certificate for purposes of this de minimis rule as the sum, for all distributions, included in the stated redemption price at maturity of the Offered Certificate, of the amounts determined by multiplying (i) the number of complete years (rounding down for partial years) from the Closing Date to the date on which each such distribution is expected to be made, determined under the OID Prepayment Assumption, by (ii) a fraction, the numerator of which is the amount of such distribution and the denominator of which is the Offered Certificate's stated redemption price at maturity. Generally, the original holder of an Offered Certificate that includes a de minimis amount of original issue discount includes that original issue discount in income as principal payments are made. The amount includable in income with respect to each principal payment equals a pro rata portion of the entire amount of de minimis original issue discount with respect to that Offered Certificate. Any de minimis amount of original issue discount includable in income by a holder of an Offered Certificate is generally treated as a capital gain if the Offered Certificate is a capital asset in the hands of the holder. The holder of an Offered Certificate issued with original issue discount must include in gross income the sum of the "daily portions" of such original issue discount for each day during its taxable year on which it held such Offered Certificate. In the case of an original holder of an Offered Certificate, the daily portions of original issue discount are determined first by calculating the portion of the original issue discount that accrued during each period (an "accrual period") that begins on the date following a Distribution Date (or in the case of the first such period, begins on the Closing Date) and ends on the next succeeding Distribution Date. The original issue discount accruing during each accrual period is then allocated ratably to each day during such period to determine the daily portion of original issue discount for that day. S-70 The portion of the original issue discount that accrues in any accrual period will equal the excess, if any, of (i) the sum of (A) the present value, as of the end of the accrual period, of all of the distributions to be made on the Offered Certificate, if any, in future periods, and (B) the distributions made on the Offered Certificate during the accrual period that are included in such Offered Certificate's stated redemption price at maturity, over (ii) the adjusted issue price of such Offered Certificate at the beginning of the accrual period. The present value of the remaining distributions referred to in the preceding sentence will be calculated (i) assuming that the Offered Certificates will be prepaid in future periods at a rate computed in accordance with the OID Prepayment Assumption, and (ii) using a discount rate equal to the original yield to maturity of the Offered Certificates. For these purposes, the original yield to maturity of the Offered Certificates will be calculated based on their issue price and assuming that the Offered Certificates will be prepaid in accordance with the OID Prepayment Assumption. The adjusted issue price of an Offered Certificate at the beginning of any accrual period will equal the issue price of such Offered Certificate, increased by the portion of the original issue discount that has accrued during prior accrual periods, and reduced by the amount of any distributions made on such Offered Certificate in prior accrual periods that were included in such Offered Certificate's stated redemption price at maturity. The daily portions of original issue discount may increase or decrease depending on the extent to which the actual rate of prepayments diverges from the OID Prepayment Assumption. As described above, OID accrual will be adjusted for the actual prepayments. Under the OID Regulations, "variable rate debt instruments" are subject to special rules. An Offered Certificate will qualify as a "variable rate debt instrument" if (i) its issue price does not exceed the total noncontingent principal payments due under the Offered Certificate by more than a specified de minimis amount, and (ii) it provides for stated interest, paid or compounded at least annually, at (A) one or more qualified floating rates, (B) a single fixed rate and one or more qualified floating rates, (C) a single objective rate, or (D) a single fixed rate and a single objective rate that is a qualified inverse floating rate. The Trustee intends to treat the Offered Certificates as qualifying as such "variable rate debt instruments." For variable rate debt instruments, original issue discount, if any, is computed as described above by assuming generally that the index used for the variable rate will be fixed throughout the term of the debt. Approximate adjustments are made for the actual variable rate. The OID Regulations do not clearly address the treatment of an Offered Certificate that is based on a weighted average of the interest rates on underlying Mortgage Loans. Under the OID Regulations, interest payments on such an Offered Certificate may be characterized as qualified stated interest which is includable in income in a manner similar to that described in the previous paragraph. However, it is also possible that interest payments on such an Offered Certificate would be treated as contingent interest (possibly includable in income when the payments become fixed) or in some other manner. Furthermore, if the Offered Certificates do not qualify as "variable rate debt instruments" under the OID Regulations, then some or all of the Offered Certificates would be treated as a contingent payment debt obligations. It is not clear under current law how an Offered Certificate would be taxed if it were treated as a contingent payment debt obligation. A subsequent holder which purchases an Offered Certificate issued with original issue discount at a cost less than its remaining stated redemption price at maturity will also generally be required to include in gross income, for each day on which it holds such Offered Certificate, the daily portions of original issue discount with respect to the Offered Certificate, calculated as described above. However, if (i) the excess of the remaining stated redemption price at maturity over such cost is less than (ii) the aggregate amount of such daily portions for all days after the date of purchase until final retirement of such Offered Certificate, then such daily portions will be reduced proportionately in determining the income of such holder. Premium. A purchaser of an Offered Certificate that purchases such Offered Certificate at a cost greater than its remaining stated redemption price at maturity will be considered to have purchased such Offered Certificate at a premium, and may, under Section 171 of the Code, elect to amortize such premium under a constant yield method over the life of the Offered Certificate. In addition, it appears that the same methods that apply to the accrual of market discount on installment obligations are intended to apply in computing the amortizable bond premium deduction with respect to an Offered Certificate. It is not clear, however, (i) whether the alternatives to the constant-yield method which may be available for the accrual of market discount are available for amortizing premium on Offered Certificates, and (ii) whether the OID Prepayment Assumption should be taken into account in determining the term of an Offered Certificate for this purpose. Except as provided in regulations, amortizable premium will be treated as an offset to interest income on the Offered Certificate. S-71 Market Discount. A holder that acquires an Offered Certificate at a market discount (that is, a discount that exceeds any unaccrued original issue discount) will recognize gain upon receipt of a principal distribution, regardless of whether the distribution is scheduled or is a prepayment. In particular, the Offered Certificateholder will be required to allocate that principal distribution first to the portion of the market discount on such Offered Certificate that has accrued but has not previously been includable in income, and will recognize ordinary income to that extent. In general terms, unless Treasury regulations when issued state otherwise, market discount on an Offered Certificate may be treated, at the Offered Certificateholder's election, as accruing either (i) under a constant yield method, taking into account the OID Prepayment Assumption, or (ii) in proportion to accruals of original issue discount (or, if there is no original issue discount, in proportion to payments of interest at the Pass-Through Rate). In addition, a holder may be required to defer deductions for a portion of the holder's interest expense on any debt incurred or continued to purchase or carry an Offered Certificate purchased with market discount. The deferred portion of any interest deduction would not exceed the portion of the market discount on the Offered Certificate that accrues during the taxable year in which such interest would otherwise be deductible and, in general, would be deductible when such market discount is included in income upon receipt of a principal distribution on, or upon the sale of, the Offered Certificate. The Code requires that information necessary to compute accruals of market discount be reported periodically to the Service and to certain categories of holders of Offered Certificates. Notwithstanding the above rules, market discount on an Offered Certificate will be considered to be zero if such discount is less than 0.25% of the remaining stated redemption price at maturity of such Offered Certificate multiplied by its weighted average remaining life. Although there is some uncertainty, in the absence of authority to the contrary, the Trustee expects to calculate the weighted average remaining life in a manner similar to weighted average life (described above under "Current Income on Offered Certificates--Original Issue Discount"), taking into account distributions (including prepayments) prior to the date of acquisition of such Offered Certificate by the subsequent purchaser. If market discount on an Offered Certificate is treated as zero under this rule, the actual amount of such discount must be allocated to the remaining principal distributions on the Offered Certificate, and when each such distribution is made, gain equal to the discount, if any, allocated to the distribution will be recognized. Election to Treat All Interest Under the Constant Yield Rules. The OID Regulations provide that all holders may elect to include in gross income all interest that accrues on a debt instrument by using the constant yield method. For purposes of this election, interest includes stated interest, original issue discount (including de minimis original issue discount), and market discount (including any de minimis market discount), as adjusted to account for any premium. Holders should consult their own tax advisors regarding the availability or advisability of such an election. Sales of Offered Certificates. If an Offered Certificate 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 Offered Certificate. A holder's adjusted basis in an Offered Certificate generally equals the cost of the Offered Certificate to the holder, increased by income reported by the holder with respect to the Offered Certificate and reduced (but not below zero) by distributions on the Offered Certificate received by the holder and by amortized premium. Except as indicated in the next two paragraphs, any such gain or loss generally will be capital gain or loss provided the Offered Certificate is held as a capital asset. Gain from the sale of an Offered Certificate 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 includable in the seller's income with respect to the Offered Certificate had income accrued thereon at a rate equal to 110% of "the applicable Federal rate" (generally, an average of current yields on Treasury securities), determined as of the date of purchase of the Offered Certificate, over (ii) the amount actually includable in the seller's income. In addition, gain recognized on the sale of an Offered Certificate by a seller who purchased the Offered Certificate at a market discount would be taxable as ordinary income in an amount not exceeding the portion of such discount that accrued during the period the Offered Certificate was held by such seller, reduced by any market discount includable in income under the rules described above under "Current Income on Offered Certificates--Market Discount." S-72 Offered Certificates will be "evidences of indebtedness" within the meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from a sale of an Offered Certificate by a bank or other financial institution to which such section applies would be ordinary income or loss. Certain Taxes on the REMIC. The REMIC provisions of the Code impose a 100% tax on any net income derived by a REMIC from certain prohibited transactions. Such transactions are (i) any disposition of a qualified mortgage, other than pursuant to the substitution of a qualified replacement mortgage for a qualified mortgage (or the repurchase in lieu of substitution of a defective obligation), a disposition incident to the foreclosure, default, or imminent default of a mortgage, the bankruptcy or insolvency of the REMIC, or a qualified liquidation of the REMIC; (ii) the receipt of income from assets other than qualified mortgages and permitted investments; (iii) the receipt of compensation for services; and (iv) the receipt of gain from the dispositions of Cashflow investments. The REMIC Regulations provide that the modification of the terms of a Mortgage Asset occasioned by default or a reasonably foreseeable default of the Mortgage Asset, the assumption of the Mortgage Asset or the waiver of a due-on-sale clause will not be treated as a disposition of the Mortgage Asset. The Code also imposes a 100% tax on contributions to a REMIC made after the Closing Date, unless such contributions are payments made to facilitate a cleanup call or a qualified liquidation of the REMIC, payments in a nature of a guaranty, contributions during the three-month period beginning on the Closing Date or contributions to a qualified reserve fund of the REMIC by a holder of a residual interest in the REMIC. The Code also imposes a tax on a REMIC at the highest corporate rate on certain net income from foreclosure property that the REMIC derives from property acquired by the REMIC in connection with the default or imminent default of a loan. Generally, it is not anticipated that the Trust will generate a significant amount of such income. Liquidation of the REMIC. A REMIC may liquidate without the imposition of entity-level tax only in a "qualified liquidation." A liquidation is considered qualified if a REMIC adopts a plan of complete liquidation and sells all of its assets (other than cash) within the ninety-day period beginning on the date of the adoption of the plan of liquidation, provided that it distributes to holders of Offered Certificates or the Class R Certificate, on or before the last day of the ninety-day liquidation period, all the proceeds of the liquidation (plus all cash), less amounts retained to meet claims. Termination. The REMIC will terminate shortly following the REMIC's receipt of the final payment in respect of the Mortgage Assets. The last distribution on an Offered Certificate should be treated as a payment in full retirement of a debt instrument. Realized Losses. Under Section 166 of the Code, both corporate holders of Offered Certificates and noncorporate holders of Offered Certificates that acquire such Certificates in connection with a trade or business should be allowed to deduct, as ordinary losses, any losses sustained during a taxable year in which their Certificates become wholly or partially worthless as the result of one or more realized losses on the Mortgage Loans that are allocable to such Certificates. However, it appears that a noncorporate holder that does not acquire an Offered Certificate in connection with its trade or business will not be entitled to deduct a loss under Section 166 of the Code until such holder's Certificate becomes wholly worthless (i.e., until its outstanding principal balance has been reduced to zero) and that the loss will be characterized as a short-term capital loss. Each holder of an Offered Certificate will be required to accrue interest and original issue discount with respect to such Certificate, without giving effect to any reductions in distributions attributable to a default or delinquency on the Mortgage Loans until it can be established that any such reduction ultimately will not be recoverable. As a result, the amount of taxable income reported in any period by the holder of an Offered Certificate could exceed the amount of economic income actually realized by the holder in such period. Although the holder of an Offered Certificate eventually will recognize a loss or reduction in income attributable to previously accrued and included income that as the result of a realized loss ultimately will not be realized, the law is unclear with respect to the timing and character of such loss or reduction in income. Foreign Investors For purposes of this discussion, a "Foreign Holder" is a Certificateholder who holds an Offered Certificate and who is not (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 a political subdivision thereof, (iii) an estate or trust the income of which is includable in gross income for United States tax purposes regardless of its source or (iv) a trust with S-73 respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States fiduciaries have the authority to control all of its substantial decisions. Unless the interest on an Offered Certificate is effectively connected with the conduct by the Foreign Holder of a trade or business within the United States, the Foreign Holder is not subject to federal income or withholding tax on interest (or original issue discount, if any) on an Offered Certificate (subject to possible backup withholding of tax, discussed below), provided the Foreign Holder is not a controlled foreign corporation related to the Depositor (or subsequent holder of the REMIC Residual Certificates) and does not own actually or constructively 10% or more of the voting stock of the Depositor (or subsequent holder of the REMIC Residual Certificates). To qualify for this tax exemption, the Foreign Holder will be required to provide periodically a statement signed under penalties of perjury certifying that the Foreign Holder meets the requirements for treatment as a Foreign Holder and providing the Foreign Holder's name and address. The statement, which may be made on a Form W-8 or substantially similar substitute form, generally must be provided in the year a payment occurs or in either of the two preceding years. The statement must be provided either directly or through a clearing organization financial institution intermediaries, to the person that otherwise would withhold tax. This exemption may not apply to a Foreign Holder of an Offered Certificate which also owns, actually or constructively, a Class R Certificate. If the interest on an Offered Certificate is effectively connected with the conduct by a Foreign Holder of a trade or business within the United States, then the Foreign Holder will be subject to tax at the regular graduated rates and such a Foreign Holder may avoid withholding of tax on such interest (or original issue discount, if any) if the Foreign Holder provides a properly completed Form 4224. Under Proposed Regulations, which are proposed to be effective for Payments made after December 31, 1997, Form W-8 and Form 4224, as well as certain other forms, would be combined into a new Form W-8 which would generally be valid from the date signed through the end of the third succeeding calendar year, unless the beneficial owner's taxpayer identification number is provided, in which case the form generally would be valid indefinitely. The proposed regulations would also provide certain alternative means for qualifying for interest withholding exemptions. Any gain recognized by a Foreign Holder upon a sale, retirement or other taxable disposition of an Offered Certificate generally will not be subject to United States federal income tax unless either (i) the Foreign Holder is a non-resident alien individual who holds the Offered Certificate as a capital asset and who is present in the United States for 183 days or more in the taxable year of the disposition and either the gain is attributable to an office or other fixed place of business maintained in the U.S. by the individual or the individual has a "tax home" in the United States, or (ii) the gain is effectively connected with the conduct by the Foreign Holder of a trade or business within the United States. An Offered Certificate will not be includable in the estate of a Foreign Holder who does not own actually or constructively 10% or more of the voting stock of the Depositor (or subsequent holder of the Class R Certificates). Backup Withholding Under certain circumstances, a Certificateholder may be subject to "backup withholding" at a 31% rate. Backup withholding may apply to a Certificateholder who is a United States person if the holder, among other circumstances, fails to furnish his Social Security number or other taxpayer identification number to the Trustee. Backup withholding may apply, under certain circumstances, to a Certificateholder who is a foreign person if the Certificateholder fails to provide the trustee or the Certificateholder's securities broker with the statement necessary to establish the exemption from federal income and withholding tax on interest on the Certificate. Backup withholding, however, does not apply to payments on a Certificate made to certain exempt recipients, such as corporations and tax-exempt organizations, and to certain foreign persons. Reporting Requirements and Tax Administration The Trustee will report annually to the Service, holders of record of the Offered Certificates that are not excepted from the reporting requirements and, to the extent required by the Code, other interested parties, information with respect to the interest paid or accrued on the Offered Certificates, original issue discount, if any, accruing on the Offered Certificates and information necessary to compute the accrual of any market discount or the amortization of any premium on the Offered Certificates. S-74 ERISA CONSIDERATIONS The following describes certain considerations under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the Code, which apply to the Certificates. ERISA imposes requirements on employee benefit plans (and on certain other retirement plans and arrangements, including individual retirement accounts and annuities, Keogh plans and collective investment funds, separate accounts and insurance company general accounts in which such plans, accounts or arrangements are invested) (collectively "Plans") subject to ERISA and on persons who are fiduciaries with respect to such Plans. Generally, ERISA applies to investments made by Plans. Among other things, ERISA requires that the assets of Plans be held in trust and that the trustee, or other duly authorized fiduciary, have exclusive authority and discretion to manage and control the assets of such Plans. ERISA also imposes certain duties on persons who are fiduciaries of Plans. Under ERISA, any person who exercises any authority or control respecting the management or disposition of the assets of a Plan is considered to be a fiduciary of such Plan (subject to certain exceptions not here relevant). Certain employee benefit plans, such as governmental plans (as defined in ERISA Section 3(32)) and, if no election has been made under Section 410(d) of the Code, church plans (as defined in ERISA Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of such plans may be invested in Class A Certificates without regard to the ERISA considerations described above and below, subject to the provisions of applicable state law. Any such plan which is qualified and exempt from taxation under Code Sections 401(a) and 501(a), however, is subject to the prohibited transaction rules set forth in Code Section 503. On November 13, 1986, the United States Department of Labor (the "DOL") issued final regulations concerning the definition of what constitutes the assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the underlying assets and properties of corporations, partnerships and certain other entities in which a Plan makes an "equity" investment could be deemed for purposes of ERISA to be assets of the investing Plan in certain circumstances. However, the regulation provides that, generally, the assets of a corporation or partnership in which a Plan invests will not be deemed for purposes of ERISA to be assets of such Plan if the equity interest acquired by the investing Plan is a publicly-offered security. A publicly-offered security, as defined in Labor Reg. Section 2510.3-101, is a security that is widely held, freely transferable and registered under the Securities Exchange Act of 1934, as amended. In addition to the imposition of general fiduciary standards of investment prudence and diversification, ERISA prohibits a broad range of transactions involving Plan assets and persons ("Parties in Interest") having certain specified relationships to a Plan and imposes additional prohibitions where Parties in Interest are fiduciaries with respect to such Plan. Because the Mortgage Loans may be deemed Plan assets of each Plan that purchases Certificates, an investment in the Certificates by a Plan might be a prohibited transaction under ERISA Sections 406 and 407 and subject to an excise tax under Code Section 4975 unless a statutory or administrative exemption applies. The U.S. Department of Labor has granted to Morgan Stanley & Co. Incorporated, an administrative exemption (Prohibited Transaction Exemption 90-22; Exemption Application No. D-7938) (the "Exemption") from certain of the prohibited transaction rules of ERISA and the related excise tax provisions of Section 4975 of the Code with respect to the initial purchase, the holding and the subsequent resale by Plans of certificates in pass-through trusts that consist of certain receivables, loans and other obligations that meet the conditions and requirements of the Exemption. The Exemption applies to mortgage loans such as the Mortgage Loans in the Trust Fund. Among the conditions which must be satisfied for the Exemption to apply to the Class A Certificates are the following: (1) The acquisition of the Class A Certificates by a Plan is on terms (including the price for the Class A 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 Class A Certificates acquired by the Plan are not subordinated to the rights and interests evidenced by other certificates of the Trust Fund; S-75 (3) The Class A 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 S&P, Moody's, Duff & Phelps Credit Rating Co. or Fitch Investors Service, L.P.; (4) The Trustee is not an affiliate of any member of the Restricted Group (as defined below); (5) The sum of all payments made to the Underwriters in connection with the distribution of the Class A Certificates represents not more than reasonable compensation for underwriting the Class A Certificates. The sum of all payments made to and retained by the Depositor pursuant to the sale of the Mortgage Loans to the Trust Fund represents not more than the fair market value of such Mortgage Loans. The sum of all payments made to and retained by the Master Servicer represents not more than reasonable compensation for the Master Servicer's services under the Pooling and Servicing Agreement and reimbursement of the Master Servicer's reasonable expenses in connection therewith; and (6) The Plan investing in the Class A Certificates is an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the Commission under the 1933 Act. Moreover, the Exemption would provide relief from certain self-dealing/conflict of interest prohibited transactions only if, among other requirements, (i) in the case of the acquisition of Class A Certificates in connection with the initial issuance, at least fifty (50) percent of the Class A Certificates are acquired by persons independent of the Restricted Group (as defined below), (ii) the Plan's investment in Class A Certificates does not exceed twenty-five (25) percent of all of the Class A Certificates outstanding at the time of the acquisition and (iii) immediately after the acquisition, no more than twenty-five (25) percent of the assets of the Plan are invested in certificates 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 Depositor, the Underwriters, the Trustee, the Master Servicer, any obligor with respect to Mortgage Loans included in the Trust Fund constituting more than five percent of the aggregate unamortized principal balance of the assets in the Trust Fund, or any affiliate of such parties (the "Restricted Group"). The Underwriters believe that the Exemption will apply to the acquisition and holding of the Class A Certificates by Plans and that all conditions of the Exemption other than those within the control of the investors will be met. In addition, as of the date hereof, there is no single Mortgagor that is the obligor on 5% of the Mortgage Loans included in the Trust Fund by aggregate unamortized principal balance of the assets of the Trust Fund. Prospective Plan investors should consult with their legal advisors concerning the impact of ERISA and the Code, the applicability of PTCE 83-1 described in the Prospectus and 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. No transfer of Subordinate Certificates will be permitted to be made to a Plan. Each person acquiring a Subordinate Certificate will be deemed to represent to the Trustee, the Depositor and the Master Servicer that such person is neither a Plan nor acting on behalf of a Plan subject to ERISA or to Section 4975 of the Code. LEGAL INVESTMENT The Offered Certificates will not constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). In addition, institutions whose activities are subject to review by federal or state regulatory authorities may be or may become subject to restrictions, which may be retroactively imposed by such regulatory authorities, on the investment by such institutions in certain forms of mortgage related securities. All investors whose investment authority is subject to legal restrictions should consult their own legal advisors to determine whether, and to what extent, the Certificates will constitute legal investments for them. S-76 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement between the Depositor and the Underwriters, the Depositor has agreed to sell to the Underwriters, and the Underwriters have severally agreed to purchase from the Depositor, the respective principal amount of the Offered Certificates, as set forth opposite their respective names below: Class A-1 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $22,500,000 First Chicago Capital Markets, Inc. $22,500,000 Lehman Brothers Inc. $22,500,000 Salomon Brothers Inc $22,500,000 Class A-2 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $ 9,000,000 First Chicago Capital Markets, Inc. $ 9,000,000 Lehman Brothers Inc. $ 9,000,000 Salomon Brothers Inc $ 9,000,000 Class A-3 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $15,250,000 First Chicago Capital Markets, Inc. $15,250,000 Lehman Brothers Inc. $15,250,000 Salomon Brothers Inc $15,250,000 Class A-4 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $10,000,000 First Chicago Capital Markets, Inc. $10,000,000 Lehman Brothers Inc. $10,000,000 Salomon Brothers Inc $10,000,000 Class A-5 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $ 3,750,000 First Chicago Capital Markets, Inc. $ 3,750,000 Lehman Brothers Inc. $ 3,750,000 Salomon Brothers Inc $ 3,750,000 Class A-6 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $ 3,750,000 First Chicago Capital Markets, Inc. $ 3,750,000 Lehman Brothers Inc. $ 3,750,000 Salomon Brothers Inc $ 3,750,000 Class A-7 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $ 8,250,000 First Chicago Capital Markets, Inc. $ 8,250,000 Lehman Brothers Inc. $ 8,250,000 Salomon Brothers Inc $ 8,250,000 S-77 Class A-8 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $ 7,500,000 First Chicago Capital Markets, Inc. $ 7,500,000 Lehman Brothers Inc. $ 7,500,000 Salomon Brothers Inc $ 7,500,000 Class A-9 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $22,500,000 First Chicago Capital Markets, Inc. $22,500,000 Lehman Brothers Inc. $22,500,000 Salomon Brothers Inc $22,500,000 Class M-1 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $ 7,500,000 First Chicago Capital Markets, Inc. $ 7,500,000 Lehman Brothers Inc. $ 7,500,000 Salomon Brothers Inc $ 7,500,000 Class M-2 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $ 8,125,000 First Chicago Capital Markets, Inc. $ 8,125,000 Lehman Brothers Inc. $ 8,125,000 Salomon Brothers Inc $ 8,125,000 Class B-1 Certificates Underwriters Certificate Balance - ------------ ------------------- Morgan Stanley & Co. Incorporated $ 5,625,000 First Chicago Capital Markets, Inc. $ 5,625,000 Lehman Brothers Inc. $ 5,625,000 Salomon Brothers Inc $ 5,625,000 In the Underwriting Agreement, the Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the Offered Certificates, if any are purchased. The Depositor has been advised by the Underwriters that they propose initially to offer the Offered Certificates to the public at the respective offering prices set forth on the cover page hereof and to certain dealers at such price less a concession not in excess of the respective amounts set forth in the table below (expressed as a percentage of the relative Certificate Balance). The Underwriters may allow and such dealers may reallow a discount not in excess of the respective amounts set forth in the table below to certain other dealers. Selling Reallowance Class Concession Discount ----- ---------- ---------- A-1 .............................. 0.0753 0.0377 A-2 .............................. 0.0900 0.0450 A-3 .............................. 0.1200 0.0600 A-4 .............................. 0.1950 0.0975 A-5 .............................. 0.2250 0.1125 A-6 .............................. 0.2400 0.1200 A-7 .............................. 0.2700 0.1350 A-8 .............................. 0.2400 0.1200 A-9 .............................. 0.1800 0.0900 M-1 .............................. 0.2700 0.1350 M-2 .............................. 0.2820 0.1410 B-1 .............................. 0.3300 0.1650 S-78 Distribution of the Offered Certificates will be made by the Underwriters from time to time in negotiated transactions or otherwise at varying prices to be determined at the time of sale. In connection with the sale of the Offered Certificates, the Underwriters may be deemed to have received compensation from the Depositor in the form of underwriting discounts. The Underwriters have advised the Depositor that they intend to make a market in the Offered Certificates but have no obligation to do so. A secondary market for the Offered Certificates may not develop or, if it does develop, it may not continue. The Seller has agreed to indemnify the Underwriters against, or make contributions to the Underwriters with respect to, certain liabilities, including liabilities under the Securities Act of 1933, as amended. LEGAL MATTERS Certain legal matters will be passed upon for the Depositor by Schulte Roth & Zabel LLP, New York, New York, for the Seller and Master Servicer by Martin B. Schwam, Esq., General Counsel of CIT Consumer Finance, and for the Underwriters by Stroock & Stroock & Lavan LLP, New York, New York. The material federal income tax consequences of the Certificates will be passed upon for the Depositor by Schulte Roth & Zabel LLP, New York, New York. RATINGS It is a condition of issuance of the Offered Certificates that each Class of the Offered Certificates receive ratings from Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P" and, together with Moody's, the "Rating Agencies") as set forth below: Class Moody's Rating S&P Rating ----- -------------- ---------- Class A Aaa AAA Class M-1 Aa2 AA Class M-2 A2 A- Class B-1 Baa2 BBB- Explanations of the significance of such ratings may be obtained from Moody's, 99 Church Street, New York, New York 10007 and S&P, 25 Broadway, New York, New York 10004. Such ratings will be the views only of such rating agencies. Such ratings may not continue for any period of time and may be revised or withdrawn. Any such revision or withdrawal of such ratings may have an adverse effect on the market price of the Offered Certificates. A security rating is not a recommendation to buy, sell or hold securities. The ratings of the Offered Certificates should be evaluated independently from similar ratings on other types of securities. The ratings do not address the likelihood of the payment of Interest Carry Forward Amounts. The Depositor has not requested that any rating agency other than Moody's and S&P rate the Offered Certificates and the Depositor has not provided information relating to the Offered Certificates or the Mortgage Loans to any rating agency other than Moody's and S&P. However, another rating agency may assign a different or lower rating to the Offered Certificates than the rating assigned to such Offered Certificates by either or both of Moody's and S&P. S-79 ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES Except in certain limited circumstances, the globally offered Securities (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 & Co. as nominee of DTC. Investors' interests in the Global Securities will be represented through financial institutions acting on their behalf as direct and indirect Participants in DTC. As a result, 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. 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 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 S-80 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 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 to 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. The payment will then be reflected in the account of 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; S-81 (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 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. 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 proposed regulations relating to withholding, backup withholding and information reporting that, if adopted in their current form would, among other things, unify current certification procedures and forms and clarify certain reliance standards. The regulations are proposed to be effective for payments made after December 31, 1997 but provide that certificates issued on or before the date that is 60 days after the proposed regulations are made final will continue to be valid until they expire. Proposed regulations, however, are subject to change prior to their adoption in 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, (iii) an estate that is subject to U.S. federal income tax regardless of the source of its income or (iv) a trust if a court within the United States can exercise primary supervision over its administration and at least one United States fiduciary has the authority to control all substantial decisions of the trust. The term "Non-U.S. Person" means any person who is not a U.S. Person. This summary does not deal with all aspects of U.S. Federal income tax withholding that may be relevant to foreign holders of the Global Securities. Investors are advised to consult their own tax advisors for specific tax advice concerning their holding and disposing of the Global Securities. S-82 INDEX TO DEFINED TERMS Page ----- 1933 Act ......................................................................2 Accrual Period ................................................................9 Adjustable Rate ...............................................................7 Adjustable Rate Group .....................................................4, 32 Adjustable Rate Group Available Funds Cap Rate ................................6 Adjustable Rate Group Extra Principal Distribution Amount ....................12 Adjustable Rate Group Overcollateralization Release Amount ...................12 Adjustable Rate Mortgage Loan .................................................7 Adjustment Date ..............................................................39 Advance ..................................................................23, 55 Aggregate Certificate Balance .................................................7 Applied Realized Loss Amount .............................................21, 61 Asset Service Center .........................................................54 Balloon Loans .............................................................8, 32 Balloon Payments ..........................................................8, 32 beneficial owner .........................................................23, 55 Book-Entry Certificates ......................................................55 Business Day ..................................................................8 Call Date .................................................................8, 32 Call Loans ................................................................8, 32 Cede .........................................................................24 CEDEL .....................................................................1, 23 Certificate Account ..........................................................56 Certificate Balance ..........................................................63 Certificate Register .........................................................56 Certificate Registrar ........................................................56 Certificateholders ...........................................................31 Certificates ..................................................................3 CIT ...........................................................................3 CIT Consumer Finance .......................................................1, 3 Citibank .....................................................................24 CITSF .........................................................................3 Class .........................................................................4 Class A Certificates .......................................................1, 6 Class A Principal Distribution Amount ........................................16 Class A Variable Allocation Amount .......................................14, 58 Class A-8 Lockout Distribution Amount ........................................13 Class A-8 Lockout Percentage .................................................13 Class A-8 Lockout Pro Rata Distribution Amount ...............................13 Class B Certificates .......................................................1, 6 Class B-1 Applied Realized Loss Amount .......................................63 Class B-1 Certificate Balance ................................................63 Class B-1 Principal Distribution Amount ......................................17 Class B-1 Realized Loss Amortization Amount ..................................63 Class B-2 Applied Realized Loss Amount .......................................63 Class B-2 Certificate Balance ................................................63 Class B-2 Principal Distribution Amount ......................................17 Class B-2 Realized Loss Amortization Amount ..................................63 Class M-1 Applied Realized Loss Amount .......................................64 Class M-1 Certificate Balance ................................................64 Class M-1 Principal Distribution Amount ......................................17 S-83 Page ----- Class M-1 Realized Loss Amortization Amount ..................................64 Class M-2 Applied Realized Loss Amount .......................................64 Class M-2 Certificate Balance ................................................64 Class M-2 Principal Distribution Amount ......................................17 Class M-2 Realized Loss Amortization Amount ..................................64 Class R Certificates .......................................................1, 3 Clean-up Call Date .......................................................24, 67 Closing Date ..................................................................3 Code .........................................................................68 Combined Loan-to-Value Ratio .................................................32 Commission ....................................................................2 Compensating Interest ....................................................23, 55 Cumulative Realized Loss Trigger Event .......................................19 Current Interest .............................................................10 Cut-off Date ..................................................................3 Definitive Certificate .......................................................55 Deleted Mortgage Loan ........................................................65 Depositor ..............................................................1, 3, 53 Determination Date ............................................................8 Distribution Date .........................................................8, 56 DOL ..........................................................................75 DTC .......................................................................1, 23 Due Dates ....................................................................54 Due Period ....................................................................8 ERISA ........................................................................75 Euroclear .................................................................1, 23 Exemption ................................................................... 75 Extra Principal Distribution Amount ..........................................12 Final Scheduled Distribution Date .............................................8 Fixed Rate ....................................................................7 Fixed Rate Certificates .......................................................6 Fixed Rate Group ..........................................................4, 32 Fixed Rate Group Available Funds Cap Rate .....................................5 Fixed Rate Group Extra Principal Distribution Amount .........................12 Fixed Rate Group Overcollateralization Release Amount ........................12 Fixed Rate Mortgage Loan ......................................................7 Fixed Rate Principal Distribution Amount .....................................11 Gross Margin ..............................................................7, 39 HLTV .........................................................................30 Index ........................................................................39 Interest Carry Forward Amount ................................................10 Interest Determination Date ..................................................60 Interest Remittance Amount ...................................................10 Issuer ........................................................................3 Liquidation Proceeds .........................................................57 Master Servicer ........................................................1, 3, 53 Master Servicing Fee .....................................................23, 54 Maximum Rate ..............................................................8, 39 Maximum Variable Rate .........................................................4 Mezzanine Certificates .....................................................1, 6 Monthly Excess Cashflow Amount ...........................................10, 57 Monthly Excess Interest Amount ...........................................21, 62 S-84 Page ----- Moody's ..................................................................25, 79 Morgan .......................................................................24 Mortgage ..................................................................4, 31 Mortgage Assets ...........................................................4, 31 Mortgage Documents ...........................................................65 Mortgage Loan .............................................................4, 31 Mortgage Loan Group .......................................................4, 32 Mortgage Note .............................................................4, 31 Mortgage Pool .............................................................4, 31 Mortgage Rate .................................................................7 Mortgaged Property ........................................................4, 31 Offered Certificates .......................................................1, 6 OID Prepayment Assumption ....................................................70 OID Regulations ..............................................................70 One-month LIBOR ..............................................................60 One-year CMT ..........................................................7, 26, 39 Overcollateralization Amount .................................................18 Overcollateralization Deficiency .............................................18 Overcollateralization Release Amount .................................18, 22, 62 Pass-Through Rate ......................................................1, 4, 57 Percentage Interest ...........................................................4 Periodic Rate Cap .........................................................7, 39 Plans ........................................................................75 Pool ......................................................................4, 31 Pooling and Servicing Agreement ...............................................3 Prepayment Assumption ........................................................48 Principal Balance ............................................................31 Principal Prepayment .........................................................23 Principal Remittance Amount ..................................................16 Prospectus ....................................................................2 Purchase Agreement ...........................................................31 Purchase Price ...............................................................65 Qualified Substitute Mortgage Loan ...........................................65 Rating Agencies ..............................................................79 Rating Agency Condition ......................................................29 Realized Loss ................................................................61 Record Date ...................................................................8 Reference Banks ..............................................................60 REMIC ........................................................................24 Reserve Interest Rate ........................................................60 Restricted Group .............................................................76 S&P ......................................................................25, 79 Seller .....................................................................1, 3 Senior Enhancement Percentage ................................................18 Senior Specified Enhancement Percentage ......................................18 Service ......................................................................69 Six-month LIBOR .......................................................7, 26, 39 SMMEA ....................................................................25, 76 Stepdown Date ................................................................16 Stepped Up Enhancement Level .................................................16 Subordinate Certificates ...................................................1, 6 Sub-Servicer ..................................................................3 Subservicing Agreement ...................................................29, 53 S-85 Page ----- Substitution Adjustment ......................................................65 Targeted Overcollateralization Amount ........................................18 Telerate Page 3750 ...........................................................60 Termination Events ...........................................................67 Trigger Event ................................................................16 Trust ..................................................................1, 4, 31 Trust Fund .............................................................1, 4, 31 Trustee ................................................................1, 3, 68 Unpaid Realized Loss Amount ..................................................64 Variable Rate Certificates ....................................................7 Variable Rate Principal Distribution Amount ..................................11 Weighted Carve Out Fixed Rate .................................................5 Weighted Carve Out Adjustable Amount ..........................................6 S-86 PROSPECTUS THE CIT GROUP SECURITIZATION CORPORATION III Depositor Home Equity Loan Asset Backed Certificates (Issuable in Series) ------------------- This Prospectus relates to Home Equity Loan Asset Backed Certificates (the "Certificates"), which may be sold from time to time in one or more series (each, a "Series") by The CIT Group Securitization Corporation III (the "Depositor"), on terms determined at the time of sale and described in this Prospectus and the related Prospectus Supplement. The Certificates of a Series will evidence fractional undivided beneficial ownership interests in a trust fund (a "Trust Fund" or "Trust"). As specified in the related Prospectus Supplement, the primary assets of a Trust Fund for a Series of Certificates will include one or more pools of certain mortgage related assets (the "Mortgage Assets") consisting of (i) mortgage loans (or participation or other beneficial interests therein) secured by mortgages, deeds of trust or similar security instruments (the "Mortgages") creating first or subordinate liens on one- to four-family residential properties (the "Mortgage Loans"), (ii) Private Mortgage-Backed Securities (as defined herein), together with payments in respect of such Mortgage Assets, and (iii) certain other accounts, obligations or agreements, in each case as specified in the related Prospectus Supplement. The Mortgage Assets will be acquired by the Depositor, either directly or indirectly, from The CIT Group/Consumer Finance, Inc. ("CIT Consumer Finance") and/or other affiliates of the Depositor (each, a "Seller"), and conveyed by the Depositor to the related Trust Fund. The related Prospectus Supplement may provide that monies will be on deposit in a separate trust account (the "Pre-Funding Account") not to exceed 25% of the Certificate Balance (as defined herein) to be maintained with the Trustee (as defined herein), which will be used to purchase additional Mortgage Assets from the Depositor or any Seller from time to time during the funding period specified in such Prospectus Supplement in the manner set forth therein. If specified in the related Prospectus Supplement, certain Certificates may evidence a fractional undivided ownership interest in a Trust Fund which will hold a beneficial ownership interest in another trust fund which will contain the Mortgage Assets. A Trust Fund also may include insurance policies, cash accounts, reinvestment income, limited guarantees by The CIT Group Holdings, Inc. ("CIT"), third party guarantees (any of which may be limited in nature), letters of credit, other forms of credit enhancement or other assets to the extent described in the related Prospectus Supplement. In addition to or in lieu of the foregoing, credit enhancement may be provided by means of subordination as described herein and in the related Prospectus Supplement. See "Description of the Certificates" and "Credit Enhancement" herein. (cover continued on next page) THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, THE CIT GROUP/CONSUMER FINANCE, INC., THE CIT GROUP/SALES FINANCING, INC., THE CIT GROUP HOLDINGS, INC. OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED OR GUARANTEED BY THE DEPOSITOR, THE MASTER SERVICER, THE CIT GROUP/CONSUMER FINANCE, INC., THE CIT GROUP/SALES FINANCING, INC., THE CIT GROUP HOLDINGS, INC. OR ANY OF THEIR AFFILIATES EXCEPT AS SET FORTH HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR CERTAIN FACTORS TO BE CONSIDERED IN PURCHASING THE CERTIFICATES. --------------- 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 OR THE RELATED PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- Prior to issuance there will have been no market for the Certificates of any Series, and there can be no assurance that a secondary market for any Certificates will develop or, if it does develop, that it will continue. The Depositor does not intend to list any of the Certificates on any securities exchange and has not made any other arrangements for secondary trading of the Certificates. This Prospectus may not be used to consummate sales of a Series of Certificates unless accompanied by a Prospectus Supplement. Offers of the Certificates may be made through one or more different methods, including offerings through underwriters, as more fully described under "Method of Distribution" herein and in the related Prospectus Supplement. The date of the Prospectus is April 8, 1997. Each Series of Certificates will be issuable in one or more classes. Each class of Certificates of a Series will evidence beneficial ownership interests of a specified percentage (which may be 0%) or portion of future interest payments and a specified percentage (which may be 0%) or portion of future principal payments on the Mortgage Assets in the related Trust. A class of Certificates may be divided into two or more sub-classes, as specified in the related Prospectus Supplement. A Series of Certificates may include one or more classes that are senior in right of payment to one or more other classes of Certificates of such Series. Certain Series or classes of Certificates may be covered by insurance policies, surety bonds or other forms of credit enhancement, in each case as described herein and in the related Prospectus Supplement. One or more classes of Certificates of a Series may be entitled to receive distributions of principal, interest or any combination thereof. Distributions on one or more classes of a Series of Certificates may be made prior to one or more other classes of Certificates of such Series, after the occurrence of specified events, in accordance with a schedule or formula, on the basis of collections from designated portions of the Mortgage Assets in the related Trust, or on a different basis, or one or more classes of a Series of Certificates may be required to absorb one or more types of losses prior to one or more other classes of Certificates of such Series, in each case as specified in the related Prospectus Supplement. The timing and amounts of such distributions may vary among classes or over time as specified in the related Prospectus Supplement. Distributions to holders of Certificates (the "Certificateholders") will be made monthly, quarterly, semiannually or at such other intervals and on the dates specified in the related Prospectus Supplement. Distributions on the Certificates of a Series will be made from the assets of the related Trust Fund or funds or other assets held for the benefit of the Certificateholders as specified in the related Prospectus Supplement. The Certificates of any Series will not be insured or guaranteed by any governmental agency or instrumentality or, unless otherwise specified in the related Prospectus Supplement, by any other person. Unless otherwise specified in the related Prospectus Supplement, the only obligations of the Depositor with respect to a Series of Certificates will be to obtain certain representations and warranties from each Seller and to assign to the Trustee for the related Series of Certificates the Depositor's rights with respect to such representations and warranties. Unless otherwise specified in the related Prospectus Supplement, the Master Servicer for each Series of Certificates will be The CIT Group/Consumer Finance, Inc. The principal obligations of the Master Servicer named in the related Prospectus Supplement with respect to the related Series of Certificates will be limited to obligations pursuant to certain representations and warranties and to its contractual servicing obligations, including any obligation it may have to advance delinquent payments on the Mortgage Assets in the related Trust Fund to the extent described in the related Prospectus Supplement. The yield on each class of Certificates of a Series will be affected by, among other things, the rate and timing of payment of principal (including prepayments) on the Mortgage Assets in the related Trust Fund and the timing of receipt of such payments as described herein and in the related Prospectus Supplement. A Trust Fund may be subject to early termination under the circumstances described herein and in the related Prospectus Supplement. Each Trust Fund will be held in trust for the benefit of the holders of the related Certificates of a Series pursuant to an Agreement (as defined herein) as more fully described herein. If specified in the related Prospectus Supplement for the Certificates of a Series, one or more elections may be made to treat the related Trust Fund or specified portions thereof as one or more "real estate mortgage investment conduits" (each, a "REMIC") for federal income tax purposes. See "Certain Federal Income Tax Consequences" herein. -2- PROSPECTUS SUPPLEMENT The Prospectus Supplement relating to the Certificates of each Series to be offered hereunder will, among other things, set forth with respect to such Certificates, as appropriate: (i) a description of the class or classes of Certificates and the related Pass-Through Rate (as defined herein) or method of determining the amount of interest, if any, to be passed through to each such class, (ii) the initial aggregate Certificate Balance (as defined herein) of each class of Certificates included in such Series, Distribution Dates (as defined herein) relating to such Series and, if applicable, the initial and final scheduled Distribution Dates for each class; (iii) information as to the assets comprising the Trust Fund, including the general characteristics of the Mortgage Assets included therein and, if applicable, the insurance surety bonds, guarantees, financial guaranty insurance policies, letters of credit or other instruments or agreements included in the Trust Fund, any overcollateralization, and the amount and source of any Reserve Fund (as defined herein) or any other cash account; (iv) the circumstances, if any, under which the Trust Fund may be subject to early termination; (v) the method used to calculate the amount of principal, if any, to be distributed with respect to each class of Certificates; (vi) the order of application of distributions to each of the classes within such Series, whether sequential, pro rata, or otherwise; (vii) additional information with respect to the plan of distribution of such Certificates; (viii) whether one or more REMIC elections will be made and designation of the regular interests and residual interests; (ix) the aggregate original percentage ownership interest in the Trust Fund to be evidenced by each class of Certificates; (x) information as to the nature and extent of subordination with respect to any class of Certificates that is subordinate in right of payment to any other class of Certificates; and (xi) information as to the Seller, the Master Servicer, CIT and the Trustee. AVAILABLE INFORMATION The Depositor and CIT have filed with the Securities and Exchange Commission (the "Commission") on behalf of each Trust Fund a Registration Statement (together with all amendments and exhibits thereto, the "Registration Statement"), of which this Prospectus is a part, under the Securities Act of 1933, as amended, with respect to the Certificates offered pursuant to this Prospectus. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. For further information, reference is made to such Registration Statement including exhibits filed as part thereof. Such Registration Statement and exhibits can be inspected without charge and copied at prescribed rates at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices located as follows: Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661; and New York Regional Office, Seven World Trade Center, New York, New York 10048. Both registrants also file electronically. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the Commission's Web site is http://www.sec.gov. Statements made in this Prospectus as to the contents of any contract, agreement or other document filed as an exhibit to the Registration Statement, while complete in all material respects, do not necessarily describe all terms or provisions of such contract, agreement or other document. For a complete description, reference is made to each such contract, agreement or other document filed as an exhibit to the Registration Statement. The Master Servicer, on behalf of each Trust Fund, will also file or cause to be filed with the Commission such periodic reports as are required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the Commission thereunder. However, in accordance with the Exchange Act and the rules and regulations of the Commission thereunder, the Depositor expects that each Trust's obligation to file such reports will be terminated following the end of the year in which such Trust Fund is formed. Such reports and other information filed on behalf of each Trust Fund will be available for inspection as set forth above. -3- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE CIT's Annual Report on Form 10-K for the year ended December 31, 1996 together with the report of KPMG Peat Marwick LLP, independent certified public accountants, has been filed with the Commission by CIT and is incorporated by reference in this Prospectus. All documents filed by CIT pursuant to Sections 13(a) and (c), 14, or 15(d) of the Exchange Act after the date hereof and prior to the termination of the offering of the securities offered hereby shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such documents. 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 part of this Prospectus. CIT WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, UPON REQUEST, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS DESCRIBED ABOVE WHICH HAVE BEEN OR MAY BE INCORPORATED BY REFERENCE IN THIS PROSPECTUS OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUEST SHOULD BE DIRECTED TO: CORPORATE SECRETARY THE CIT GROUP HOLDINGS, INC. 1211 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10036 (212) 536-1950 All documents subsequently filed by or on behalf of the Trust Fund referred to in the accompanying Prospectus Supplement with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this Prospectus and prior to the termination of any offering of the Certificates issued by such Trust Fund shall be deemed to be incorporated by reference in this Prospectus and to be a part of this Prospectus from the date of the filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for all purposes of this Prospectus to the extent that a statement contained herein (or in the accompanying Prospectus Supplement) or in any other subsequently filed document which also is or is deemed to be incorporated by reference modifies or replaces such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Trustee on behalf of any Trust Fund will provide without charge to each person to whom this Prospectus is delivered, on the written or oral request of such person, a copy of any or all of the documents referred to above that have been or may be incorporated by reference in this Prospectus (not including exhibits to the information that is incorporated by reference unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates). Such requests should be directed to the corporate trust office of the Trustee specified in the accompanying Prospectus Supplement. -------------- Until 90 days after the date of each Prospectus Supplement, all dealers effecting transactions in the securities covered by such Prospectus Supplement, whether or not participating in the distribution thereof, may be required to deliver such Prospectus Supplement and this Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus and Prospectus Supplement when acting as underwriters and with respect to their unsold allotments or subscriptions. No person has been authorized to give any information or to make any representation other than those contained in this Prospectus and any Prospectus Supplement with respect hereto and, if given or made, such information or representations must not be relied upon. This Prospectus and any Prospectus Supplement with respect hereto do not constitute an offer to sell or a solicitation of an offer to buy any securities other than the Certificates offered hereby and thereby nor an offer of the Certificates to any person in any state or other jurisdiction in which such offer would be unlawful. The delivery -4- of this Prospectus at any time does not imply that information herein is correct as of any time subsequent to its date. -------------------- REPORTS TO CERTIFICATEHOLDERS Periodic and annual reports concerning any Certificates and the related Trust Fund will be provided to the Certificateholders. See "Description of the Certificates -- Reports to Certificateholders" herein. If specified in the related Prospectus Supplement, a Series of Certificates may be issuable in book-entry form. In such event, the related Certificates will be registered in the name of Cede & Co. ("Cede"), the nominee of The Depository Trust Company ("DTC"). All reports will be provided to Cede, which in turn will provide such reports to its Participants and Indirect Participants (each, as defined herein). Such Participants and Indirect Participants will then forward such reports to the beneficial owners of Certificates. If specified in the related Prospectus Supplement, Certificateholders may also hold Certificates of a Series through Cedel Bank, societe anonyme ("Cedel") or the Euroclear System ("Euroclear") in Europe, if they are participants in such systems or indirectly through organizations that are participants in such systems. See "Description of the Certificates -- Book-Entry Certificates" herein. -5- SUMMARY OF TERMS This summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus and in the related Prospectus Supplement with respect to the Series offered thereby. The Prospectus Supplement for each Series will specify the extent (if any) to which the terms of such Series or the related Trust Fund vary from the description of the Certificates and Trust Funds in general that is contained in this Prospectus. Reference is made to the Index to Defined Terms for the location herein of the definitions of certain capitalized terms used herein. Title of Securities............ Home Equity Loan Asset Backed Certificates (the "Certificates"), issuable in series (each, a "Series"). Each Series will be issued under a separate pooling and servicing agreement (each, an "Agreement") to be entered into among the Depositor, the Master Servicer, the applicable Sellers and the Trustee (each, as defined herein) with respect to each such Series. Depositor...................... The CIT Group Securitization Corporation III, a Delaware corporation (the "Depositor"). Seller......................... The entity or entities named as seller (each, a "Seller") in the related Prospectus Supplement, which will be The CIT Group/Consumer Finance, Inc. ("CIT Consumer Finance") and/or another affiliate of the Depositor. Master Servicer................ The CIT Consumer Finance or such other entity named as master servicer in the related Prospectus Supplement (the "Master Servicer"), which may be an affiliate of the Depositor. See "The CIT Group/Consumer Finance, Inc., Master Servicer" and "The Pooling and Servicing Agreement--Certain Matters Regarding the Master Servicer and the Depositor" herein. Sub-Servicer................... Unless otherwise specified in the related Prospectus Supplement, The CIT Group/Sales Financing, Inc. ("CITSF") will be appointed as a Sub-Servicer for all of the Mortgage Loans (as defined herein) in each Mortgage Pool (as defined herein), and as a Sub-Servicer, will perform all or most of the servicing responsibilities described under "The Pooling and Servicing Agreement" herein and "Servicing of Mortgage Loans" in the related Prospectus Supplement. All references in this Prospectus and any related Prospectus Supplement to the "Master Servicer" or to CIT Consumer Finance in a servicing capacity shall include CIT Consumer Finance acting through any Sub-Servicer, including CITSF, or any agent. Trustee........................ The trustee (the "Trustee") for each Series of Certificates will be specified in the related Prospectus Supplement. See "The Pooling and Servicing Agreement" herein for a description of the Trustee's rights and obligations. -6- Closing Date................... The date of initial issuance of a Series of Certificates, as specified in the related Prospectus Supplement (the "Closing Date"). Description of the Certificates............... Each Certificate will represent a beneficial ownership interest in a Trust created by the Depositor pursuant to an Agreement among the Depositor, the applicable Sellers, the Master Servicer and the Trustee for the related Series. The primary assets of such Trust will be a Pool (as defined herein) of Mortgage Loans and certain other Mortgage Assets (as defined herein). See "-The Mortgage Assets" below. The Certificates of any Series may be issued in one or more classes as specified in the related Prospectus Supplement. A Series of Certificates may include one or more classes of senior Certificates (the "Senior Certificates") which receive certain preferential treatment specified in the related Prospectus Supplement with respect to one or more classes of subordinate Certificates (the "Subordinated Certificates"). Each class may be divided into sub-classes, each of which bears a different Pass-Through Rate (as defined herein) and has a specified priority in payments of interest and principal. Certain Series or classes of Certificates may be covered by a Certificate Guaranty Insurance Policy, Mortgage Pool Insurance Policy, Special Hazard Insurance Policy, Bankruptcy Bond (each, as defined herein) or other insurance policies, a Reserve Fund (as defined herein), guarantees (including guarantees by The CIT Group Holdings, Inc., its affiliates or an unaffiliated third party, any of which may be limited in nature), letters of credit, a spread account, cash collateral account and/or other accounts, overcollateralization, or other forms of credit enhancement, in each case as described herein and in the related Prospectus Supplement. Each class of Certificates within a Series will evidence the interests specified in the related Prospectus Supplement, which may (i) include the right to receive disproportionate, nominal or no distributions allocable only to principal, only to interest or to any combination thereof; (ii) include the right to receive disproportionate, nominal or no distributions only of prepayments of principal throughout the lives of the Certificates or during specified periods; (iii) be subordinated in the right to receive distributions of scheduled payments of principal, prepayments of principal, interest or any combination thereof to one or more other classes of Certificates of such Series throughout the lives of the Certificates or during specified periods or may be subordinated with respect to certain losses or delinquencies; (iv) include the right to receive distributions only after the occurrence of events specified in the related Prospectus Supplement; (v) include the right to receive distributions in accordance with a schedule or formula or on the basis of collections from designated -7- portions of the assets in the related Trust; (vi) include, as to Certificates entitled to distributions allocable to interest, the right to receive interest at a Fixed Rate or at an Adjustable Rate (each, as defined herein) that is subject to change from time to time, or the right to receive interest based on the weighted average Mortgage Rate (as defined herein), or the right to receive interest as otherwise determined as specified in the related Prospectus Supplement; and (vii) include, as to Certificates entitled to distributions allocable to interest, the right to distributions allocable to interest only after the occurrence of events specified in the related Prospectus Supplement, and in each case, may accrue interest until such events occur, as specified in the related Prospectus Supplement. The timing and amounts of such distributions may vary among classes, over time, or otherwise as specified in the related Prospectus Supplement. A Series of Certificates may also include one or more classes of Certificates entitled to payments derived from a specified group or groups of Mortgage Assets held by the related Trust. Unless otherwise specified in the related Prospectus Supplement, the Certificates will be issuable in fully registered form, in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof, except that one Certificate of each class may be issued in a different denomination. See "Description of the Certificates" herein. Distributions on the Certificates............. All distributions will be made to Certificateholders in the priority, manner and amount specified in the related Prospectus Supplement. The amount allocable to payments of principal and interest on any Distribution Date will be determined as specified in the related Prospectus Supplement. The rate at which interest will be passed through to holders of each class of Certificates entitled thereto may be a Fixed Rate or an Adjustable Rate from the date and for the periods, in each case, as specified in the related Prospectus Supplement. Any such rate will be calculated as described in the related Prospectus Supplement. Distribution Date.............. Distributions on the Certificates entitled thereto will be made monthly, quarterly, semi-annually or at such other intervals and on the dates specified in the related Prospectus Supplement (each, a "Distribution Date") out of the payments received in respect of the assets of the related Trust or other assets held for the benefit of the Certificateholders as specified in the related Prospectus Supplement. Determination Date............. Unless otherwise specified in the related Prospectus Supplement, the "Determination Date" is the third Business Day (as defined herein) prior to each Distribution Date. On each Determination Date, the Master Servicer will determine the -8- amounts of principal and interest which will be passed through to Certificateholders on the related Distribution Date. Due Period..................... The "Due Period" for any Series is the period specified in the related Prospectus Supplement. The "Due Period" is the period during which principal, interest and other amounts will be collected on the Mortgage Loans for application to the payment of principal and interest to the Certificateholders and the payment of fees on such Distribution Date. Business Day................... A "Business Day" is any day other than a Saturday, Sunday or any day on which banking institutions or trust companies in the states of New York, Oklahoma and such other states (if any) specified in the related Prospectus Supplement are authorized by law, regulation or executive order to be closed. Cut-off Date................... The first day of the month of the issuance of the related Series of Certificates or such other date as is specified in the related Prospectus Supplement (the "Cut-off Date"). The Mortgage Assets............ The primary assets of the trust fund for a Series of Certificates (each, a "Trust Fund" or "Trust") will consist of one or more pools (each a "Mortgage Pool" or "Pool") of certain mortgage related assets (the "Mortgage Assets") consisting of (i) mortgage loans (or participation or other beneficial interests therein) secured by mortgages, deeds of trust or similar security instruments (the "Mortgages") creating first or subordinate liens on one- to four-family residential properties (the "Mortgage Loans"), and, if specified in the related Prospectus Supplement, (ii) mortgage pass-through certificates or participation certificates evidencing an undivided interest in a pool of mortgage loans or collateralized mortgage obligations secured by mortgage loans (the "Private Mortgage-Backed Securities"), together with payments in respect of such Mortgage Assets, and (iii) certain other accounts, obligations or agreements, in each case as specified in the related Prospectus Supplement. A. Mortgage Loans............ Unless otherwise specified in the related Prospectus Supplement, the Mortgage Loans will be secured by Mortgages creating first or subordinate liens on one- to four-family residential properties (each, a "Mortgaged Property"). If specified in the related Prospectus Supplement, the Mortgage Loans may include loans or participations therein secured by Mortgages on condominium units in condominium buildings together with such condominium units' appurtenant interests in the common elements of the condominium buildings. If specified in the related Prospectus Supplement, the Mortgage Assets of the related Trust may include mortgage participation certificates evidencing interests in mortgage loans. Unless otherwise specified in the related Prospectus Supplement, such Mortgage Loans -9- will be loans that are not insured or guaranteed by any governmental agency. B. General Attributes of Mortgage Loans.............. The payment terms of the Mortgage Loans to be included in a Trust will be described in the related Prospectus Supplement and may include any of the following features or combinations thereof or other features described in the related Prospectus Supplement: (a) Interest may be payable at a fixed rate (a "Fixed Rate" and a Mortgage Loan subject thereto is a "Fixed Rate Mortgage Loan"), a rate adjustable from time to time in relation to an index (which will be specified in the related Prospectus Supplement), a rate that is fixed for a period of time or under certain circumstances and is followed by an adjustable rate, a rate that otherwise varies from time to time, or a rate that is convertible from an adjustable rate to a fixed rate (each of the foregoing, an "Adjustable Rate" and a Mortgage Loan subject thereto is an "Adjustable Rate Mortgage Loan"). 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 Mortgage Loan for such periods and under such circumstances as may be specified in the related Prospectus Supplement. The loan agreement or promissory note (the "Mortgage Note") in respect of a Mortgage Loan may provide for the payment of interest at a rate lower than the interest rate (the "Mortgage Rate") specified in such Mortgage Note for a period of time or for the life of the Mortgage Loan, and the amount of any difference may be contributed from funds supplied by the seller of the related Mortgaged Property or another source or may be treated as accrued interest and added to the principal of the Mortgage Loan. (b) Principal may be payable on a declining balance basis to fully amortize the Mortgage 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 Mortgage 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 of certain Mortgage Loans ("Balloon Loans") may be due on maturity ("Balloon Payments"). Mortgage Loans may permit the mortgagee to require the Mortgagor (as defined herein) to pay the full principal balance of the loan on a specified date (the "Call Date") prior to the maturity of the loan ("Call -10- Loans"). Principal may include interest that has been deferred and added to the principal balance of the Mortgage Loan. (c) Monthly payments of principal and interest may be fixed for the life of the Mortgage Loan, may increase over a specified period of time (a "Graduated Payment Loan") or may change from period to period. The terms of a Mortgage Loan may include limits on periodic increases or decreases in the amount of monthly payments and may include maximum or minimum amounts of monthly payments. (d) The Mortgage Loans generally may be prepaid in whole or in part at any time. If specified in the related Prospectus Supplement, some prepayments of the full principal balance of a loan may be subject to a prepayment penalty or premium. Such prepayment penalty or premium will be applicable to certain prepayments of principal made during a specified period of time during the life of the Mortgage Loan. The Mortgage Note in respect of any Mortgage Loan subject to a prepayment penalty or premium generally will set forth the terms of prepayment. Prepayments on the Mortgage Loans as a result of a refinancing by the Seller or Seller's transferee generally will not be subject to a prepayment penalty or premium. The Mortgage Loans generally include "due on sale" clauses which permit the mortgagee to demand payment of the entire Mortgage Loan in connection with the sale or certain transfers of the related Mortgaged Property. Other Mortgage Loans may be assumable by persons meeting the then applicable underwriting standards for such Mortgage Loan. (e) The real property constituting security for repayment of a Mortgage Loan may be located in any one of the fifty states or the District of Columbia. Unless otherwise specified in the related Prospectus Supplement, all of the Mortgage Loans will be covered by standard hazard insurance policies (each, a "Standard Hazard Insurance Policy") insuring against losses due to fire and various other causes. Mortgage Loans with certain Combined Loan-to-Value Ratios (as defined herein) and/or certain principal balances are generally not covered wholly or partially by Primary Mortgage Insurance Policies (as defined herein) unless otherwise specified in the related Prospectus Supplement. -11- (f) Unless otherwise specified in the related Prospectus Supplement, certain of the Mortgage Loans underlying a given Series of Certificates may have been originated by CIT Consumer Finance or affiliates thereof and certain Mortgage Loans may have been purchased by CIT Consumer Finance or an affiliate thereof in the open market or in privately negotiated transactions, including transactions with entities affiliated with CIT Consumer Finance. The Prospectus Supplement for each Series of Certificates will specify with respect to all Mortgage Loans expected to be included in the related Pool as of the date specified in the related Prospectus Supplement, among other things, (i) the expected aggregate outstanding principal balance and the expected average outstanding principal balance of the Mortgage Loans in such Pool, (ii) the largest expected principal balance and the smallest expected principal balance of any of the Mortgage Loans, (iii) the types of Mortgaged Properties (e.g., detached residential one- to four-family properties, individual units in condominium apartment buildings, vacation and second homes, or other real property) and/or other assets securing the Mortgage Loans, (iv) the original terms to maturity of the Mortgage Loans, (v) the expected weighted average term to maturity of the Mortgage Loans as of the date specified in such Prospectus Supplement and the expected range of the terms to maturity, (vi) the earliest origination date and latest maturity date of any of the Mortgage Loans, (vii) the expected aggregate principal balance of Mortgage Loans having Combined Loan-to-Value Ratios in specified ranges, (viii) in the case of Fixed Rate Mortgage Loans, the expected weighted average Mortgage Rate and ranges of Mortgage Rates borne by the Mortgage Loans (as the case may be), (ix) in the case of Adjustable Rate Mortgage Loans, the expected weighted average of the Adjustable Rates as of the date set forth in such Prospectus Supplement, any periodic or lifetime rate caps or floors, maximum permitted Adjustable Rates, if any, and the Index (as defined herein) upon which the Adjustable Rate is based, (x) the expected aggregate outstanding principal balance, if any, of Buydown Loans (as defined herein) and Graduated Payment Loans, as of the date set forth in such Prospectus Supplement, (xi) the expected aggregate outstanding principal balance, if any, of Call Loans and Balloon Loans, (xii) the amount of any Certificate Guaranty Insurance Policy, Mortgage Pool Insurance Policy, Special Hazard Insurance Policy or Bankruptcy Bond to be maintained with respect to such Pool, (xiii) the amount, if any, and terms of any other Credit Enhancement (as defined herein) to be provided with respect to all or any Mortgage Loans or the Pool, (xiv) the priority of the Mortgages (first, second, third or fourth) and (xv) the expected geographic location of the Mortgaged -12- Properties. See "The Trusts - The Mortgage Loans-General" herein. C. Private Mortgage-Backed Securities................ Private Mortgage-Backed Securities may consist of (i) mortgage pass-through certificates or participation certificates evidencing an undivided interest in a pool of mortgage loans or (ii) collateralized mortgage obligations secured by such mortgage loans. Private Mortgage-Backed Securities may include stripped mortgage-backed securities representing an undivided interest in all or a part of any of the principal distributions (but not the interest distributions) or the interest distributions (but not the principal distributions) or in some specified portion of the principal and interest distributions (but not all of such distributions) on certain mortgage loans. Although individual mortgage loans underlying a Private Mortgage-Backed Security may be insured or guaranteed by the United States or an agency or instrumentality thereof, they need not be, and the Private Mortgage-Backed Securities themselves will not be so insured or guaranteed. Unless otherwise specified in the related Prospectus Supplement, payments on the Private Mortgage-Backed Securities will be distributed directly to the Trustee as registered owner of such Private Mortgage-Backed Securities. See "The Trusts--Private Mortgage-Backed Securities" herein. The related Prospectus Supplement for a Series for which the Trust includes Private Mortgage-Backed Securities will specify, with respect to any Private Mortgage-Backed Securities owned by the related Trust, among other things, (i) the approximate aggregate principal amount and type of any Private Mortgage-Backed Securities to be included in the Trust for such Series; (ii) certain characteristics of the mortgage loans that comprise the underlying assets for the Private Mortgage-Backed Securities including: (A) the payment features of such mortgage loans, (B) the approximate aggregate principal amount, if known, of such mortgage loans that are insured or guaranteed by a governmental entity, (C) the servicing fee or range of servicing fees with respect to such mortgage loans and (D) the minimum and maximum stated maturities of such mortgage loans at origination; (iii) the maximum original term-to-stated maturity of the Private Mortgage-Backed Securities; (iv) the weighted average term-to-stated maturity of the Private Mortgage-Backed Securities; (v) the pass-through or certificate rate or ranges thereof for the Private Mortgage-Backed Securities; (vi) the weighted average pass-through or certificate rate of the Private Mortgage-Backed Securities; (vii) the issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer"), the servicer of the Private Mortgage-Backed Securities (the "PMBS Servicer") if other than the PMBS Issuer and the trustee of the Private Mortgage-Backed Securities (the "PMBS Trustee"); (viii) certain characteristics of -13- credit support, if any, such as reserve funds, insurance policies, surety bonds, letters of credit or guarantees, relating to the mortgage loans that comprise the underlying assets for the Private Mortgage-Backed Securities or to such Private Mortgage-Backed Securities themselves; (ix) the terms on which the mortgage loans that comprise the underlying assets for such Private Mortgage-Backed Securities may, or are required to, be repurchased prior to their stated maturity or the stated maturity of the Private Mortgage-Backed Securities; and (x) the terms on which substitute mortgage loans may be delivered to replace those initially deposited with the PMBS Trustee. See "The Trusts" herein. Pre-Funding Account............ If provided in the related Prospectus Supplement, the original principal amount of a Series of Certificates may exceed the principal balance of the Mortgage Assets initially being delivered to the Trustee with respect to such Series. Cash in an amount equal to such difference (the "Pre-Funded Amount") will be deposited into a separate trust account (the "Pre-Funding Account") maintained with the Trustee. The Pre-Funded Amount will not exceed 25% of the Certificate Balance (as defined herein). During the period ("Funding Period") set forth in the related Prospectus Supplement, amounts on deposit in the Pre-Funding Account may be used to purchase additional Mortgage Assets for the related Trust. In addition, if provided in the related Prospectus Supplement, certain additional amounts in respect of interest will be deposited into the Pre-Funding Account or in a separate trust account. The related Prospectus Supplement will specify the conditions which must be satisfied prior to the transfer of any such additional Mortgage Assets, including the requisite characteristics of such Mortgage Assets. Any amounts remaining in the Pre-Funding Account at the end of the Funding Period will be distributed as a principal prepayment to the holders of the related Series of Certificates at the time and in the manner set forth in the related Prospectus Supplement. Unless otherwise specified in the related Prospectus Supplement, the specified period for the acquisition by a Trust of additional Mortgage Assets will not exceed three months from the date such Trust is established. Credit Enhancement............. The Mortgage Assets in a Trust or the Certificates of one or more classes in the related Series may have the benefit of one or more types of credit enhancement described in the related Prospectus Supplement. See "Credit Enhancement" herein. The protection against losses afforded by any such credit support may be limited. Credit Enhancement may include one or more of the following types: A. Subordination............. A Series of Certificates may consist of one or more classes of Senior Certificates and one or more classes of Subordinated Certificates. The rights of the holders of -14- the Subordinated Certificates of a Series (the Certificateholders Subordinated distributions "Subordinated Certificateholders") to receive with respect to the assets in the related Trust will be subordinated to such rights of the holders of the Senior Certificates of the same Series (the "Senior Certificateholders") to the extent described in the related Prospectus Supplement. This subordination is intended to enhance the likelihood of regular receipt by Senior Certificateholders of the full amount of the monthly payments of principal and interest due to them. The protection afforded to the Senior Certificateholders of a Series by means of the subordination feature will be accomplished by (i) the preferential right of such holders to receive, prior to any distribution being made in respect of the related Subordinated Certificates, the amounts of principal and interest due them on each Distribution Date out of the funds available for distribution on such date in the related Certificate Account (as defined herein) and, to the extent described in the related Prospectus Supplement, by the right of such holders to receive future distributions on the assets in the related Trust that would otherwise have been payable to the Subordinated Certificateholders, (ii) reducing the ownership interest of the related Subordinated Certificates, (iii) a combination of clauses (i) and (ii) above, or (iv) as otherwise described in the related Prospectus Supplement. If specified in the related Prospectus Supplement, subordination may apply only in the event of certain types of losses not covered by other forms of credit support, such as hazard losses not covered by Standard Hazard Insurance Policies or losses due to the bankruptcy or fraud of the Mortgagor not covered by a Bankruptcy Bond. The protection afforded to Senior Certificateholders through subordination also may be accomplished by allocating certain types of losses or delinquencies to the related Subordinated Certificates to the extent described in the related Prospectus Supplement. The related Prospectus Supplement will set forth information concerning, among other things, the amount of subordination of a class or classes of Subordinated Certificates in a Series, the circumstances in which such subordination will be applicable and the manner, if any, in which the amount of subordination will decrease over time. If specified in the related Prospectus Supplement, the same class of Certificates may constitute Senior Certificates with respect to certain types of payments or certain losses or delinquencies and Subordinated Certificates with respect to other types of payments or losses or delinquencies. B. Overcollateralization..... If specified in the related Prospectus Supplement, credit support may consist of overcollateralization whereby the aggregate principal amount of the Mortgage Assets exceeds the Certificate Balance of the Certificates of such Series. Overcollateralization may exist on the Closing Date or may develop thereafter as a result of the application of certain interest -15- collections or other collections received in connection with the Mortgage Assets in excess of amounts necessary to pay the Pass-Through Rate on the Certificates and certain other amounts as may be specified in the related Prospectus Supplement. The existence of any overcollateralization and the manner, if any, by which it increases or decreases, will be set forth in the related Prospectus Supplement. C. Reserve Fund.............. One or more reserve funds (each, a "Reserve Fund") may be established and maintained for each Series. The related Prospectus Supplement will specify whether or not any such Reserve Fund will be included in the corpus of the Trust for such Series and will also specify the manner of funding the related Reserve Fund and the conditions under which the amounts in any such Reserve Fund will be used to make distributions to holders of Certificates of a particular class or released from the related Trust. D. Certificate Guaranty Insurance Policy.......... A certificate guaranty insurance policy or policies (each, a "Certificate Guaranty Insurance Policy") may be obtained and maintained for one or more class or classes of a Series of Certificates. Certificate Guaranty Insurance Policies generally unconditionally and irrevocably guarantee to Certificateholders that the full amount of the distributions of principal and interest, as well as any other amounts specified in the related Prospectus Supplement, will be received by an agent of the Trustee on behalf of Certificateholders for distribution by the Trustee to Certificateholders. If specified in the related Prospectus Supplement, the Certificate Guaranty Insurance Policy may only cover ultimate payment of principal to Certificateholders and not timely payment of principal on each Distribution Date. Certificate Guaranty Insurance Policies may have certain limitations set forth in the related Prospectus Supplement, including (but not limited to) limitations on the insurer's obligation to guarantee the Sellers' or the Master Servicer's obligation to repurchase or substitute for any Mortgage Loans, to guarantee any specified rate of prepayments or to provide funds to redeem Certificates on any specified date. The Certificate Guaranty Insurance Policy may also be limited in amount. E. Mortgage Pool Insurance Policy.......... A mortgage pool insurance policy or policies (each, a "Mortgage Pool Insurance Policy") may be obtained and maintained for a Mortgage Pool, which shall be limited in scope, covering defaults on the related Mortgage Loans in an initial amount equal to a specified percentage of the aggregate principal balance of all Mortgage Loans included in the Mortgage Pool as of the Cut-off Date and, if applicable, as of the Subsequent Cutt-off Dates (as defined in the related Prospectus Supplement) related to the transfer of additional Mortage Loans, if any, which are not covered as to their entire outstanding principal balances by Primary Mortgage Insurance Policies. 16 F. Special Hazard Insurance Policy.......... A special hazard insurance policy or policies (each, a "Special Hazard Insurance Policy"), may be obtained and maintained for a Mortgage Pool, covering certain physical risks that are not otherwise insured against by standard hazard insurance policies. Each Special Hazard Insurance Policy will be limited in scope and will cover losses pursuant to the provisions of each such Special Hazard Insurance Policy as described in the related Prospectus Supplement. G. Bankruptcy Bond........... A bankruptcy bond or bonds (each, a "Bankruptcy Bond") may be obtained to cover certain losses resulting from proceedings under the federal Bankruptcy Code with respect to a Mortgage Loan. The level of coverage and the limitations in scope of each Bankruptcy Bond will be specified in the related Prospectus Supplement. H. Cross Collateralization... If specified in the related Prospectus Supplement, the beneficial ownership of separate Trusts or separate groups of assets included in a Trust may be evidenced by separate classes of the related Series of Certificates. In such case, credit support may be provided by a cross collateralization feature which requires that distributions be made with respect to Certificates evidencing beneficial ownership of one or more separate Trusts or asset groups prior to distributions to Certificates evidencing a beneficial ownership interest in other separate Trusts or asset groups within the same Trust. If specified in the related Prospectus Supplement, the coverage provided by one or more forms of credit support may apply concurrently to two or more separate Trusts, without priority among such Trusts, until the credit support is exhausted. If applicable, the related Prospectus Supplement will identify the Trusts or asset groups 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 or asset groups. I. Other Credit Enhancement.. Other credit enhancement arrangements, as described in the related Prospectus Supplement, including (but not limited to) one or more spread accounts, cash collateral accounts and/or other accounts, letters of credit, surety bonds, financial guaranty insurance policies, interest rate swaps, caps, floors and other derivative products, guaranteed investment contracts or third party guarantees (including guarantees by The CIT Group Holdings, Inc., its affiliates, or an unaffiliated third party, any of which may be limited in nature) or similar instruments or agreements, may be used to provide coverage for certain risks or defaults or losses. These arrangements may be in addition to or in substitution for any forms of credit support described in this Prospectus. Any such arrangement must be acceptable to each -17- nationally recognized statistical rating organization that provides a rating for one or more classes of the related Series of Certificates (each, a "Rating Agency"). Advances....................... Unless otherwise specified in the related Prospectus Supplement, the Master Servicer will be required to remit to the Trustee no later than the day prior to the Distribution Date and in no case earlier than the seventh Business Day of such month the amount (an "Advance"), if any, by which 30 days' interest at the Mortgage Rate (or, if specified in the related Prospectus Supplement, at the Adjusted Mortgage Loan Remittance Rate (as defined herein)) on the then outstanding principal balance of a Mortgage Loan exceeds the amount received by the Master Servicer in respect of interest on the Mortgage Loan as of the related Record Date (as defined herein). Any Advances by the Master Servicer will be reimbursable to the Master Servicer out of recoveries on the specific Mortgage Assets with respect to which such Advances were made (e.g., late payments made by the related Mortgagors, any related Insurance Proceeds, Liquidation Proceeds, Released Mortgaged Property Proceeds (each, as defined herein) or proceeds of any Mortgage Loan repurchased by the Depositor, a Sub-Servicer or a Seller pursuant to the related Agreement) and any other amount that would otherwise be distributed to the holder or holders of Certificates representing the residual interest of a Trust for which a REMIC election has been made. In addition, Advances by the Master Servicer also will be reimbursable to the Master Servicer from cash otherwise distributable to Certificateholders (including Senior Certificateholders) to the extent that the Master Servicer determines that any such Advances previously made are not ultimately recoverable as described in the immediately preceding sentence. See "Description of the Certificates -- Advances and Compensating Interest" herein. Any obligation to make Advances may be subject to limitations as specified in the related Prospectus Supplement. If provided in the related Prospectus Supplement, the obligation of the Master Servicer to make such Advances will be limited to amounts corresponding to delinquent interest payments on a Mortgage Loan and/or will be limited to amounts that the Master Servicer believes will be recoverable out of late payments by Mortgagors on a Mortgage Loan, Liquidation Proceeds, Insurance Proceeds or otherwise. Compensating Interest.......... Unless otherwise specified in the related Prospectus Supplement, not later than the close of business on the Business Day prior to each Determination Date, with respect to each Mortgage Loan as to which the Master Servicer receives during the related Due Period a principal payment in full in advance of the final scheduled due date (a "Principal Prepayment"), the Master Servicer will be required to remit to the Trustee for deposit in the Certificate Account from amounts otherwise payable to the Master Servicer as -18- servicing compensation, an amount ("Compensating Interest") equal to any excess of (a) 30 days' interest on the principal balance of each such Mortgage Loan as of the beginning of the related Due Period at the applicable Mortgage Rate (or, if specified in the related Prospectus Supplement, at the Adjusted Mortgage Loan Remittance Rate) over (b) the amount of interest actually received on the related Mortgage Loan during such Due Period. Optional Termination........... The Master Servicer, the Depositor, the holder of the residual interest in a REMIC, certain insurers or certain other entities specified in the related Prospectus Supplement may have the option to effect early termination of a Series of Certificates through the purchase of the Mortgage Assets and other assets in the related Trust under the circumstances and in the manner specified in the related Prospectus Supplement and herein under "The Pooling and Servicing Agreement--Termination; Purchase of Mortgage Loans." Mandatory Termination.......... The Trustee, the Master Servicer or certain other entities specified in the related Prospectus Supplement may be required to effect early termination of a Series of Certificates under the circumstances and in the manner specified in the related Prospectus Supplement and herein under "The Pooling and Servicing Agreement--Termination; Purchase of Mortgage Loans." Legal Investment............... The Prospectus Supplement for each Series of Certificates will specify which, if any, of the classes of Certificates offered thereby will constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). Classes of Certificates that qualify as "mortgage related securities" will be legal investments for certain types of institutional investors to the extent provided in SMMEA, subject, in any case, to any other regulations that may govern investments by such institutional investors. Investors should consult with their counsel or the applicable authorities to determine whether an investment in a particular class of Certificates (whether or not such class constitutes a "mortgage related security") complies with applicable guidelines, policy statements or restrictions. See "Legal Investment" herein. -19- Certain Federal Income Tax Consequences................... The federal income tax consequences to Certificateholders will vary depending on whether one or more elections are made to treat the Trust or specified portions thereof as a "real estate mortgage investment conduit" ("REMIC") under the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The Prospectus Supplement for each Series of Certificates will specify whether such an election will be made. Investors are advised to consult their tax advisors and to review "Certain Federal Income Tax Consequences" herein and, if applicable, in the related Prospectus Supplement. ERISA Considerations........... A fiduciary of any employee benefit plan or other retirement plan or arrangement (including individual retirement accounts, certain Keogh plans, and collective investment funds, separate accounts and insurance company general accounts in which such plans, accounts or arrangements are invested) subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the Code should carefully review with its legal advisors whether an investment in Certificates will cause the assets of the related Trust to be considered plan assets under the Department of Labor ("DOL") regulations set forth in 29 C.F.R. Section 2510.3-101 (the "Plan Asset Regulations"), thereby subjecting the Trustee and the Master Servicer to the fiduciary investment standards of ERISA, and whether the purchase, holding or transfer of Certificates could give rise to a transaction prohibited or not otherwise permissible under ERISA or the Code or subject to the excise tax provisions of Section 4975 of the Code, unless a DOL administrative exemption applies. See "ERISA Considerations" herein and in the related Prospectus Supplement. If specified in the related Prospectus Supplement, certain classes of Certificates may not be transferred unless the Trustee and the Depositor are furnished with a letter of representation or an opinion of counsel to the effect that such transfer will not result in a violation of the prohibited transaction provisions of ERISA and the Code and will not subject the Trustee, the Depositor or the Master Servicer to additional obligations. See "Description of the Certificates--General" and "ERISA Considerations" herein and in the related Prospectus Supplement. -20- Registration of Certificates................... If specified in the related Prospectus Supplement, Certificates will be represented by global certificates registered in the name of Cede & Co. ("Cede"), as nominee of The Depository Trust Company ("DTC"), or another nominee. In such case, Certificateholders will not be entitled to receive Definitive Certificates (as defined herein) representing such Certificateholders' interests, except in certain circumstances described in the related Prospectus Supplement. If specified in the related Prospectus Supplement, Certificateholders may also hold Certificates of a Series through Cedel Bank, societe anonyme ("Cedel") or the Euroclear System ("Euroclear") in Europe, if they are participants in such systems or indirectly through organizations that are participants in such systems. See "Description of the Certificates--Book-Entry Certificates" herein. -21- RISK FACTORS Prospective Certificateholders (as defined herein) should consider, among other things, the following risk factors in connection with the purchase of the Certificates (as defined herein): 1. General. An investment in Certificates evidencing interests in Mortgage Loans (as defined herein) may be affected, among other things, by a decline in real estate values or changes in mortgage market rates. An overall decline in the market value of residential real estate, the general condition of a Mortgaged Property (as defined herein), or other factors, could adversely affect the values of the Mortgaged Properties such that the outstanding balances of the Mortgage Loans, together with any senior liens on the Mortgaged Properties, equal or exceed the value of the Mortgaged Properties. Such a decline could extinguish the interest of the related Trust (as defined herein) in the Mortgaged Properties before having any effect on the interest of the related senior mortgagee. Certain of the Mortgage Loans may be secured by Mortgaged Properties located in areas of the country which have experienced declines in real estate values over the last few years. The Depositor (as defined herein) will not be able to quantify the impact of any property value declines on the Mortgage Loans or predict whether, to what extent or how long such declines may continue. In periods of such declines, the actual rates of delinquencies, foreclosures and losses on the Mortgage Loans could be higher than those historically experienced in the mortgage lending industry in general. See "The Home Equity Lending Program--Servicing and Collections" herein. To the extent that such losses are not covered by the subordination of any class or Series (as defined herein) of Certificates, applicable insurance policies or alternate credit enhancement, holders of the Certificates of a Series evidencing interests in a Mortgage Pool (as defined herein) will bear all risk of loss resulting from default by borrowers on such Mortgage Loans (each a "Mortgagor") and will have to look primarily to the value of the Mortgaged Properties for recovery of the outstanding principal and unpaid interest of the defaulted Mortgage Loans. See "The Trusts" herein. 2. Limited Obligations. The Certificates will not represent an interest in or obligation of The CIT Group Securitization Corporation III (the "Depositor"), The CIT Group/Sales Financing, Inc. ("CITSF"), The CIT Group/Consumer Finance, Inc. ("CIT Consumer Finance"), The CIT Group Holdings, Inc. ("CIT") or any of their respective affiliates, unless (and to the extent) expressly provided in the related Prospectus Supplement. Unless expressly provided in the related Prospectus Supplement, the Certificates will not be insured or guaranteed by any government agency or instrumentality, nor by the Depositor, CIT Consumer Finance, CITSF, CIT or any of their respective affiliates. 3. Yield and Prepayment Considerations. The yield to maturity of the Certificates 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 to Fixed Rate Mortgage Loans (each, as defined herein) or breaches of representations and warranties) on the Mortgage Loans and the price paid by Certificateholders. Such yield may be adversely affected by a higher or lower than anticipated rate of prepayments on the related Mortgage Loans. The yield to maturity on Certificates purchased at premiums or discounted to par will be extremely sensitive to the rate of prepayments on the related Mortgage Loans. In addition, the yield to maturity on certain other types of classes of Certificates, including certain other classes in a Series including more than one class of Certificates, may be relatively more sensitive to the rate of the prepayment on the related Mortgage Loans than other classes of Certificates. See "Yield and Prepayment Considerations" herein. Unless otherwise specified in the related Prospectus Supplement, the Mortgage Loans generally may be prepaid in whole or in part at any time. However, if permitted by the mortgage documentation and applicable law, the Master Servicer may charge a prepayment penalty or premium in connection with a prepayment, but CIT Consumer Finance's current operating system cannot process -22- prepayment penalties for partial prepayments on any Mortgage Loan. Such penalties or premiums will be property of the related Trust. See "Certain Legal Aspects of the Mortgage Loans - Prepayment and Late Charges" and "Description of the Certificates - Distributions on Certificates - Available Funds" herein. The rate of prepayments of the Mortgage Loans cannot be predicted. The prepayment experience on the Mortgage Loans and the mortgage loans underlying the Private Mortgage-Backed Securities (as defined herein) will affect the average life of the Certificates or each class of Certificates. Prepayments on the Mortgage Loans and the mortgage loans underlying the Private Mortgage-Backed Securities may be influenced by a variety of economic, geographic, social and other factors, including the difference between the interest rates on the Mortgage Loans or the mortgage loans underlying the Private Mortgage-Backed Securities and prevailing mortgage rates (giving consideration to the cost of refinancing). Therefore, no assurance can be given as to the level of prepayments that a Trust will experience. Evidence suggests that the prepayment behavior of a pool including home equity loans may be significantly different from that of a pool composed entirely of first-lien purchase money mortgage loans with equivalent interest rates and maturities. For example, the smaller average principal balance of a pool of home equity loans may result in a higher prepayment rate than that of a pool of first-lien purchase money mortgage loans with a larger average balance, regardless of the interest rate environment. A small principal balance, however, also may make refinancing a home equity loan at a lower interest rate less attractive to the borrower relative to refinancing a larger balance first-lien purchase money mortgage loan because the borrower may perceive the impact of lower interest rates on the size of the monthly payment for a home equity mortgage loan to be less than for a first-lien purchase money mortgage loan with a larger balance. The amounts of, and interest rates on, the underlying senior mortgage loans might be expected to affect the prepayment rate of a pool of junior mortgage loans. The use of first-lien mortgage loans as long-term financing for home purchase and the use of junior lien mortgage loans as shorter-term financing for a variety of purposes, including home improvement, education expenses and purchases of consumer durables such as automobiles might also affect prepayment rates. Accordingly, the Mortgage Loans which are home equity loans may experience a higher rate of prepayment than traditional fixed-rate mortgage loans. In addition, any future limitations on the right of borrowers to deduct interest payments on home equity mortgage loans for federal income tax purposes may further increase the rate of prepayments of such home equity loans. See "Yield and Prepayment Considerations" herein. Prepayments of the Mortgage Loans may result from voluntary early payments by Mortgagors (including payments in connection with refinancings of the related senior mortgage loan or loans), sales of Mortgaged 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, if any. The Mortgage Loans generally contain "due on sale" provisions, and the Master Servicer will be required to enforce such provisions unless (i) such enforcement will impair or threaten to impair any recovery under any related Primary Mortgage Insurance Policy (as defined herein) or will materially increase the risk of default or delinquency on, or materially decrease the security for, such Mortgage Loan or (ii) such enforcement is not permitted by applicable law or the applicable Mortgage (as defined herein), in which case the Master Servicer is authorized to permit the purchaser of the related Mortgaged Property to assume the Mortgage Loan. See "The Pooling and Servicing Agreement" and "Certain Legal Aspects of the Mortgage Loans - Due on Sale Clauses" herein and in the related Prospectus Supplement. Collections on the Mortgage Loans may vary due to the level of incidence of delinquent payments and of prepayments. Collections on the Mortgage Loans may also vary due to seasonal purchasing and payment habits of Mortgagors. Prepayments may also result from mandatory prepayments relating to unused moneys held in Pre-Funding Accounts (as defined herein), if any, and refinancings by a Seller (as defined herein) of the Mortgage Loan. In addition, -23- repurchases or purchases from a Trust of Mortgage Loans or substitution adjustments required to be made under the related Agreement will have the same effect on the Certificateholders as a prepayment of such Mortgage Loans. 4. Risk of Early Defaults. Certain of the Mortgage Loans underlying a Series of Certificates may be recently originated as of the date of inclusion in the related Mortgage Pool. Although little data is available, defaults on mortgage loans are generally expected to occur with greater frequency in their early years. Certain of the Mortgage Loans underlying a Series of Certificates may be delinquent in respect of the payment of principal and interest. In addition, certain of the Mortgagors under the Mortgage Loans underlying a Series of Certificates may be subject to personal bankruptcy proceedings. Such Mortgage Loans may be subject to a greater risk of default. See "Trusts" herein and "The Mortgage Pool" in the related Prospectus Supplement. 5. Risk of the Losses Associated with Junior Liens. A substantial proportion of the residential mortgage loans originated by CIT Consumer Finance historically have been mortgage loans secured by liens subordinate to the rights of the mortgagee under each related senior mortgage ("Junior Lien Loans"). In most (or all) cases such senior mortgage or deed or trust will not be included in the Mortgage Pool. Although little data is available on CIT Consumer Finance's portfolio, the rate of default of Junior Lien Loans may be greater than that of mortgage loans secured by senior liens on comparable properties. A primary risk to holders of Junior Lien Loans is the possibility that adequate funds will not be received in connection with a foreclosure of the related senior lien to satisfy both the senior mortgage and the Junior Lien Loan. The proceeds from any liquidation, insurance or condemnation proceedings will be available to satisfy the principal balance of a Junior Lien 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 and, in the case of a judicial foreclosure, only to the extent that the junior mortgagee has answered and established its claim. In addition, a mortgagee holding a Junior Lien Loan 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. See "Certain Legal Aspects of the Mortgage Loans - Foreclosure" herein. In servicing Junior Lien Loans in its portfolio, it has been the practice of CIT Consumer Finance to satisfy each such senior mortgage at or prior to the foreclosure sale only to the extent that it determines any amount so paid will be recoverable from future payments and collections on such Junior Lien Loans or otherwise. In servicing Junior Lien Loans in its portfolio, it has been the practice of CIT Consumer Finance to advance funds to keep the senior lien current in the event the mortgagor is in default thereunder until such time as CIT Consumer Finance satisfies the senior lien by sale of the mortgaged property, but only to the extent that it determines such advances will be recoverable from future payments and collections on that Junior Lien Loan or otherwise. CIT Consumer Finance may modify these practices at any time. The related Trust will have no source of funds to satisfy a senior mortgage or to make payments due to any senior mortgagee. The Junior Lien Loans are subject and subordinate to any senior liens affecting the related Mortgaged Property, including limitations and prohibitions which may be contained in such senior liens upon subordinate financing. See "Certain Legal Aspects of the Mortgage Loans" herein. 6. Potential Conflict of Interest. CIT Consumer Finance may hold both a senior mortgage and a Junior Lien Loan on the same Mortgaged Property (or CIT Consumer Finance may in the future originate a mortgage loan which is junior or senior to a Mortgage Loan included in the Mortgage Pool). In such circumstances, -24- CIT Consumer Finance may, in its role as Master Servicer, be required to make decisions regarding a Mortgage Loan which could affect the value or collectability of a mortgage held by CIT Consumer Finance (or by a trust for which CIT Consumer Finance acts as servicer) on the same Mortgaged Property. 7. Limited Liquidity. There can be no assurance that a secondary market will develop for the Certificates of any Series or, if it does develop, that it will provide the holders of Certificates of such Series with liquidity of investment or that it will remain for the life of such Series of Certificates. Although the Certificateholders of each Series will receive monthly statements containing certain statistical information with respect to the related Mortgage Pool, the Depositor publishes no information relating to the Certificates of any Series or any Mortgage Pool. The limited availability of any such published information may influence the liquidity of the Certificates. 8. Subordination. With respect to Certificates of a Series having a class of Subordinated Certificates (as defined herein), while the subordination feature is intended to enhance the likelihood of timely payment of principal and interest to Senior Certificateholders (as defined herein), the level of subordination may be limited, as specified in the Prospectus Supplement, the Reserve Fund (as defined herein), if any, could be depleted, and payments applied to the Senior Certificates (as defined herein) which are otherwise due to the Subordinated Certificates may be less than the losses. 9. Risk of Losses Associated with Balloon and Call Loans. Certain of the Mortgage Loans may constitute Balloon Loans and Call Loans (each, as defined herein). Balloon Loans are originated with a stated maturity of less than the period of time required to amortize the Balloon Loan principal based upon the monthly payment amount. Consequently, upon the maturity of a Balloon Loan, the Mortgagor will be required to make a Balloon Payment (as defined herein) that will be significantly larger than the previous monthly payments. Call Loans have a scheduled payment and term which fully amortizes principal. The terms of a Call Loan permit the mortgagee to require the Mortgagor to pay the full principal balance of the Mortgage Loan on a specified date before its scheduled maturity date. If the mortgagee exercises the call option in a Call Loan, the Mortgagor will be required to make a payment that will be significantly larger than the previous monthly payments. The ability of such a Mortgagor to repay a Balloon Loan at maturity or a Call Loan on the date a call option is exercised frequently will depend on such Mortgagor's ability to refinance the Mortgage Loan. The ability of a Mortgagor 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 Mortgaged Property, the Mortgagor's equity in the related Mortgaged Property, the creditworthiness of the Mortgagor, 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 Certificateholders 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 Mortgagor to accomplish a refinancing and may result in delinquencies or defaults. Except as provided below, none of the Depositor, the Sellers, the Master Servicer or the Trustee will be obligated to provide funds to refinance any Mortgage Loan, including Balloon Loans or Call Loans. However, CIT Consumer Finance may in certain limited circumstances be required by law to provide such refinancing. 10. Risk of Losses Associated with Adjustable Rate Mortgage Loans. Adjustable Rate Mortgage Loans (as defined herein) may be underwritten on the basis of an assessment that Mortgagors will have the ability to make payments in higher amounts after relatively short periods of time. In some instances, a Mortgagor's income may not be sufficient to enable him or her to continue to make his or her loan payments as such payments increase and thus the likelihood of default will increase. -25- 11. Risk of Losses Associated with Bankruptcy of Mortgagors. General economic conditions have an impact on the ability of Mortgagors to repay Mortgage Loans. Loss of earnings, illness and other similar factors also may lead to an increase in delinquencies and bankruptcy filings by Mortgagors. In the event of personal bankruptcy of a Mortgagor, it is possible that a Trust could experience a loss with respect to such Mortgagor's Mortgage Loan. In conjunction with a Mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments of principal and interest to be paid with respect to such Mortgage Loan or permanently reduce the principal balance of such Mortgage Loan, thereby either delaying or permanently limiting the amount received by the Trust with respect to such Mortgage Loan. Moreover, in the event a bankruptcy court prevents the transfer of the related Mortgaged Property to a Trust, any remaining balance on such Mortgage Loan may not be recoverable. 12. Delays in Liquidating Defaulted Mortgage Loans. Even if one assumes that the Mortgaged Properties provide adequate security for the Mortgage Loans, substantial delays could be encountered in connection with the liquidation of defaulted Mortgage Loans resulting in corresponding delays in the receipt of related proceeds by the Certificateholders. An action to foreclose on a Mortgaged Property securing a Mortgage Loan is regulated by state statutes, rules and judicial decisions and is subject to many of the delays and expenses of other lawsuits if defenses or counterclaims are interposed, sometimes requiring several years to complete. Furthermore, in some states, an action to obtain a deficiency judgment against the Mortgagor is not permitted following a nonjudicial sale of a Mortgaged Property. In the event of a default by a Mortgagor, these restrictions, among other things, may impede the ability of the Master Servicer to foreclose on or sell the Mortgaged Property or to obtain liquidation proceeds (net of expenses) sufficient to repay all amounts due on the related Mortgage Loan. The Master Servicer will be entitled to deduct from Liquidation Proceeds (as defined herein) all expenses reasonably incurred in attempting to recover amounts due on the related liquidated Mortgage Loan and not yet repaid, including payments to prior lienholders, accrued Master Servicing Fees (as defined herein), legal fees and costs of legal action, real estate taxes, and maintenance and preservation expenses. In the event that the Mortgaged Properties fail to provide adequate security for the related Mortgage Loans and insufficient funds are available from any applicable credit enhancement, Certificateholders 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 loan at the time of default. Therefore, assuming that the Master Servicer takes the same steps in realizing upon a defaulted Mortgage Loan having a small remaining principal balance as it would in the case of a defaulted Mortgage Loan having a larger principal balance, the amount realized after expenses of liquidation would be less as a percentage of the outstanding principal balance of the smaller principal balance Mortgage Loan than would be the case with a larger principal balance loan. Because the average outstanding principal balances of the Mortgage Loans which are home equity loans are small relative to the size of the loans in a typical pool composed entirely of first mortgages, realizations net of liquidation expenses on defaulted Mortgage Loans which are home equity loans may also be smaller as a percentage of the principal amount of such home equity loans than would be the case with a typical pool of first Mortgage Loans. 13. Risk of Losses Associated with Mortgaged Properties. No assurance can be given that values of the Mortgaged Properties have remained or will remain at their levels on the dates of origination of the related Mortgage Loans. If the residential real estate market should experience an overall decline in property values such that the outstanding principal balances of the Mortgage Loans (and any additional financing by other lenders on the Mortgaged Properties) in a particular Mortgage Pool become equal to or greater than the value of the Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses could be higher than those now experienced by CIT Consumer Finance or those now generally experienced in the mortgage lending industry. In addition, adverse economic conditions and other factors (which may or may not affect real property -26- values) may affect the timely payment by Mortgagors of scheduled payments of principal and interest on the Mortgage Loans and, accordingly, the actual rates of delinquencies, foreclosures and losses with respect to any Mortgage Pool. To the extent that such losses are not covered by subordination provisions or alternative credit enhancement arrangements, such losses will be borne, at least in part, by the holders of the Certificates of the related Series. Certain of the Mortgaged 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 nonowner occupied properties could be higher than for loans secured by the primary residence of the Mortgagor. Other factors affecting Mortgagors' ability to repay Mortgage 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 Mortgaged Properties. To the extent that such losses are not covered by credit enhancements, such losses will be borne, at least in part, by the Certificateholders of the related Series. 14. Litigation. Any material litigation pending against the Depositor, a Seller or the Master Servicer will be specified in the related Prospectus Supplement. 15. Geographic Concentration of Mortgaged Properties. 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 Certificates 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 Mortgaged Properties will be specified in the related Prospectus Supplement. 16. Legal Considerations. Applicable state laws generally regulate interest rates and other charges, require certain disclosures, and require licensing of the Mortgage Loan originators, the Master Servicer and any Sub-Servicer (as defined herein). 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 Mortgage 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 a Trust or of the Master Servicer to collect all or part of the principal of or interest on the Mortgage Loans, may entitle the Mortgagor to a refund of amounts previously paid and, in addition, could subject a Trust and the Master Servicer to damages and administrative sanctions. See "Certain Legal Aspects of The Mortgage Loans" herein. Unless otherwise specified in the related Prospectus Supplement, neither the related Trust nor the Depositor will obtain any licenses under any federal or state consumer laws or regulations. The absence of such licenses may impede the enforcement of certain rights or may give rise to certain defenses in actions seeking enforcement of such rights which may prevent a Trust from collecting amounts due under the Mortgage Loans. The Mortgage 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 Mortgagors regarding the terms of the Mortgage Loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination in the extension of credit -27- and administration of loans 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; (iii) the Fair Credit Reporting Act, which regulates the use and reporting of information related to the Mortgagor's credit experience, and (iv) the Fair Housing Act, which prohibits discrimination on the basis of, among other things, familial status or handicap. The Mortgage Loans may be subject to the Home Ownership and Equity Protection Act of 1994 (the "Home Ownership Act") which amended the Federal Truth-in-Lending Act as it applies to mortgages subject to the Home Ownership Act. The Home Ownership Act requires certain additional disclosures, specifies the timing of such disclosures and limits or prohibits the inclusion of certain provisions in mortgages subject to the Home Ownership Act. The Home Ownership Act also provides that any purchaser or assignee of a mortgage covered by the Home Ownership Act is subject to all of the claims and defenses which the borrower could assert against the original lender. The maximum damages that may be recovered by a borrower from an assignee in an action under the Home Ownership Act are the remaining amount of indebtedness plus the total amount paid by the borrower in connection with the mortgage loan. Any Trust for which the Mortgage Assets (as defined herein) include Mortgage Loans subject to the Home Ownership Act would be subject to all of the claims and defenses which the Mortgagor could assert against the original lender. Any violation of the Home Ownership Act which would result in such liability would be a breach of the Seller's representations and warranties, and the Seller would be obligated to cure, repurchase or, if permitted by the related Agreement, substitute another Mortgage Loan for the Mortgage Loan in question. 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 a Trust or of the Master Servicer to collect all or part of the principal of or interest on the Mortgage Loans, may entitle the Mortgagor to rescind the Mortgage Loan and the Mortgage or to obtain a refund of amounts previously paid and, in addition, could subject a Trust or the Master Servicer to damages and administrative sanctions. If the Master Servicer is unable to collect all or part of the principal or interest on the Mortgage Loans because of a violation of the aforementioned laws, public policies or general principles of equity, then the Trust may delay payments to, or be unable to repay all amounts owed to, Certificateholders. Furthermore, depending upon whether damages and sanctions are assessed against the Master Servicer such violations may materially impact the financial ability of CIT Consumer Finance to continue to act as Master Servicer or the ability of CIT Consumer Finance to repurchase or replace Mortgage Loans if such violation breaches a representation or warranty contained in the related Agreement. In addition, numerous other federal and state statutory provisions, including the federal bankruptcy laws, the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief Act") and state debtor relief laws, may also adversely affect the Master Servicer's ability to collect the principal of or interest on the Mortgage Loans and also would affect the interests of the Certificateholders in such Mortgage Loans if such laws result in the Mortgage Loans being uncollectible. See "Certain Legal Aspects of the Mortgage Loans" herein. Generally, under the terms of the Relief Act or similar state legislation, a Mortgagor who enters military service after the origination of the related Mortgage Loan (including a Mortgagor who is a member of the National Guard or is in reserve status at the time of the origination of the Mortgage 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 Mortgagor'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 Master Servicer to collect full amounts of interest on certain of the Mortgage Loans. In addition, the Relief Act imposes limitations that would impair the ability of the Master Servicer to foreclose on -28- an affected Mortgage Loan during the Mortgagor's period of active duty status. Thus, in the event that such a Mortgage Loan goes into default, there may be delays and losses occasioned by the inability to realize upon the Mortgaged Property in a timely fashion. Under environmental legislation and judicial decisions applicable in various states, a secured party which takes a deed in lieu of foreclosure, or acquires at a foreclosure sale a mortgaged 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. It is unclear whether such costs, which could be substantial, would be imposed on a holder of a mortgage note (such as a Trust) which does not directly or through its agents use the Mortgaged Properties in a manner causing an environmental hazard. See "Certain Legal Aspects of The Mortgage Loans" herein. 17. Liens and Certain Other Aspects of the Mortgage Loans. A variety of factors may limit the ability of the Certificateholders to realize upon the Mortgaged Properties securing the Mortgage Loans or may limit the amount realized to less than the amount due. See "Certain Legal Aspects of the Mortgage Loans" herein. Because of the expense and administrative inconvenience involved, the Seller and the Depositor will not deliver to the Trustee any assignments in recordable form of the Mortgages. Consequently, in some states, if the assignment is not recorded in the proper office, the assignment to the Trustee may not be effective against creditors of the Seller or the Depositor or a trustee in bankruptcy of the Seller or the Depositor. As a result, the Trust would not be able to claim the Mortgaged Property as collateral for a Mortgage Loan. 18. The Status of the Mortgage Loans in the Event of Bankruptcy of the Depositor, CIT Consumer Finance or CITSF. In the event of the bankruptcy of the Depositor, CIT Consumer Finance, CITSF or any affiliate thereof which originated any Mortgage Loans, a trustee in bankruptcy of the Depositor, CIT Consumer Finance, CITSF or such affiliate, or the creditors thereof could attempt to convince the relevant court to recharacterize the transfer of the Mortgage Loans to the related Trust as a borrowing by the Depositor, CIT Consumer Finance, CITSF or such affiliate with the result, if such recharacterization were upheld, that the Certificateholders would be deemed creditors of the Depositor, CIT Consumer Finance, CITSF or such affiliate, secured by a pledge of the Mortgage Loans. If the Mortgage Loans were deemed "sold" to the related Trust, the Mortgage Loans would not be assets of the Depositor, CIT Consumer Finance, CITSF or such affiliate and would not be available to their creditors. In the event that an attempt to convince the relevant court to recharacterize the transfer of the Mortgage Loans as a secured loan were successful, the Trustee, on behalf of the holders of the Certificates, would have a secured claim against the relevant entity but would be delayed or prohibited from exercising remedies with respect to the Mortgage Loans or taking actions with respect to the relevant entity absent court approval. In addition, other collateral might be substituted for the Mortgage Loans, and collections on the Mortgage Loans or such other collateral might be applied to make distributions of principal and interest on the Certificates at different times than those required by the related Agreement. Moreover, payment of interest which accrued after the commencement of the bankruptcy or insolvency proceeding might be limited, and payment of the "loan" could be accelerated, with holders of Certificates losing the right to future interest distributions. Even if such an attempt were not successful, it is possible that distributions on the Certificates would be subject to delays while the claim was being resolved by a court. 19. ERISA Considerations. An investment in a class of Certificates of any Series by Plans (as defined herein) may give rise to a prohibited transaction under ERISA (as defined herein) Section 406 and be subject to tax under Code (as defined herein) Section 4975 unless a statutory or administrative exemption is available. Accordingly, fiduciaries of any employee benefit plan or other -29- retirement arrangement should consult their counsel before purchasing any class of Certificates. Certain classes of Certificates will not be eligible for purchase by Plans. See "ERISA Considerations" herein and in the related Prospectus Supplement. 20. Limitations, Reduction and Substitution of Credit Enhancement. Credit enhancement may be provided with respect to one or more classes of Certificates of a Series to cover certain types of losses on the underlying Mortgage Loans. Credit enhancement may be provided by one or more forms, including, but not limited to, subordination of one or more classes of Certificates of such Series, letter of credit, financial guaranty insurance policy, mortgage pool insurance policy, special hazard insurance policy, reserve fund, spread account, cash collateral account, overcollateralization, cross collateralization or other type of credit enhancement (each, a "Credit Enhancement" and the entity providing it, a "Credit Enhancer"). The coverage of any Credit Enhancement may be limited or have exclusions from coverage and may decline over time or under certain circumstances, all as specified in the related Prospectus Supplement. See "Credit Enhancement" herein. 21. Certificate Rating. It will be a condition to the issuance of a Series of Certificates that each class be rated in the rating categories specified in the related Prospectus Supplement by each Rating Agency (as defined herein) identified in the related Prospectus Supplement. Any such rating would be based on, among other things, the adequacy of the value of the Mortgage Loans and any credit enhancement with respect to such Series. Such rating should not be deemed a recommendation to purchase, hold or sell Certificates, inasmuch as it does not address market price or suitability for a particular investor. Ratings on mortgage pass-through certificates do not represent an assessment of the likelihood of principal prepayments by mortgagors or of the degree by which such prepayments might differ from those originally anticipated. There is also no assurance that any such rating will remain in effect for any given period of time or may not be lowered or withdrawn entirely by the Rating Agency if in its judgment circumstances in the future so warrant. In addition to being lowered or withdrawn due to any erosion in the adequacy of the value of the Mortgage Loans, such rating might also be lowered or withdrawn, among other reasons, because of an adverse change in the financial or other condition of a Credit Enhancer or a change in the rating of such a Credit Enhancer's long term debt. In the event the rating is lowered or withdrawn, the liquidity of the related Certificates may be adversely affected. The rating of Certificates 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 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 Certificates would likely result in a reduction in the rating of the Certificates. See "Ratings" herein and in the related Prospectus Supplement. 22. The Subsequent Mortgage Loans. The conveyance of additional Mortgage Assets by the Depositor during the Funding Period (as defined herein), is subject to the conditions described in the related Prospectus Supplement. If the Depositor is unable to originate Mortgage Loans satisfying such conditions during the Funding Period, the Depositor will have insufficient Mortgage Loans to sell to the Trust, thereby resulting in prepayments of principal to Certificateholders as described below. Each additional Mortgage Asset must satisfy the eligibility criteria specified in the related Prospectus Supplement and in the related Agreement at the time of its addition. The Depositor or its affiliate (the seller of any additional Mortgage Assets to the Trust) will certify that all such eligibility criteria have been satisfied and CIT Consumer Finance or its affiliate (the seller of any additional Mortgage Assets to the Depositor) will certify that all conditions precedent to the sale of the additional Mortgage Assets to the Trust have been satisfied. It is a condition to the sale of any additional Mortgage Assets to the Trust that the Rating Agencies, after receiving prior notice of the proposed transfer of additional Mortgage Assets to the Trust, have not advised the Seller or the Trustee that the conveyance of such additional Mortgage Assets will result in a qualification, downgrade, or withdrawal of its then current rating of the Certificates. Following the transfer of additional Mortgage Assets to the Pool the aggregate characteristics of the Mortgage Assets then held in the Pool may vary from those of the Mortgage Loans originally included therein. -30- The ability of the Trust to invest in additional Mortgage Assets is largely dependent upon whether CIT Consumer Finance or its affiliates are able to originate or purchase Mortgage Loans that meet the requirements for transfer from CIT Consumer Finance to the Depositor under the related Agreement. The ability of CIT Consumer Finance or its affiliates to originate or purchase such Mortgage Loans may be affected by a variety of social and economic factors. Moreover, such factors may affect the ability of the Mortgagors thereunder to perform their obligations thereunder which may cause Mortgage Loans originated or purchased by CIT Consumer Finance or its affiliates to fail to meet the requirements for transfer under the related Agreement. Economic factors include interest rates, unemployment levels, the rate of inflation and consumer perception of economic conditions generally. However, CIT Consumer Finance is unable to determine and has no basis to predict whether or to what extent economic or social factors will affect the performance by such Mortgagors and the availability of additional Mortgage Loans. 23. Prepayment from the Pre-Funding Account. To the extent that the Pre-Funded Amount has not been fully applied by the Trust to purchase additional Mortgage Assets by the end of the Funding Period, the amount remaining on deposit in the Pre-Funding Account will be payable as principal to Certificateholders on the first Distribution Date following the end of the Funding Period, or, if the end of the Funding Period is on a Distribution Date, then on such date. In the event that amounts remain on deposit in the Pre-Funding Account at the end of the Funding Period and are applied to the payment of principal to the Certificateholders, such partial retirement of Certificates may shorten the average life of the Certificates and may cause the Certificateholders to experience a lower yield on the Certificates. In addition, any reinvestment risk resulting from such partial retirement will be borne by the holders of such Certificates. 24. Risk of Commingling. At any time that the requirements as specified under "The Pooling and Servicing Agreement--Payments on Mortgage Assets; Deposits to Certificate Account," are met, the Master Servicer may deposit payments and collections received on or with respect to the Mortgage Loans in the Certificate Account monthly on the Deposit Date (as defined herein). Until the Master Servicer makes such a monthly deposit into the Certificate Account,the Master Servicer may invest collections on the Mortgage Loans at its own risk and for its own benefit and need not segregate the collections from its own funds. If the Master Servicer were unable to remit such funds or if the Master Servicer became insolvent, the holders of the Certificates could incur a loss with respect to collections not deposited in the Certificate Account. 25. Book-Entry Registration. Issuance of the Certificates in book-entry form may reduce the liquidity of such Certificates in the secondary trading market since investors may be unwilling to purchase Certificates for which they cannot obtain definitive physical securities representing such Certificateholders' interests, except in certain circumstances described in the related Prospectus Supplement. Transactions in Certificates will, in most cases, be able to be effected only through The Depository Trust Company ("DTC"), Participants or Indirect Participants (each, as defined herein) and certain banks or through Cedel Bank, societe anonyme ("Cedel") or the Euroclear System ("Euroclear") in Europe. Since a Certificateholder will not generally be able to obtain a physical security under such systems, the ability of a Certificateholder to use effectively the -31- Certificate as collateral for a loan from persons or entities that do not participate in such systems, or otherwise to take actions in respect of such Certificates, may be limited. Certificateholders may experience delay in their receipt of distributions of interest on and principal of the Certificates since distributions will 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 Certificateholders either directly or indirectly through Indirect Participants. Unless and until Definitive Certificates (as defined herein) are issued, it is anticipated that the only "Certificateholder" of the Book-Entry Certificates (as defined herein) will be DTC or its nominee. Beneficial owners of the Book-Entry Certificates will not be Certificateholders, as that term will be used in the Agreement relating to such Series of Certificates. Beneficial owners are only permitted to exercise the rights of Certificateholders indirectly through Financial Intermediaries (as defined herein) and DTC. Monthly and annual reports on the related Trust provided to DTC or its nominee, as the case may be, as holder of record of the Book-Entry Certificates, may be made available to beneficial owners upon request, in accordance with the rules, regulations and procedures creating and affecting DTC, and to the Financial Intermediaries to whose DTC accounts the Book-Entry Certificates of such beneficial owners are credited. See "Description of the Certificates -- Book-Entry Certificates" herein. -32- THE TRUSTS The Trust for each Series will be held by the Trustee for the benefit of the related Certificateholders. Each Trust will consist of one or more pools (each, a "Mortgage Pool" or "Pool") of certain mortgage related assets (the "Mortgage Assets") consisting of (i) mortgage loans (or participation or other beneficial interests therein) secured by mortgages, deeds of trust or similar security instruments (the "Mortgages") creating first or subordinate liens on one- to four-family residential properties (the "Mortgage Loans") and, if specified in the related Prospectus Supplement, (ii) Private Mortgage-Backed Securities, together with payments in respect of such Mortgage Assets, and (iii) certain other accounts, obligations or agreements, in each case as specified in the related Prospectus Supplement. Unless otherwise specified in the related Prospectus Supplement, the Certificates will be entitled to payment from the assets of the related Trust or other assets held for the benefit of the holders of such Certificates (the "Certificateholders") as specified in the related Prospectus Supplement and will not be entitled to payments in respect of the assets of any other trust established by the Depositor, a Seller or any of their affiliates. The Mortgage Assets will be acquired by the Depositor either directly or indirectly from CIT Consumer Finance and/or other affiliates of the Depositor (each, a "Seller") and conveyed by the Depositor to the related Trust Fund. Mortgage Loans acquired by the Depositor will have been originated or purchased by CIT Consumer Finance or its affiliates in accordance with the underwriting criteria specified below under "Mortgage Loan Program--Underwriting Standards" or as otherwise described in a related Prospectus Supplement. Certain Mortgage Loans originated in the State of Minnesota will have been originated or purchased by CITSF in accordance with the same underwriting criteria. Certain Mortgage Loans originated in the State of New York will have been originated or purchased by The CIT Group/Consumer Finance, Inc. (NY), a New York corporation and a wholly owned subsidiary of CIT, in accordance with the same underwriting criteria. Mortgage Loans may have been acquired by CIT Consumer Finance or an affiliate thereof in the open market or in privately negotiated transactions, including transactions with entities affiliated with CIT Consumer Finance. The following is a brief description of the Mortgage Assets expected to be included in the Trusts. If provided in the related Prospectus Supplement, the original principal amount of a Series of Certificates may exceed the principal balance of the Mortgage Assets initially being delivered to the Trustee with respect to such Series. Cash in an amount equal to such difference (the "Pre-Funded Amount") will be deposited into a separate trust account (the "Pre-Funding Account") maintained with the Trustee. The Pre-Funded Amount will not exceed 25% of the Certificate Balance (as defined herein). During the period (the "Funding Period") set forth in the related Prospectus Supplement, amounts on deposit in the Pre-Funding Account may be used to purchase additional Mortgage Assets for the related Trust. In addition, if so provided in the related prospectus Supplement, certain additional amounts in respect of interest will be deposited into the Pre-Funding Account or in a separate trust account. The related Prospectus Supplement will specify the conditions which must be satisfied prior to the transfer of any such additional Mortgage Assets, including the requisite characteristics of such Mortgage Assets. Any amounts remaining in the Pre-Funding Account at the end of such Funding Period will be distributed as a principal prepayment to the holders of the related Series of Certificates at the time and in the manner set forth in the related Prospectus Supplement. Unless otherwise specified in the related Prospectus Supplement, the specified period for the acquisition by a Trust of additional Mortgage Assets will not exceed three months from the date such Trust is established. -33- If specific information with respect to the Mortgage Assets is not known at the time the related Series of Certificates initially is offered, more general information of the nature described below will be provided in the related Prospectus Supplement, and specific information will be set forth in a report on a Current Report on Form 8-K to be filed with the Securities and Exchange Commission (the "Commission") within fifteen days after the initial issuance of such Certificates (the "Detailed Description"). A copy of the Agreement with respect to each Series of Certificates will be attached to the Current Report on 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 Mortgage Assets relating to such Series will be attached to the Agreement delivered to the Trustee upon delivery of the Certificates. THE MORTGAGE LOANS-GENERAL For purposes hereof, the real property that secures repayment of the Mortgage Loans is referred to collectively as "Mortgaged Properties." The Mortgaged Properties may be located in any one of the fifty states or the District of Columbia. Unless otherwise specified in the related Prospectus Supplement, all of the Mortgage Loans will be loans that are not insured or guaranteed by any governmental agency. Mortgage Loans with certain Combined Loan-to-Value Ratios and/or certain principal balances may be covered wholly or partially by primary mortgage guaranty insurance policies (each, a "Primary Mortgage Insurance Policy") to the extent provided in the related Prospectus Supplement. Unless otherwise specified in the related Prospectus Supplement, the Mortgage Loans will generally be covered by standard hazard insurance policies (each, a "Standard Hazard Insurance Policy"). The existence, extent and duration of any such coverage will be described in the related Prospectus Supplement. The Mortgage Loans in a Mortgage Pool will have monthly payments due on various days of each month. The payment terms of the Mortgage 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 ("Fixed Rate" and a Mortgage Loan subject thereto is a "Fixed Rate Mortgage Loan"), a rate adjustable from time to time in relation to an index which will be specified in the related Prospectus Supplement, a rate that is fixed for a period of time or under certain circumstances and is followed by an adjustable rate, a rate that otherwise varies from time to time, or a rate that is convertible from an adjustable rate to a fixed rate (each of the foregoing, an "Adjustable Rate" and a Mortgage Loan subject thereto is an "Adjustable Rate Mortgage Loan"). 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. The loan agreement or promissory note (the "Mortgage Note") in respect of a Mortgage Loan may provide for the payment of interest at a rate lower than the interest rate (the "Mortgage Rate") specified in such Mortgage Note for a period of time or for the life of the Mortgage Loan, and the amount of any difference may be contributed from funds supplied by the seller of the related Mortgaged Property or another source or may be treated as accrued interest added to the principal of the Mortgage Loan. (b) Principal may be payable on a declining balance basis to fully amortize the Mortgage 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 Mortgage 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 of certain Mortgage Loans ("Balloon Loans") may -34- be due on maturity ("Balloon Payments"). Mortgage Loans may permit the mortgagee to require the Mortgagor to pay the full principal balance of the loan on a specified date the ("Call Date") prior to the maturity of the Loan ("Call Loans"). Principal may include interest that has been deferred and added to the principal balance of the Mortgage Loan. (c) Monthly payments of principal and interest may be fixed for the life of the Mortgage Loan, may increase over a specified period of time (a "Graduated Payment Loan") or may change from period to period. The terms of a Mortgage Loan may include limits on periodic increases or decreases in the amount of monthly payments and may include maximum or minimum amounts of monthly payments. Graduated Payment Loans may require the monthly payments of principal and interest to increase for a specified period, provide for deferred payment of a portion of the interest due monthly during such period, and recoup the deferred interest through negative amortization whereby the difference between the scheduled payment of interest and the amount of interest actually accrued is added monthly to the outstanding principal balance. Other Mortgage Loans sometimes referred to as "growing equity" mortgage loans may provide for periodic scheduled payment increases for a specified period with the full amount of such increases being applied to reduce principal. (d) The Mortgage Loans generally may be prepaid in whole or in part at any time. If specified in the related Prospectus Supplement, some prepayments of the full principal balance of a loan may be subject to a prepayment penalty or premium. Such prepayment penalty or premium will be applicable to certain prepayments of principal made during a specified period of time during the life of the Mortgage Loan. The Mortgage Note in respect of any Mortgage Loan subject to a prepayment penalty or premium generally will set forth the terms of prepayment. Prepayments on the Mortgage Loans as a result of a refinancing by the Seller or Seller's transferee generally will not be subject to a prepayment penalty or premium. The Mortgage Loans generally include "due on sale" clauses which permit the mortgagee to demand payment of the entire Mortgage Loan in connection with the sale or certain transfers of the related Mortgaged Property. Other Mortgage Loans may be assumable by persons meeting the then applicable underwriting standards for such Mortgage Loan. A Trust may contain certain Mortgage Loans ("Buydown Loans") that include provisions whereby a third party partially subsidizes the monthly payments of the Mortgagors on such Buydown Loans during the early years of such Buydown Loans, the difference to be made up from a fund (a "Buydown Fund") contributed by such third party at the time of origination of the Buydown Loan. A Buydown Fund will be in an amount equal either to the discounted value or full aggregate amount of future payment subsidies. The underlying assumption of buydown plans is that the income of the Mortgagor will increase during the buydown period as a result of normal increases in compensation and inflation, so that the Mortgagor will be able to meet the full mortgage payments at the end of the buydown period. To the extent that this assumption as to increased income is not fulfilled, the possibility of defaults on Buydown Loans is increased. The related Prospectus Supplement will contain information with respect to any Buydown Loan concerning limitations on the interest rate paid by the Mortgagor initially, on annual increases in the interest rate and on the length of the buydown period. Unless otherwise specified in the Prospectus Supplement, the Mortgage Loans will be Simple Interest Loans, Scheduled Accrual Loans and Precomputed Loans. "Simple Interest Loans" provide that interest is charged to the Mortgagor at the applicable Mortgage Rate (as defined herein) on the outstanding principal balance of the related Mortgage Note (as defined herein) and calculated based on the actual days elapsed from receipt of the Mortgagor's last payment to receipt of the Mortgagor's most current payment. Such interest is deducted from the -35- Mortgagor's payment amount and the remainder, if any, of the payment is applied as a reduction to the outstanding principal balance of such Mortgage Note. Although the Mortgagor is required to remit equal monthly payments on a specified monthly payment date that would reduce the outstanding principal balance of such Mortgage Note to zero at such Mortgage Note's maturity date, payments that are made by the Mortgagor after the due date therefor (assuming all other payments are made on their specified monthly payment dates) would cause the outstanding principal balance of such Mortgage Note not to be reduced to zero. In such a case, the Mortgagor would be required to make an additional principal payment at the maturity date for such Mortgage Note. On the other hand, if a Mortgagor makes a payment before the due date therefor or pays an amount greater than the scheduled payment amount (assuming all other payments are made on their specified monthly payment dates), the reduction in the outstanding principal balance of such Mortgage 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 Mortgage Note. "Scheduled Accrual Loans" provide that interest is charged to the Mortgagor at the applicable Mortgage Rate (as defined herein) on the outstanding principal balance of the related Mortgage Note and calculated as though each payment is made on the scheduled payment date. Scheduled monthly payments made by the Mortgagors on the Scheduled Accrual 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. Interest on such Scheduled Accrual Loans will be calculated based on a 360-day year of twelve 30-day months. When the Mortgagor remits a payment greater than the amount currently due on the Mortgage Note, the additional payment is generally applied to the next scheduled installment unless otherwise specified by the Mortgagor. This application will not affect the amortization schedule or the relative application of such payment to principal and interest. No more than two future installments can be paid ahead in such manner. If payments are received which would result in the Mortgage Note being paid ahead more than two months or if the Mortgagor specifically instructs that any additional payment be applied to principal, then this partial prepayment of principal is generally effective as of the most recently paid installment and the relative application of principal and interest of future payments will be adjusted to reflect the partial principal prepayment. When a full prepayment of principal is made on a Scheduled Accrual Loan during a month, the Mortgagor is charged interest only on the days of the month actually elapsed up to the date of such prepayment, at a daily interest rate that is applied to the principal amount of the loan so prepaid. A "Precomputed Loan" provides for the payment by the related Mortgagor of a specified total amount of payments, payable in monthly installments on each due date, which total represents the principal and precomputed interest in an amount calculated at the stated Mortgage Rate for the term of the Mortgage Loan on the declining principal balance on the assumption that all scheduled payments are made when due. Any partial prepayment received in excess of the current amount due will be applied against future installments and will have no effect on the amortization of principal and interest. If a Mortgage Loan prepays in full, the Mortgagor will receive a refund of unearned interest calculated on an actuarial basis, which calculation may vary from state to state depending on state regulations. The Prospectus Supplement for each Series of Certificates will specify with respect to all Mortgage Loans expected to be included in the related Pool as of the date specified in the related Prospectus Supplement, among other things, (i) the expected aggregate outstanding principal balance and the expected average outstanding principal balance of the Mortgage Loans in such Pool, (ii) the largest expected principal balance and the smallest expected principal balance of any of the Mortgage Loans, (iii) the types of Mortgaged Properties (e.g., detached residential one- to four-family properties, individual units in condominiums, vacation and second homes, or other real property) and/or other assets securing the Mortgage Loans, (iv) the original terms to maturity of the Mortgage Loans, (v) the expected weighted average term to maturity of the Mortgage Loans as of the date specified in such Prospectus Supplement and the expected range of the terms of maturity, (vi) the earliest origination date and -36- latest maturity date of any of the Mortgage Loans, (vii) the expected aggregate principal balance of Mortgage Loans having Combined Loan-to-Value Ratios (as defined herein) in specified ranges, (viii) in the case of Fixed Rate Mortgage Loans, the expected weighted average Mortgage Rate and ranges of Mortgage Rates borne by the Mortgage Loans (as the case may be), (ix) in the case of Adjustable Rate Mortgage Loans, the expected weighted average of the Adjustable Rates as of the date set forth in such Prospectus Supplement, any periodic or lifetime rate caps or floors, maximum permitted Adjustable Rates, if any, and the Index (as defined herein) upon which the Adjustable Rate is based, (x) the expected aggregate outstanding principal balance, if any, of Buydown Loans and Graduated Payment Loans, as of the date set forth in the Prospectus Supplement, (xi) the expected aggregate outstanding principal balance, if any, of Call Loans and Balloon Loans, (xii) the amount of any Certificate Guaranty Insurance Policy, Mortgage Pool Insurance Policy, Special Hazard Insurance Policy or Bankruptcy Bond (each, as defined herein) to be maintained with respect to such Pool, (xiii) the amount, if any, and terms of any other Credit Enhancement to be provided with respect to all or any Mortgage Loans or the Pool, (xiv) the priority of the Mortgages (first, second, third or fourth) and (xv) the expected geographic location of the Mortgaged Properties. If specific information respecting the Mortgage Loans is not known to the Depositor at the time the related Certificates are initially offered, more general information of the nature described above will be provided in the Detailed Description. The "Combined Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio, expressed as a percentage, determined by dividing (x) the sum of the original principal balance of the Mortgage Loan (less the amount, if any, for the items specified in the related Prospectus Supplement) plus the principal balance of any loan or loans secured by a senior lien on the Mortgaged Property at the time of origination of the Mortgage Loan, by (y) the value of the related Mortgaged Property, based upon the appraisal or other valuation made at the time of origination of the Mortgage Loan (see "The Home Equity Lending Program -- Underwriting Standards"). The Depositor will cause the Mortgage Loans comprising each Mortgage Pool to be assigned to the Trustee named in the related Prospectus Supplement for the benefit of the Certificateholders of the related Series. The Master Servicer named in the related Prospectus Supplement will service the Mortgage Loans, either directly or through other mortgage servicing institutions (each, a "Sub-Servicer"), pursuant to a Pooling and Servicing Agreement (each, an "Agreement"), and will receive a fee for such services. See "The Home Equity Lending Program" and "The Pooling and Servicing Agreement" herein. Unless otherwise specified in the related Prospectus Supplement, CITSF will be appointed as a Sub-Servicer for all of the Mortgage Loans in each Mortgage Pool, and as a Sub-Servicer, will perform all or most of the servicing responsibilities described under "The Pooling and Servicing Agreement" herein and "Servicing of Mortgage Loans" in the related Prospectus Supplement. All references in this Prospectus and any related Prospectus Supplement to the "Master Servicer" or to CIT Consumer Finance in a servicing capacity shall include CIT Consumer Finance acting through any Sub-Servicer, including CITSF, or any agent. With respect to Mortgage Loans serviced by the Master Servicer through a Sub-Servicer, the Master Servicer will remain liable for its servicing obligations under the related Agreement as if the Master Servicer alone were servicing such Mortgage Loans. The Mortgage Loans generally will be evidenced by Mortgage Notes and secured by Mortgages. The "Mortgage Documents" for each Mortgage Loan are (i) the original Mortgage Note (except in the circumstances discussed under "The Pooling and Servicing Agreement--Assignment of Mortgage Assets"), (ii) the Mortgage with evidence of recording indicated thereon (except for any Mortgage not returned from the public recording office or which has been lost, in which case the Depositor will, unless otherwise specified in the related Prospectus Supplement, deliver or cause to be delivered to the custodian a copy of such Mortgage together with a certificate that the original of such Mortgage was -37- delivered to such recording office), (iii) any intervening assignments of the Mortgages (iv) any title insurance policies with respect to the Mortgages, (v) any assumption or modification agreement and (vi) such other security documents as may be specified in the related Prospectus Supplement or the related Agreement. Some or all of the Mortgage Documents may, as specified in the related Prospectus Supplement, be held for the benefit of the Trust by a custodian appointed pursuant to the related Agreement or a separate custodial agreement among the Depositor, the Trustee and such custodian. If specified in the related Prospectus Supplement, CIT Consumer Finance will be appointed as custodian of the Mortgage Documents pursuant to the related Agreement and, in such capacity, will retain possession of the Mortgage Documents. Unless otherwise specified in the related Prospectus Supplement, the Depositor will have no obligations with respect to a Series of Certificates. See "The Pooling and Servicing Agreement--Assignment of Mortgage Assets" herein. The obligations of the Master Servicer with respect to the Mortgage Loans will consist principally of its contractual servicing obligations under the related Agreement, including its obligation to enforce the obligations of the Sub-Servicers or Sellers, or both, as more fully described herein under "The Home Equity Lending Program--Representations by Sellers; Repurchases" and its obligation to make certain cash advances in the event of delinquencies in payments on or with respect to the Mortgage Loans in the amounts described herein under "Description of the Certificates--Advances" herein. The obligations of the Master Servicer to make advances may be subject to limitations, to the extent provided herein and in the related Prospectus Supplement. Unless otherwise specified in the related Prospectus Supplement, the Mortgage Loans will be secured by Mortgages creating first or subordinate liens on one- to four-family residential properties (each such property, a "Mortgaged Property"). If so specified in the related Prospectus Supplement, the Mortgage Loans may include loans or participations therein secured by Mortgages on condominium units in condominium buildings together with such condominium units' appurtenant interests in the common elements of the condominium buildings. If specified in the related Prospectus Supplement, the Mortgage Assets of the related Trust may include mortgage participation certificates evidencing interests in Mortgage Loans. Unless otherwise specified in the related Prospectus Supplement, such Mortgage Loans will be loans that are not insured or guaranteed by any governmental agency. The Mortgaged Properties relating to Mortgage Loans will consist of detached or semi-detached one-family dwelling units, two- to four-family dwelling units, townhouses, rowhouses, individual condominium units, individual units in planned unit developments and certain other dwelling units. Such Mortgaged Properties may include vacation and second homes, investment properties and leasehold interests. In the case of leasehold interests, the term of the leasehold will exceed the scheduled maturity of the Mortgage Loan by at least five years, unless otherwise specified in the related Prospectus Supplement. PRIVATE MORTGAGE-BACKED SECURITIES "Private Mortgage-Backed Securities" may consist of (i) mortgage pass-through certificates or participation certificates evidencing an undivided interest in a pool of mortgage loans, (ii) collateralized mortgage obligations secured by mortgage loans, together with payments in respect of such Mortgage Assets, and (iii) certain other accounts, obligations or agreements, in each case as specified in the related Prospectus Supplement. Private Mortgage-Backed Securities may include stripped mortgage-backed securities representing an undivided interest in all or a part of either the principal distributions (but not the interest distributions) or the interest distributions (but not the principal distributions) or in some specified portion of the principal and interest distributions (but not all of such distributions) on certain mortgage loans. Private Mortgage-Backed Securities will have been issued pursuant to a -38- pooling and servicing agreement, an indenture or similar agreement (a "PMBS Agreement"). Unless otherwise specified in the related Prospectus Supplement, the seller/servicer of the underlying mortgage loans will have entered into the PMBS Agreement with the trustee under such PMBS Agreement (the "PMBS Trustee"). The PMBS Trustee or its agent, or a custodian, will possess the mortgage loans underlying such Private Mortgage-Backed Security. Mortgage loans underlying a Private Mortgage-Backed Security will be serviced by a servicer (the "PMBS Servicer") directly or by one or more sub-servicers who may be subject to the supervision of the PMBS Servicer. The issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer") will be a financial institution or other entity engaged generally in the business of mortgage lending, a public agency or instrumentality of a state, local or federal government, or a limited purpose corporation organized for the purpose of, among other things, establishing trusts and acquiring and selling housing loans to such trusts and selling beneficial interests in such trusts. If specified in the related Prospectus Supplement, the PMBS Issuer may be an affiliate of the Depositor. The obligations of the PMBS Issuer will generally be limited to certain representations and warranties with respect to the assets conveyed by it to the related Trust. Unless otherwise specified in the related Prospectus Supplement, the PMBS Issuer will not have guaranteed any of the assets conveyed to the related Trust or any of the Private Mortgage-Backed Securities issued under the PMBS Agreement. Additionally, although the individual mortgage loans underlying the Private Mortgage-Backed Securities may be guaranteed by the United States or an agency or instrumentality thereof, they need not be, and the Private Mortgage-Backed Securities themselves will not be so insured or guaranteed. Distributions of principal and interest will be made on the Private Mortgage-Backed Securities on the dates specified in the related Prospectus Supplement. The Private Mortgage-Backed Securities may be entitled to receive nominal or no principal distributions or nominal or no interest distributions. Principal and interest distributions will be made on the Private Mortgage-Backed Securities by the PMBS Trustee or the PMBS Servicer directly to the Trustee as registered owner of such Private Mortgage-Backed Securities, unless otherwise specified in the related Prospectus Supplement. The PMBS Issuer or the PMBS Servicer may have the right to repurchase assets underlying the Private Mortgage-Backed Securities after a certain date or under other circumstances specified in the related Prospectus Supplement. The mortgage loans underlying the Private Mortgage-Backed Securities may consist of Fixed Rate, level payment, fully amortizing Mortgage Loans or Graduated Payment Loans, Buydown Loans, Adjustable Rate Mortgage Loans or Mortgage Loans having balloon or other special payment features. Such Mortgage Loans may be secured by single family property or multifamily property or by a condominium or by an assignment of the proprietary lease or occupancy agreement relating to a specific dwelling within a Cooperative and the related shares issued by such Cooperative. The related Prospectus Supplement for a Series for which the Trust includes Private Mortgage-Backed Securities will specify, with respect to any Private Mortgage-Backed Securities owned by the related Trust, among other things, (i) the approximate aggregate principal amount and type of any Private Mortgage-Backed Securities to be included in the Trust for such Series; (ii) certain characteristics of the mortgage loans that comprise the underlying assets for the Private Mortgage-Backed Securities including: (A) the payment features of such mortgage loans, (B) the approximate aggregate principal amount, if known, of such mortgage loans that are insured or guaranteed by a governmental entity, (C) the servicing fee or range of servicing fees with respect to such mortgage loans and (D) the minimum and maximum stated maturities of such mortgage loans at origination; (iii) the maximum original term-to-stated maturity of the Private Mortgage-Backed Securities; (iv) the weighted average term-to-stated maturity of the Private Mortgage-Backed Securities; (v) the pass-through or certificate rate of the Private Mortgage-Backed Securities; (vi) the weighted average pass-through or certificate rate of the Private -39- Mortgage-Backed Securities; (vii) the PMBS Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the PMBS Trustee for such Private Mortgage-Backed Securities; (viii) certain characteristics of credit support, if any, such as reserve funds, insurance policies, surety bonds, letters of credit or guarantees, relating to the mortgage loans that comprise the underlying assets for the Private Mortgage-Backed Securities or to such Private Mortgage-Backed Securities themselves; (ix) the terms on which the mortgage loans that comprise the underlying assets for such Private Mortgage-Backed Securities may, or are required to, be purchased prior to their stated maturity or the stated maturity of the Private Mortgage-Backed Securities; and (x) the terms on which substitute mortgage loans may be delivered to replace those initially deposited with the PMBS Trustee. SUBSTITUTION OF MORTGAGE ASSETS Substitution of Mortgage Assets will be permitted in the event of breaches of representations and warranties with respect to any Mortgage Asset or in the event the documentation with respect to any Mortgage Asset is determined by the Trustee to be incomplete. The period during which such substitution will be permitted generally and the criteria for substituting for a Mortgage Asset will be indicated in the related Prospectus Supplement. The related Prospectus Supplement will describe any other conditions upon which Mortgage Assets may be substituted for Mortgage Assets initially included in the Trust. USE OF PROCEEDS The net proceeds to be received from the sale of the Certificates will be applied by the Depositor to the purchase of Mortgage Assets from the applicable Sellers and to pay expenses of the offering. The applicable Sellers will apply the proceeds for general corporate purposes, including the origination and acquisition of residential mortgage loans and other loans. The Depositor expects to sell Certificates in Series from time to time, but the timing and amount of offerings of Certificates will depend on a number of factors, including the volume of Mortgage Assets acquired by the Depositor, prevailing interest rates, availability of funds and general market conditions. THE CIT GROUP HOLDINGS, INC. CIT, a Delaware corporation, is a successor to a company founded in St. Louis, Missouri on February 11, 1908. It has its principal executive offices at 1211 Avenue of the Americas, New York, New York 10036, and its telephone number is (212) 536-1950. CIT, operating directly or through its subsidiaries primarily in the United States, engages in financial services activities through a nationwide distribution network. CIT provides financing primarily on a secured basis to commercial borrowers, ranging from middle-market to larger companies, and to a lesser extent to consumers. While these secured lending activities reduce the risk of losses from extending credit, CIT's results of operations can also be affected by other factors, including general economic conditions, competitive conditions, the level and volatility of interest rates, concentrations of credit risk, and government regulation and supervision. CIT does not finance the development or construction of commercial real estate. CIT has eight strategic business units which offer commercial and consumer financing and factoring products and services to clients. The Dai-Ichi Kangyo Bank, Limited ("DKB") owns eighty percent (80%) of the issued and outstanding shares of common stock of CIT. DKB purchased a sixty percent (60%) common stock interest in CIT from Manufacturers Hanover Corporation ("MHC") at year-end 1989 and acquired an additional twenty percent (20%) common stock interest in CIT on December 15, 1995, from CBC Holding -40- (Delaware) Inc. (formerly known as MHC Holdings (Delaware) Inc.) ("CBC Holding"), a wholly owned subsidiary of Chemical Banking Corporation ("CBC"). The Chase Manhattan Corporation ("Chase") acquired CBC Holding as part of the merger between Chase and CBC on March 31, 1996 and continues to own the remaining twenty percent (20%) common stock interest in CIT through CBC Holding. DKB has a five-year option, expiring December 15, 2000, to purchase the remaining twenty percent (20%) common stock interest from CBC and its parent. In accordance with a stockholders agreement among DKB, Chase, as direct successor to CBC, and CIT, dated as of December 29, 1989, as amended by an Amendment to Stockholders' Agreement, dated December 15, 1995 (the "Stockholders Agreement"), one nominee of the Board of Directors is designated by Chase. The Stockholders Agreement also contains restrictions with respect to the transfer of the stock of CIT to third parties. CIT is subject to the informational requirements of The Securities Exchange Act of 1934, as amended, and, in accordance therewith, files reports and other information with the Commission. Such reports and other information can be inspected and copied at the offices of the Commission. Certain of CIT's securities are listed on the New York Stock Exchange and reports and other information concerning CIT can also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. See "Available Information" herein. Unless CIT has issued a Limited Guarantee (as defined herein) with respect to any Series of Certificates, CIT will have no obligations or liabilities with respect to any Series of Certificates. THE CIT GROUP SECURITIZATION CORPORATION III, THE DEPOSITOR The CIT Group Securitization Corporation III (the "Depositor") was incorporated in the State of Delaware on April 8, 1996 and is a wholly-owned, limited purpose finance subsidiary of CIT. The Depositor maintains its principal office at 650 CIT Drive, Livingston, New Jersey 07039. Its telephone number is (201) 535-3514. As described herein and in the related Prospectus Supplement, the obligations, if any, of the Depositor with respect to any Series of Certificates are limited. The Depositor will have no ongoing servicing obligations or responsibilities with respect to any Mortgage Assets. CIT Consumer Finance is an affiliate of the Depositor. Unless otherwise specified in the Prospectus Supplement, the Depositor will acquire the Mortgage Assets in a privately negotiated transaction from CIT Consumer Finance. Unless otherwise specified in the related Prospectus Supplement, neither CIT nor any of its affiliates, including the Depositor and CIT Consumer Finance, will be obligated with respect to any Series of Certificates. Accordingly, the Depositor has determined that financial statements of CIT Consumer Finance and its affiliates, including the Depositor, are not material to the offering of any Series of Certificates. If, with respect to a Series of Certificates any such financial statements are material, they will be included or incorporated by reference in the related Prospectus Supplement. THE CIT GROUP/CONSUMER FINANCE, INC., SELLER AND MASTER SERVICER Unless otherwise specified in the related Prospectus Supplement, the Mortgage Loans and any other applicable Mortgage Assets will be purchased by the Depositor, either directly or through affiliates, from CIT Consumer Finance or -41- its affiliates, as Seller. Unless otherwise specified in the related Prospectus Supplement, the Mortgage Loans so acquired by the Depositor will have been originated or purchased by CIT Consumer Finance or its affiliates in accordance with the underwriting criteria specified below under "Underwriting Standards." Unless otherwise specified in the related Prospectus Supplement, CIT Consumer Finance will be appointed pursuant to the related Agreement as the master servicer for each Trust (the "Master Servicer"). CIT Consumer Finance is a Delaware corporation and a wholly-owned subsidiary of CIT. It has its principal executive office at 650 CIT Drive, Livingston, New Jersey 07039, and its telephone number is (201) 740-5000. CIT Consumer Finance offers loans to consumers secured by first and subordinate mortgages on residential real estate (including condominiums). Business is generated through several distribution channels across the country. CIT Consumer Finance originates loans directly to consumers, using both its own employees and mortgage brokers. CIT Consumer Finance also purchases loans from mortgage bankers and other mortgage lenders, often referred to as "correspondents." CIT Consumer Finance purchases loans individually and in larger batches, including bulk portfolio purchases. CIT Consumer Finance is the master servicer for the loans held in its portfolio. CITSF performs many servicing functions for CIT Consumer Finance as its Sub-Servicer from CITSF's Oklahoma City, Oklahoma Asset Service Center as described below. CIT Consumer Finance has a network of offices nationwide which handle business origination, credit, administration and management. In addition, CIT Consumer Finance maintains its quality control department and its original document retention and processing facility at its Marlton, New Jersey office. THE CIT GROUP/SALES FINANCING, INC., SUB-SERVICER Unless otherwise specified in the related Prospectus Supplement, CITSF will be appointed as a Sub-Servicer for all of the Mortgage Loans in each Mortgage Pool, and as a Sub-Servicer, will perform all or most of the servicing responsibilities described under "The Pooling and Servicing Agreement". All references in this Prospectus and any related Prospectus Supplement to the "Master Servicer" or to CIT Consumer Finance in a servicing capacity shall include CIT Consumer Finance acting through any Sub-Servicer, including CITSF, or any agent. Unless otherwise specified in the related Prospectus Supplement, CITSF originated the Mortgage Loans, if any, for which the Mortgaged Properties are located in the State of Minnesota and will sell such Mortgage Loans to CIT Consumer Finance for resale to the Depositor and then to a Trust. CITSF is a Delaware corporation and a wholly-owned subsidiary of CIT. It has its principal executive office at 650 CIT Drive, Livingston, New Jersey 07039 and its telephone number is (201) 740-5000. CITSF originates, purchases and services retail installment sales contracts, direct loans and mortgages for manufactured housing, recreational vehicles, recreational marine and other consumer goods throughout the United States and services mortgage loans originated and purchased by CIT Consumer Finance and other affiliates of CIT. CITSF has a centralized asset service facility (the "Asset Service Center") in Oklahoma City, Oklahoma. CITSF services, on behalf of other owners, retail installment contracts, direct loans and mortgage loans that were not originated by CITSF. These servicing arrangements may be made with -42- respect to the portfolios of other lending institutions or finance companies, the portfolios of governmental agencies or instrumentalities, or portfolios that have been sold by CITSF or others to securitization trusts. The Asset Service Center of CITSF services consumer credit transactions in 50 states and the District of Columbia. It provides full servicing for retail installment contracts, direct loans and mortgages. In order to service these transactions, CITSF uses sub-servicers, outside collectors and field remarketers located throughout the United States. THE HOME EQUITY LENDING PROGRAM Overview The mortgage lending activities of CIT Consumer Finance consist primarily of originating, purchasing and selling Mortgage Loans secured by Mortgages creating first or subordinate liens on Mortgaged Properties (each such Mortgage Loan, a "Home Equity Loan"). Such Mortgaged Properties include condominiums, single-family detached homes, single-family attached homes and planned unit developments. It has been the policy of CIT Consumer Finance generally not to make Home Equity Loans secured by cooperative residences or other categories of properties that management believes have demonstrated relatively high levels of risk. CIT Consumer Finance makes the majority of its Home Equity Loans to borrowers who own a single-family detached home. CIT Consumer Finance approves Home Equity Loans to enable its borrowers to refinance an existing mortgage (in many cases replacing the existing loan with a loan with a larger principal balance), purchase a home, pay for education, pay for home improvements and consolidate debt, among other purposes. Initially, CIT Consumer Finance originated or purchased the majority of its Home Equity Loans with original terms of up to 180 months. Starting in 1994, CIT Consumer Finance began more frequently to originate and purchase Home Equity Loans with original terms of up to 360 months. CIT Consumer Finance believes that the longer term, and correspondingly lower monthly payments, of these Home Equity Loans are attractive to customers who might otherwise refinance an existing loan or obtain a new loan from a bank or other traditional long term lender. CIT Consumer Finance believes that its rapid turnaround time from application to funding a Home Equity Loan also makes CIT Consumer Finance more competitive with more traditional lenders. CIT Consumer Finance's area offices are located throughout the country. Three regional offices supervise the operations of a group of states. All Home Equity Loan area offices have a manager who reports to senior management. The supervision of all of CIT Consumer Finance's underwriting and administrative functions is conducted from the Livingston, New Jersey headquarters. The following sections describe the origination, underwriting and servicing procedures which CIT Consumer Finance follows in its Home Equity Loan program. Home Equity Loan Origination The entire application process for Home Equity Loans is generally conducted either in person or by phone, facsimile, direct mail response, or the internet. Each loan application is entered into an automated application processing system which obtains a credit bureau report and calculates CIT Consumer Finance's proprietary internal credit score. CIT Consumer Finance attempts to process the applications as quickly as possible. An underwriter is responsible for completing, evaluating and processing the loan application of a prospective borrower based on information obtained from the borrower, some of which is -43- verified with third parties. Depending on the characteristics of the requested loan, loan applications will be reviewed by an underwriter in the area office, regional office, or the Livingston, New Jersey headquarters. Underwriters are trained to structure loans that meet the applicant's needs, while satisfying CIT Consumer Finance's underwriting criteria. If an applicant does not meet the underwriting criteria under the applicable loan program, the underwriter may decline the application or suggest a loan on different terms. CIT Consumer Finance originates business directly to the consumer through a direct marketing campaign and through mortgage brokers. Direct Marketing Utilizing a staff of marketing professionals, CIT Consumer Finance markets directly to the consumer through print ads, direct mail, and other media. Prospective applicants submit an application by mailing in a loan application included in the advertisement or by calling a toll free telephone number and giving the information to a representative. Applicants who apply by mail will also supply additional required information by telephone after CIT Consumer Finance has received the application. Once a completed application is received, a preliminary approval may be given within twenty four hours. Broker Business CIT Consumer Finance also originates Home Equity Loans based upon applications received from independent mortgage brokers. CIT Consumer Finance will directly underwrite and fund these broker loans. A nationwide network of CIT Consumer Finance sales executives solicits broker business. These sales executives are responsible for the development and maintenance of the broker relationships and the coordination between the mortgage broker and CIT Consumer Finance's offices. Mortgage brokers participating in this program must be approved by CIT Consumer Finance by satisfying its established requirements pertaining to experience, financial stability, and licensing. After the mortgage broker is approved, CIT Consumer Finance conducts regular periodic reviews of the relationship and the broker's performance. In these reviews, CIT Consumer Finance will examine the performance of loans originated by the broker and sometimes other factors, including maintenance of required regulatory licenses. Based upon the review, CIT Consumer Finance may adjust or terminate its relationship with the broker. CIT also purchases loans from mortgage bankers and other mortgage lenders, as described below. Correspondent Lending CIT Consumer Finance also purchases Mortgage Loans through its correspondent lending program. CIT Consumer Finance will purchase loans on an individual basis from correspondents based upon applications which CIT Consumer Finance has previously approved. CIT Consumer Finance will also purchase from correspondents groups of loans submitted in small batches referred to as "bulks." CIT Consumer Finance establishes certain requirements which every correspondent must meet. These requirements concern the correspondent's experience, financial stability, and licensing. CIT Consumer Finance has agreements with the correspondents governing the nature of the relationship. Generally, all loans acquired through these correspondents conform to the underwriting criteria used by CIT Consumer Finance for its direct originations. -44- Institutional Bulk Portfolios CIT Consumer Finance also purchases portfolios of Home Equity Loans from other lenders ("Institutional Bulk Portfolios") which originated these loans under their own underwriting criteria. Institutional Bulk Portfolios are reviewed at the Livingston, New Jersey headquarters by senior level management, who formulate a bid to purchase the portfolio. CIT Consumer Finance performs a financial analysis on the portfolio as a whole. Depending upon the size of the portfolio, CIT Consumer Finance performs a due diligence review on either all the loans in the portfolio or on a statistical sample of the loans in the portfolio. The due diligence review includes legal and credit file reviews and recertification of property values. When purchasing Institutional Bulk Portfolios, CIT Consumer Finance may rely upon representations and warranties made by the seller to cover certain risks relating to origination, documentation and other matters which might have come to the attention of CIT Consumer Finance during the due diligence review process. CIT Consumer Finance also adjusts the price it offers for an Institutional Bulk Portfolio based upon CIT Consumer Finance's perception of the risk inherent in the portfolio as a whole. When CIT Consumer Finance purchases an Institutional Bulk Portfolio, the origination, underwriting, valuation and documentation standards are those of the originating lender. The description of CIT Consumer Finance's origination, underwriting and valuation practices set forth herein may not apply to a transaction from an Institutional Bulk Portfolio. Each Institutional Bulk Portfolio is different and the loans in its pool have different characteristics. When CIT Consumer Finance reviews an Institutional Bulk Portfolio, it may find certain risks inherent in the portfolio which are different from the risks which CIT Consumer Finance accepts for direct originations. In purchasing an Institutional Bulk Portfolio, CIT Consumer Finance may adjust its offering price or require representations and warranties from the seller to cover any such risks in origination, underwriting, valuation or documentation for loans in the portfolio. Underwriting Policies and Procedures Overview The following is a brief description of certain of the underwriting policies and procedures used by CIT Consumer Finance to underwrite Home Equity Loans. Underwriting standards are applied by a lender to evaluate the borrower's credit standing and repayment ability, and the value and adequacy of the mortgaged property as collateral for the Home Equity Loan. CIT Consumer Finance uses a combination of credit scoring and judgmental credit analysis in making its underwriting decisions. As part of its underwriting process, CIT Consumer Finance will adjust the interest rate it charges on each Home Equity Loan to reflect CIT Consumer Finance's evaluation of the relative risk associated with a particular loan applicant. This practice is known as "risk-based" pricing. Initially, CIT Consumer Finance's credit criteria focused on high credit quality loans. These loans generally had shorter terms and were mostly second mortgages. In 1994, CIT Consumer Finance introduced risk-based pricing and changed its credit criteria to include certain specialized loan programs such as high loan to value, no income verification and purchase money loan programs. Under these specialized programs, underwriters can approve applicants with certain positive attributes (such as a high credit score, good credit bureau history, or characteristics of stability) with low equity in the property, without income verification, or if the purpose of the loan is to purchase real estate. These factors might have disqualified the applicant under CIT Consumer Finance's pre-1994 loan programs. CIT Consumer Finance believes that the positive attributes of these applicants overcome the other less favorable indicators that may be present. -45- In 1995, CIT Consumer Finance added loan programs accommodating applicants with a record of more serious credit problems. Under the terms of these programs, the underwriter places greater emphasis on the applicant's equity in a home as well as other positive factors which are intended to compensate for the previous blemished credit record. CIT Consumer Finance may in the future change the underwriting policies and procedures described herein. Description of Underwriting Process CIT Consumer Finance's underwriting process occurs at the local office, regional office, and the home office. Generally, loan applications for direct, broker, and correspondent business are input into an automated application processing system which allows CIT Consumer Finance to track its underwriting systematically and to achieve more uniform underwriting decisions. The system displays both an internal proprietary credit score and in some cases the credit bureau score ("FICO"). The internal credit score which CIT Consumer Finance utilizes is a proprietary model that was purchased from Fair, Isaac Company. CIT Consumer Finance's internal score is calculated by evaluating the characteristics of each individual loan application. The characteristics include: (1) occupancy status; (2) length of time at the residence; (3) length of time at the present employer; (4) debt to income ratio; (5) bank account references; (6) credit bureau information; and (7) loan-to-value ratio. The underwriter evaluates the application and loan package based upon both the applicable credit scores and other characteristics of the application. The underwriter may approve or deny the application even if the credit score does not indicate that approval or denial is warranted if, in the opinion of the underwriter, other factors exist which would support an approval or denial of the application. The extent of an underwriter's credit authority will be based in part on certain minimum internal credit scores and the FICO score. The Chief Credit Officer of CIT Consumer Finance assigns credit authority to individual underwriters based upon their experience and understanding of CIT Consumer Finance's underwriting policies and procedures. There is a hierarchy of credit authority in the organization beginning at the office level, progressing to the regional office and then to headquarters. If an underwriter believes that an approval is warranted but the underwriter does not have the authority to issue a loan approval, the underwriter recommends the loan application to the next higher credit authority. This more senior underwriter may have the appropriate level of authority to approve the loan. This process insures that an underwriter with the appropriate level of experience is reviewing the loan application. CIT Consumer Finance's Credit Department management monitors the performance of its underwriters. CIT Consumer Finance has produced and consistently updates a written policies and procedures manual detailing the loan underwriting process and procedures as well as the loan programs. Generally, loan applications are subject to a credit investigation. A prospective borrower applying for a home equity loan directly from CIT Consumer Finance is required to fill out or to submit information to complete an application. The application is designed to provide to the underwriter pertinent credit information with respect to the applicant's liabilities, income, credit history, employment history and personal information. In addition, with respect to each purchase money mortgage, each applicant may be required to have adequate cash to pay the down payment and closing costs. Credit reports, whether or not received as part of the original loan application, are generally obtained and reviewed for all lines of business. For direct originations, correspondent lending and broker business, CIT Consumer Finance requires a credit report on each applicant from a credit reporting company. The credit report typically contains information relating to such matters as credit history with local and -46- national merchants and lenders, installment debt payments and any record of defaults, bankruptcy, repossession, suits or judgments. All adverse information obtained relative to legal actions, payment records and character may be required to be satisfactorily explained and acceptable to the underwriter. The applicant may also be required to provide a letter explaining all late payments on mortgage and consumer (i.e., non-mortgage) debt noted on the credit report. CIT Consumer Finance generally obtains other evidence of employment to verify information provided by the borrower. CIT Consumer Finance sometimes obtains a written verification from the borrower's employer. This verification usually reports the length of employment with that organization, the borrower's current salary and whether it is expected that the borrower will continue such employment in the future. Instead of the written verification from the borrower's employer, CIT Consumer Finance may instead obtain from the applicant recent tax returns or other tax forms (e.g., W-2 forms) or current pay stubs or may telephone the applicant's employer to verify an applicant's employment status. If the employer will not verify employment history over the telephone, CIT Consumer Finance may rely solely on the other information provided by the applicant. If a prospective borrower is self-employed, the borrower may be required to submit copies of the two most recent signed tax returns. The borrower may also be required to authorize verification of deposits at financial institutions where the borrower has demand or savings accounts. As part of the loan approval, the underwriter will assign a credit risk rating or program code to the proposed loan. The underwriter may also add written conditions required in order to fund the loan. Correspondent Business Underwriting For correspondent business, the loan package or application is reviewed, the information input into an automated application processing system, a credit report obtained (except where not permitted by law), and the property appraisal reviewed by a collateral risk manager. After this process is complete, the underwriter will review the loan application and other materials. If the underwriter approves the loan, the underwriter will do so based upon the criteria applicable to the program under which the loan is approved. In the loan approval, the underwriter will add written conditions required in order to fund the loan. CIT Consumer Finance will purchase the loan only if the borrower and correspondent meet these written conditions. Loans purchased from a correspondent on a bulk basis are reviewed in some cases at the correspondent's office. CIT Consumer Finance's underwriter will approve the loan package based on the information in the file and subject to the confirmation of this information. When CIT Consumer Finance receives the loan documentation from the correspondent for funding, CIT Consumer Finance generally obtains a credit report, verifies employment and determines that all other conditions to funding have been met. Institutional Bulk Portfolio Underwriting In the case of an Institutional Bulk Portfolio, CIT Consumer Finance may underwrite the entire portfolio by taking a representative statistical sample of loans from the portfolio to review to determine if these loans would, at the time of their origination, have met the underwriting criteria of CIT Consumer Finance. Based upon the sampling, the senior underwriter may approve the purchase of the entire portfolio without underwriting each loan in the pool. Since CIT Consumer Finance does not actually review the documents in each loan file, it cannot determine if all loan files have the same characteristics as the sample. Similarly, CIT Consumer Finance cannot determine if all its underwriting criteria have been met for each loan in the Institutional Bulk Portfolio since it has not reviewed the files on every loan. If, during the credit review of an Institutional Bulk Portfolio, CIT Consumer Finance determines that the loans do not conform to its underwriting standards, CIT Consumer Finance may purchase the Institutional Bulk Portfolio at a price which CIT Consumer Finance believes will reflect the increased risk in the portfolio. -47- Valuation Underwriting - General In determining the adequacy of the mortgaged property as collateral, Combined Loan-to-Value Ratio guidelines are established depending on the type of loan. Except as otherwise set forth in the related Prospectus Supplement, the maximum Combined Loan-to-Value Ratio is determined by the loan program and credit risk rating. Property values for properties appraised at over $400,000 (or $500,000 in California, New Jersey, Connecticut and the New York metropolitan area) are adjusted downward, generally by 20% of the appraised amount in excess of $400,000 (or $500,000 in California, New Jersey, Connecticut and the New York metropolitan area). The Combined Loan-to-Value Ratio is generally lower for self-employed individuals, and is generally reduced in respect of properties other than single family detached owner occupied properties. Generally, CIT Consumer Finance confirms the value of the property to be mortgaged by appraisals performed by independent appraisers or other valuation methods. Valuation Methods And Standards By Different Lines Of Business For loans originated by CIT Consumer Finance including loans referred by third party brokers, appraisals may be obtained from outside service companies approved by CIT Consumer Finance. Standards for this approval may vary by line of business. Such appraisals are based upon an appraiser's inspection of the subject property and verification that such property is in acceptable condition. Following each appraisal, the appraiser prepares a report which includes a market data analysis based on recent sales of comparable homes in the area and, when deemed appropriate, a replacement cost analysis based on the current cost of constructing a similar home. All appraisals are required to conform to FNMA or FHLMC appraisal standards then in effect. Every independent appraisal is reviewed by a CIT Consumer Finance underwriter before the loan is funded. CIT Consumer Finance's collateral risk managers also perform desktop reviews on selected appraisals. If CIT Consumer Finance determines that these valuations are inaccurate, it may reevaluate the appraiser or in some cases require a recourse party to repurchase the transaction. CIT Consumer Finance requires a full appraisal for certain transactions based upon its underwriting guidelines which take into account the loan amount, the loan to value ratio and the type of property. Based upon the underwriting guidelines, CIT Consumer Finance may not require a full appraisal for a loan. Instead, CIT Consumer Finance may accept a "drive-by" valuation, which is made by an appraiser who may not inspect the interior of the building. Some drive-by valuations may only involve a visual observation of the exterior characteristics and condition of the property and the neighborhood. Since the appraiser has not inspected the interior dimensions, improvements and conditions of the property, the drive-by method produces only a general approximation of value for the particular property. If there is an appraisal which was completed within six months of the loan application, in certain cases CIT Consumer Finance may rely on the prior appraisal. Application packages received from correspondents for pre-approval will have the property appraisal reviewed by a CIT Consumer Finance collateral risk manager prior to funding. Each appraisal for correspondent loans purchased in bulk from correspondents is reviewed by a CIT Consumer Finance collateral risk manager after purchasing the loan. Each property appraisal is reviewed by a collateral risk manager and if there is any variance outside of the tolerance shown in the correspondent agreement, the loan may be presented to the correspondent for repurchase. -48- CIT Consumer Finance will review the accuracy of appraised values of all or a portion of the mortgaged properties securing the loans in an Institutional Bulk Portfolio. This verification may include obtaining review or drive-by appraisals or relying on an external vendor's automated appraised value database. In addition, CIT Consumer Finance's collateral risk managers will generally conduct a desktop review of the appraisals from the statistical sampling of loan files selected for due diligence review. Underwriting - Other Issues CIT Consumer Finance has several procedures which it uses to verify the applicant's outstanding balance and payment history on any senior mortgage, including a telephone call to the senior mortgage lender. If the senior mortgage lender does not verify this information by telephone, CIT Consumer Finance may rely upon information provided by the applicant, such as a recent statement from the senior lender and evidence of payment, such as canceled checks, or upon information provided by national credit bureaus. Once all applicable employment, credit and property information is received, CIT Consumer Finance makes a determination as to whether the prospective borrower has sufficient monthly income available to meet the borrower's (i) monthly obligations on the proposed mortgage and any other mortgage debt on the mortgaged property and other expenses related to the mortgaged property (such as property taxes and hazard insurance), (ii) monthly housing expenses and other financial obligations and (iii) monthly living expenses. Specialized underwriting programs described below may also apply to prospective borrowers. Currently, CIT Consumer Finance generally accepts debt service ratios with respect to fixed rate mortgage loans and adjustable rate mortgage loans of up to 45% of the proposed borrower's estimated monthly gross income, generally based upon historically consistent income over a two year period. For adjustable rate mortgage loans, CIT Consumer Finance computes the borrower's monthly obligation on the proposed mortgage loan using the initial mortgage amount and the maximum mortgage rate permitted after one year. CIT Consumer Finance makes exceptions to the underwriting criteria described above. For example, for certain types of loans CIT Consumer Finance may approve debt service ratios up to 55% with generally lower maximum Combined Loan-to-Value Ratios. CIT Consumer Finance also offers different loan programs with different underwriting standards, particularly with respect to the level of loan documentation and the mortgagor's income and credit history, in appropriate cases where factors such as low Combined Loan-to-Value Ratios or other favorable credit factors exist. Certain of the types of loans in CIT Consumer Finance's portfolio have been originated under new programs and may involve additional credit uncertainties not present in traditional types of loans. For example, certain of the mortgage loans may provide for escalating or variable payments by the mortgagor. CIT Consumer Finance may underwrite such a loan on the basis of a judgment that the mortgagor can make the initial monthly payments. In some instances, however, a mortgagor may not have sufficient income to continue to make the required loan payments as such payments increase. CIT Consumer Finance may also underwrite such a loan in reliance on Combined Loan-to-Value Ratios or other favorable credit factors. CIT Consumer Finance will not purchase or close a Home Equity Loan prior to receiving evidence that the property securing the loan is insured against casualty loss. CIT Consumer Finance requires evidence of fire and extended coverage casualty insurance on the home in an amount at least equal to the principal balance of the related mortgage loan plus, in the case of a mortgage loan secured by a subordinate priority lien on the mortgaged property, the amount of each mortgage secured by senior priority liens, or, if required by -49- law, the replacement cost of the property if such replacement cost is less than the mortgages. In addition, at the closing, the borrower is required to sign a letter addressed to his insurance carrier naming CIT Consumer Finance as a loss payee under the insurance policy, which CIT Consumer Finance will thereafter mail to the insurer. Accordingly, CIT Consumer Finance normally will not be named as a loss payee with respect to the property securing the Home Equity Loan at the time the loan is made or purchased and insurance proceeds might not be available to cover any loss to CIT Consumer Finance. After closing, CIT Consumer Finance monitors the continued existence of casualty insurance on the mortgaged properties. However, CIT Consumer Finance does not currently "force place" casualty insurance coverage if CIT Consumer Finance discovers that casualty insurance coverage has lapsed. Instead, CIT Consumer Finance requests that its borrowers reinstate any lapsed insurance as required by the terms of the mortgage documentation. CIT Consumer Finance requires title insurance on all of its mortgage loans secured by liens on real property if the principal balance is over $100,000, if the Combined Loan-to-Value Ratio is greater than 85% on a first lien position, if the borrower is a trust, if there is a transfer of title, if closing is conducted pursuant to a power of attorney, if the home was not subject to an existing mortgage or, if the first lien holder is a not an institutional lender. In cases where CIT Consumer Finance does not require title insurance, it instead obtains a last owner title search which is ordered to verify that the borrower is the last owner of record of the mortgaged property. The actual maximum amount that CIT Consumer Finance will lend is determined by an evaluation of the applicant's ability to repay the loan, the value of the applicant's equity in the real estate, and the ratio of such equity to the real estate's appraised value. Specialized Underwriting Programs CIT Consumer Finance also originates or purchases mortgage loans pursuant to alternative sets of underwriting criteria under its No Income Verification program, No Income Qualify program and Lite Documentation program. Under these programs, relatively more emphasis is placed on property underwriting than on credit underwriting and certain credit underwriting documentation concerning income and employment verification therefore is waived. Mortgage loans underwritten under these programs are limited to self-employed borrowers with credit histories that demonstrate an established ability to repay indebtedness in a timely fashion. Self-employed borrowers with poorer credit histories are considered with lower Combined Loan-to-Value Ratios. Permitted maximum Combined Loan-to-Value Ratios under these programs are more restrictive than under CIT Consumer Finance's standard underwriting criteria. Mortgage loans underwritten pursuant to these programs generally must be secured by owner-occupied primary residences. These programs are designed to facilitate the loan approval process and thereby improve CIT Consumer Finance's competitive position among other mortgage loan originators. Under the No Income Verification program, the customer does not provide income documentation. Under the No Income Qualify program income documentation is provided by the customer but the documentation does not support the stated income reported by the prospective borrower to CIT Consumer Finance. The stated income must appear reasonable and realistic to the underwriter compared to the customer's assets and credit history. The Lite Documentation program stresses the verification of the borrower's cash flow by reviewing bank statements. -50- CIT Consumer Finance may modify or eliminate these specialized underwriting programs from time to time. CIT Consumer Finance may also introduce new, additional specialized underwriting programs in the future, which may modify the underwriting guidelines set forth herein. If changes in underwriting guidelines are applicable to a material portion of the Mortgage Pool, these changes will be described in the related Prospectus Supplement. QUALITY CONTROL CIT Consumer Finance implements quality control programs in three areas: 1) lending and documentation standards, 2) re-certification of appraisals, and 3) re-verification of employment. CIT Consumer Finance applies the lending and documentation standards quality control program to its own originations and to purchased loans. The quality control procedures are designed to assure that a consistent level of quality applies to all loans in the portfolio, regardless of source. CIT Consumer Finance may vary quality control procedures based upon the business source for the loan. CIT Consumer Finance also performs general quality control review through a central quality control effort. These procedures include a review of a sample of originated and purchased loans from each of CIT Consumer Finance's production offices. Every office is audited monthly and loans originated during prior months are reviewed for compliance with lending and documentation standards. In addition, loans originated by CIT Consumer Finance are audited at random on a monthly basis for compliance with lending and documentation standards. In order to confirm the validity of appraisals obtained at the time loans are made, reappraisals are obtained for the property securing some of such loans. In this manner, CIT Consumer Finance monitors the quality of the original appraiser and the appraisal process. In addition, CIT Consumer Finance re-verifies employment of its borrowers. These re-verifications are conducted monthly on some of the loans in the portfolio to detect fraud and to confirm the accuracy of the information provided in the application. Refinancing Policy Where CIT Consumer Finance believes that borrowers having existing loans with it are likely to refinance such loans due to interest rate changes or other reasons, CIT Consumer Finance actively attempts to retain such borrowers through solicitations of such borrowers to refinance with CIT Consumer Finance. Such refinancings may generate fee income for CIT Consumer Finance. CIT Consumer Finance may refinance Mortgage Loans held by a Trust. Since the solicited borrowers may refinance their existing loans in any case, CIT Consumer Finance believes that this practice will be unlikely to affect the prepayment experience of the Home Equity Loans in a material respect. CIT Consumer Finance also solicits its borrowers who are in good standing to apply for additional loans secured by the same property, consistent with its origination standards. As a result, CIT Consumer Finance may, now or in the future, hold a loan (or may sell a loan to another trust) which is also secured by a Mortgaged Property securing a Mortgage Loan held by a Trust. Servicing and Collections CIT Consumer Finance, as Master Servicer, will be required under the related Agreement to service the Mortgage Loans and other Mortgage Assets underlying a particular Series of Certificates with the same degree of skill and care that it exercises with respect to all comparable loans and assets that it services for its own account. In the servicing of its own portfolio, CIT Consumer Finance currently delegates most of the servicing duties described below to CITSF, as Sub-Servicer, pursuant to a servicing -51- agreement between CIT Consumer Finance and CITSF. Accordingly, references herein to actions taken by CIT Consumer Finance as Master Servicer refer in most cases to actions taken by CITSF as Sub-Servicer. CIT Consumer Finance typically performs the quality control reviews, oversees the recording of the mortgages, follows through on insurance documentation and maintains the Mortgage Loan files. CITSF is generally responsible for billing, collecting, foreclosure procedures and liquidations. Servicing by CITSF also includes customer service and remittance handling. Borrowers are sent monthly statements which specify the payment due. Due dates for payments occur throughout the calendar month. Generally if payment is not received within 10 working days after the due date, an initial collection effort by telephone is made in an attempt to bring the delinquent account current. CIT Consumer Finance continues to monitor and evaluate the various stages of delinquency on a continuous basis. Delinquent accounts are contacted by collection staff by various methods including, but not limited to, telephone calls and collection letters. When an account is 30 days past due, the collection supervisor analyzes the account to determine the appropriate course of action. If a borrower is experiencing difficulty in making payments on time, CIT Consumer Finance may modify the payment schedule consistent with CIT Consumer Finance's procedures. The course of action taken by CIT Consumer Finance is dependent upon a number of factors including the borrower's payment history, the amount of equity in the related mortgaged property and the reason for the current inability to make timely payments. When a loan is 60 days past due, the related mortgaged property may be reappraised and the results evaluated by CIT Consumer Finance to determine a course of action. Foreclosure laws and practices and the rights of the owner in default vary from state to state, but generally foreclosure procedures may be initiated if: (i) the loan is 90 days or more delinquent; (ii) a notice of default on a senior lien is received or (iii) the loan is otherwise in default. During the foreclosure process, any expenses incurred by CIT Consumer Finance may be added to the amount owed by the borrower, to the extent permitted by applicable law. Upon completion of the foreclosure, the property is sold to an outside bidder, or passes to the mortgagee in which case CIT Consumer Finance proceeds to liquidate the asset. CIT Consumer Finance may not foreclose on the property securing a Junior Lien Loan unless it forecloses subject to the related senior mortgages. In such cases, CIT Consumer Finance may pay the amount due on the senior mortgages to the senior mortgagees, if CIT Consumer Finance considers it to be advisable to do so. In the event that foreclosure proceedings have been instituted on a senior mortgage prior to the initiation of CIT Consumer Finance's foreclosure action, CIT Consumer Finance will either satisfy such mortgage at the time of the foreclosure sale or take other appropriate action. In servicing Junior Lien Loans in its portfolio, it has been the practice of CIT Consumer Finance to satisfy each such senior mortgage at or prior to the foreclosure sale only to the extent that it determines any amount so paid will be recoverable from future payments and collections on such Junior Lien Loans or otherwise. In servicing Junior Lien Loans, it is generally the practice of CIT Consumer Finance to advance funds to keep the senior lien current in the event the mortgagor is in default thereunder until such time as CIT Consumer Finance satisfies the senior lien by sale of the mortgaged property, but only to the extent that it determines such advances will be recoverable from future payments and collections on that Junior Lien or otherwise. Such practice may not be followed by CIT Consumer Finance in servicing loans more junior than second Mortgages or may be modified at any time. -52- CIT Consumer Finance's servicing and charge-off policies and collection practices may change over time in accordance with CIT Consumer Finance's business judgment, changes in its serviced loan portfolio and applicable laws and regulations, as well as other items. Regulations and practices regarding the liquidation of properties (e.g., foreclosure) and the rights of the borrower in default vary greatly from state to state. CIT Consumer Finance will generally initiate a foreclosure only if the delinquency or other breach will not be cured. If, after determining that purchasing a property securing a mortgage loan will minimize the loss associated with such defaulted loan, CIT Consumer Finance may bid at the foreclosure sale for such property or accept a deed in lieu of foreclosure. DESCRIPTION OF THE CERTIFICATES The Home Equity Loan Asset Backed Certificates (the "Certificates") will be issuable in series (each, a "Series") and each Series of Certificates will be issued pursuant to an Agreement (see "The Pooling and Servicing AgreementThe Pooling and Servicing Agreement" herein), dated as of the first day of the month of issuance of such Series of Certificates or such other date as is specified in the related Prospectus Supplement (the "Cut-off Date"), among the Depositor, the Master Servicer, the applicable Sellers and the Trustee for the benefit of the holders of the Certificates of such Series. The provisions of each Agreement will vary depending upon the nature of the Certificates to be issued thereunder and the nature of the related Trust. A form of an Agreement is an exhibit to the Registration Statement of which this Prospectus is a part. The following summaries describe certain provisions that may appear in each Agreement. The Prospectus Supplement for a Series of Certificates will describe any provision of the Agreement relating to such Series that materially differs from, or is in addition to, the description thereof contained in this Prospectus. The following summaries do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Agreement for each Series of Certificates and the related Prospectus Supplement. The Depositor will provide a copy of the Agreement (without exhibits) relating to any Series without charge upon written request of a holder of record of a Certificate of such Series addressed to the Depositor at 650 CIT Drive, Livingston, New Jersey 07039. General The Certificates of each Series will not represent an interest in or obligation of the Depositor, CIT Consumer Finance, CITSF, CIT or any of their respective affiliates, except as set forth herein and in the related Prospectus Supplement. Neither the certificates nor the underlying mortgage loans will be insured or guaranteed by the Depositor, CIT Consumer Finance, CITSF, CIT, or any of their affiliates except as set forth herein and in the related Prospectus Supplement. Unless otherwise specified in the Prospectus Supplement, the Certificates of each Series will be issued in either fully registered or book-entry form in the authorized denominations specified in the related Prospectus Supplement, will evidence specified beneficial ownership interests in certain trusts (each, a "Trust Fund" or "Trust") created pursuant to the related Agreement and will not be entitled to payments in respect of the assets included in any other Trust established by the Depositor. The Mortgage Loans will not be insured or guaranteed by any governmental entity or other person, unless otherwise specified in the related Prospectus Supplement. Each Trust will consist of, to the extent provided in the related Agreement, (i) the Mortgage Assets that from time to time are subject to the related Agreement (exclusive of any amounts specified in the related Prospectus Supplement (the "Retained Interest")); (ii) such assets as from time to time are required to be deposited in the related Certificate Account (as defined herein) or other fund or account which, pursuant to the related Agreement, constitutes part of a Trust; (iii) properties that secured Mortgage Loans and that are acquired on behalf of the -53- Certificateholders by foreclosure or deed in lieu of foreclosure or comparable procedure ("REO Property"); (iv) any Primary Mortgage Insurance Policies and any other insurance policies or other forms of credit enhancement required to be maintained pursuant to the related Agreement; and (v) such other property (including amounts on deposit in a Pre-Funding Account) as may be specified in the related Prospectus Supplement. If specified in the related Prospectus Supplement, a Trust may also include one or more of the following: reinvestment income on payments received on the Mortgage Assets, a Reserve Fund, a Certificate Guaranty Insurance Policy, a Mortgage Pool Insurance Policy, a Special Hazard Insurance Policy, a Bankruptcy Bond, one or more spread accounts, cash collateral accounts and/or other accounts, letters of credit, surety bonds, financial guarantee insurance policies, third party guarantees (including guarantees by CIT, its affiliates, or an unaffiliated third party, any of which may be limited in nature), interest rate swaps, caps, floors or other derivative products, or similar instruments or other agreements. Each Series of Certificates will be issued in one or more classes. Each class of Certificates of a Series will evidence beneficial ownership of a specified percentage (which may be 0%) or portion of future interest payments and a specified percentage (which may be 0%) or portion of future principal payments on the Mortgage Assets in the related Trust. A class of Certificates may be divided into two or more sub-classes, as specified in the related Prospectus Supplement. A Series of Certificates may include one or more classes that are senior in right to payment to one or more other classes of Certificates of such Series (See "Credit Enhancement--Subordination" herein). Certain Series or classes of Certificates may be covered by insurance policies, surety bonds or other forms of credit enhancement, in each case as described herein and in the related Prospectus Supplement. One or more classes of Certificates of a Series may be entitled to receive distributions of principal, interest or any combination thereof. Distributions on one or more classes of a Series of Certificates may be made prior to one or more other classes of Certificates of such Series, after the occurrence of specified events, in accordance with a schedule or formula, on the basis of collections from designated portions of the Mortgage Assets in the related Trust, or on a different basis, or one or more classes of a Series of Certificates may be required to absorb one or more types of loses prior to one or more other classes of Certificates of such Series, in each case as specified in the related Prospectus Supplement. The timing and amounts of such distributions may vary among classes or over time as specified in the related Prospectus Supplement. Definitive Certificates, if issued, will be freely transferable and exchangeable at the corporate trust office of the Trustee as set forth in the related Prospectus Supplement or, at the election of the Trustee, at the office of a certificate registrar appointed by the Trustee. No service charge will be made for any registration of exchange or transfer of Certificates of any Series, but the Trustee may require payment of a sum sufficient to cover any related tax or other governmental charge. Under current law the purchase and holding by or on behalf of any employee benefit plan or other retirement arrangement (including individual retirement accounts and annuities, Keogh plans and collective investment funds in which such plans, accounts or arrangements are invested) subject to provisions of ERISA or the Code of a class of Certificates entitled only to a specified percentage of payments of either interest or principal or a notional amount of either interest or principal on the related Mortgage Assets or a class of Certificates entitled to receive payments of interest and principal on the Mortgage Assets only after payments to other classes or after the occurrence of certain specified events may result in "prohibited transactions" within the meaning of ERISA and the Code. See "ERISA Considerations" herein and in the related Prospectus Supplement. If specified in the related Prospectus Supplement, transfer of Certificates of such a class will not be registered unless the transferee (i) represents that it is not, and is not purchasing on behalf of, any such plan, account or arrangement or (ii) provides an opinion of counsel satisfactory to the Trustee and the Depositor that the purchase of Certificates of such a class by or on behalf of such plan, account or arrangement is permissible under applicable law and will not subject the Trustee, the Master Servicer or the Depositor to any obligation or liability in addition to those undertaken in the Agreement. -54- As to each Series, an election may be made to treat the related Trust or designated portions thereof as one or more "real estate mortgage investment conduits" (each, a "REMIC") as defined in the Code. The related Prospectus Supplement will specify whether a REMIC election is to be made. Alternatively, the Agreement for a Series may provide that a REMIC election may be made at the discretion of the Depositor or the Master Servicer and may be made only if certain conditions are satisfied. As to any such Series, the terms and provisions applicable to the making of a REMIC election, as well as any material federal income tax consequences to Certificateholders not otherwise described herein, will be set forth in the related Prospectus Supplement. If such an election is made with respect to a Series, one of the classes will be designated as evidencing the sole class of "residual interests" in the related REMIC, as defined in the Code. All other classes of Certificates in such a Series will constitute "regular interests" in the related REMIC, as defined in the Code. As to each Series with respect to which a REMIC election is to be made, the Master Servicer or a holder of the related residual certificate or certificates will be obligated to take all actions required in order to comply with applicable laws and regulations and will be obligated to pay any prohibited transaction taxes. The Master Servicer, unless otherwise specified in the related Prospectus Supplement, will be entitled to reimbursement for any such payment from any holder of the related residual certificate or certificates. Distributions on Certificates General. In general, the method of determining the amount of distributions on a particular Series of Certificates will depend on the type of credit support, if any, that is used with respect to such Series. See "Credit Enhancement" herein and in the related Prospectus Supplement. The Prospectus Supplement for each Series of Certificates will describe the method to be used in determining the amount of distributions on the Certificates of such Series. Unless otherwise specified in the related Prospectus Supplement, distributions of principal and interest (or, where applicable, of principal only or interest only) on the related Certificates will be made by the Trustee, monthly, quarterly, semi-annually or at such other intervals and on the dates specified in the Prospectus Supplement (each, a "Distribution Date") out of the payments received in respect of the assets of the related Trust or other assets held for the benefit of the Certificateholders as specified in the related Prospectus Supplement. The amount allocable to payments of principal and interest on any Distribution Date will be determined as specified in the related Prospectus Supplement. Distributions will be made to the persons in whose names the Certificates are registered at the close of business on the dates specified in the related Prospectus Supplement (each, a "Record Date"). Distributions will be made by check or money order mailed to the persons entitled thereto at the address appearing in the register maintained for holders of Certificates (the "Certificate Register") or, if specified in the related Prospectus Supplement, in the case of Certificates that are of a certain minimum denomination, upon written request by the Certificateholder, by wire transfer or by such other means as are described therein; provided, however, that the final distribution in retirement of Certificates will be made only upon presentation and surrender of the Certificates at the office or agency of the Trustee or other person specified in the notice to Certificateholders of such final distribution. Distributions allocable to principal of and interest on the Certificates will be made by the Trustee out of, and only to the extent of, funds in the related Certificate Account, including any funds transferred from any Reserve Fund or Pre-Funding Account. (See "The Pooling And Servicing Agreement--Payments on Mortgage Assets; Deposits to Certificate Account" herein.) As between Certificates of different classes and as between distributions of principal (and, if applicable, between distributions of -55- Principal Prepayments (as defined herein) and scheduled payments of principal) and interest, distributions made on any Distribution Date will be allocated and applied as specified in the related Prospectus Supplement. All distributions to any class of Certificates will be made in the priority, manner and amount specified in the related Prospectus Supplement. Available Funds. All distributions on the Certificates of each Series on each Distribution Date will be made from the Available Funds, in accordance with the terms described in the related Prospectus Supplement and specified in the related Agreement. Unless otherwise provided in the related Prospectus Supplement, "Available Funds" for each Distribution Date will generally equal the amount on deposit in the related Certificate Account (including any prepayment charges, assumption fees and late payment charges and other administrative fees and charges, to the extent collected from Mortgagors), and, if applicable, the amount on deposit in the related Pre-Funding Account on such Distribution Date or on the last day of the Due Period (net of related fees and expenses payable by the related Trust) (see "The Pooling And Servicing Agreement--Payments on Mortgage Assets; Deposits to Certificate Account" and "The Pooling and Servicing Agreement -- Servicing and Other Compensation and Payment of Expenses") other than amounts to be held therein for distribution on future Distribution Dates. Unless otherwise specified in the related Prospectus Supplement, the "Determination Date" is the third Business Day prior to each Distribution Date. On each Determination Date, the Master Servicer will determine the amounts of principal and interest which will be passed through to Certificateholders on the related Distribution Date. The "Due Period" for any Series is the period specified in the related Prospectus Supplement. The "Due Period" is the period during which principal, interest and other amounts will be collected on the Mortgage Loans for application to the payment of principal and interest to the Certificateholders and the payment of fees on such Distribution Date. A "Business Day" is any day other than a Saturday, Sunday or any day on which banking institutions or trust companies in the states of New York, Oklahoma and such other states (if any) specified in the related Prospectus Supplement are authorized by law, regulation or executive order to be closed. Distributions of Interest. Unless otherwise specified in the related Prospectus Supplement, interest will accrue on the aggregate Certificate Balance (or, in the case of Certificates entitled only to distributions allocable to interest, the aggregate notional amount) of each class of Certificates (the "Class Certificate Balance") entitled to interest at the "Pass-Through Rate" (which may be a Fixed Rate or an Adjustable Rate as specified in such Prospectus Supplement) from the date and for the periods specified in such Prospectus Supplement. To the extent funds are available therefor, interest accrued during each such specified period on each class of Certificates entitled to interest (other than a class of Certificates that provides for interest that accrues, but is not currently payable, referred to hereafter as "Accrual Certificates") will be distributable on the Distribution Dates specified in the related Prospectus Supplement until the Class Certificate Balance of such class has been distributed in full or, in the case of Certificates entitled only to distributions allocable to interest, until the aggregate notional amount of such Certificates is reduced to zero or for the period of time designated in the related Prospectus Supplement. Unless otherwise specified in the related Prospectus Supplement, the original Certificate Balance of each Certificate will equal the aggregate distributions allocable to principal to which such Certificate is entitled. Unless otherwise specified in the related Prospectus Supplement, distributions allocable to interest on each Certificate which is not entitled to distributions allocable to principal will be calculated based on the notional amount of such Certificate. The notional amount of a Certificate will not evidence an interest in or entitlement to distributions allocable to principal but will be used solely for convenience in expressing the calculation of interest and for certain other purposes. If specified in the related Prospectus Supplement, one or more class or classes of Certificates may provide that any interest that has accrued but is not paid on a given Distribution Date will be added to the Class Certificate Balance of such class of Certificates on that Distribution Date (such Certificates, -56- "Accrual Certificates"). Unless otherwise specified in the related Prospectus Supplement, distributions of interest on each class of Accrual Certificates will commence only after the occurrence of the events specified in such Prospectus Supplement and, prior to such time, the beneficial ownership interest of such class of Accrual Certificates in the Trust, as reflected in the Class Certificate Balance of such class of Accrual Certificates, will increase on each Distribution Date by the amount of interest that accrued on such class of Accrual Certificates during the preceding interest accrual period but that was not required to be distributed to such class on such Distribution Date. Any such class of Accrual Certificates will thereafter accrue interest on its outstanding Class Certificate Balance as so adjusted. Distributions of Principal. Unless otherwise specified in the related Prospectus Supplement, the aggregate original balance of the Certificates (the "Certificate Balance") will equal the aggregate distributions allocable to principal that such Certificates will be entitled to receive. Unless otherwise specified in the related Prospectus Supplement, the Class Certificate Balance of any class of Certificates entitled to distributions of principal will be the original Class Certificate Balance of such class of Certificates specified in such Prospectus Supplement, reduced by all distributions allocable to principal and (i) in the case of Accrual Certificates, unless otherwise specified in the related Prospectus Supplement, increased by all interest accrued but not then distributable on such Accrual Certificates, and (ii) in the case of Adjustable Rate Certificates, unless otherwise specified in the related Prospectus Supplement, subject to the effect of negative amortization. The related Prospectus Supplement will specify the method by which the amount of principal to be distributed on the Certificates on each Distribution Date will be calculated and the manner in which such amount will be allocated among the classes of Certificates entitled to distributions of principal. If so provided in the related Prospectus Supplement, one or more classes of senior Certificates (the "Senior Certificates") will be entitled to receive all or a disproportionate percentage of the payments of principal that are received from Mortgagors in advance of their scheduled due dates and are not accompanied by amounts representing scheduled interest due after the month of such payments ("Principal Prepayments") in the percentages and under the circumstances or for the periods specified in such Prospectus Supplement. Any such allocation of Principal Prepayments to such class or classes of Senior Certificates will have the effect of accelerating the amortization of such Senior Certificates while increasing the interests evidenced by the subordinated Certificates (the "Subordinated Certificates") in the Trust. Increasing the interests of the Subordinated Certificates relative to that of the Senior Certificates is intended to preserve the availability of the subordination provided by the Subordinated Certificates. See "Credit Enhancement--Subordination" herein and "Credit Enhancement--Subordination of the Subordinated Certificates" in the related Prospectus Supplement. Unscheduled Distributions. If specified in the related Prospectus Supplement, the Certificates will be subject to receipt of distributions before the next scheduled Distribution Date under the circumstances and in the manner described below and in such Prospectus Supplement. If applicable, the Trustee will be required to make such unscheduled distributions on the day and in the amount specified in the related Prospectus Supplement if, due to substantial payments of principal (including Principal Prepayments) on the Mortgage Assets, the Trustee or the Master Servicer determines that the funds available or anticipated to be available from the Certificate Account and, if applicable, any Pre-Funding Account or Reserve Fund, may be insufficient to make required distributions on the Certificates on such Distribution Date. Unless otherwise specified in the related Prospectus Supplement, the amount of any such unscheduled distribution that is allocable to principal will not exceed the amount that would otherwise have been required to be distributed as principal on the Certificates on the next Distribution Date. Unless otherwise specified in the related Prospectus Supplement, all unscheduled distributions will include interest at the applicable Pass-Through Rate (if any) on the amount of the unscheduled distribution allocable to principal for the period and to the date specified in such Prospectus Supplement. -57- Unless otherwise specified in the related Prospectus Supplement, all distributions allocable to principal in any unscheduled distribution will be made in the same priority and manner as distributions of principal on the Certificates would have been made on the next Distribution Date. With respect to Certificates of the same class, unscheduled distributions of principal will be made in the priority and manner specified in the related Prospectus Supplement. The Trustee will give notice to Certificateholders of any unscheduled distribution prior to the date of such distribution. Example of Distributions The following is an example of the flow of funds as it would relate to a hypothetical Series of Certificates issued, and with a Cut-off Date occurring in July, 1997 (all days are assumed to be Business Days): July 1 - July 30........... (1) Due Period. Master Servicer receives scheduled payments on the Mortgage Assets and any Principal Prepayments made by Mortgagors and applicable interest thereon. July 30.................... (2) Record Date. August 12.................. (3) Determination Date. Distribution amount determined. August 14.................. (4) Deposit Date. August 15.................. (5) Distribution Date. Succeeding months follow the pattern above, subject to adjustment if the Distribution Date is not a Business Day as specified in the related Prospectus Supplement. The flow of funds with respect to any Series of Certificates may differ from the above, and the flow of funds for each Series of Certificates will be specified in the related Prospectus Supplement. Reference should be made to the related Prospectus Supplement to determine the flow of funds for any particular Series of Certificates. In addition, there are other sources and uses of funds with respect to each Series of Certificates, as outlined herein and in the related Prospectus Supplement, that are not specified in the above example (see "The Pooling and Servicing Agreement" and "Credit Enhancement" herein). - -------------- (1) Scheduled payments and Principal Prepayments may be received at any time during this period and will be deposited on the Deposit Date in the Certificate Account by the Master Servicer for distribution to Certificateholders. When a Mortgage Loan is prepaid in full, interest on the amount prepaid is collected from the Mortgagor only to the date of payment. (2) Distributions on the Distribution Date will be made to Certificateholders of record at the close of business on the last business day of the month immediately preceding the month of distribution. (3) On August 12 (the third Business Day prior to the Distribution Date), the Master Servicer will determine the amounts of principal and interest which will be passed through on the Distribution Date. (4) On August 14 (the Business Day immediately preceding the Distribution Date), the Master Servicer may advance funds to cover any delinquencies, in which event the distribution to Certificateholders on the Distribution Date will include the full amounts of principal and interest due during the period in respect of the delinquencies. The Master Servicer will also calculate any changes in the relative interests evidenced by the Senior Certificates and the Subordinate Certificates in the Trust Fund, if applicable. (5) On August 15, the amounts determined on August 12 will be distributed to Certificateholders of record on the Record Date. -58- Advances and Compensating Interest Unless otherwise provided in the related Prospectus Supplement, the Master Servicer will be required to remit to the Trustee no later than the day prior to each Distribution Date and in no case earlier than the seventh Business Day of such month, the amount (an "Advance"), if any by which 30 days' interest at the Mortgage Rate (or, if specified in the related Prospectus Supplement, at the Adjusted Mortgage Loan Remittance Rate) on the then outstanding principal balance of a Mortgage Loan exceeds the amount received by the Master Servicer in respect of interest on the Mortgage Loan as of the related Record Date. If provided in the related Prospectus Supplement, the obligation of the Master Servicer to make such Advances will be limited to amounts corresponding to delinquent interest payments on a Mortgage Loan and/or will be limited to amounts that the Master Servicer believes will be recoverable out of late payments by Mortgagors on a Mortgage Loan, Liquidation Proceeds, Insurance Proceeds (each, as defined herein) or otherwise. If and to the extent specified in the related Prospectus Supplement, the amount of the Advance may be determined based on an "Adjusted Mortgage Loan Remittance Rate" (determined as set forth in the Prospectus Supplement), and may include delinquent principal payments and other amounts. Unless otherwise specified in the related Prospectus Supplement, in making Advances, the Master Servicer will endeavor to maintain a regular flow of scheduled interest payments to Certificateholders, rather than to guarantee or insure against losses. Unless otherwise specified in the related Prospectus Supplement, if Advances are made by the Master Servicer from cash being held for future distribution to Certificateholders, the Master Servicer will replace such funds on or before any future Distribution Date to the extent that funds in the applicable Certificate Account on such Distribution Date would be less than the amount required to be available for distributions to Certificateholders on such date. Unless otherwise specified in the related Prospectus Supplement, any Advances by the Master Servicer will be reimbursable to the Master Servicer out of recoveries on the specific Mortgage Assets with respect to which such Advances were made (e.g., late payments made by the related Mortgagors, any related Insurance Proceeds, Liquidation Proceeds, Released Mortgaged Property Proceeds (as defined herein) or proceeds of any Mortgage Loan repurchased by the Depositor, a Sub-Servicer or a Seller pursuant to the related Agreement) and any other amount that would otherwise be distributed to the holder or holders of Certificates representing the residual interest of a Trust for which a REMIC election has been made. Unless otherwise specified in the related Prospectus Supplement, Advances by the Master Servicer also will be reimbursable to the Master Servicer from cash otherwise distributable to Certificateholders (including Senior Certificateholders) to the extent that the Master Servicer determines that any such Advances previously made are not ultimately recoverable as described in the immediately preceding sentence. If specified in the Prospectus Supplement, the Master Servicer also will be obligated to make Advances, to the extent recoverable out of Insurance Proceeds, Liquidation Proceeds or otherwise, in respect of certain taxes and insurance premiums not paid by Mortgagors on a timely basis and to otherwise protect the related Mortgaged Property. Funds so advanced are reimbursable to the Master Servicer to the extent permitted by the related Agreement. If specified in the related Prospectus Supplement, the obligations of the Master Servicer to make Advances may be supported by a cash advance reserve fund, a surety bond or other arrangement, in each case as described in such Prospectus Supplement. -59- Unless otherwise specified in the related Prospectus Supplement, not later than the close of business on the Business Day prior to each Determination Date, with respect to each Mortgage Loan as to which the Master Servicer receives during the related Due Period a principal payment in full in advance of the final scheduled due date (a "Principal Prepayment"), the Master Servicer will be required to remit to the Trustee for deposit in the Certificate Account from amounts otherwise payable to the Master Servicer as servicing compensation, an amount ("Compensating Interest") equal to the excess of (a) 30 days' interest on the principal balance of each such Mortgage Loan as of the beginning of the related Due Period at the applicable Mortgage Rate (or, if specified in the related Prospectus Supplement, at the Adjusted Mortgage Loan Remittance Rate), over (b) the amount of interest actually received on the related Mortgage Loan for such Due Period. REPORTS TO CERTIFICATEHOLDERS Prior to or concurrently with each distribution on a Distribution Date and except as otherwise set forth in the related Prospectus Supplement, the Master Servicer or the Trustee will furnish to each Certificateholder of record of the related Series a statement setting forth, to the extent applicable to such Series of Certificates, among other things: (i) the amount available in the Certificate Account; (ii) the amount of such distribution allocable to principal for each class of the related Series, separately identifying the aggregate amount of any Principal Prepayments and, if so specified in the related Prospectus Supplement, prepayment penalties included therein; (iii) the amount of such distribution allocable to interest for each class of the related Series; (iv) the amount of any Advance; (v) the aggregate amount (a) otherwise allocable to the Subordinated Certificateholders on such Distribution Date and (b) withdrawn from the Reserve Fund, if any, that is included in the amounts distributed to the Certificateholders; (vi) the aggregate amount, if any, withdrawn from letters of credit, pool policies or other forms of credit enhancement that is included in amounts distributed to Certificateholders; (vii) the Class Certificate Balance and corresponding pool factor or notional amount of each class of the related Series after giving effect to the distribution of principal on such Distribution Date; (viii) the percentage of principal payments on the Mortgage Assets (excluding prepayments), if any, which each such class will be entitled to receive on the following Distribution Date; (ix) the percentage of Principal Prepayments with respect to the Mortgage Assets, if any, which each such class will be entitled to receive on the following Distribution Date; (x) the related amount of the servicing compensation retained or withdrawn from the Certificate Account by the Master Servicer, and the amount of additional servicing compensation received by the Master Servicer attributable to penalties, fees, excess Liquidation Proceeds and other similar charges and items; -60- (xi) the number and aggregate principal balances of Mortgage Loans: (A) delinquent (exclusive of Mortgage Loans in foreclosure) (1) 30 to 59 days, (2) 60 to 89 days and (3) 90 or more days, and (B) in foreclosure as of the close of business on the last day of the calendar month preceding such Distribution Date; (xii) the number and aggregate principal balances of Mortgage Loans acquired (and not subsequently sold) through foreclosure or grant of a deed in lieu of foreclosure as of the end of the related Due Period; (xiii) the number and aggregate principal balances of Mortgage Loans acquired through foreclosure or grant of a deed in lieu of foreclosure during the related Due Period; (xiv) the number and aggregate principal balance of Mortgage Loans which became Liquidated Mortgages and the amount of Liquidation Proceeds received during the related Due Period; (xv) the cumulative number and aggregate principal balance of Mortgage Loans which became Liquidated Mortgages and the cumulative amount of Liquidation Proceeds; (xvi) if applicable, the amount remaining in the Reserve Fund at the close of business on the Distribution Date; (xvii) the Pass-Through Rate and the applicable Index for Adjustable Rate classes expected to be applicable on the next Distribution Date to such class; (xviii) any amounts remaining under financial guaranty insurance policies, letters of credit, guarantees, pool policies or other forms of credit enhancement; (xix) the aggregate amount on deposit in the Pre-Funding Account, if any; and (xx) the number and aggregate principal amount of additional Mortgage Assets purchased by the Trust, if any. Where applicable, any amount set forth above may be expressed as a dollar amount per single Certificate of the relevant class having the Percentage Interest (as defined herein) specified in the related Prospectus Supplement. The report to Certificateholders for any Series of Certificates may include additional or other information of a similar nature to that specified above. In addition, within a reasonable period of time after the end of each calendar year, the Master Servicer or the Trustee will mail to each Certificateholder of record at any time during such calendar year a report (a) as to the aggregate of amounts reported pursuant to clause (i) and (ii) above for such calendar year or, in the event such person was a Certificateholder of record during a portion of such calendar year, for the applicable portion of such year, and (b) such other customary information as may be deemed necessary or desirable for Certificateholders to prepare their tax returns. Book-Entry Certificates If specified in the related Prospectus Supplement, one or more classes of the Certificates of any Series (each, a class of "Book-Entry Certificates") may be initially issued through the book-entry facilities of DTC in the United States or Cedel or Euroclear in Europe. Each class of Book-Entry Certificates of a Series will be issued in one or more certificates which equal the aggregate initial Class -61- Certificate Balance of each such class and which will be registered in the name of Cede as nominee of DTC. Cedel and Euroclear will hold omnibus positions with respect to the Certificates on behalf of Cedel Participants and Euroclear Participants (each, as defined herein), respectively, through customers' securities accounts in Cedel's and Euroclear's name on the books of their respective depositories (each, a "Depository") which in turn will hold such positions in customers' securities accounts in the Depositories' names on the books 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 New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC accepts securities for deposit from its participating organizations ("Participants") and facilitates the clearance and settlement of securities transactions between Participants in such securities through electronic book-entry changes in accounts of its Participants, 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 is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("Indirect Participants"). Beneficial interests in the Book-Entry Certificates of a Series will be held indirectly by investors through the book-entry facilities of DTC, as described herein. Investors may hold such beneficial interests in the Book-Entry Certificates in minimum denominations representing an original principal amount of $1,000 and integral multiples in excess thereof. Accordingly, DTC or its nominee is expected to be the holder of record of the Book-Entry Certificates. Except as described below, no person acquiring a Book-Entry Certificate (each, a "beneficial owner") will be entitled to receive a physical certificate representing such Certificate (a "Definitive Certificate"). The beneficial 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 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 be recorded on the records of DTC, if the beneficial owner's Financial Intermediary is not a Participant). Therefore, the beneficial owner must rely on the foregoing procedures to evidence its beneficial ownership of a Book-Entry Certificate. Beneficial ownership of a Book-Entry Certificate may only be transferred by compliance with the procedures of such Financial Intermediaries and Participants. In accordance with its normal procedures, DTC is expected to record the positions held by each 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 Participants as in effect from time to time. Distributions on the Book-Entry Certificates will be made on each Distribution Date by the Trustee to DTC. DTC will be responsible for crediting the amount of such payments to the accounts of the applicable Participants in accordance with DTC's normal procedures. Each Participant will be responsible for disbursing such payments to the beneficial 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 owners of the Book-Entry Certificates that it represents. -62- Under a book-entry format, beneficial owners of the Book-Entry Certificates may experience delay in their receipt of payments, since payments will be forwarded by the Trustee to DTC or its nominee, as the case may be, as holder of record of the Book-Entry Certificates. Because DTC can act only on behalf of Financial Intermediaries, the ability of a beneficial owner to pledge Book-Entry Certificates to persons or entities that do not participate in DTC 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. Unless and until Definitive Certificates are issued, it is anticipated that the only "Certificateholder" of the Book-Entry Certificates will be DTC or its nominee. Beneficial owners of the Book-Entry Certificates will not be Certificateholders, as that term will be used in the Agreement relating to such Series of Certificates. Beneficial owners are only permitted to exercise the rights of Certificateholders indirectly through Financial Intermediaries and DTC. Monthly and annual reports on the related Trust provided to DTC or its nominee, as the case may be, as holder of record of the Book-Entry Certificates, may be made available to beneficial owners upon request, in accordance with the rules, regulations and procedures creating and affecting DTC, and to the Financial Intermediaries to whose DTC accounts the Book-Entry Certificates of such beneficial owners are credited. Unless otherwise specified in the related Prospectus Supplement, unless and until Definitive Certificates are issued, DTC will take any action permitted to be taken by the holders of the Book-Entry Certificates of a particular Series under the related Agreement only at the direction of one or more Financial Intermediaries to whose DTC accounts such 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. Transfers between Participants will occur in accordance with DTC's rules, regulations and procedures. Transfers between Cedel Participants and Euroclear Participants will occur in accordance with their respective rules and operating procedures. Due to 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 Participant on such business day. Cash received in Cedel or Euroclear as result of sales of Certificates by or through a Cedel Participant or Euroclear Participant to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant Cedel or Euroclear cash account only as of the business day following settlement in DTC. Cross-market transfers between persons directly or indirectly holding Certificates 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's rules, regulations and procedures on behalf of the relevant European international clearing system by its 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 deadline (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its 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 Depositories. -63- Definitive Certificates Unless otherwise specified in the related Prospectus Supplement, Definitive Certificates will be issued to beneficial owners of Book-Entry Certificates, or their nominees, rather than to DTC, only if (i) DTC or the Depositor advises the Trustee in writing that DTC is no longer willing, qualified or able to discharge properly its responsibilities as nominee and depository with respect to the Book-Entry Certificates and the Depositor or the Trustee is unable to locate a qualified successor; (ii) the Depositor, at its sole option, elects to terminate the book-entry system through DTC; or (iii) after the occurrence of an Event of Default (as defined in the related Agreement), beneficial owners of Certificates representing not less than 51% of the aggregate Percentage Interests evidenced by each class of Certificates of the related Series issued as Book-Entry Certificates advise the Trustee and DTC through the Financial Intermediaries in writing that the continuation of a book-entry system through DTC (or a successor thereto) is no longer in the best interests of the beneficial owners. Upon the occurrence of any of the events described in the immediately preceding paragraph, the Trustee will be required to notify all beneficial owners of the occurrence of such event and the availability 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 the Definitive Certificates, and thereafter the Trustee will recognize the holders of such Definitive Certificates as Certificateholders under the Agreement relating to such Series of Certificates. CREDIT ENHANCEMENT General Credit enhancement may be provided with respect to one or more classes of a Series of Certificates or with respect to the Mortgage Assets in the related Trust. Credit enhancement may be in the form of a limited Certificate Guaranty Insurance Policy issued by an entity named in the related Prospectus Supplement, the subordination of one or more classes of the Certificates of such Series, the establishment of one or more reserve funds, the use of a cross collateralization feature, the use of overcollateralization, the use of a Mortgage Pool Insurance Policy, Certificate Guaranty Insurance Policy, Bankruptcy Bond, Special Hazard Insurance Policy, surety bond, letter of credit, guaranteed investment contract, financial guaranty insurance policy, third party guarantee (which may be limited in nature), a Limited Guarantee issued by CIT, spread accounts, cash collateral accounts and/or other accounts, or the use of any similar instruments or agreements or other methods of credit enhancement described in the related Prospectus Supplement, or any combination of the foregoing. Unless otherwise specified in the related Prospectus Supplement, no credit enhancement will provide protection against all risks of loss or guarantee repayment of the entire principal balance of the Certificates and interest thereon. If losses occur which exceed the amount covered by any credit enhancement or which are not covered by any credit enhancement, Certificateholders will bear their allocable share of any deficiencies. If a form of credit enhancement applies to several classes of Certificates, and if principal payments equal to the aggregate principal balances of certain classes will be distributed prior to such distributions to other classes, the classes which receive such distributions at a later time are more likely to bear any losses which exceed the amount covered by credit enhancement. Unless otherwise specified in the Prospectus Supplement, coverage under any credit enhancement may be canceled or reduced by the Master Servicer if such cancellation or reduction would not adversely affect the rating or ratings of the related Certificates. The Trustee of the related Trust will have the right to sue providers of credit enhancement if a default is made on a required payment. -64- Subordination If specified in the related Prospectus Supplement, the rights of the holders of one or more classes of Subordinated Certificates (the "Subordinated Certificateholders") will be subordinate to the rights of holders of one or more other classes of Senior Certificates (the "Senior Certificateholders") of such Series to receive distributions in respect of scheduled principal, Principal Prepayments, interest or any combination thereof that otherwise would have been payable to holders of Subordinated Certificates under the circumstances and to the extent specified in the related Prospectus Supplement. This subordination is intended to enhance the likelihood of regular receipt by Senior Certificateholders of the full amount of the monthly payments of principal and interest which such holders would be entitled to receive if there had been no losses or delinquencies. The protection afforded to the Senior Certificateholders of a Series by means of the subordination feature will be accomplished by (i) the preferential right of such holders to receive, prior to any distribution being made in respect of the related Subordinated Certificates, the amounts of principal and interest due them on each Distribution Date out of the funds available for distribution on such date in the related Certificate Account (as defined herein) and, to the extent described in the related Prospectus Supplement, by the right of such holders to receive future distributions on the assets in the related Trust that would otherwise have been payable to the Subordinated Certificateholders; (ii) reducing the ownership interest of the related Subordinated Certificates; (iii) a combination of clauses (i) and (ii) above; or (iv) as otherwise described in the related Prospectus Supplement. If specified in the related Prospectus Supplement, subordination may apply only in the event of certain types of losses not covered by other forms of credit support, such as hazard losses not covered by Standard Hazard Insurance Policies or losses due to the bankruptcy or fraud of the Mortgagor not covered by a Bankruptcy Bond. The protection afforded to Senior Certificateholders through subordination also may be accomplished by allocating certain types of losses or delinquencies to the related Subordinated Certificates to the extent described in the related Prospectus Supplement. The related Prospectus Supplement will set forth information concerning, among other things, the amount of subordination of a class or classes of Subordinated Certificates in a Series, the circumstances in which such subordination will be applicable and the manner, if any, in which the amount of subordination will decrease over time, the manner of funding any Reserve Fund, and the conditions under which amounts in any such Reserve Fund will be used to make distributions to Senior Certificateholders or released to Subordinated Certificateholders from the related Trust. If specified in the related Prospectus Supplement, delays in receipt of scheduled payments on the Mortgage Assets and losses with respect to the Mortgage Assets will be borne first by the various classes of Subordinated Certificates and thereafter by the various classes of Senior Certificates, in each case under the circumstances and subject to the limitations specified in such Prospectus Supplement. The aggregate distributions in respect of delinquent payments on the Mortgage Assets over the lives of the Certificates or at any time, the aggregate losses in respect of Mortgage Assets which must be borne by the Subordinated Certificates by virtue of subordination and the amount of the distributions otherwise distributable to the Subordinated Certificateholders that will be distributable to Senior Certificateholders on any Distribution Date may be limited as specified in the related Prospectus Supplement. If aggregate distributions in respect of delinquent payments on the Mortgage Assets or aggregate losses in respect of such Mortgage Assets were to exceed the total amounts payable and available for distribution to holders of Subordinated Certificates or, if applicable, were to exceed the amount specified in the related Prospectus Supplement, Senior Certificateholders would experience losses on the Certificates. In addition to or in lieu of the foregoing, if so specified in the Prospectus Supplement, all or any portion of distributions otherwise payable to holders of Subordinated Certificates on any Distribution Date may instead be deposited into one or more Reserve Funds established and maintained with the Trustee. If specified in the Prospectus Supplement, such deposits may be made on each Distribution Date for specified periods or until the balance in the Reserve Fund has reached a specified amount and, -65- following payments from the Reserve Fund, to holders of Senior Certificates or otherwise, thereafter to the extent necessary to restore balance in the Reserve Fund to required levels, in each case as specified in the Prospectus Supplement. If specified in the related Prospectus Supplement, amounts on deposit in the Reserve Fund may be released to the holders of the class of Certificates specified in the Prospectus Supplement at the times and under the circumstances specified in the Prospectus Supplement. See "--Reserve Fund" below. If specified in the related Prospectus Supplement, the same class of Certificates may be Senior Certificates with respect to certain types of payments or certain types of losses or delinquencies and Subordinated Certificates with respect to other types of payment or types of losses or delinquencies. If specified in the related Prospectus Supplement, various classes of Senior Certificates and Subordinated Certificates may themselves be subordinate in their right to receive certain distributions to other classes of Senior and Subordinated Certificates, respectively, through a cross collateralization mechanism or otherwise. As between classes of Senior Certificates and as between classes of Subordinated Certificates, distributions may be allocated among such classes (i) in the order of their scheduled final distribution dates, (ii) in accordance with a schedule or formula, (iii) in relation to the occurrence of events or (iv) otherwise, in each case as specified in the related Prospectus Supplement. The related Prospectus Supplement will set forth information concerning the amount of subordination of a class or classes of Subordinated Certificates in a Series, the circumstances in which such subordination will be applicable, the manner, if any, in which the amount of subordination will decrease over time, the manner of funding any Reserve Funds, and the conditions under which amounts in any such Reserve Funds will be used to make distributions to Senior Certificateholders or released to Subordinated Certificateholders from the related Trust. As between classes of Subordinated Certificates, payments to Senior Certificateholders on account of delinquencies or losses and payments to the Reserve Fund will be allocated as specified in the related Prospectus Supplement. Overcollateralization If specified in the related Prospectus Supplement, credit support may consist of overcollateralization whereby the aggregate principal amount of the Mortgage Assets exceeds the Certificate Balance (as defined herein) of the Certificates of such Series. Overcollateralization may exist on the Closing Date or may develop thereafter as a result of the application of certain interest collections or other collections received in connection with the Mortgage Assets in excess of amounts necessary to pay the Pass-Through Rate on the Certificates and certain other amounts as may be specified in the related Prospectus Supplement. The existence of any overcollateralization and the manner, if any, by which it increases or decreases, will be set forth in the related Prospectus Supplement. Reserve Fund If so specified in the related Prospectus Supplement, credit support with respect to a Series of Certificates may be provided by the establishment and maintenance with the Trustee for such Series of Certificates, of one or more reserve funds (each, a "Reserve Fund") for such Series. The related Prospectus Supplement will specify whether or not a Reserve Fund will be included in the corpus of the Trust for such Series. The Reserve Fund for a Series will be funded (i) by the deposit therein of cash, investment securities or instruments evidencing ownership of principal or interest payments thereon, letters of credit, demand notes, certificates of deposit or a combination thereof in the aggregate amount specified in the -66- related Prospectus Supplement, (ii) by the deposit therein from time to time of certain amounts, as specified in the related Prospectus Supplement, to which the Subordinated Certificateholders, if any, would otherwise be entitled, or (iii) in such other manner as may be specified in the related Prospectus Supplement. Any amounts on deposit in the Reserve Fund and the proceeds of any other instrument deposited therein upon maturity will be held in cash or will be invested in "Permitted Investments" which, unless otherwise specified in the related Prospectus Supplement, will include obligations of the United States and certain agencies thereof, certificates of deposit, certain commercial paper (including commercial paper issued by CIT), time deposits and bankers acceptances sold by eligible commercial banks and certain repurchase agreements of United States government securities with eligible commercial banks. If a letter of credit is deposited with the Trustee, such letter of credit will be irrevocable unless replaced. Unless otherwise specified in the related Prospectus Supplement, any letter of credit deposited therein will name the Trustee, in its capacity as trustee for the Certificateholders, as beneficiary and will be issued by an entity acceptable to each Rating Agency. Additional information with respect to such instruments deposited in the Reserve Funds will be set forth in the related Prospectus Supplement. Any amounts so deposited and payments on instruments so deposited will be available for withdrawal from the Reserve Fund for distribution to the Certificateholders for the purposes, in the manner and at the times specified in the related Prospectus Supplement. Certificate Guaranty Insurance Policies If so specified in the related Prospectus Supplement, a certificate guaranty insurance policy or policies (each, a "Certificate Guaranty Insurance Policy") may be obtained and maintained for one or more class or classes of Series of Certificates. The issuer of any Certificate Guaranty Insurance Policy (a "Certificate Guaranty Insurer") will be described in the related Prospectus Supplement. A copy of any such Certificate Guaranty Insurance Policy will be attached as an exhibit to the related Prospectus Supplement. Unless otherwise specified in the related Prospectus Supplement, Certificate Guaranty Insurance Policies generally unconditionally and irrevocably guarantee to Certificateholders 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 Certificateholders, for distribution by the Trustee to each Certificateholder. The "Insured Payment" will equal the full amount of the distributions of principal and interest to which Certificateholders are entitled under the related Agreement plus any other amounts specified therein or in the related Prospectus Supplement. If specified in the related Prospectus Supplement, the Certificate Guaranty Insurance Policy may only cover ultimate payment of principal to Certificateholders and not timely payment of principal on each Distribution Date. The specific terms of any Certificate Guaranty Insurance Policy will be as set forth in the related Prospectus Supplement. Certificate Guaranty Insurance Policies may have limitations including (but not limited to) limitations on the Certificate Guaranty Insurer's obligation to guarantee the Seller's or the Master Servicer's obligation to repurchase or substitute for any Mortgage Loans, to guarantee any specified rate of prepayments or to provide funds to redeem Certificates on any specified date. The Certificate Guaranty Insurance Policy may also be limited in amount. Subject to the terms of the related Agreement, the Certificate Guaranty Insurer may be subrogated to the rights of each Certificateholder to receive payments under the Certificates to the extent of any payments by such Certificate Guaranty Insurer under the related Certificate Guaranty Insurance Policy. -67- Mortgage Pool Insurance Policies If specified in the related Prospectus Supplement relating to a Mortgage Pool, a separate mortgage pool insurance policy or policies (each, a "Mortgage Pool Insurance Policy") will be obtained and maintained for the Mortgage Pool and issued by the insurer (the "Pool Insurer") named in such Prospectus Supplement. Each Mortgage Pool Insurance Policy will, subject to the limitations described below, cover loss by reason of default in payment on Mortgage Loans in the Mortgage Pool in an amount equal to a percentage specified in such Prospectus Supplement of the aggregate principal balance of such Mortgage Loans on the Cut-off Date and, if applicable, as of the Subsequent Cut-off Dates (as defined in the related Prospectus Supplement) related to the transfer of additional Mortgage Loans, if any, which are not covered as to their entire outstanding principal balances by Primary Mortgage Insurance Policies. As more fully described below, the Master Servicer will present claims thereunder to the Pool Insurer on behalf of itself, the Trustee and the Certificateholders. The Mortgage Pool Insurance Policies, however, are not blanket policies against loss, since claims thereunder may be made only respecting particular defaulted Mortgage Loans and only upon satisfaction of certain conditions precedent described below. Unless otherwise specified in the related Prospectus Supplement, the Mortgage Pool Insurance Policies will not cover losses due to a failure to pay or denial of a claim under a Primary Mortgage Insurance Policy. Unless otherwise specified in the related Prospectus Supplement, each Mortgage Pool Insurance Policy will provide that no claims may be validly presented unless (i) any required Primary Mortgage Insurance Policy is in effect for the defaulted Mortgage Loan and a claim thereunder has been submitted and settled; (ii) hazard insurance on the related Mortgaged Property has been kept in force and real estate taxes and other protection and preservation expenses have been paid; (iii) if there has been physical loss or damage to the Mortgaged Property, the damaged property has been restored to its physical condition (reasonable wear and tear excepted) at the time of issuance of the policy; and (iv) the insured has acquired good and marketable title to the Mortgaged Property free and clear of liens except certain permitted encumbrances. Upon satisfaction of these conditions, the Pool Insurer will have the option either (i) to purchase the Mortgaged Property at a price equal to the principal balance of the related Mortgage Loan plus accrued and unpaid interest at the Mortgage Rate to the date of such purchase and certain expenses incurred by the Master Servicer on behalf of the Trustee and Certificateholders, or (ii) to pay the amount by which the sum of the principal balance of the defaulted Mortgage Loan plus accrued and unpaid interest at the Mortgage Rate to the date of payment of the claim and the aforementioned expenses exceeds the proceeds received from an approved sale of the Mortgaged Property, in either case net of certain amounts paid or assumed to have been paid under the related Primary Mortgage Insurance Policy. If any Mortgaged Property is damaged, and proceeds, if any, from the related hazard insurance policy or the applicable Special Hazard Insurance Policy are insufficient to restore the damaged property to a condition sufficient to permit recovery under the Mortgage Pool Insurance Policy, the Master Servicer will not be required to expend its own funds to restore the damaged property unless it determines that (i) such restoration will increase the proceeds to Certificateholders on liquidation of the Mortgage Loan after reimbursement of the Master Servicer for its expenses, and (ii) such expenses will be recoverable by it through proceeds of the sale of the Mortgaged Property or proceeds of the related Mortgage Pool Insurance Policy or any related Primary Mortgage Insurance Policy. Unless otherwise specified in the related Prospectus Supplement, no Mortgage Pool Insurance Policy will insure (and many Primary Mortgage Insurance Policies do not insure) against loss sustained by reason of a default arising from, among other things, (i) fraud or negligence in the origination or servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the originator or persons involved in the origination thereof, or (ii) failure to construct a Mortgaged Property in accordance with plans and specifications. If specified in the related Prospectus Supplement, an endorsement to the Mortgage Pool Insurance Policy, a bond or other credit support may cover fraud in connection with the origination of Mortgage Loans. If specified in the related Prospectus Supplement, a failure of coverage attributable to one of the -68- foregoing events might result in a breach of the related Seller's representations described above and, in such event, might give rise to an obligation on the part of such Seller to repurchase the defaulted Mortgage Loan if the breach cannot be cured by such Seller. No Mortgage Pool Insurance Policy will cover (and many Primary Mortgage Insurance Policies do not cover) a claim in respect of a defaulted Mortgage Loan occurring when the Master Servicer of such Mortgage Loan, at the time of default or thereafter, was not approved by the applicable insurer. Unless otherwise specified in the related Prospectus Supplement, the original amount of coverage under each Mortgage Pool Insurance Policy will be reduced over the life of the related Certificates by the aggregate dollar amount of claims paid less the aggregate of the net amounts realized by the Pool Insurer upon disposition of all foreclosed properties. The amount of claims paid will include certain expenses incurred by the Master Servicer as well as accrued interest on delinquent Mortgage Loans to the date of payment of the claim, unless otherwise specified in the related Prospectus Supplement. Accordingly, if aggregate net claims paid under any Mortgage Pool Insurance Policy reach the original policy limit, coverage under that Mortgage Pool Insurance Policy will be exhausted and any further losses will be borne by the Certificateholders. The terms of any pool insurance policy relating to a Pool will be described in the related Prospectus Supplement. Special Hazard Insurance Policies If specified in the related Prospectus Supplement, a separate special hazard insurance policy or policies (each, a "Special Hazard Insurance Policy") will be obtained and maintained for the Mortgage Pool and will be issued by the insurer (the "Special Hazard Insurer") named in such Prospectus Supplement. Each Special Hazard Insurance Policy will, subject to limitations described below, protect holders of the related Certificates from (i) loss by reason of damage to Mortgaged Properties caused by certain hazards (including earthquakes and, to a limited extent, tidal waves and related water damage or as otherwise specified in the related Prospectus Supplement) not insured against under the standard form of hazard insurance policy for the respective states in which the Mortgaged Properties are located or under a flood insurance policy if the Mortgaged Property is located in a federally designated flood area, and (ii) loss caused by reason of the application of the coinsurance clause contained in hazard insurance policies. See "The Pooling and Servicing Agreement--Hazard Insurance" herein. No Special Hazard Insurance Policy will cover losses occasioned by fraud or conversion by the Trustee or Master Servicer, war, insurrection, civil war, certain governmental action, errors in design, faulty workmanship or materials (except under certain circumstances), nuclear or chemical reaction, flood (if the Mortgaged Property is located in a federally designated flood area), nuclear or chemical contamination and certain other risks. The amount of coverage under any Special Hazard Insurance Policy will be specified in the related Prospectus Supplement. Each Special Hazard Insurance Policy will provide that no claim may be paid unless hazard and, if applicable, flood insurance on the property securing the Mortgage Loan have been kept in force and other protection and preservation expenses have been paid. Subject to the foregoing limitations, and unless otherwise specified in the related Prospectus Supplement, each Special Hazard Insurance Policy will provide that where there has been damage to property securing a foreclosed Mortgage Loan (title to which has been acquired by the insured) and to the extent such damage is not covered by the hazard insurance policy or flood insurance policy, if any, maintained by the Mortgagor or the Master Servicer, the Special Hazard 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 Special Hazard 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 to the date of claim settlement and certain expenses incurred by the Master -69- Servicer with respect to such property. If the unpaid principal balance of a Mortgage Loan plus accrued interest and certain expenses is paid by the Special Hazard Insurer, the amount of further coverage under the related Special Hazard Insurance Policy will be reduced by such amount less any net proceeds from the sale of the property. Any amount paid as the cost of repair of such property will further reduce coverage by such amount. So long as a Mortgage Pool Insurance Policy remains in effect, the payment by the Special Hazard Insurer of the cost of repair or of the unpaid principal balance of the related Mortgage Loan plus accrued interest and certain expenses will not affect the total insurance proceeds paid to Certificateholders, but will affect the relative amounts of coverage remaining under the related Special Hazard Insurance Policy and Mortgage Pool Insurance Policy. Any hazard losses not covered by either the standard hazard insurance policies or the Special Hazard Insurance Policy will not be insured against, and, unless otherwise specified in the related Prospectus Supplement, will be borne by the Certificateholders. To the extent specified in the Prospectus Supplement, the Master Servicer may deposit cash, an irrevocable letter of credit or any other instrument acceptable to each Rating Agency in a special trust account to provide protection in lieu of or in addition to that provided by a Special Hazard Insurance Policy. The amount of any Special Hazard Insurance Policy or of the deposit to the special trust account in lieu thereof relating to such Certificates may be reduced so long as any such reduction will not result in a downgrading of the rating of such Certificates by any such Rating Agency. Unless otherwise specified in the related Prospectus Supplement, since each Special Hazard Insurance Policy will be designed to permit full recovery under the Mortgage Pool Insurance Policy in circumstances in which such recoveries would otherwise be unavailable because property has been damaged by a cause not insured against by a standard hazard policy and thus would not be restored, each Agreement will provide that, if the related Mortgage Pool Insurance Policy shall have been terminated or been exhausted through payment of claims, the Master Servicer will be under no further obligation to maintain such Special Hazard Insurance Policy. The terms of any Special Hazard Insurance Policy relating to a Pool will be described in the related Prospectus Supplement. Bankruptcy Bonds If specified in the related Prospectus Supplement, a bankruptcy bond or bonds (each, a "Bankruptcy Bond") may be obtained to cover certain losses resulting from proceedings under the federal Bankruptcy Code with respect to a Mortgage Loan. Such Bankruptcy Bond will be issued by an insurer named in such Prospectus Supplement. Each Bankruptcy Bond will cover, to the extent specified in the related Prospectus Supplement, certain losses resulting from a reduction by a bankruptcy court of scheduled payments of principal and interest on a Mortgage Loan or a reduction by such court of the principal amount of a Mortgage Loan and will cover certain unpaid interest on the amount of such a principal reduction from the date of the filing of a bankruptcy petition. The required amount of coverage under, and the limitations in scope of, each Bankruptcy Bond will be set forth in the related Prospectus Supplement. Coverage under a Bankruptcy Bond may be canceled or reduced by the Master Servicer if such cancellation or reduction would not adversely affect the then current rating or ratings of the related Certificates. See "Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency Legislation and Other Limitations on Lenders" herein. To the extent specified in the Prospectus Supplement, the Master Servicer may deposit cash, an irrevocable letter of credit or any other instrument acceptable to each Rating Agency in a special trust account to provide protection in lieu of or in addition to that provided by a Bankruptcy Bond. The -70- amount of any Bankruptcy Bond or of the deposit to the special trust account in lieu thereof relating to such Certificates may be reduced so long as any such reduction will not result in a downgrading of the rating of such Certificates by any such Rating Agency. The terms of any Bankruptcy Bond relating to a Pool will be described in the related Prospectus Supplement. Cross Collateralization If specified in the related Prospectus Supplement, the beneficial ownership of separate Trusts or separate groups of assets included in a Trust may be evidenced by separate classes of the related Series of Certificates. In such case, credit support may be provided by a cross collateralization feature which requires that distributions be made with respect to Certificates evidencing beneficial ownership of one or more separate Trusts or asset groups prior to distributions to Certificates evidencing a beneficial ownership interest in other separate Trusts or asset groups within the same Trust. The related Prospectus Supplement for a Series that includes a cross collateralization feature will describe the manner and conditions for applying such cross collateralization feature. If specified in the related Prospectus Supplement, the coverage provided by one or more forms of credit support may apply concurrently to two or more separate Trusts, without priority among such Trusts, until the credit support is exhausted. If applicable, the related Prospectus Supplement will identify the Trusts or asset groups 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 or asset groups. Limited Guarantee If specified in the related Prospectus Supplement, certain payments on a class of the Certificates of a Series, certain deficiencies in principal or interest payments on the Mortgage Loans, or certain liquidation losses on the Mortgage Loans, may be covered by a limited guarantee or other similar instrument (the "Limited Guarantee") limited in scope and amount, issued by CIT. If not specified, the Certificateholders will have no recourse to CIT for any amounts due on the Certificates. If specified, CIT may be obligated to take one or more of the following actions in the event the Seller or Master Servicer fails to do so: make deposits to an account, make advances, or purchase defaulted Mortgage Loans. Any such Limited Guarantee will be limited in an amount and a portion of the coverage of any such Limited Guarantee may be separately allocated to certain events. The scope, amount and, if applicable, the allocation of any Limited Guarantee will be described in the related Prospectus Supplement. Other Insurance, Surety Bonds, Guarantees, Letters of Credit and Similar Instruments or Agreements If specified in the related Prospectus Supplement, a Trust may also include insurance, third party guarantees (any of which may be limited in nature), surety bonds, spread accounts, cash collateral accounts and/or other accounts, letters of credit, interest rate swaps, caps, floors or other derivative products, or similar arrangements for the purpose of (i) maintaining timely payments or providing additional protection against losses or interest rate fluctuations on the assets included in such Trust, (ii) paying administrative expenses, (iii) establishing a minimum reinvestment rate on the payments made in respect of such assets or principal payment rate on such assets, or (iv) accomplishing such other purpose as may be described in the Prospectus Supplement. The Trust may include a guaranteed investment contract or -71- reinvestment agreement pursuant to which funds held in one or more accounts will be invested at a specified rate. If any class of Certificates has a floating interest rate, or if any of the Mortgage Assets has 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. Such arrangements may include agreements under which Certificateholders are entitled to receive amounts deposited in various accounts held by the Trustee upon the terms specified in such Prospectus Supplement. These arrangements may be in addition to or in substitution for any forms of credit support described in this Prospectus. Any such arrangement must be acceptable to each Rating Agency. YIELD AND PREPAYMENT CONSIDERATIONS The yields to maturity and weighted average lives of the Certificates will be affected primarily by the amount and timing of principal payments received on or in respect of the Mortgage Assets included in the related Trust, the allocation of available funds to various classes of Certificates, the Pass-Through Rates for various classes of Certificates and the purchase price paid for the Certificates. The original terms to maturity of the underlying Mortgage Loans with respect to the Mortgage Assets in a given Mortgage Pool will vary depending upon the type of Mortgage Loans included therein, and each Prospectus Supplement will contain information with respect to the type and maturities of such Mortgage Loans. Unless otherwise specified in the related Prospectus Supplement, the Mortgage Loans may be prepaid without penalty in full or in part at any time, although a prepayment fee or penalty may be imposed in connection therewith. The prepayment experience on the underlying Mortgage Loans with respect to the Mortgage Assets will affect the life of the related Series of Certificates. Generally, home equity loans have smaller average principal balances than senior or first mortgage loans and are not viewed by borrowers as permanent financing. Accordingly, mortgage loans which are home equity loans may experience a higher rate of prepayment than mortgage loans which represent first liens. In addition, any future limitations on the right of borrowers to deduct interest payments on mortgage loans for Federal income tax purposes may result in a higher rate of prepayment of the mortgage loans (particularly the home equity loans). The obligation of the Master Servicer to enforce "due on sale" provisions (described below) of the mortgage loans may also increase prepayments. The prepayment experience of the Mortgage Pools may be affected by a wide variety of factors, including general and local economic conditions, mortgage market interest rates, the availability of alternative financing and homeowner mobility. Unless otherwise provided in the related Prospectus Supplement, the Master Servicer generally will enforce any "due on sale" or due on encumbrance clause, to the extent it has knowledge of the conveyance or further encumbrance or the proposed conveyance or proposed further encumbrance of the Mortgaged Property and reasonably believes that it is entitled to do so under applicable law and the applicable Mortgage; provided, however, that the Master Servicer will not take any enforcement action that would impair or threaten to impair any recovery under any related insurance policy or materially increase the risk of default or delinquency on, or materially decrease the security for, the Mortgage Loan. See "The Pooling and Servicing Agreement -- Collection Procedures" and "Certain Legal Aspects of the Mortgage Loans" herein for a description of certain provisions of each Agreement and certain legal developments that may affect the prepayment experience on the Mortgage Loans. The rate of prepayments with respect to conventional mortgage loans has fluctuated significantly in recent years. In general, if prevailing rates fall significantly below the Mortgage Rates borne by the Mortgage Loans, the Mortgage Loans are likely to be subject to higher prepayment rates than if prevailing interest rates remain at or above such Mortgage Rates. Conversely, if prevailing interest rates rise appreciably above the Mortgage Rates borne by the Mortgage Loans, the Mortgage Loans are likely to experience a lower prepayment rate than -72- if prevailing rates remain at or below such Mortgage Rates. However, there can be no assurance that such will be the case. Greater than anticipated prepayments of principal will increase the yield on Certificates purchased at a price less than par. Similarly, greater than anticipated prepayments of principal will decrease the yield on Certificates purchased at a price greater than par. The effect on an investor's yield of principal prepayments on the Mortgage Loans occurring at a rate that is faster (or slower) than the rate anticipated by the investor in the period immediately following the issuance of the applicable class of Certificates may not be offset by a subsequent like reduction (or increase) in the rate of principal payments. The weighted average lives of Certificates will also be affected by the amount and timing of delinquencies and defaults on the Mortgage Loans and the liquidations of defaulted Mortgage Loans. Delinquencies and defaults will generally slow the rate of payment of principal to the Certificateholders. However, this effect will be offset to the extent that lump sum recoveries on defaulted Mortgage Loans and foreclosed Mortgaged Properties result in principal payments on the Mortgage Loans faster than otherwise scheduled. When a full prepayment is made on a Simple Interest Loan, the Mortgagor is charged interest on the principal amount of the Simple Interest Loan so prepaid only for the number of days in the month actually elapsed up to the date of the prepayment. This is generally also the case with respect to Scheduled Accrual Loans and Precomputed Loans. With respect to each Simple Interest Loan, when a principal payment is made that exceeds the principal portion of the scheduled payment, but which was not intended by the Mortgagor to satisfy the Mortgage Loan in full or to cure a delinquency, interest will cease to accrue on the principal amount so prepaid as of the date of the prepayment. Unless otherwise specified in the related Prospectus Supplement, the effect of prepayments will be to reduce the amount of interest passed through in the following month to Certificateholders because interest on the principal amount of any Simple Interest Loan so prepaid will be paid only to the date of prepayment. Partial prepayments in a given month may be applied to the outstanding principal balances of the Simple Interest Loans so prepaid on the date of receipt. Unless otherwise specified in the related Prospectus Supplement, both full and partial prepayments will not be passed through until the Distribution Date following the Due Period in which it is received. Interest shortfalls also could result from the application of the Relief Act as described under "Certain Legal Aspects of the Mortgage Loans--Soldiers' and Sailors' Civil Relief Act" herein. Unless otherwise specified in the related Prospectus Supplement, in the event that less than 30 days' interest is collected on a Mortgage Loan during a Due Period due to prepayment in full, the Master Servicer will be obligated to pay Compensating Interest with respect thereto. To the extent such shortfalls exceed the amount of Compensating Interest that the Master Servicer is obligated to pay, the yield on the Certificates could be adversely affected. As a result of the payment terms of Simple Interest Loans, the making of a scheduled payment, or the prepayment of, such a Simple Interest Loan prior to its scheduled due date may result in the collection of less than one month's interest on such Simple Interest Loan for the period since the preceding payment was made. Conversely, if the scheduled payment on such a Simple Interest Loan is made after its scheduled payment date or the Simple Interest Loan is prepaid after the scheduled due date, the collection of interest on such Simple Interest Loan for such period may be greater than one month's interest on such Simple Interest Loan. In addition, the extent to which Simple Interest Loans experience early payment or late payment of scheduled payments will correspondingly change the amount of principal received during a monthly period and, accordingly, the amount of principal to be distributed on the related Distribution Date and the amount of unpaid principal due at the stated maturity of such Simple Interest Loans. To the extent shortfalls attributable to prepayments or the early receipt -73- of scheduled payments on Simple Interest Loans are not compensated for by any forms of credit enhancement described in the related Prospectus Supplement, the Certificateholders will experience delays or losses in amounts due them. If a Mortgagor pays more than one scheduled installment on a Simple Interest Loan at a time, the entire amount of the additional installment will be treated as a principal prepayment and passed through to Certificateholders in the month following the month of receipt. In such case, although the Mortgagor may not be required to make the next regularly scheduled installment, interest will continue to accrue on the principal balance of the Simple Interest Loan, as reduced by the application of the additional installment. As a result, when the Mortgagor pays the next required installment, the installment so paid may be insufficient to cover the interest that has accrued since the last payment by the Mortgagor. Notwithstanding such insufficiency, the Mortgagor's Simple Interest Loan would be considered to be current. If specified in the related Prospectus Supplement, the Master Servicer will be required to advance the amount of such insufficiency. This insufficiency will continue until the installment payments received are once again sufficient to cover all accrued interest and to reduce the principal balance of the Simple Interest Loan. Depending on the principal balance and interest rate of the related Simple Interest Loan and on the number of installments that were paid early, there may be extended periods of time during which Simple Interest Loans that are current are not amortizing. Under certain circumstances, the Master Servicer, the holders of the residual interests in a REMIC, certain insurers or other entities specified in the related Prospectus Supplement may have the option to purchase the assets of a Trust Fund thereby effecting earlier retirement of the related Series of Certificates. See "The Pooling and Servicing Agreement--Termination; Purchase of Mortgage Loans" herein. If and to the extent specified in the related Prospectus Supplement, one or more class or classes of Certificates of a Series may receive a principal payment at the end of the Funding Period from the portion of the Pre-Funded Amount, if any, not used to purchase additional Mortgage Assets during such Funding Period. Factors other than those identified herein and in the related Prospectus Supplement could significantly affect principal prepayments at any time and over the lives of the Certificates. The relative contribution of the various factors affecting prepayment may also vary from time to time. There can be no assurance as to the rate of payment of principal of the Mortgage Assets at any time or over the lives of the Certificates. The Prospectus Supplement relating to a Series of Certificates will discuss in detail the effect of the rate and timing of principal payments (including Principal Prepayments), delinquencies and losses on the yield, weighted average lives and maturities of such Certificates. THE POOLING AND SERVICING AGREEMENT Set forth below is a summary of certain provisions of each Agreement which are not described elsewhere in this Prospectus. Where particular provisions or terms used in an Agreement are referred to, such provisions or terms are as specified in the related Agreement. The summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of each Agreement. Assignment of Mortgage Assets Assignment of the Mortgage Loans. At the time of issuance of the Certificates of a Series, the Depositor will cause the Mortgage Loans and other Mortgage Assets comprising the related Trust to be assigned to the Trustee, -74- together with all principal and interest received (or, in certain circumstances, due) on or with respect to such Mortgage Loans on and after the Cut-off Date, other than, if specified in the related Prospectus Supplement, principal and interest due before the Cut-off Date and other than any Retained Interest specified in the related Prospectus Supplement. The Trustee will, concurrently with such assignment, deliver the Certificates to the Depositor in exchange for the Mortgage Loans and other Mortgage Assets. Each Mortgage Loan will be identified in a schedule appearing as an exhibit to the related Agreement. Such schedule will include information as to the outstanding principal balance of each Mortgage Loan transferred to the Trust, as well as information regarding the Mortgage Rate, the current scheduled monthly payment of principal and interest, the maturity of the loan, and certain other information. In addition, unless otherwise specified in the related Prospectus Supplement or as described below, the Seller and the Depositor will deliver or cause to be delivered to the Trustee (or the custodian hereinafter referred to) the Mortgage Documents relating to each Mortgage Loan. If specified in the related Prospectus Supplement, CIT Consumer Finance will be appointed as custodian of the Mortgage Documents pursuant to the related Agreement and, in such capacity, will retain possession of the Mortgage Documents. However, except as otherwise specified in the related Prospectus Supplement, the Seller and the Depositor will not deliver to the Trustee (or the custodian) assignments of the related Mortgages to be recorded in the appropriate public office for real property records. Subsequent to the issuance of the Certificates, the Seller may be required in the circumstances specified in the related Agreement to deliver to the Trustee (or the custodian) assignments of the related Mortgages to be recorded (at the expense of the Seller) at such time after issuance of the Certificates as may be specified in the related Prospectus Supplement, in such an event, the Agreement may, as specified in the related Prospectus Supplement, require any such Seller to repurchase from the Trustee any Mortgage Loan the related Mortgage of which is not recorded within the specified time period, at the Purchase Price. Unless otherwise provided in the related Prospectus Supplement, the enforcement of the repurchase obligation would constitute the sole remedy available to the Certificateholders and the Trustee for the failure of a Mortgage to be recorded. If the Depositor were to make a sale, assignment, satisfaction or discharge of any Mortgage Loan prior to recording or filing the assignments to the Trustee, the other parties to such sale, assignment, satisfaction or discharge might have rights superior to those of the Trustee. If the Depositor were to do so without authority under the Agreement, it would be liable to the related Certificateholders. In addition, if insolvency proceedings relating to the Depositor were commenced prior to such recording or filing, creditors of the Depositor might be able to assert rights in the affected Mortgage Loans superior to those of the Trustee. In no event will the Seller be required to cause assignments of the Mortgages to be recorded in states in which, in the opinion of counsel acceptable to the Trustee, such recording is not required to protect the Trustee's interest in such loans against the claim of any subsequent transferee or any successor to or creditor of the Depositor or the originator of such loans. Under each Agreement, the Trustee will be appointed attorney-in-fact for each Seller and the Depositor with power to prepare, execute and record assignments of the related Mortgages to the related Trust in the event that the Seller and the Depositor fail to do so on a timely basis. For certain Mortgage Loans transferred by the Depositor to the Trust, CIT Consumer Finance will deliver to the Trustee (or the custodian), in lieu of the original Mortgage Note, a new promissory note signed by the borrower confirming its obligation under the original Mortgage Note (a "Confirmatory Mortgage Note"). Furthermore, a Trust may include Mortgage Loans where the original Mortgage Note or a Confirmatory Mortgage Note is not delivered to the Trustee (or the custodian) if CIT Consumer Finance instead delivers to the Trustee (or the custodian) an affidavit of the Seller certifying -75- that the Seller or the Depositor was the sole owner of the indebtedness evidenced by such note and the original thereof has been lost or destroyed and the Seller indemnifies the Trust against any loss, liability, damage, claim or expense resulting from CIT Consumer Finance's failure to deliver to the Trustee (or the custodian) the original Mortgage Note or Confirmatory Mortgage Note. Such indemnification will be terminated if CIT Consumer Finance subsequently delivers the original Mortgage Note or a Confirmatory Mortgage Note. If CIT Consumer Finance delivers such a lost note affidavit or fails to deliver any assumption and modification agreement, within 90 days after the date of initial issuance of the related series of Certificates it will deliver to the Trustee (or the custodian) either the original Mortgage Note or Confirmatory Mortgage Note and assumption and modification agreement, as applicable, or an opinion of counsel satisfactory to the Trustee from counsel admitted to practice in the jurisdiction in which the related Mortgaged Property is located to the effect that the absence of the originals of such documents will not preclude the Master Servicer from initiating or prosecuting to completion any foreclosure proceeding with respect to such Mortgaged Property. If CIT Consumer Finance does not deliver such documents or an opinion of counsel within such 90-day period, it will be required to use its best reasonable efforts to substitute another Mortgage Loan or, if it is unable to make such substitution, to repurchase the original Mortgage Loan at the Purchase Price. The Trustee (or the custodian if such custodian is not the Master Servicer or CITSF) will review such Mortgage Documents within the time period specified in the related Prospectus Supplement after receipt thereof, and will hold such documents in trust for the benefit of the Certificateholders. Unless otherwise specified in the related Prospectus Supplement, if any such document is found to be missing or defective in any material respect, is not properly executed, is unrelated to the Mortgage Loans of the related Trust or does not conform in a material respect to the description thereof provided by or on behalf of CIT Consumer Finance, the Trustee (or the custodian) or the Certificate Guaranty Insurer, if any, will notify the Master Servicer and the Depositor, and the Master Servicer will notify the related Seller. The related Seller is required to use reasonable efforts to remedy a material defect in a document of which it is so notified. If, however (unless otherwise specified in the related Prospectus Supplement), within 90 days after the Trustee's notice to it respecting such defect, such Seller has not remedied the defect and the defect materially and adversely affects the interest of the Trust in the related Mortgage Loan or the interests of the Certificate Guaranty Insurer, if any, such Seller is required to (i) substitute in lieu of such Mortgage Loan a Qualified Substitute Mortgage Loan (as defined herein) and, if the then outstanding principal balance of such Qualified Substitute Mortgage Loan is less than the principal balance of such Mortgage Loan as of the date of such substitution, deposit in the related Certificate Account the Substitution Adjustment (as defined herein), or (ii) purchase such Mortgage Loan at a price equal to the Purchase Price related to such Mortgage Loan, which purchase price will be deposited in the Certificate Account and delivered to the Trustee on the next succeeding Deposit Date, except for the portion thereof, if any, relating to unreimbursed Insured Payments, if any, which shall be paid directly to the Certificate Guaranty Insurer. There can be no assurance that a Seller will fulfill this purchase obligation. Although the Master Servicer may be obligated to enforce such obligation to the extent described above under "Mortgage Loan Program--Representations by Sellers; Repurchases," neither the Master Servicer nor the Depositor will be obligated to purchase such Mortgage Loan if such Seller defaults on its purchase obligation. Unless otherwise specified in the related Prospectus Supplement, this purchase obligation constitutes the sole remedy available to the Certificateholders or the Trustee for omission of, or a material defect in, a Mortgage Document. Unless otherwise specified in the related Prospectus Supplement, the Trustee will appoint a custodian (which, if specified in the related Prospectus Supplement, may be the Master Servicer or CITSF) pursuant to a custodial agreement to maintain possession of and, if applicable, to review the Mortgage Documents as agent of the Trustee. -76- Notwithstanding the foregoing provisions, with respect to a Trust for which a REMIC election is to be made, unless the related Prospectus Supplement otherwise provides, no purchase of or substitution for a Mortgage Loan will be made without having first received an opinion of counsel knowledgeable in federal income tax matters that such purchase or substitution would not result in a prohibited transaction tax or would cause such Trust to fail to qualify as a REMIC. If a REMIC election is to be made with respect to a Trust, unless otherwise provided in the related Prospectus Supplement, the Master Servicer or a holder of the related residual certificate will be obligated to pay any prohibited transaction tax that may arise in connection with any such repurchase or substitution. The Master Servicer, unless otherwise specified in the related Prospectus Supplement, will be entitled to reimbursement for any such payment from any holder of the related residual certificate. See "Description of the Certificates--General" herein and in the related Prospectus Supplement. Assignment of Private Mortgage-Backed Securities. The Depositor will cause the Private Mortgage-Backed Securities to be registered in the name of the Trustee. The Trustee (or the custodian) will have possession of any certificated Private Mortgage-Backed Securities. Unless otherwise specified in the related Prospectus Supplement, the Trustee will not be in possession of or be assignee of record of any underlying assets for a Private Mortgage-Backed Security. See "The Trusts--Private Mortgage-Backed Securities" herein. Each Private Mortgage-Backed Security will be identified in a schedule appearing as an exhibit to the related Agreement which will specify the original principal amount, outstanding principal balance as of the Cut-off Date, annual pass-through rate or interest rate and maturity date and certain other pertinent information for each Private Mortgage-Backed Security conveyed to the Trustee. Payments on Mortgage Assets; Deposits to Certificate Account The Master Servicer will establish and maintain or cause to be established and maintained with respect to the related Trust a separate account or accounts for the collection of payments on the related Mortgage Assets in the Trust (the "Certificate Account"), which unless otherwise specified in the related Prospectus Supplement, must be either (i) maintained with a depository institution the short-term debt obligations of which (or in the case of a depository institution that is the principal subsidiary of a holding company, the short-term debt obligations of which) are rated in the highest short-term rating category by the nationally recognized statistical rating organization(s) that provides a rating for one or more classes of the related Series of Certificates (each, a "Rating Agency"), (ii) an account or accounts the deposits in which are fully insured by the FDIC, (iii) an account or accounts the deposits in which are insured by the FDIC, and the uninsured deposits in which are otherwise secured such that the Certificateholders have a claim with respect to the funds in the Certificate Account or a perfected first priority security interest against any collateral securing such funds that is superior to the claims of any other depositors or general creditors of the depository institution with which the Certificate Account is maintained, (iv) a trust account or accounts maintained with the trust department of a Federal or a state chartered depository institution or trust company, acting in a fiduciary capacity or (v) an account or accounts otherwise acceptable to each such Rating Agency. The collateral eligible to secure amounts in the Certificate Account is limited to Permitted Investments. A Certificate Account may be maintained as an interest bearing account or the funds held therein may be invested pending each succeeding Distribution Date in Permitted Investments. Unless otherwise specified in the related Prospectus Supplement, the Master Servicer or its designee will be entitled to receive any such interest or other income earned on funds in the Certificate Account as additional compensation and will be obligated to deposit in the Certificate Account the amount of any loss immediately as realized. The Certificate Account may be maintained with the Master Servicer or with a depository institution that is an affiliate of the Master Servicer, provided it meets the standards set forth above. -77- Unless otherwise specified herein or in the related Prospectus Supplement, the Master Servicer will deposit in the Certificate Account no later than two Business Days following receipt thereof the following payments and collections received or made by it (net of the Master Servicing Fee and other amounts due to the Master Servicer) subsequent to the Cut-off Date (including scheduled payments of principal and interest due on or after the Cut-off Date but received by the Servicer on or before the Cut-off Date): (i) all payments on account of principal, including Principal Prepayments and, if specified in the related Prospectus Supplement, prepayment penalties, on the Mortgage Loans; (ii) all payments on account of interest on the Mortgage Loans, net of applicable servicing compensation; (iii) all proceeds (net of unreimbursed payments of property taxes, insurance premiums and similar items ("Insured Expenses") incurred, and unreimbursed Advances made, by the Master Servicer, if any) of the hazard insurance policies and any Primary Mortgage Insurance Policies and any other insurance policies covering a Mortgage Loan, Mortgaged Property or REO Property, to the extent such proceeds are not applied to the restoration of the Mortgaged Property or released to the Mortgagor in accordance with the Master Servicer's normal servicing procedures (collectively, "Insurance Proceeds") and all other cash amounts (net of unreimbursed expenses and Servicing Advances incurred in connection with liquidation or foreclosure ("Liquidation Expenses") and unreimbursed Advances, if any) received and retained in connection with the liquidation of defaulted Mortgage Loans, by foreclosure or otherwise ("Liquidation Proceeds"), together with any net proceeds received on a monthly basis with respect to any Mortgaged Properties acquired on behalf of the Certificateholders by foreclosure or deed in lieu of foreclosure; (iv) all proceeds of any Mortgage Loan or Mortgaged Property in respect thereof purchased by the Master Servicer, the Depositor or any Seller as described under "The Pooling and Servicing Agreement--Representations by Sellers; Repurchases" or "The Pooling and Servicing Agreement--Assignment of Mortgage Assets" above and all proceeds of any Mortgage Loan repurchased as described under "The Pooling and Servicing Agreement--Termination; Optional Termination" below; (v) all payments required to be deposited in the Certificate Account with respect to any deductible clause in any blanket insurance policy described under "--Hazard Insurance" below; (vi) any amount required to be deposited by the Master Servicer in connection with losses realized on investments for the benefit of the Master Servicer of funds held in the Certificate Account and, to the extent specified in the related Prospectus Supplement, any payments required to be made by the Master Servicer in connection with prepayment interest shortfalls; (vii) all other amounts required to be deposited in the Certificate Account pursuant to the Agreement including, if applicable, funds from (A) any credit enhancement, (B) the Pre-Funding Account, and (C) all payments on Private Mortgage-Backed Securities; and (viii) proceeds received during the related Due Period in connection with a taking of a related Mortgaged Property with respect to a Mortgage Loan by condemnation or the exercise of eminent domain or in connection with a release of part of any such Mortgaged Property from the related lien ("Released Mortgaged Property Proceeds"). -78- Subject to compliance with the Agreement, for as long as CIT Consumer Finance remains the Master Servicer under the Agreement and CIT Consumer Finance remains a direct or indirect subsidiary of CIT, and if CIT has and maintains a short-term debt rating of at least A-1 by S&P (as defined herein) and either a short-term debt rating of P-1 or higher or a long-term debt rating of at least A2 by Moody's (as defined herein), the Master Servicer (or any Sub-Servicer which is an affiliate of CIT) will not be required to make such deposits into the Certificate Account (the "Delayed Deposits") until the Business Day immediately preceding the Distribution Date (the "Deposit Date") following the last day of the Due Period within which such payments were processed by the Servicer. In those cases where a Sub-Servicer which is not an affiliate of CIT is servicing a Mortgage Loan, the Sub-Servicer will establish and maintain an account ("Sub-servicing Account") that will comply with the standards set forth above, and which is otherwise acceptable to the Master Servicer. The Sub-Servicer is required to deposit into the Sub-servicing Account on a daily basis all amounts enumerated in the preceding paragraph in respect of the Mortgage Loans received by the Sub-Servicer, less its servicing compensation. On the date specified in the related Prospectus Supplement, the Sub-Servicer shall remit to the Master Servicer all funds held in the Sub-servicing Account with respect to each Mortgage Loan. The Sub-Servicer may, to the extent described in the related Prospectus Supplement, be required to advance any monthly installment of principal and interest that was not received less its servicing fee, by the date specified in the related Prospectus Supplement. The Master Servicer (or the Sub-Servicer or the Depositor, as applicable) may from time to time direct the institution that maintains the Certificate Account to withdraw funds from the Certificate Account for the following purposes: (i) to pay to the Master Servicer the servicing fees described in the related Prospectus Supplement, the Master Servicing Fees (subject to reduction) and, as additional servicing compensation, earnings on or investment income with respect to funds in the Certificate Account; (ii) to reimburse the Master Servicer for Advances, such right of reimbursement with respect to any Mortgage Loan being limited to amounts received that represent late recoveries of payments of principal and/or interest on such Mortgage Loan (or Insurance Proceeds, Liquidation Proceeds or Released Mortgaged Property Proceeds with respect thereto) with respect to which such Advance was made, proceeds of any Mortgage Loans repurchased by the Depositor, a Sub-Servicer or a Seller pursuant to the related Agreement and any other amount otherwise distributable to the holder or holders of Certificates representing the residual interest in the related Trust if a REMIC election has been made with respect thereto; (iii) to reimburse the Master Servicer for any Advances previously made which the Master Servicer has determined to be nonrecoverable; (iv) to reimburse the Master Servicer from Insurance Proceeds for expenses incurred by the Master Servicer and covered by the related insurance policies; (v) to reimburse the Master Servicer for unpaid Master Servicing Fees and unreimbursed out-of-pocket costs and expenses incurred by the Master Servicer in the performance of its servicing obligations; (vi) to pay to the Master Servicer, with respect to each Mortgage Loan or Mortgaged Property acquired in respect thereof that has been purchased by the Master Servicer pursuant to the Agreement, all amounts received thereon and not taken into account in determining the principal balance of such repurchased Mortgage Loan; -79- (vii) to reimburse the Master Servicer or the Depositor for liquidation expenses incurred in connection with Liquidated Mortgages and reimbursable pursuant to the Agreement; (viii) to withdraw any amount deposited in the Certificate Account and not required to be deposited therein; and (ix) to clear and terminate the Certificate Account upon termination of the Agreement. Unless otherwise specified in the related Prospectus Supplement, on or prior to the Business Day immediately preceding each Distribution Date, the Master Servicer shall withdraw from the Certificate Account the amount of Available Funds, to the extent on deposit, for deposit in an account maintained by the Trustee for the related Series of Certificates. Except as otherwise provided in the related Prospectus Supplement with respect to each Buydown Loan, the Master Servicer will deposit the Buydown Funds in a custodial account (which may be interest-bearing) complying with the requirements set forth above for the Certificate Account (the "Buydown Account"). The amount of such deposit, together with investment earnings thereon at the rate specified in the related Prospectus Supplement, will provide funds sufficient to support the payments on such Buydown Loan on a level debt service basis. The Master Servicer will not be obligated to add to the Buydown Account should investment earnings prove insufficient to maintain the scheduled level of payments on the Buydown Loans, in which event, distributions to the Certificateholders may be affected. With respect to each Graduated Payment Loan, the Master Servicer will, if and to the extent provided in the related Prospectus Supplement, deposit in a custodial account (which may be interest-bearing) complying with the requirements set forth above for the Certificate Account an amount which, together with investment earnings thereon at the rate set forth in the related Prospectus Supplement, will provide funds sufficient to support the payments thereon on a level debt service basis (the "Graduated Payment Account"). The Master Servicer will not be obligated to supplement the Graduated Payment Account should investment earnings thereon prove insufficient to maintain the scheduled level of payments, in which event, distributions to the Certificateholders may be affected. Representations by Sellers; Repurchases Each Seller will have made representations and warranties in the related Agreement in respect of the Mortgage Loans sold by such Seller and evidenced by a Series of Certificates. Such representations and warranties, unless otherwise provided in the related Prospectus Supplement, generally include, among other things: (i) that any required title insurance (or in the case of Mortgaged Properties located in areas where such policies are generally not available, an attorney's certificate of title) and any required hazard insurance policy were effective at the origination of each Mortgage Loan, and that each policy (or certificate of title as applicable) remained in effect on the date of purchase of the Mortgage Loan from the Seller by or on behalf of the Depositor; (ii) that the Seller had good title to each such Mortgage Loan and such Mortgage Loan was subject to no offsets, defenses, counterclaims or rights of rescission except to the extent that any buydown agreement described herein may forgive certain indebtedness of a Mortgagor; (iii) that each Mortgage Loan constituted a valid lien on the Mortgaged Properties (subject only to exceptions described in the related Agreement) and that the Mortgaged Property, to the best knowledge of the Seller, was free from damage and was in good repair; (iv) that there were no delinquent tax or assessment liens against the Mortgaged Property; (v) as of the related Cut-off Date, no Mortgage Loan will be 60 days or more delinquent in payment; and (vi) that each Mortgage Loan was made in compliance with, and is enforceable under, all applicable local, state and federal laws and regulations in all material respects except as limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and by the availability of equitable remedies. -80- If specified in the related Prospectus Supplement, the representations and warranties of a Seller in respect of a Mortgage Loan will be made not as of the Cut-off Date but as of the date on which such Seller sold the Mortgage Loan to the Depositor or one of its affiliates. Under such circumstances, a substantial period of time may have elapsed between such date and the date of initial issuance of the Series of Certificates evidencing an interest in such Mortgage Loan. Since the representations and warranties of a Seller do not address events that may occur following the sale of a Mortgage Loan by such Seller, its repurchase obligation described below will not arise if the relevant event that would otherwise have given rise to such an obligation with respect to a Mortgage Loan occurs after the date of sale of such Mortgage Loan by such Seller to the Depositor or its affiliates. However, the Depositor will not include any Mortgage Loan in the Trust for any Series of Certificates if anything has come to the Depositor's attention that would cause it to believe that the representations and warranties of a Seller will not be accurate and complete in all material respects in respect of such Mortgage Loan as of the date of initial issuance of the related Series of Certificates. If the Master Servicer is also a Seller of Mortgage Loans with respect to a particular Series, such representations will be in addition to the representations and warranties made by the Master Servicer in its capacity as the Master Servicer. If the Depositor elects to cause the Trust relating to a Series of Certificates to be treated as a REMIC, each Seller will make representations and warranties in the related Agreement with respect to the related Mortgage Loans as of the date of initial issuance of such Series of Certificates (the "Closing Date"), including that (i) each Mortgage Loan is a "qualified mortgage" under Section 860G(a)(3) of the Code, and (ii) none of the Mortgage Loans had a loan-to-value ratio greater than 125% at the time of origination and, in the case of a Mortgage Loan that has been modified, at the time of origination and at the time such Mortgage Loan has been modified. For purposes of computing such loan-to-value ratio for a Mortgage Loan which, with respect to the real estate on which the related Mortgaged Property is located, is not secured by a first mortgage, the fair market value of the Mortgaged Property and other property securing the Mortgage Loan must be reduced by the amount of any lien that is senior to the Mortgage Loan, and must be further reduced by a proportionate amount of any lien that is on a parity with the Mortgage Loan. Pursuant to the Agreement, the Master Servicer, the Trustee, any Sub-Servicer, CIT Consumer Finance, or the Certificate Guaranty Insurer, if any, will promptly notify the relevant Seller of any material breach of any representation or warranty made by such Seller in respect of a Mortgage Loan that materially and adversely affects the interests of the Certificateholders (or the interests of the Certificate Guaranty Insurer, if any) in such Mortgage Loan. Unless otherwise specified in the related Prospectus Supplement, if such Seller does not cure such breach by the earlier of (i) 90 days after such Seller became aware of such breach, and (ii) 85 days after receipt of notice from the Master Servicer, the Trustee, CIT Consumer Finance, any Sub-Servicer, or the Certificate Guaranty Insurer, if any, then such Seller will be obligated (A) to remove such Mortgage Loan and substitute in lieu of such Mortgage Loan a substitute Mortgage Loan which qualifies for substitution under the related Agreement (a "Qualified Substitute Mortgage Loan") and, if the then outstanding principal balance of such Qualified Substitute Mortgage Loan is less than the principal balance of such Mortgage Loan as of the date of such substitution, deposit in the related Certificate Account the amount of such shortfall in principal balance arising from such substitution (the "Substitution Adjustment"), or (B) to repurchase such Mortgage Loan from the Trust at a price (the "Purchase Price") equal to 100% of the outstanding principal balance thereof as of the date of the repurchase plus accrued interest thereon to the first day of the month in which the Purchase Price is to be distributed at the Mortgage Rate (less any unreimbursed Advances or amount payable as related servicing compensation if such Seller is the Master Servicer with respect to such Mortgage Loan), which Purchase Price will be deposited in the Certificate Account and delivered to -81- the Trustee on the next succeeding Deposit Date, except for the portion thereof, if any, relating to unreimbursed Insured Payments, if any, which shall be paid directly to the Certificate Guaranty Insurer. Notwithstanding the foregoing provisions, with respect to a Trust for which a REMIC election is to be made, unless the related Prospectus Supplement otherwise provides, no purchase of or substitution for a Mortgage Loan will be made without having first received an opinion of counsel knowledgeable in federal income tax matters that such purchase or substitution would not result in a prohibited transaction tax or would cause such Trust to fail to qualify as a REMIC. If a REMIC election is to be made with respect to a Trust, unless otherwise provided in the related Prospectus Supplement, the Master Servicer or a holder of the related residual certificate will be obligated to pay any prohibited transaction tax that may arise in connection with any such repurchase or substitution. The Master Servicer, unless otherwise specified in the related Prospectus Supplement, will be entitled to reimbursement for any such payment from any holder of the related residual certificate. See "Description of the Certificates--General" herein and in the related Prospectus Supplement. Except in those cases in which the Master Servicer is a Seller, the Master Servicer will be required under the applicable Agreement to enforce this obligation for the benefit of the Trustee and the Certificateholders, following the practices it would employ in its good faith business judgment were it the owner of such Mortgage Loan. This repurchase obligation will constitute the sole remedy available to Certificateholders, the Trustee or the Certificate Guaranty Insurer, if any, for a breach of representation by a Seller. Neither the Depositor nor the Master Servicer (unless the Master Servicer is a Seller) will be obligated to purchase a Mortgage Loan if a Seller defaults on its obligation to do so, and no assurance can be given that Sellers will carry out their respective repurchase obligations with respect to Mortgage Loans. Collection Procedures Unless otherwise specified in the related Prospectus Supplement, the Master Servicer will agree to master service the Mortgage Loans in accordance with the related Agreement and, where applicable, prudent mortgage servicing standards. "Prudent mortgage servicing standards" generally will require the Master Servicer to exercise collection and foreclosure procedures with respect to the Mortgage Loans with the same degree of care and skill that it would use in master servicing similar mortgage loans for its own account and for the account of its affiliates. The Master Servicer will make reasonable efforts to collect all payments called for under the Mortgage Loans and will, consistent with each Agreement and any Mortgage Pool Insurance Policy, Primary Mortgage Insurance Policy and Bankruptcy Bond or alternative arrangements, follow such collection procedures as are customary with respect to mortgage loans that are comparable to the Mortgage Loans. Nonetheless, the Master Servicer, in determining the type of action that is reasonable to pursue may consider, among other things, the unpaid principal balance of a Mortgage Loan against the estimated cost of collection or foreclosure action, the unpaid balance of the related prior mortgage, if any, the condition and estimated market value ("as is" and "if repaired"), the estimated marketability of the related Mortgage Property and the borrower's ability to repay. Waivers And Deferrals Consistent with the above, the Master Servicer may, in its discretion, (i) waive any assumption fee, prepayment charge, penalty interest, late payment or other charge in connection with a Mortgage Loan, and (ii) to the extent not inconsistent with the coverage of such Mortgage Loan by a Mortgage Pool Insurance Policy, Primary Mortgage Insurance Policy or Bankruptcy Bond or alternative arrangements, if applicable, arrange with a Mortgagor a schedule for the repayment of delinquent amounts subject to any limitations set forth in the Agreement. To the extent the Master Servicer -82- consents to the deferment of the due dates for payments due on a Mortgage Note, the Master Servicer will nonetheless make payment of any required Advance with respect to the payments so extended to the same extent as if such installment had not been deferred. Escrow Account If and to the extent specified in the related Prospectus Supplements and under the related Agreement, the Master Servicer, to the extent permitted by law, may establish and maintain an escrow account (the "Escrow Account") in which Mortgagors will be required to deposit amounts sufficient to pay taxes, assessments, mortgage and hazard insurance premiums, collection expenses, other comparable items and any other amount permitted to be escrowed by law. Withdrawals from the Escrow Account maintained for Mortgagors may be made to effect timely payment of taxes, assessments, mortgage and hazard insurance, to refund to Mortgagors amounts determined to be overages, to pay interest to Mortgagors on balances in the Escrow Account to the extent required by law, to repair or otherwise protect the Mortgaged Property, to clear and terminate such account and to pay such other amounts as may be permitted by applicable law or the escrow agreement. The Master Servicer will be responsible for the administration of the Escrow Account and will be obligated to make payments to such account when a deficiency exists therein. Enforcement of Due on Sale Clauses Unless otherwise specified in the related Prospectus Supplement, in any case in which Mortgaged Property securing a conventional Mortgage Loan has been, or is about to be, conveyed by the Mortgagor, the Master Servicer will, to the extent it has knowledge of such conveyance or proposed conveyance, exercise or cause to be exercised its rights to accelerate the maturity of such Mortgage Loan under any "due on sale" clause applicable thereto, but only if, in the reasonable belief of the Master Servicer, the exercise of such rights is permitted by applicable law and the applicable Mortgage, will not impair or threaten to impair any recovery under any related Primary Mortgage Insurance Policy and will not materially increase the risk of default or delinquency on, or materially decrease the security for, such Mortgage Loan. If these conditions are not met or if the Master Servicer reasonably believes it is unable under applicable law and under the applicable Mortgage to enforce such "due on sale" clause, the Master Servicer will enter into or cause to be entered into an assumption and modification agreement with the person to whom such Mortgaged Property has been or is about to be conveyed, pursuant to which such person becomes liable for repayment of the Mortgage Loan and, to the extent permitted by applicable law and the applicable Mortgage, the Mortgagor also remains liable thereon. Any fee collected by or on behalf of the Master Servicer for entering into an assumption agreement will be retained by or on behalf of the Master Servicer as additional servicing compensation. See "Certain Legal Aspects of the Mortgage Loans--Due on Sale Clauses" herein. The Master Servicer also will be authorized to enter into a substitution of liability agreement with such person, pursuant to which the original Mortgagor is released from liability and such person is substituted as Mortgagor and becomes liable under the Mortgage Note. -83- Hazard Insurance Unless otherwise specified in the related Prospectus Supplement, all Mortgages will contain provisions requiring the Mortgagor on each Mortgage Loan to maintain a hazard insurance policy providing for no less than the coverage of the standard form of fire insurance policy with extended coverage customary for the type of Mortgaged Property in the state in which such Mortgaged Property is located. Such coverage will be in an amount that is at least equal to the lesser of (i) the maximum insurable value of the improvements securing such Mortgage Loan or (ii) the outstanding principal balance of the Mortgage Loan and the related senior mortgage (if any) and (iii) the minimum amount required to compensate for damage or loss on a replacement cost basis. If the Mortgagor fails to maintain such insurance coverage, however, the Master Servicer will not be obligated to obtain such insurance and advance premiums for such insurance on behalf of the Mortgagor (i.e. "force placement" of hazard insurance). All amounts collected by the Master Servicer under any hazard policy (except for amounts to be applied to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with the Master Servicer's normal servicing procedures) will be deposited in the related Certificate Account. In the event that the Master Servicer maintains a blanket policy insuring against hazard losses on all the Mortgage Loans comprising part of a Trust, it will conclusively be deemed to have satisfied its obligation relating to the maintenance of hazard insurance. Such blanket policy may contain a deductible clause, in which case the Master Servicer will be required to deposit from its own funds into the related Certificate Account the amounts that would have been deposited therein but for such clause. In general, the standard form of fire and extended coverage policy covers physical damage to or destruction of the improvements securing a Mortgage Loan by fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil commotion, subject to the conditions and exclusions particularized in each policy. Although the policies relating to the Mortgage Loans may have been underwritten by different insurers under different state laws in accordance with different applicable forms and therefore may not contain identical terms and conditions, the basic terms thereof are dictated by the respective state laws, and most such policies typically do not cover any physical damage resulting from the following: war, revolution, governmental actions, floods and other water-related causes, earth movement (including earthquakes, landslides and mud flows), nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft and, in certain cases, vandalism. The foregoing list is merely indicative of certain kinds of uninsured risks and is not intended to be all inclusive. If the appraisal (if any) of the Mortgaged Property securing a Mortgage Loan indicates that the Mortgaged Property is located in a federally designated special flood area at the time of origination identified in the Federal Register by the Flood Emergency Management Agency as having special flood hazards (and such flood insurance has been made available), the Seller will in some cases require the Mortgagor to obtain flood insurance subject to the maximum amount of insurance available under the National Flood Insurance Act of 1968, as amended. The Master Servicer will also be required to maintain, to the extent such insurance is available, on REO Property, fire and hazard insurance in the applicable amounts described above, liability insurance and, to the extent required and available under the National Flood Insurance Act of 1968, as amended, flood insurance in an amount equal to that required above. The hazard insurance policies covering Mortgaged Properties typically contain a clause which in effect requires the insured at all times to carry insurance of a specified percentage (generally 80% to 90%) of the full replacement value of the Mortgaged Property in order to recover the full amount of any partial loss. If the insured's coverage falls below this specified percentage, then the insurer's liability in the event of partial loss will not exceed the larger of (i) the actual cash value (generally defined as replacement -84- cost at the time and place of loss, less physical depreciation) of the improvements damaged or destroyed, or (ii) such proportion of the loss as the amount of insurance carried bears to the specified percentage of the full replacement cost of such improvements. Since improved real estate generally has appreciated in value over time in the past, in the event of partial loss the hazard insurance proceeds may be insufficient to restore fully the damaged property. If specified in the related Prospectus Supplement, a special hazard insurance policy will be obtained to insure against certain of the uninsured risks described above. See "Credit Enhancement--Special Hazard Insurance Policies" herein. Realization Upon Defaulted Mortgage Loans Unless otherwise specified in the Prospectus Supplement, the Master Servicer will be required to foreclose upon or otherwise comparably convert the ownership to the name of the Trustee (or to a nominee of the Trustee or the Master Servicer) of Mortgaged Properties relating to defaulted Mortgage Loans as to which no satisfactory arrangements can be made for collection of delinquent payments to the extent that such action would be consistent with prudent mortgage servicing standards. However, the Master Servicer will be required to take into account the existence of any hazardous substances, hazardous wastes or solid wastes on a Mortgaged Property in determining whether to foreclose upon or otherwise comparably convert the ownership of such Mortgaged Property. Primary Mortgage Insurance Policies. The Master Servicer will maintain or cause to be maintained, as the case may be, in full force and effect, but only if and to the extent specified in the related Prospectus Supplement, a Primary Mortgage Insurance Policy with regard to each Mortgage Loan for which such coverage is required. The Master Servicer will not cancel or refuse to renew any such Primary Mortgage Insurance Policy in effect at the time of the initial issuance of a Series of Certificates that is required to be kept in force under the applicable Agreement unless the replacement Primary Mortgage Insurance Policy for such canceled or nonrenewed policy is maintained with an insurer whose claims-paying ability is sufficient to maintain the current rating of the classes of Certificates of such Series which have been rated. Although the terms and conditions of primary mortgage insurance vary, the amount of a claim for benefits under a Primary Mortgage Insurance Policy covering a Mortgage Loan will consist of the insured percentage of the unpaid principal amount of the covered Mortgage Loan and accrued and unpaid interest thereon and reimbursement of certain expenses, less (i) all rents or other payments collected or received by the insured (other than the proceeds of hazard insurance) that are derived from or in any way related to the Mortgaged Property, (ii) hazard insurance proceeds in excess of the amount required to restore the Mortgaged Property and which have not been applied to the payment of the Mortgage Loan, (iii) amounts expended but not approved by the issuer of the related Primary Mortgage Insurance Policy (the "Primary Insurer"), (iv) claim payments previously made by the Primary Insurer, and (v) unpaid premiums. Primary Mortgage Insurance Policies reimburse certain losses sustained by reason of defaults in payments by borrowers. Primary Mortgage Insurance Policies will not insure against, and exclude from coverage, a loss sustained by reason of a default arising from or involving certain matters, including (i) fraud or negligence in origination or servicing of the Mortgage Loans, including misrepresentation by the originator, Seller, Mortgagor or other persons involved in the origination of the Mortgage Loan; (ii) failure to construct the Mortgaged Property subject to the Mortgage Loan in accordance with specified plans; (iii) physical damage to the Mortgaged Property; and (iv) the related Sub-Servicer not being approved as a servicer by the Primary Insurer. -85- Recoveries Under a Primary Mortgage Insurance Policy. As conditions precedent to the filing of or payment of a claim under a Primary Mortgage Insurance Policy covering a Mortgage Loan, the insured will be required to (i) advance or discharge (a) all hazard insurance policy premiums, and (b) as necessary and approved in advance by the Primary Insurer, (1) real estate property taxes, (2) all expenses required to maintain the related Mortgaged Property in at least as good a condition as existed at the effective date of such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (3) Mortgaged Property sales expenses, (4) any outstanding liens (as defined in such Primary Mortgage Insurance Policy) on the Mortgaged Property, and (5) foreclosure costs, including court costs and reasonable attorneys' fees; (ii) in the event of any physical loss or damage to the Mortgaged Property, restore and repair the Mortgaged Property to at least as good a condition as existed at the effective date of such Primary Mortgage Insurance Policy, ordinary wear and tear excepted; and (iii) tender to the Primary Insurer good and marketable title to and possession of the Mortgaged Property. The Master Servicer, on behalf of itself, the Trustee and the Certificateholders, will present claims to the insurer under each Primary Mortgage Insurance Policy, and will take such reasonable steps as are necessary to receive payment or to permit recovery thereunder with respect to defaulted Mortgage Loans. As set forth above, all collections by or on behalf of the Master Servicer under any Primary Mortgage Insurance Policy and, when the Mortgaged Property has not been restored, the related hazard insurance policy are to be deposited in the Certificate Account, subject to withdrawal as heretofore described. If the Mortgaged Property securing a defaulted Mortgage Loan is damaged and proceeds, if any, from the related hazard insurance policy are insufficient to restore the damaged Mortgaged Property to a condition sufficient to permit recovery under the related Primary Mortgage Insurance Policy, if any, the Master Servicer is not required to expend its own funds to restore the damaged Mortgaged Property unless it determines (i) that such restoration will increase the proceeds to Certificateholders on liquidation of the Mortgage Loan after reimbursement of the Master Servicer for its expenses; and (ii) that such expenses will be recoverable by it from related Insurance Proceeds or Liquidation Proceeds. If coverage under a Primary Mortgage Insurance Policy is not available or is insufficient. If recovery on a defaulted Mortgage Loan under any related Primary Mortgage Insurance Policy is not available for the reasons set forth in the preceding paragraph, or if the defaulted Mortgage Loan is not covered by a Primary Mortgage Insurance Policy, the Master Servicer will be obligated to follow or cause to be followed such normal practices and procedures as it deems necessary or advisable to realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation of the Mortgaged Property securing the defaulted Mortgage Loan are less than the principal balance of such Mortgage Loan plus interest accrued thereon that is payable to Certificateholders, the Trust will realize a loss in the amount of such difference plus the aggregate of expenses incurred by the Master Servicer in connection with such proceedings that are reimbursable under the Agreement. In the unlikely event that any such proceedings result in a total recovery which is, after reimbursement to the Master Servicer of its expenses, in excess of the principal balance of such Mortgage Loan plus interest accrued thereon that is payable to Certificateholders, the Master Servicer will be entitled to withdraw or retain from the Certificate Account amounts representing its normal servicing compensation with respect to such Mortgage Loan and, unless otherwise specified in the related Prospectus Supplement, amounts representing the balance of such excess, exclusive of any amount required by law to be forwarded to the related Mortgagor, as additional servicing compensation. If the Master Servicer or its designee recovers Insurance Proceeds which, when added to any related Liquidation Proceeds and after deduction of certain expenses reimbursable to the Master Servicer, exceed the principal balance of a Mortgage Loan plus interest accrued thereon that is payable to Certificateholders, the Master Servicer will be entitled to withdraw or retain from the Certificate Account amounts representing its normal servicing -86- compensation with respect to such Mortgage Loan. In the event that the Master Servicer has expended its own funds to restore the damaged Mortgaged Property and such funds have not been reimbursed under the related hazard insurance policy, it will be entitled to withdraw from the Certificate Account out of related Liquidation Proceeds or Insurance Proceeds an amount equal to such expenses incurred by it, in which event the Trust may realize a loss up to the amount so charged. Since Insurance Proceeds cannot exceed deficiency claims and certain expenses incurred by the Master Servicer, no such payment or recovery will result in a recovery to the Trust that exceeds the principal balance of the defaulted Mortgage Loan together with accrued interest thereon. See "Credit Enhancement" herein and in the related Prospectus Supplement. Unless otherwise specified in the related Prospectus Supplement or the related Agreement, the proceeds from any liquidation of a Mortgage Loan will be applied in the following order of priority: first, to reimburse the Master Servicer for any unreimbursed costs of collection and expenses incurred by it in the liquidation or to restore the related Mortgaged Property and any servicing compensation payable to the Master Servicer with respect to such Mortgage Loan; second, to reimburse the Master Servicer for any unreimbursed Advances or Servicing Advances with respect to such Mortgage Loan; third, to repay accrued and unpaid interest (to the extent no Advance has been made for such amount) on such Mortgage Loan; and fourth, to repay principal of such Mortgage Loan. Servicing and Other Compensation and Payment of Expenses The principal servicing compensation to be paid to the Master Servicer in respect of its master servicing activities for each Series of Certificates will be equal to the percentage per annum described in the related Prospectus Supplement (which may vary under certain circumstances) of the outstanding principal balance of each Mortgage Loan, and such compensation will be retained by it from collections of interest on such Mortgage Loan in the related Trust (the "Master Servicing Fee"). Unless otherwise specified in the related Prospectus Supplement, as compensation for its servicing duties, the Master Servicer will be entitled to a monthly servicing fee as described in the related Prospectus Supplement. In addition, the Master Servicer will retain any benefit that may accrue as a result of the investment of funds in the applicable Certificate Account (unless otherwise specified in the related Prospectus Supplement), and certain other excess amounts. The Master Servicer will pay or cause to be paid the reasonable and customary ongoing expenses associated with each Trust and incurred by it in connection with its responsibilities under the related Agreement, including, without limitation, payment of the fees and disbursements of the Trustee, any custodian appointed by the Trustee, the certificate registrar and any paying agent, and payment of expenses incurred in enforcing the obligations of Sub-Servicers and Sellers. The Master Servicer will be entitled to reimbursement of expenses incurred in enforcing the obligations of Sub-Servicers and Sellers under certain limited circumstances. In addition, the Master Servicer will pay the cost of (i) the preservation, restoration and protection of any Mortgaged Property, (ii) any enforcement or judicial proceedings, including foreclosures, and (iii) the management and liquidation of Mortgaged Property acquired in satisfaction of the related Mortgage Loan. Such expenditures may include costs of collection efforts, reappraisals when a Mortgage Loan is past due, legal fees in connection with foreclosure actions, advancing payments on the related senior mortgage, if any, advances of delinquent property taxes, upkeep and maintenance of the Mortgaged Property if it is acquired through foreclosure and similar types of expenses. Each such expenditure constitutes a "Servicing Advance." The Master Servicer will be obligated to make the Servicing Advances incurred in the performance of its servicing obligations only if it determines (i) that such actions will increase the proceeds of liquidation of the Mortgage Loan to Certificateholders after reimbursement to itself for such expenses, and (ii) that such expenses will be recoverable to it as described below. Unless otherwise specified in the related Prospectus Supplement, the Master Servicer -87- will be entitled to recover Servicing Advances 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, Insurance Proceeds and such other amounts as may be collected by the Master Servicer from the Mortgagor or otherwise relating to the Mortgage Loan. Servicing Advances will be reimbursable to the Master Servicer from the sources described above out of the funds on deposit in the Certificate Account, such right of reimbursement being prior to the rights of Certificateholders to receive any related Liquidation Proceeds (including Insurance Proceeds). A "Liquidated Mortgage" is a Mortgage Loan as to which the Master Servicer has determined that all recoverable Liquidation Proceeds and Insurance Proceeds have been received. Evidence as to Compliance Each Agreement will provide that on or before a specified date in each year, a firm of independent public accountants will furnish a statement to the Trustee to the effect that, on the basis of the examination by such firm conducted substantially in compliance with the Uniform Single Attestation Program for Mortgage Bankers, the servicing by or on behalf of the Master Servicer of Mortgage Loans, or Private Mortgage-Backed Securities, under Agreements substantially similar to each other (including the related Agreement) was conducted in compliance with the minimum servicing standards set forth in the Uniform Single Attestation Program for Mortgage Bankers except for any significant exceptions or errors in records that, in the opinion of the firm, the Uniform Single Attestation Program for Mortgage Bankers requires it to report. In rendering its statement such firm may rely, as to matters relating to the direct servicing of Mortgage Loans or Private Mortgage-Backed Securities by Sub-Servicers, upon comparable statements for examinations conducted substantially in compliance with the Uniform Single Attestation Program for Mortgage Bankers (rendered within one year of such statement) of firms of independent public accountants with respect to the related Sub-Servicer. Each Agreement will also provide for delivery to the Trustee, on or before a specified date in each year, of an annual statement signed by an officer of the Master Servicer to the effect that the Master Servicer has fulfilled its obligations under the Agreement throughout the preceding year. Copies of the annual accountants' statement and the statement of officers of the Master Servicer may be obtained by Certificateholders of the related Series without charge upon written request to the Master Servicer at the address set forth in the related Prospectus Supplement. List of Certificateholders Each Agreement will provide that three or more holders of Certificates of any Series may, by written request to the Trustee and at their expense, obtain access to the list of all Certificateholders maintained by the Trustee for the purpose of communicating with other Certificateholders with respect to their rights under the Agreement and the Certificates. Certain Matters Regarding the Master Servicer and the Depositor CIT Consumer Finance will be the Master Servicer under each Agreement, and is an affiliate of the Depositor. Unless otherwise specified in the related Prospectus Supplement, CIT Consumer Finance will appoint CITSF as a Sub-Servicer for all of the Mortgage Loans in each Mortgage Pool. Each Agreement will provide that the Master Servicer may not resign from its obligations and duties under such Agreement except upon a determination that -88- the performance by it of its duties thereunder is no longer permissible under applicable law. No such resignation will become effective until the Trustee or a successor servicer has assumed the Master Servicer's obligations and duties under the Agreement. Each Agreement will further provide that neither the Master Servicer, the Sub-Servicer (if an affiliate of CIT), the Depositor nor any director, officer, employee, or agent of the Master Servicer, or the Depositor will be under any liability to the related Trust or Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to the Agreement, or for errors in judgment; provided, however, that neither the Master Servicer, the Sub-Servicer (if an affiliate of CIT), the Depositor nor any such person will be protected against any liability that would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties thereunder or by reason of reckless disregard of obligations and duties thereunder. In addition, each Agreement will provide that neither the Master Servicer, the Sub-Servicer (if an affiliate of CIT), nor the Depositor will be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its respective responsibilities under the Agreement and which in its opinion may involve it in any expense or liability. The Master Servicer, the Sub-Servicer (if an affiliate of CIT), or the Depositor may, however, in their discretion undertake, appear in or defend any such action including any cross claims or third party claims which either may deem necessary or desirable with respect to the Agreement and the rights and duties of the parties thereto and the interests of the Certificateholders thereunder. In such event, the legal expenses and costs of such action and any liability resulting therefrom will be expenses, costs and liabilities of the Trust, and the Master Servicer, the Sub-Servicer (if an affiliate of CIT), the Depositor, as the case may be, will be entitled to be reimbursed therefor out of funds otherwise distributable to Certificateholders. Any person into which the Master Servicer or the Sub-Servicer (if an affiliate of CIT), may be merged or consolidated, or any person resulting from any merger or consolidation to which the Master Servicer or the Sub-Servicer (if an affiliate of CIT), is a party, or any person succeeding to the business of the Master Servicer, or the Sub-Servicer (if an affiliate of CIT), will be the successor of the Master Servicer or the Sub-Servicer (if an affiliate of CIT), as applicable, under each Agreement, provided that such person is qualified to service mortgage loans under the related Agreement, and further provided that such merger, consolidation or succession does not adversely affect the then current rating or ratings of the class or classes of Certificates of such Series that have been rated. Termination Events Unless otherwise specified in the related Prospectus Supplement, Termination Events under each Agreement will consist of (i) any failure by the Master Servicer to deposit or cause to be deposited any required amount (other than an Advance or Servicing Advance) into the Certificate Account which continues unremedied for five Business Days after the giving of written notice of such failure to the Master Servicer by the Trustee or to the Master Servicer and the Trustee by the Certificate Guaranty Insurer (if any) or the holders of Certificates having not less than 51% of the aggregate Percentage Interest constituting each class of Certificates (other than the Certificates representing the residual interest in a Trust for which a REMIC election has been made) (the "Majority Certificateholders"); (ii) any failure by the Master Servicer to make an Advance or, Servicing Advance, as required under the Agreement, unless cured as specified therein, to the extent such failure materially or adversely affects the interests of the Certificate Guaranty Insurer, if any, or the Certificateholders; (iii) any failure by the Master Servicer duly to observe or perform in any material respect any of its other covenants or agreements in the Agreement which continues unremedied for thirty days after the giving of written notice of such failure to the Master Servicer by the Trustee, or to the Master Servicer and the Trustee by the Certificate Guaranty Insurer (if any) or the Majority; and (iv) certain events of -89- insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding and certain actions by or on behalf of the Master Servicer indicating its insolvency, reorganization or inability to pay its obligations. If specified in the related Prospectus Supplement, the Agreement will permit the Trustee to sell the Mortgage Assets and the other assets of the Trust in the event that payments in respect thereto are insufficient to make payments required in the Agreement. The assets of the Trust will be sold only under the circumstances and in the manner specified in the related Prospectus Supplement. Rights Upon Termination Event Unless otherwise specified in the related Prospectus Supplement, so long as a Termination Event under an Agreement remains unremedied, the Depositor or the Trustee may, and at the direction of (i) the Certificate Guaranty Insurer (if any), or (ii) the Majority Certificateholders and under such other circumstances as may be specified in such Agreement, the Trustee shall, terminate all of the rights and obligations of the Master Servicer under the Agreement relating to such Trust (other than its right to recovery of Advances, Servicing Advances and other expenses and amounts advanced pursuant to the terms of such Agreement, which rights the Master Servicer will retain under all circumstances), and with respect to the Mortgage Assets by written notice to the Master Servicer (with, if specified in the related Prospectus Supplement, the prior written consent of the Certificate Guaranty Insurer, if any, which consent may not be unreasonably withheld), whereupon the Trustee will succeed to all of the responsibilities, duties and liabilities of the Master Servicer under the Agreement, including, if specified in the related Prospectus Supplement, the obligation to make Advances, and will be entitled to similar compensation arrangements not to exceed the Servicing Fee. "Percentage Interest" means the original principal amount (or notional principal amount) of a Certificate divided by the original Certificate Balance of such class of Certificates. In the event that the Trustee is unwilling or unable so to act, it may appoint, or petition a court of competent jurisdiction for the appointment of, a mortgage loan servicing institution with a net worth of at least $15,000,000 to act as successor to the Master Servicer under the Agreement. Pending such appointment, the Trustee is obligated to act in such capacity. The Trustee and any such successor may agree without consent of the Certificateholders upon the servicing compensation to be paid to the successor servicer, which in no event may be greater than the compensation payable to the Master Servicer under the Agreement. No Certificateholder, solely by virtue of such holder's status as a Certificateholder, will have any right under any Agreement to institute any proceeding with respect to such Agreement, unless such holder previously has given to the Trustee written notice of default and unless the holders of any class of Certificates of such Series evidencing not less than 25% of the aggregate Percentage Interests constituting such class (with, if specified in the related Prospectus Supplement, the prior written consent of the Certificate Guaranty Insurer, if any, which consent may not be unreasonably withheld), have made written request upon the Trustee to institute such proceeding in its own name as Trustee thereunder and have offered to the Trustee reasonable indemnity, and the Trustee for 60 days has neglected or refused to institute any such proceeding. Amendment Unless otherwise specified in the related Prospectus Supplement, each Agreement may be amended by the Depositor, the Master Servicer and the Trustee, without the consent of any of the Certificateholders, (i) to cure any ambiguity; (ii) to correct or supplement any provision therein which may be defective or inconsistent with any other provision therein; (iii) to add to the duties of a Seller, the Trustee or the Master Servicer or a Sub-Servicer; (iv) to add any other provisions with respect to matters or questions arising under such -90- Agreement or related Credit Enhancement; (v) to add or amend any provisions of such Agreement as required by a Rating Agency in order to maintain or improve the rating of the Certificates (it being understood that none of any Seller, the Servicer, the Depositor or the Trustee is obligated to maintain or improve such rating); (vi) to make any other revisions with respect to matters or questions arising under the Agreement that are not inconsistent with the provisions thereof, provided, that such amendment pursuant to clause (vi) will not materially and adversely affect in any material respect the interests of any Certificateholder of such Series or, if specified in the related Prospectus Supplement, the interests of the Certificate Guaranty Insurer; or (vii) to make any revisions to the Agreement, provided that such amendment will not materially and adversely affect in any material respect the interests of any Certificateholder of such Series or, if specified in the related Prospectus Supplement, the interests of the Certificate Guaranty Insurer, if any. An amendment will be deemed not to adversely affect in any material respect the interests of the Certificateholders if the person requesting such amendment obtains a letter from each Rating Agency stating that such amendment will not result in the downgrading or withdrawal of the respective ratings then assigned to such Certificates. In addition, to the extent provided in the related Agreement, an Agreement may be amended without the consent of any of the Certificateholders to change the manner in which the Certificate Account is maintained, provided, that any such change does not adversely affect the then current rating of the class or classes of Certificates of such Series that have been rated. In addition, if a REMIC election is made with respect to a Trust, the related Agreement may be amended to modify, eliminate or add to any of its provisions to such extent as may be necessary to maintain the qualification of the related Trust as a REMIC, provided that the Trustee has received an opinion of counsel to the effect that such action is necessary or helpful to maintain such qualification. Unless otherwise specified in the related Prospectus Supplement, each Agreement may also be amended by the Depositor, the Master Servicer, the applicable Sellers and the Trustee with the consent of holders of Certificates of such Series evidencing not less than 51% of the aggregate Percentage Interests of each class affected thereby (and, if specified in the related Prospectus Supplement, the consent of the Certificate Guaranty Insurer) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Agreement or of modifying in any manner the rights of the holders of the related Certificates; provided, however, that no such amendment may (i) reduce in any manner the amount of, or delay the timing of, payments on any Certificate without the consent of the holder of such Certificate, or (ii) reduce the aforesaid percentage of Certificates of any class of holders that is required to consent to any such amendment without the consent of the holders of all Certificates of such class covered by such Agreement then outstanding. If a REMIC election is made with respect to a Trust, the Trustee will not be entitled to consent to an amendment to the related Agreement without having first received an opinion of counsel knowledgeable in federal income tax matters to the effect that such amendment will not cause such Trust to fail to qualify as a REMIC. Each Agreement may be amended from time to time by the Master Servicer, the applicable Sellers, the Depositor and the Trustee by written agreement, upon the prior written consent of the Certificate Guaranty Insurer, if any, without the notice to or consent of the Certificateholders in connection with the substitution of cash, a letter of credit or any other collateral deposited in a Reserve Fund. It will not be necessary for the consent of holders of any Certificate to approve the particular form of any proposed amendment, but it will be sufficient if such consent shall approve the substance thereof. -91- Termination; Purchase of Mortgage Loans Unless otherwise specified in the related Agreement, the obligations created by each Agreement for each Series of Certificates will terminate upon the payment to the related Certificateholders of all amounts held in the Certificate Account or by the Master Servicer and required to be paid to them pursuant to such Agreement following the later of (i) the final payment or other liquidation of the last of the Mortgage Assets subject thereto or the disposition of all property acquired upon foreclosure of any such Mortgage Assets remaining in the Trust; or (ii) the purchase by the Master Servicer or, if REMIC treatment has been elected and if specified in the related Prospectus Supplement, by the holder of the residual interest in the REMIC (see "Certain Federal Income Tax Consequences" below and in the related Prospectus Supplement), or by such other entity as may be specified in the related Prospectus Supplement from the related Trust of all of the remaining Mortgage Assets and all property acquired in respect of such Mortgage Assets. Unless otherwise specified in the related Prospectus Supplement, any purchase of Mortgage Assets and property acquired in respect of Mortgage Assets evidenced by a Series of Certificates will be made at the option of the Master Servicer, the Depositor or, if applicable, the holder of the REMIC residual interest, by the Certificate Guaranty Insurer (if any), or by such other entity as may be specified in the related Prospectus Supplement, at a price, and in accordance with the procedures, specified in the related Prospectus Supplement. The exercise of such right will effect early termination of the Certificates of that Series, but the right of the Master Servicer, the Depositor or, if applicable, such holder of the REMIC residual interest, Certificate Guaranty Insurer or other entity, so to purchase is subject to the principal balance of the related Mortgage Assets being less than 10% (or such other percentage specified in the related Prospectus Supplement) of the aggregate principal balance of the Mortgage Assets at the Cut-off Date for the Series (together with the original balance of any Pre-Funding Account). The foregoing is subject to the provision that if a REMIC election is made with respect to a Trust, any repurchase pursuant to clause (ii) above will be made only in connection with a "qualified liquidation" of the REMIC within the meaning of Section 860F(g)(4) of the Code and the repurchases of the Mortgage Loans will not constitute "prohibited transactions" within the meaning of section 860F(a)(2) of the Code. In no event shall the trust created by an Agreement for a Series of Certificates continue beyond the expiration of 21 years from the death of the last survivor of the persons named in the Agreement. Unless otherwise provided in the related Prospectus Supplement, the repurchase price will equal the principal amount of such Mortgage Loans or Private Mortgage-Backed Securities (or, with respect to any property acquired in respect of a Mortgage Loan, the outstanding principal balance of the Mortgage Loan at the time of foreclosure) plus accrued interest from the first day of the month of repurchase to the first day of the next succeeding month at the Mortgage Rates borne by such Mortgage Loans or Private Mortgage-Backed Securities or at the weighted average of such Mortgage Rates, less related unreimbursed Advances (to the extent not already reflected in the computation of the aggregate principal balance of such Mortgage Assets) and unreimbursed expenses (that are reimbursable pursuant to the terms of the Pooling and Servicing Agreement). The Trustee The trustee (the "Trustee") under each Agreement will be named in the related Prospectus Supplement. The commercial bank or trust company serving as Trustee may have banking relationships with the Depositor, the Master Servicer, the Sub-Servicer, any Seller and any of their respective affiliates. The Trustee may resign at any time, in which event the Master Servicer will be obligated to appoint a successor Trustee. The Master Servicer 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. The Trustee may also be removed at any time by the Majority Certificateholders in the related Trust as specified -92- in the Agreement. 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. CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS The following discussion contains summaries, which are general in nature, of certain legal matters relating to the Mortgage Loans. Because such legal aspects are governed primarily by applicable state law (which laws may differ substantially), the summaries do not purport to be complete or to reflect the laws of any particular state or to encompass the laws of all states in which the Mortgaged Properties are located. The summaries are qualified in their entirety by reference to the appropriate laws of the states in which Mortgage Loans may be originated. General The Mortgage Loans will be secured by deeds of trust, mortgages, security deeds or deeds to secure debt, depending upon the prevailing practice in the state in which the property subject to the loan is located. A mortgage creates a lien upon the real property encumbered by the mortgage, which lien is generally not prior to the lien for real estate taxes and assessments. Priority between mortgages depends generally on the order of recording with a state or county office. Priority also may be affected by the express terms of the mortgage or the deed of trust and any subordination agreement among the lenders. Although priority among liens on the same property generally depends in the first instance on the order of filing, there are a number of ways in which a lien that is a senior lien when it is filed can become subordinate to a lien filed at a later date. A deed of trust or mortgage generally is not prior to any liens for real estate taxes and assessments, certain federal liens (including certain federal criminal liens, environmental liens and tax liens), certain mechanics and materialmen's liens, and other liens given priority by applicable law. There are two parties to a mortgage - the mortgagor, who is the borrower and owner of the mortgaged property, and the mortgagee, who is the lender. Under the mortgage instrument, the mortgagor delivers to the mortgagee a note or bond and the mortgage. Although a deed of trust is similar to a mortgage, a deed of trust formally has three parties - the borrower-property owner (similar to a mortgagor) called the trustor, a lender (similar to a mortgagee) called the beneficiary, and a third-party grantee called the trustee. Under a deed of trust, the borrower grants the property, irrevocably until the debt is paid, in trust, generally with a power of sale, to the trustee to secure payment of the obligation. A security deed and a deed to secure debt are special types of deeds which indicate on their face that they are granted to secure an underlying debt. By executing a security deed or deed to secure debt, the grantor conveys title to the property to the grantee, as opposed to merely creating a lien upon the property, until such time as the underlying debt is repaid. The trustee's authority under a deed of trust, the mortgagee's authority under a mortgage and the grantee's authority under a security deed or deed to secure debt are governed by law and, with respect to some deeds of trust, the directions of the beneficiary. Foreclosure Deed of Trust. Foreclosure of a deed of trust is generally accomplished by a nonjudicial sale under a specific provision in the deed of trust which authorizes the trustee to sell the property at public auction 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 trustee must record a notice of default and send a copy to the borrower-trustor and to any person who has recorded a request for a copy of any notice of default and notice of sale. -93- 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 any applicable cure period, a notice of sale must be posted in a public place and, in most states, published for a specified period of time in one or more newspapers. In addition, these notice provisions generally 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 property. In some states, the borrower-trustor has the right to reinstate the loan at any time following default until shortly before the trustee's sale. In general, 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 attorney's fees, which may be recoverable by a lender. The trustee's sale generally must be conducted by public auction in the county or city in which all or some part of the property is located. At the sale, the trustee generally requires a bidder to deposit with the trustee a set amount or a percentage of the full amount of the bidder's final bid in cash (or an equivalent thereto satisfactory to the trustee) prior to and as a condition to recognizing such bid, and may conditionally accept and hold these amounts for the duration of the sale. The beneficiary of the deed of trust generally need not bid cash at the sale, but may instead make a "credit bid" up to the extent of the total amount due under the deed of trust, including costs and expenses actually incurred in enforcing the deed of trust, as well as the trustee's fees and expenses. The trustee will sell the property to the highest proper bidder at the sale. A sale conducted in accordance with the terms of the power of sale contained in the deed of trust generally is presumed to be conducted regularly and fairly, and, on a conveyance of the property by trustee's deed, confers absolute legal title to the property to the purchaser, free of all junior deeds of trust and free of all other liens and claims subordinate to the deed of trust under which the sale is made. The purchaser's title, however, is subject to all senior liens and other senior claims. Thus, if the deed of trust being enforced is a junior deed of trust, the trustee will convey title to the property to the purchaser subject to the first deed of trust and any other prior liens and claims. A trustee's sale or judicial foreclosure under a junior deed of trust generally has no effect on any senior deed of trust, with the possible exception of the right of a senior beneficiary to accelerate its indebtedness under a default clause or a "due on sale" clause contained in the senior deed of trust. Because a potential buyer at the sale may find it difficult to determine the exact status of title and other facts about the property, and because the physical condition of the property may have deteriorated, third parties may not be interested in purchasing the property at a trustee's sale or judicial foreclosure sale. In a non-judicial foreclosure, it is common for the lender to purchase the property from the trustee or referee for an amount equal to the principal amount of the deed of trust, accrued and unpaid interest and expenses of foreclosure. In judicial foreclosures, it is not uncommon for the lender to make a bid to purchase the property. The amount of the bid may vary depending on applicable law, the value of the property, the amount of senior liens and other considerations. In either case, after a foreclosing lender purchases the mortgage property, as a business practice it will frequently assume the burdens of ownership, including the obligations to service any senior deed of trust, to obtain hazard insurance and to make such repairs at its own expense as are necessary to render the property suitable for sale. The lender will commonly attempt to sell the property and 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. Any loss may be reduced by the receipt of any mortgage insurance proceeds. -94- The proceeds received by the trustee from the sale generally are applied first to the costs, fees and expenses of sale and then to satisfy the indebtedness secured by the deed of trust under which the sale was conducted. Any remaining proceeds generally are payable to the holders of junior deeds of trust and other liens and claims in order of their priority. Any balance remaining generally is payable to the grantor. Following the sale, if there are insufficient proceeds to repay the secured debt, the beneficiary under the foreclosed lien generally may obtain a deficiency judgment against the grantor. See "- Anti-Deficiency Legislation and Other Limitations on Lenders" herein. Courts have imposed general equitable principles upon foreclosure, which are generally designed to mitigate the legal consequences to the borrower of the borrower's defaults under the loan documents. Some courts have been faced with the issue of whether federal or state constitutional provisions reflecting due process concerns for fair notice require that borrowers under deeds of trust receive notice longer than that prescribed by statute. 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 does not involve sufficient state action to afford constitutional protection to the borrower. Mortgages. 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 in the real property. Delays in completion of the foreclosure may occasionally result from difficulties in locating necessary parties defendant. Judicial foreclosure proceedings are often not contested by any of the parties defendant. However, when the mortgagee's right to foreclosure is contested, the legal proceedings necessary to resolve the issue can be time consuming. Since a foreclosure action historically was equitable in nature, the court may exercise equitable powers to relieve a mortgagor of a default and deny the mortgagee foreclosure on proof that either the mortgagor's default was neither willful nor in bad faith or the mortgagee's action established a waiver, fraud, bad faith, or oppressive or unconscionable conduct such as to warrant a court of equity to refuse affirmative relief to the mortgagee. Some mortgages contain a power of sale, and non-judicial foreclosure is permitted. See "-- Foreclosure - Deed of Trust" above for a discussion of non-judicial foreclosure. A foreclosure action is subject to most of the delays and expenses of other lawsuits if defenses or counterclaims are interposed, sometimes requiring up to several years to complete. However, a suit against the debtor on the related mortgage note may take several years and, generally, is an alternative remedy to foreclosure, since the mortgagee is precluded from pursuing both actions at the same time. After the completion of a judicial foreclosure proceeding, the court generally issues a judgment of foreclosure and appoints a referee or other court officer to conduct the sale of the property. In case of foreclosure under a mortgage, the sale by the referee or other designated officer or the sale 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 other facts about the property, and because the physical condition of the property may have deteriorated, third parties may not be interested in purchasing the property at the foreclosure sale. In a non-judicial foreclosure, it is common for the lender to purchase the property from the trustee or referee for an amount equal to the principal amount of the mortgage, accrued and unpaid interest and expenses of foreclosure. In judicial foreclosures, it is not uncommon for the lender to make a bid to purchase the property. The amount of the bid may vary depending on applicable law, the value of the property, the amount of senior liens and other considerations. In either case, after a foreclosing lender purchases the mortgaged property, as a business practice it will frequently assume the burdens of ownership, including the obligations to service any senior mortgage, to obtain hazard insurance and to make such repairs at its own expense as are necessary to render the property suitable for sale. The lender will commonly attempt to sell the property and obtain the services of a real estate broker and pay the broker a commission in -95- 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. Any loss may be reduced by the receipt of any mortgage insurance proceeds. Rights of Redemption In some states after sale pursuant to a deed of trust or 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. (The right of redemption should be distinguished from the equity of redemption, which is a non-statutory right that must be exercised prior to the foreclosure sale.) In certain other states, this right of redemption applies only to sales following judicial foreclosure, and not to sales pursuant to a nonjudicial power of sale. In most states where the right of redemption is available, statutory redemption may occur upon payment of the foreclosure purchase price, accrued interest and taxes. In some states, the right to redeem is an equitable right. 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 at a foreclosure sale, or of any purchaser from the lender subsequent to judicial foreclosure or sale under a deed of trust. Consequently, the practical effect of the redemption right is to force the lender to retain the property and pay the expenses of ownership until the redemption period has run. Junior Mortgages; Rights of Senior Mortgages The mortgage loans comprising or underlying the Mortgage Assets included in the Trust Fund for a Series will be secured by mortgages or deeds of trust which may be second or more junior mortgages to other mortgages held by other lenders or institutional investors. The rights of the Trust (and therefore the Holders), as mortgagee under a junior mortgage, are subordinate to those of the mortgagee under the senior mortgage, including the prior rights of the senior mortgagee to receive hazard insurance and condemnation proceeds and to cause the property securing the mortgage loan to be sold upon default of the mortgagor, thereby extinguishing the junior mortgagee's lien unless the junior mortgagee asserts its subordinate interest in the property in foreclosure litigation and, possibly, satisfies the defaulted senior mortgage. A junior mortgagee may satisfy a defaulted senior loan in full and, in some states, may cure such default and bring the senior loan current, in either event adding the amounts expended to the balance due on the junior loan. In some states, absent a provision in the mortgage or deed of trust, no notice of default is required to be given to a junior mortgagee. In addition, as described above, the rights of the Trust may be or become subject to liens for real estate taxes and other obligations. It is CIT Consumer Finance's standard practice to protect its interest by monitoring any such sale of which it is aware and bidding for property if it determines that it is in CIT Consumer Finance's best interests to do so. The standard form of the mortgage used by most institutional lenders, like that generally used by CIT Consumer Finance, confers on the mortgagee the right both to receive all proceeds collected under any hazard insurance policy required to be maintained by the borrower and all awards made in connection with condemnation proceedings. The lender generally has the right, subject to the specific provisions of the deed of trust or mortgage securing its loan, to apply such proceeds and awards to repair of any damage to the security property or to payment of any indebtedness secured by the deed of trust or mortgage, in such order as the beneficiary may determine. Thus, in the event improvements on the property are damaged or destroyed by fire or other casualty, or in the event the property is taken by condemnation, the mortgagee or beneficiary under underlying senior mortgages will have the prior right to collect any insurance proceeds payable under a hazard insurance policy and any award of damages in connection with the condemnation and to apply the same to the indebtedness secured by the -96- senior mortgages or deeds of trust. If available, proceeds in excess of the amount of senior mortgage indebtedness, in most cases, will be applied to the indebtedness of a junior mortgage. Another provision typically found in the form of the mortgage or deed of trust used by institutional lenders obligates the mortgagor to pay all taxes and assessments on the property and, when due, all encumbrances, charges and liens on the property which appear prior to the mortgage or deed of trust, to provide and maintain fire insurance on the property, to maintain and repair the property and not to commit or permit any waste thereof. Upon a failure of the grantor or mortgagor to perform any of these obligations, the mortgagee or beneficiary is given the right under certain mortgages to perform the obligation itself, at its election, with the mortgagor agreeing to reimburse the mortgagee or beneficiary for any sums expended by the mortgagee or beneficiary on behalf of the mortgagor or grantor. The mortgage or deed of trust typically provides that all sums so expended by the mortgagee become part of the indebtedness secured by the mortgage. Anti-Deficiency Legislation and Other Limitations on Lenders Anti-Deficiency Legislation. Certain states have imposed statutory restrictions 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 or sale under a deed of trust. The purpose of these statutes is generally to prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment against the former borrower as a result of low or no bids at the 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. A deficiency judgment is a personal judgment against the borrower equal in most cases to the difference between the net amount realized upon the public sale of the real property and the amount due to the lender. However, some states calculate the deficiency as the difference between the outstanding indebtedness and the greater of the fair market value of the property and the sales price of the property. As a result of these restrictions, it is anticipated that in many instances the Master Servicer will utilize the nonjudicial foreclosure remedy and forego any possible deficiency, and after a judicial foreclosure will not seek deficiency judgments against defaulting Mortgagors where anti-deficiency statutes may apply. Election of Remedies. Some state statutes may 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 property; 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 property. Consequently, the practical effect of the election requirement, when applicable, is that lenders will usually proceed first against the property rather than bringing a personal action against the borrower. Other Limitations on Lenders. In addition to anti-deficiency and related legislation, numerous other federal and state statutory provisions, including the federal bankruptcy laws, the Relief Act and state laws affording relief to debtors, may interfere with or affect the ability of the secured mortgage lender to realize upon its security. For example, in a proceeding under the federal Bankruptcy Code, the filing of a petition acts as a stay against the enforcement of remedies for collection of a debt, and a lender may not foreclose on a mortgaged property without the permission of the bankruptcy court. Moreover, a -97- court with federal bankruptcy jurisdiction may permit a debtor through a Chapter 13 Bankruptcy Code rehabilitative plan to cure a monetary default with respect to a loan on a debtor's residence by paying arrearages within a reasonable time period and reinstating the original loan payment schedule even though the lender accelerated the loan and the lender has taken all steps to realize upon his security (provided no sale of the property has yet occurred) prior to the filing of the debtor's Chapter 13 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 loan default by permitting the obligor to pay arrearages over a number of years. Courts with federal bankruptcy jurisdiction have also indicated that the terms of a mortgage loan may be modified if the borrower has filed a petition under Chapter 13. The rehabilitation plan proposed by the debtor may provide, if the mortgaged property is not the debtor's principal residence and the court determines that the value of the mortgaged property is less than the principal balance of the mortgage loan, for the reduction of the secured indebtedness to the value of the mortgaged property as of the date of the commencement of the bankruptcy, rendering the lender a general unsecured creditor for the difference, and also may reduce the monthly payments due under such mortgage loan, change the rate of interest and alter the mortgage loan repayment schedule. The effect of any such proceedings under the federal Bankruptcy Code, including but not limited to any automatic stay, could result in delays in receiving payments on the Mortgage Loans underlying a Series of Certificates and possible reductions in the aggregate amount of such payments. In a case under the Bankruptcy Code, the lender is precluded from foreclosing without authorization from the bankruptcy court. In a Chapter 11 case, the lender's lien may be transferred to other collateral and/or be limited in amount to the value of the lender's interest in the collateral as of the date of the bankruptcy. The loan term may be extended, the interest rate may be adjusted to market rates and the priority of the loan may be subordinated to bankruptcy court-approved financing. The bankruptcy court can, in effect, invalidate "due on sale" clauses through confirmed Chapter 11 plans of reorganization. The Bankruptcy Code and federal tax laws provide priority to certain tax liens over the lien of a mortgagee or secured party. This may delay or interfere with the enforcement of rights in respect of a defaulted Mortgage Loan. Numerous federal and state consumer protection laws impose substantive requirements upon mortgage lenders and servicers 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 Housing Act, Fair Credit Reporting Act and related statutes and regulations. These federal and state laws impose specific statutory liabilities upon lenders who fail to comply with the provisions of the law. In some cases, this liability may affect assignees of the loans. Environmental Risks Real property pledged as security to a lender may be subject to unforeseen environmental risks. Under the laws of certain states, contamination of a property may give rise to a lien on the property to assure the payment of the costs of clean-up. In several states, such a lien has priority over the lien of an existing mortgage against such property. In addition, under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended, the United States Environmental Protection Agency ("EPA") may impose a lien on property where the EPA has incurred clean-up costs with respect to the property. However, a CERCLA lien is subordinate to pre-existing, perfected security interests. In addition, under federal environmental legislation and possibly under state law in a number of states, a secured party which takes a deed in lieu of foreclosure or acquires a property -98- at a foreclosure sale may be liable for the costs of cleaning up a contaminated site. Such cleanup costs may be substantial. In the event that a Trust acquired title to a property securing a Mortgage Loan and cleanup costs were incurred in respect of the property, the holders of the Certificates might incur a delay in the payment if such costs were required to be paid by such Trust. It is possible that such cleanup costs could reduce the amounts otherwise distributable to the Certificateholders if the Trust Fund were deemed to be liable for such cleanup costs and if such cleanup costs were incurred. Except as otherwise specified in the applicable Prospectus Supplement, at the time the Mortgage Loans were originated, no environmental assessment of the Mortgage Properties was conducted, although an appraiser might comment upon environmental factors. Due on Sale Clauses The Mortgage Loans generally include a "due on sale" clause which will provide that if the Mortgagor sells, transfers or conveys the Mortgaged Property, the Mortgage Loan may in most cases be accelerated by the mortgagee. In recent years, court decisions and legislative actions have placed substantial restriction on the right of lenders to enforce such clauses in many states. For instance, the California Supreme Court in August 1978 held that "due on sale" clauses were generally unenforceable. However, the Garn-St Germain Depository Institutions Act of 1982 (the "Garn-St Germain Act"), subject to certain exceptions, preempts state constitutional, statutory and case law prohibiting the enforcement of "due on sale" clauses. As to loans secured by an owner-occupied residence, the Garn-St Germain Act sets forth nine specific instances in which a mortgagee covered by the Garn-St Germain Act may not exercise its rights under a "due on sale" clause, notwithstanding the fact that a transfer of the property may have occurred. For example, "due on sale" clauses are not enforceable in those states whose legislatures exercised their authority to regulate the enforceability of such clauses with respect to mortgage loans that were (i) originated or assumed during the "window period" under the Garn-St. Germain Act which ended in all cases not later than October 15, 1982, and (ii) originated by lenders other than national banks, federal savings institutions and federal credit unions. FHLMC has taken the position in its published mortgage servicing standards that, out of a total of eleven "window period states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah) have enacted statutes extending, on various terms and for varying periods, the prohibition on enforcement of "due on sale" clauses with respect to certain categories of window period loans. Also, 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. In addition, under federal bankruptcy law, "due on sale" clauses may not be enforceable in bankruptcy proceedings and may, under certain circumstances, be eliminated in any modified mortgage resulting from such bankruptcy proceeding. The inability to enforce a "due on sale" clause may result in transfer of the related Mortgaged Property to an uncreditworthy person, which could increase the likelihood of default or may result in a Mortgage Loan bearing an interest rate below the current market rate being assumed by a new home buyer, which may affect the average life of the Mortgage Loans and the number of Mortgage Loans which may extend to maturity. Prepayment Charges and Late Charges Under certain state laws, prepayment charges may not be imposed after a certain period of time following the origination of mortgage loans with respect to prepayments on loans secured by liens encumbering owner-occupied residential properties. Since many of the Mortgaged Properties will be owner-occupied, it is -99- anticipated that prepayment charges may not be imposed with respect to many of the Mortgage Loans. The absence of such a restraint on prepayment, particularly with respect to fixed rate Mortgage Loans having higher Mortgage Rates, may increase the likelihood of refinancing or other early retirement of such Mortgage Loans. Forms of notes, mortgages, and deeds of trust used by lenders may contain provisions obligating the borrower to pay a late charge if payments are not timely made. In certain states, there are or may be specific limitations upon the late charges which a lender may collect from a borrower for delinquent payments. Late charges and prepayment fees are property of the Trust and will be made available to pay the Certificateholders. The Mortgage Loans originated by CIT Consumer Finance generally do not make provision for late charges, but other Mortgage Loans in a Mortgage Pool may make provision for late charges. CIT Consumer Finance's current practice is to waive such fees (by noncollection) in most cases. CIT Consumer Finance's current operating system cannot process prepayment penalties for partial prepayments on any Mortgage Loan. Equitable Limitations on Remedies In connection with lenders' attempts to realize upon their collateral, courts have invoked general equitable principles. The equitable principles are generally 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 of 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 a lender to realize upon his security if the default under the security agreement is not monetary, such as the borrower's failure to adequately maintain the property or the borrower's execution of secondary financing 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 security agreements receive notices in addition to the statutorily-prescribed minimums. For the most part, these cases have upheld the notice provisions as being reasonable or have found that, in cases involving the sale by a trustee under a deed of trust or by a mortgagee under a mortgage having a power of sale, there is insufficient state action to afford constitutional protections to the borrower. Most conventional single-family mortgage loans may be prepaid in full or in part without penalty. A mortgagee to whom a prepayment in full has been tendered may be compelled to give either a release of the mortgage or an instrument assigning the existing mortgage. The absence of a restraint on prepayment, particularly with respect to mortgage loans having higher mortgage rates, may increase the likelihood of refinancing or other early retirements of such mortgage loans. Alternative Mortgage Transactions Parity Act The Alternative Mortgage Transactions Parity Act ("AMTPA"), enacted in 1982, preempts state laws which restrict or limit the structure of adjustable rate provisions, balloon payments, graduated payments and other terms contained in non-traditional (fixed rate fixed term) mortgage loans. These state statutes are replaced, at the option of the lender, by federal regulations. The lender must follow in their entirety either state laws or federal regulations, and cannot select and combine the most advantageous terms of each. Six states -100- (Arizona, Maine, Massachusetts, New York, South Carolina and Wisconsin) have used their now-expired ability to opt out of all or part of the AMTPA provisions. CIT Consumer Finance generally elects to have the federal regulations apply, in the states where applicable, to the types of mortgage loans originated by it that are covered by AMTPA. Applicability of Usury Laws Many states have usury laws which limit the interest and other amounts that may be charged under certain loans. 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. The statute authorized the states to reimpose interest rate limits by adopting, before April 1, 1983, a law or constitutional provision which expressly rejects an application of the federal law. Fifteen states adopted such a law prior to the April 1, 1983 deadline. In addition, even where Title V is not so rejected, any state is authorized by the law to adopt a provision, which need not expressly reject Title V, limiting discount points or other charges on mortgage loans covered by Title V. Certain states have taken action to limit discount points or other charges. Soldiers' and Sailors' Civil Relief Act Generally, under the terms of the Relief Act, a borrower who enters military service after the origination of such borrower's mortgage loan (including a borrower who is a member of the National Guard or is in reserve status at the time of the origination of the mortgage loan and is later called to active duty) (i) may not be charged interest above an annual rate of 6% during the period of such borrower's active duty status, unless a court orders otherwise upon application of the lender, (ii) may be entitled to a stay of proceedings on any kind of foreclosure or repossession action in the case of defaults on such obligations entered into prior to military service for the duration of military service, and (iii) may have the maturity of such obligations incurred prior to military service extended, the payments lowered and the payment schedule readjusted for a period of time after the completion of military service. However, the benefits of (i), (ii), or (iii) above are subject to challenge by creditors and if, in the opinion of the court, the ability of a person to comply with such obligations is not materially impaired by military service, the court may apply equitable principles accordingly. If a borrower's obligation to repay amounts otherwise due on a Mortgage Loan included in a Trust Fund for a Series is relieved pursuant to the Relief Act, none of the Trustee, the Master Servicer, the Depositor, the Sellers nor the Trustee will be required to advance such amounts, and any loss in respect thereof may reduce the amounts available to be paid to the Certificateholders of such Series. Unless otherwise specified in the related Prospectus Supplement, any shortfalls in interest collections on the mortgage loans underlying the Private Mortgage-Backed Securities included in a Trust Fund for a Series resulting from application of the Relief Act will be allocated to each class of Certificates of such Series that is entitled to receive interest in respect of such mortgage loans in proportion to the interest that each such class of Certificates would have otherwise been entitled to receive in respect of such mortgage loans had such interest shortfall not occurred. It is possible that such interest rate limitation could have an effect, for an indeterminate period of time, on the ability of the Master Servicer to collect full amounts of interest on certain of the Mortgage Loans. Unless otherwise provided in the applicable Prospectus Supplement, any shortfall in interest collections resulting from the application of the Relief Act could result in losses to the holders of the Certificates. In the event that such a Mortgage Loan goes into default, there may be delays and losses occasioned by the inability to realize upon the Mortgaged Property in a timely fashion. -101- Home Ownership Act The Mortgage Loans may be subject to the Home Ownership and Equity Protection Act of 1994 (the "Home Ownership Act") which amended the Federal Truth-in-Lending Act as it applies to mortgages subject to the Home Ownership Act. The Home Ownership Act requires certain additional disclosures, specifies the timing of such disclosures and limits or prohibits the inclusion of certain provisions in mortgages subject to the Home Ownership Act. The Home Ownership Act also provides that any purchaser or assignee of a mortgage covered by the Home Ownership Act is subject to all of the claims and defenses which the borrower could assert against the original lender. The maximum damages that may be recovered by a borrower from an assignee in an action under the Home Ownership Act are the remaining amount of indebtedness plus the total amount paid by the borrower in connection with the mortgage loan. Any Trust for which the Mortgage Assets include Mortgage Loans subject to the Home Ownership Act would be subject to all of the claims and defenses which the Mortgagor could assert against the original lender. Any violation of the Home Ownership Act which would result in such liability would be a breach of the Seller's representations and warranties, and the Seller would be obligated to cure, repurchase or, if permitted by the related Agreement, substitute for, the Mortgage Loan in question. CERTAIN FEDERAL INCOME TAX CONSEQUENCES Set forth below and in the related Prospectus Supplement for each Series of Certificates is a general discussion of certain of the anticipated federal income tax consequences of the purchase, ownership and disposition of the Certificates offered hereby. The discussion and the opinions referred to below, are based on laws, regulations, rulings and decisions now in effect (or, in the case of certain regulations, proposed), all of which are subject to change or possibly differing interpretations. The discussion below does not purport to deal with 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 other tax consequences to them of the purchase, ownership and disposition of Certificates. For purposes of this tax discussion (except with respect to information reporting, or where the context indicates otherwise), the terms "Certificateholder" and "holder" mean the beneficial owner of a Certificate. Each Trust will be provided with an opinion of Schulte Roth & Zabel LLP, counsel for the Depositor, regarding certain of the federal income tax matters discussed below and in the related Prospectus Supplement. An opinion of counsel, however, is not binding on the IRS, and no ruling on any of the issues discussed below will be sought from the IRS. For purposes of the following summary, references to the Trust, the Certificates and related terms, parties and documents will be deemed to refer, unless otherwise specified herein, to each Trust and the Certificates and related terms, parties and documents applicable to such Trust. The federal income tax consequences to Certificateholders will vary depending on whether an election is made to treat the Trust as a REMIC for federal income tax purposes or if the Trust is classified as a grantor trust or is given an alternative characterization for federal income tax purposes. The related Prospectus Supplement for each Series of Certificates will specify whether an election to treat the Trust as a REMIC for federal income tax purposes will be made and, if not, how the Trust is intended to be treated. -102- Scope of the Tax Opinions It is expected that Schulte Roth & Zabel LLP will deliver, upon issuance of a Series of Certificates, its opinion that, with respect to each Series of Certificates for which a REMIC election is to be made, the related Trust or certain assets of such Trust will be, under then existing law and assuming (i) a proper and timely REMIC election, and (ii) ongoing compliance with the provisions of the related Agreement and applicable provisions of the Code and applicable Treasury regulations and rulings, and in reliance upon the representations and warranties in the related Agreement, a REMIC and the Certificates will be considered to evidence ownership of "regular interests" in the REMIC within the meaning of Section 860G(a)(1) of the Code or "residual interests" in the REMIC within the meaning of the Section 860G(a)(2) of the Code. It is expected that Schulte Roth & Zabel LLP, will deliver, upon issuance of a Series of Certificates, its opinion that, with respect to each Series of Certificates for which a REMIC election is not made, the related Trust will be, under then existing law and assuming compliance with the related Agreement, classified for federal income tax purposes as a grantor trust and not as an association taxable as a corporation or a taxable mortgage pool. In addition, Schulte Roth & Zabel LLP will render its opinion that it has reviewed the statements herein and in the related Prospectus Supplement under the heading "Certain Federal Income Tax Consequences," and is of the opinion that such statements are correct in all material respects. Such statements are intended as an explanatory discussion for the possible effects of the classification of the Trust as a REMIC, a grantor trust or other classification, as the case may be, for federal income tax purposes on investors generally and of related tax matters affecting investors generally, but do not purport to furnish information in the level of detail or with the attention to the investor's specific tax circumstances that would be provided by an investor's own tax adviser. Accordingly, each investor is advised to consult its own tax advisers with regard to the tax consequences to it of investing in the Certificates. Other Tax Consequences No advice has been received as to local income, franchise, personal property, or other taxation in any state or locality, or as to the tax effect of ownership of the Certificates in any state or locality. Certificateholders are advised to consult their own tax advisors with respect to any state or local income, franchise, personal property, or other tax consequences arising out of their ownership of the Certificates. Alternative Tax Treatment In the event that, as a result of a change in applicable laws or regulations or the interpretation thereof, the federal income tax characteristics of the Certificates are not anticipated to be as described above, the related Prospectus Supplement will include a discussion of the anticipated federal income tax treatment of the Certificates. STATE TAX CONSIDERATIONS In addition to the federal income tax consequences described in "Certain Federal Income Tax Considerations," potential investors should consider the state and local income, franchise, personal property, or other tax consequences of the acquisition, ownership, and disposition of the Certificates. 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 -103- their own tax advisors with respect to the various tax consequences of investments in the Certificates. ERISA CONSIDERATIONS Set forth below and in the related Prospectus Supplement for each Series of Certificates is a general discussion of certain considerations of the purchase, ownership and disposition of the Certificates under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the Code. The discussion in the related Prospectus Supplement and below, are based on laws, regulations, rulings and decisions now in effect (or, in the case of certain regulations, proposed), all of which are subject to change or possibly differing interpretations. The discussion below does not purport to deal with all issues applicable to an investor subject to ERISA. Investors should consult their own advisors in determining the consequences to them under ERISA and the Code of the purchase, ownership and disposition of Certificates. If Certificates are divided into subclasses the related Prospectus Supplement will contain information concerning considerations relating to ERISA and the Code that are applicable to such Certificates. ERISA imposes requirements on employee benefit plans (and on certain other retirement plans and arrangements, including individual retirement accounts and annuities, Keogh plans and collective investment funds, separate accounts and insurance company general accounts in which such plans, accounts or arrangements are invested) (collectively "Plans") subject to ERISA and on persons who are fiduciaries with respect to such Plans. Generally, ERISA applies to investments made by Plans. Among other things, ERISA requires that the assets of Plans be held in trust and that the trustee, or other duly authorized fiduciary, have exclusive authority and discretion to manage and control the assets of such Plans. ERISA also imposes certain duties on persons who are fiduciaries of Plans. Under ERISA, any person who exercises any authority or control respecting the management or disposition of the assets of a Plan is considered to be a fiduciary of such Plan (subject to certain exceptions not here relevant). Certain employee benefit plans, such as governmental plans (as defined in ERISA Section 3(32)) and, if no election has been made under Section 410(d) of the Code, church plans (as defined in ERISA Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of such plans may be invested in Senior Certificates without regard to the ERISA considerations described above and below, subject to the provisions of applicable state law. Any such plan which is qualified and exempt from taxation under Code Sections 401(a) and 501(a), however, is subject to the prohibited transaction rules set forth in Code Section 503. On November 13, 1986, the United States Department of Labor (the "DOL") issued final regulations concerning the definition of what constitutes the assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the underlying assets and properties of corporations, partnerships and certain other entities in which a Plan makes an "equity" investment could be deemed for purposes of ERISA to be assets of the investing Plan in certain circumstances. However, the regulation provides that, generally, the assets of a corporation or partnership in which a Plan invests will not be deemed for purposes of ERISA to be assets of such Plan if the equity interest acquired by the investing Plan is a publicly-offered security. A publicly-offered security, as defined in Labor Reg. Section 2510.3-101, is a security that is widely held, freely transferable and registered under the Securities Exchange Act of 1934, as amended. In addition to the imposition of general fiduciary standards of investment prudence and diversification, ERISA prohibits a broad range of transactions involving Plan assets and persons ("Parties in Interest") having certain specified relationships to a Plan and imposes additional prohibitions where Parties in Interest are fiduciaries with respect to such Plan. Because the Mortgage Loans may be deemed Plan assets of each Plan that purchases -104- Certificates, an investment in the Certificates by a Plan might be a prohibited transaction under ERISA Sections 406 and 407 and subject to an excise tax under Code Section 4975 unless a statutory or administrative exemption applies. In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited transaction rules certain transactions relating to the operation of residential mortgage pool investment trusts and the purchase, sale and holding of "mortgage pool pass-through certificates" in the initial issuance of such certificates. The DOL also has granted to certain underwriters individual administrative exemptions (the "Underwriter Exemptions") from certain of the prohibited transaction rules of ERISA and the related excise tax provisions of Section 4975 of the Code with respect to the initial purchase, the holding and the subsequent resale by Plans of certificates in pass-through trusts that consist of certain receivables, loans and other obligations that meet the conditions and requirements of the Underwriter Exemptions. The Prospectus Supplement for each Series of Certificates will indicate the classes of Certificates, if any, offered thereby as to which it is expected that PTE 83-1, an Underwriter Exemption or any other exemptions will apply. Any Plan fiduciary which proposes to cause a Plan to purchase Certificates should consult with its counsel concerning the impact of ERISA and the Code, the applicability of PTE 83-1, the availability and applicability of any Underwriter Exemption or any other exemptions from the prohibited transaction provisions of ERISA and the Code and the potential consequences in their specific circumstances, prior to making such investment. Moreover, each Plan fiduciary should determine whether under the general fiduciary standards of investment procedure and diversification an investment in the 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. LEGAL INVESTMENT The Prospectus Supplement for each Series of Certificates will specify which, if any, of the classes of Certificates offered thereby will constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). Classes of Certificates that qualify as "mortgage related securities" will be legal investments for persons, trusts, corporations, partnerships, associations, business trusts and business entities (including depository institutions, life insurance companies and pension funds) created pursuant to or existing under the laws of the United States or of any state (including the District of Columbia and Puerto Rico) whose authorized investments are subject to state regulation to the same extent as, under applicable law, obligations issued by or guaranteed as to principal and interest by the United States or any such entities. Under SMMEA, if a state enacts legislation prior to October 4, 1991 specifically limiting the legal investment authority of any such entities with respect to "mortgage related securities," the Certificates will constitute legal investments for entities subject to such legislation only to the extent provided therein. Approximately twenty-one states adopted such legislation prior to the October 4, 1991 deadline. 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 Certificates, or require the sale or other disposition of Certificates, so long as such contractual commitment was made or such Certificates 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 in Certificates without limitations as to the percentage of their assets represented thereby, -105- federal credit unions may invest in mortgage related securities, and national banks may purchase Certificates 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 authority may prescribe. In this connection, federal credit unions should review the National Credit Union Administration ("NCUA") Letter to Credit Unions No. 96, as modified by Letter to Credit Unions No. 108, which includes guidelines to assist federal credit unions in making investment decisions for mortgage related securities, and the NCUA's regulation "Investment and Deposit Activities" (12 C.F.R. Part 703), (whether or not the class of Certificates under consideration for purchase constitutes a "mortgage related security"). All depository institutions considering an investment in the Certificates (whether or not the class of certificates under consideration for purchase constitutes a "mortgage related security" should review the Federal Financial Institutions Examination Council's Supervisory Policy Statement on Securities Activities (to the extent adopted by their respective regulators) (the "Policy Statement"), setting forth, in relevant part, certain securities trading and sales practices deemed unsuitable for an institution's investment portfolio, and guidelines for (and restrictions on) investing in mortgage derivative products including "mortgage related securities" that are "high-risk mortgage securities" as defined in the Policy Statement. According to the Policy Statement, such "high-risk mortgage securities" include securities such as Certificates not entitled to distributions allocated to principal or interest, or Subordinated Certificates. Under the Policy Statement, it is the responsibility of each depository institution to determine, prior to purchase (and at stated intervals thereafter), whether a particular mortgage derivative product is a "high-risk mortgage security", and whether the purchase (or retention) of such a product would be consistent with the Policy Statement. The foregoing does not take into consideration the applicability of statutes, rules, regulations, orders, guidelines, or agreements generally governing investments made by a particular investor, including, but not limited to, "prudent investor" provisions, percentage-of-assets limits and provisions that may restrict or prohibit investment in securities that are not "interest bearing" or "income paying." There may be other restrictions on the ability of certain investors, including depository institutions, either to purchase Certificates or to purchase Certificates representing more than a specified percentage of the investor's assets. Investors should consult their own legal advisors in determining whether and to what extent the Certificates constitute legal investments for such investors. METHOD OF DISTRIBUTION Certificates are being offered hereby in Series from time to time (each Series evidencing a separate Trust) through any of the following methods: 1. By negotiated firm commitment underwriting and public reoffering by underwriters; 2. By agency placements through one or more placement agents primarily with institutional investors and dealers; and 3. By placement directly by the Depositor with institutional investors. A Prospectus Supplement will be prepared for each Series which will describe the method of offering being used for that Series and will set forth the identity of any underwriters thereof and either the price at which such Series is being offered, the nature and amount of any underwriting discounts or additional compensation to such underwriters and the proceeds of the offering to the Depositor, or the method by which the price at which the underwriters will -106- sell the Certificates will be determined. Each Prospectus Supplement for an underwritten offering will also contain information regarding the nature of the underwriters' obligations, any material relationship between the Depositor and any underwriter and, where appropriate, information regarding any discounts or concessions to be allowed or reallowed to dealers or others and any arrangements to stabilize the market for the Certificates so offered. In firm commitment underwritten offerings, the underwriters will be obligated to purchase all of the Certificates of such Series if any such Certificates are purchased. Certificates may be acquired by the underwriters for their own accounts and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Underwriters and agents may be entitled under agreements entered into with the Depositor and CIT Consumer Finance to indemnification by the Depositor and CIT Consumer Finance against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribution with respect to payments which such underwriters or agents may be required to make in respect thereof. If a Series is offered other than through underwriters, the Prospectus Supplement relating thereto will contain information regarding the nature of such offering and any agreements to be entered into between the Depositor and purchasers of Certificates of such Series. LEGAL MATTERS The validity of the Certificates, including certain federal income tax consequences with respect thereto, will be passed upon for the Depositor by Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022. FINANCIAL INFORMATION A new Trust will be formed with respect to each Series of Certificates and no Trust will engage in any business activities or have any assets or obligations prior to the issuance of the related Series of Certificates. Accordingly, no financial statements with respect to any Trust will be included in this Prospectus or in the related Prospectus Supplement. CIT Consumer Finance and CITSF each has determined that its financial statements are not material to the offering made hereby. RATINGS It is a condition to the issuance of the Certificates of each Series offered hereby and by the related Prospectus Supplement that they shall have been rated in the rating categories specified in the related Prospectus Supplement by the Rating Agency or Agencies specified in the related Prospectus Supplement. Ratings on mortgage pass-through certificates address the likelihood of receipt by certificateholders of all distributions on the underlying mortgage loans. These ratings address the structural, legal and issuer-related aspects associated with such certificates, the nature of the underlying mortgage loans and the credit quality of the credit enhancer or guarantor, if any. Ratings on mortgage pass-through certificates do not represent any assessment of the likelihood of principal prepayments by mortgagors or of the degree by which such prepayments might differ from those originally anticipated. As a result, -107- certificateholders might suffer a lower than anticipated yield, and, in addition, holders of stripped pass-through certificates in extreme cases might fail to recoup their underlying investments. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each security rating should be evaluated independently of any other security rating. EXPERTS The financial statements listed under the heading "Exhibits, Financial Statement Schedule and Reports on Form 8-K" in CIT's 1996 Annual Report on Form 10-K have been incorporated by reference herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, also incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. -108- Page ---- INDEX TO DEFINED TERMS Accrual Certificates.........................................................57 Adjustable Rate..........................................................10, 34 Adjustable Rate Mortgage Loan............................................10, 34 Adjusted Mortgage Loan Remittance Rate.......................................59 Advance..................................................................18, 59 Agreement.................................................................6, 37 AMTPA.......................................................................100 Asset Service Center.........................................................42 Available Funds..............................................................56 Balloon Loans............................................................10, 34 Balloon Payments.........................................................10, 35 Bankruptcy Bond..........................................................17, 70 beneficial owner.............................................................62 Book-Entry Certificates......................................................61 Business Day..............................................................9, 56 Buydown Account..............................................................80 Buydown Fund.................................................................35 Buydown Loans................................................................35 Call Date................................................................10, 35 Call Loans...............................................................10, 35 CBC Holding..................................................................41 Cede......................................................................5, 21 Cedel.................................................................5, 21, 31 CERCLA.......................................................................98 Certificate Account..........................................................77 Certificate Balance..........................................................57 Certificate Guaranty Insurance Policy....................................16, 67 Certificate Guaranty Insurer.................................................67 Certificate Register.........................................................55 Certificateholders........................................................2, 33 Certificates...........................................................1, 6, 53 CIT.......................................................................1, 22 CIT Consumer Finance...................................................1, 6, 22 CITSF.....................................................................6, 22 Class Certificate Balance....................................................56 Closing Date..............................................................7, 81 Code.........................................................................20 Combined Loan-to-Value Ratio.................................................37 Commission................................................................3, 34 Compensating Interest....................................................19, 60 Confirmatory Mortgage Note...................................................75 Credit Enhancement...........................................................30 Credit Enhancer..............................................................30 Cut-off Date..............................................................9, 53 Definitive Certificate.......................................................62 Delayed Deposits.............................................................79 Deposit Date.................................................................79 Depositor..............................................................1, 6, 22 Depository...................................................................62 Detailed Description.........................................................34 Determination Date........................................................8, 56 Distribution Date.........................................................8, 55 DKB..........................................................................40 DOL.....................................................................20, 104 DTC...................................................................5, 21, 31 -109- Page ---- Due Period................................................................9, 56 EPA..........................................................................98 ERISA...................................................................20, 104 Escrow Account...............................................................83 Euroclear.............................................................5, 21, 31 Exchange Act..................................................................3 Financial Intermediary.......................................................62 Fixed Rate...............................................................10, 34 Fixed Rate Mortgage Loan.................................................10, 34 Funding Period...........................................................14, 33 Garn-St Germain Act..........................................................99 Graduated Payment Account....................................................80 Graduated Payment Loan...................................................11, 35 Home Equity Loan.............................................................43 Home Ownership Act......................................................28, 102 Indirect Participants........................................................62 Insurance Paying Agent.......................................................67 Insurance Proceeds...........................................................78 Insured Expenses.............................................................78 Insured Payment..............................................................67 Junior Lien Loans............................................................24 Limited Guarantee............................................................71 Liquidated Mortgage..........................................................88 Liquidation Expenses.........................................................78 Liquidation Proceeds.........................................................78 Majority Certificateholders..................................................89 Master Servicer...........................................................6, 42 Master Servicing Fee.........................................................87 MHC..........................................................................40 Mortgage Assets........................................................1, 9, 33 Mortgage Documents...........................................................37 Mortgage Loans.........................................................1, 9, 33 Mortgage Note............................................................10, 34 Mortgage Pool.............................................................9, 33 Mortgage Pool Insurance Policy...........................................16, 68 Mortgage Rate............................................................10, 34 Mortgaged Properties.........................................................34 Mortgaged Property........................................................9, 38 Mortgages..............................................................1, 9, 33 Mortgagor....................................................................22 NCUA........................................................................106 Participants.................................................................62 Pass-Through Rate............................................................56 Percentage Interest..........................................................90 Permitted Investments........................................................67 Plan Asset Regulations.......................................................20 Plans.......................................................................104 PMBS Agreement...............................................................39 PMBS Issuer..............................................................13, 39 PMBS Servicer............................................................13, 39 PMBS Trustee.............................................................13, 39 Policy Statement............................................................106 Pool......................................................................9, 33 Pool Insurer.................................................................68 Precomputed Loan.............................................................36 Pre-Funded Amount........................................................14, 33 Pre-Funding Account...................................................1, 14, 33 Primary Insurer..............................................................85 -110- Page ---- Primary Mortgage Insurance Policy............................................34 Principal Prepayment.....................................................18, 60 Principal Prepayments........................................................57 Private Mortgage-Backed Securities........................................9, 38 PTE 83-1....................................................................105 Purchase Price...............................................................81 Qualified Substitute Mortgage Loan...........................................81 Rating Agency............................................................18, 77 Record Date..................................................................55 Registration Statement........................................................3 Released Mortgaged Property Proceeds.........................................78 Relief Act...................................................................28 REMIC.................................................................2, 20, 55 REO Property.................................................................54 Reserve Fund.............................................................16, 66 Retained Interest............................................................53 Scheduled Accrual Loans......................................................36 Seller.................................................................1, 6, 33 Senior Certificateholders................................................15, 65 Senior Certificates.......................................................7, 57 Series.................................................................1, 6, 53 Servicing Advance............................................................87 Simple Interest Loans........................................................35 SMMEA...................................................................19, 105 Special Hazard Insurance Policy..........................................17, 69 Special Hazard Insurer.......................................................69 Standard Hazard Insurance Policy.........................................11, 34 Stockholders Agreement.......................................................41 Subordinated Certificateholders..........................................15, 65 Subordinated Certificates.................................................7, 57 Sub-Servicers................................................................37 Sub-servicing Account........................................................79 Substitution Adjustment......................................................81 The Pooling and Servicing Agreement..........................................53 Title V.....................................................................101 Trust..................................................................1, 9, 53 Trust Fund.............................................................1, 9, 53 Trustee...................................................................6, 92 Underwriter Exemptions......................................................105 -111- ================================================================================ No dealer, sales person or other individual has been authorized to give any information or to make any representations other than those contained in this Prospectus Supplement and the accompanying Prospectus and, if given or made, such information or representations must not be relied upon. This Prospectus Supplement and the accompanying Prospectus do not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby, nor an offer of Offered Certificates in any state or jurisdiction in which, or to any person to whom, such offer would be unlawful. The delivery of this Prospectus Supplement or the accompanying Prospectus at any time does not imply that the information contained herein or therein is correct as of any time subsequent to its date. ------------------------ TABLE OF CONTENTS Page ----- Prospectus Supplement Summary of Terms ........................................................ S-3 Risk Factors ............................................................ S-26 The Portfolio of Mortgage Loans ......................................... S-29 The Mortgage Pool ....................................................... S-31 Yield and Prepayment Considerations ..................................... S-46 The CIT Group Securitization Corporation III, The Depositor ............. S-53 The CIT Group/Consumer Finance, Inc., Seller and Master Servicer ..................................................... S-53 The CIT Group/Sales Financing, Inc., Sub-Servicer ....................... S-54 Servicing of Mortgage Loans ............................................. S-54 Description of the Certificates ......................................... S-55 Credit Enhancement ...................................................... S-60 The Pooling and Servicing Agreement ..................................... S-64 Use of Proceeds ......................................................... S-68 Certain Federal Income Tax Consequences ................................. S-68 ERISA Considerations .................................................... S-75 Legal Investment ........................................................ S-76 Underwriting ............................................................ S-77 Legal Matters ........................................................... S-79 Ratings ................................................................. S-79 Annex I - Global Clearance, Settlement and Tax Documentation Procedures ............................................ S-80 Index to Defined Terms .................................................. S-83 Prospectus Prospectus Supplement .................................................... 3 Available Information .................................................... 3 Incorporation of Certain Documents by Reference .......................... 4 Reports to Certificateholders ............................................ 5 Summary of Terms ......................................................... 6 Risk Factors ............................................................. 22 The Trusts ............................................................... 33 Use of Proceeds .......................................................... 40 The CIT Group Holdings, Inc. ............................................. 40 The CIT Group Securitization Corporation III, The Depositor .............. 41 The CIT Group/Consumer Finance, Inc., Seller and Master Servicer ...................................................... 41 The CIT Group/Sales Financing, Inc., Sub-Servicer ........................ 42 The Home Equity Lending Program .......................................... 43 Description of the Certificates .......................................... 53 Credit Enhancement ....................................................... 64 Yield and Prepayment Considerations ...................................... 72 The Pooling and Servicing Agreement ...................................... 75 Certain Legal Aspects of the Mortgage Loans .............................. 93 Certain Federal Income Tax Consequences .................................. 102 State Tax Considerations ................................................. 104 ERISA Considerations ..................................................... 104 Legal Investment ......................................................... 105 Method of Distribution ................................................... 106 Legal Matters ............................................................ 107 Financial Information .................................................... 107 Ratings .................................................................. 108 Experts .................................................................. 108 Index to Defined Terms ................................................... 109 ================================================================================ ================================================================================ $500,000,000 THE CIT GROUP SECURITIZATION CORPORATION III Depositor The CIT Group/Consumer Finance, Inc. Seller and Master Servicer Home Equity Loan Asset Backed Certificates, Series 1997-1 --------------- PROSPECTUS SUPPLEMENT --------------------------- MORGAN STANLEY DEAN WITTER FIRST CHICAGO CAPITAL MARKETS, INC. LEHMAN BROTHERS SALOMON BROTHERS INC July 16, 1997 ================================================================================ -----END PRIVACY-ENHANCED MESSAGE-----