424B2 1 v181820_424b2.htm Unassociated Document
Information contained herein is subject to completion or amendment.  A registration statement relating to these securities has been filed with the Securities and Exchange Commission.  This prospectus will not constitute an offer to sell or a solicitation of an offer to buy nor will there be any sale of the offered certificates in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such State.
 
 
SUBJECT TO COMPLETION, DATED April 22, 2010
 
Prospectus Supplement dated April   , 2010
(To Prospectus dated April 22, 2010)
 
$230,703,000 (Approximate)
 
SEQUOIA MORTGAGE TRUST 2010-H1
Mortgage Pass-Through Certificates, Series 2010-H1
 
RWT Holdings, Inc., Sponsor and Seller
Sequoia Residential Funding, Inc., Depositor
CitiMortgage, Inc., Originator and Servicer
Sequoia Mortgage Trust 2010-H1, Issuing Entity

Consider carefully the risk factors beginning on page S-1 of this prospectus supplement and on page 12 of the prospectus.
 
For a list of capitalized terms used in this prospectus supplement, see the glossary of defined terms on page I-1 of this prospectus supplement.
 
The certificates represent beneficial interests in the issuing entity only and do not represent an interest in or obligation of the sponsor, the depositor, the trustee, the underwriters, the servicer or any of their affiliates.
 
This prospectus supplement may be used to offer and sell certificates only if accompanied by the prospectus.
 
The issuing entity will issue:
·  Four classes of senior certificates, including one class of interest-only certificates and two classes of residual certificates; and
·  Four classes of subordinate certificates.
 
The classes of certificates offered by this prospectus supplement are listed, together with their initial class principal amounts (or class notional amounts) and interest rates,  under “The Offered Certificates” on page S-1 of this prospectus supplement.  This prospectus supplement and the accompanying prospectus relate only to the offering of those certificates and not any other certificates issued by the issuing entity.
 
The certificates:
 
·  Will represent ownership interests in a pool of hybrid mortgage loans secured by first liens on one- to two-family residential properties, condominiums, cooperative units, planned unit developments and townhouses, which generally provide for interest at a fixed rate during an initial period of five years from their origination and at an adjustable rate thereafter;
 
   
·  Pay all holders of certificates the amounts of principal and interest due thereon on the 25th day of each month, or if such day is not a business day, the next succeeding business day, commencing on May 25, 2010; and
 
·  Will have the benefit of credit enhancement in the form of subordination.
 
On or about April 28, 2010, delivery of the certificates offered by this prospectus supplement (other than the residual certificates, which will be delivered in physical, fully registered form) will be made through the book-entry facilities of the Depository Trust Company, Clearstream Banking Luxembourg and the Euroclear System.
 
The Class A-1 Certificates offered by this prospectus supplement (other than any amount retained by the sponsor) will be purchased by Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., as underwriters, from the depositor, and are being offered by the underwriters from time to time for sale to the public in negotiated transactions or otherwise at varying prices determined at the time of sale.  The underwriters have the right to reject any order.  Proceeds to the depositor from the sale of these certificates will be approximately [__]% of their initial total class principal amount before deducting expenses.  There is no current underwriting arrangement for the Class A-IO, Class R, Class LT-R, Class B-1 and Class B-2 Certificates and any retained Class A-1 Certificates.
 
The issuing entity will make one or more REMIC elections for federal income tax purposes.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these certificates or determined if this prospectus supplement or the accompanying prospectus is accurate or complete.  Any representation to the contrary is a criminal offense.
 
Citi
JPMorgan
Underwriters
 

 
 

 


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

We provide information to you about the certificates offered by this prospectus supplement in two separate documents that provide progressively more detail:  (1) the accompanying prospectus, which provides general information, some of which may not apply to your certificates and (2) this prospectus supplement, which describes the specific terms of your certificates.

The information presented in this prospectus supplement is intended to enhance the general terms of the accompanying prospectus.

We do not claim that the information in this prospectus supplement and prospectus is accurate as of any date other than the dates stated on their respective covers.

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

Dealers will deliver a prospectus supplement and prospectus when acting as underwriters of the certificates and with respect to their unsold allotments and subscriptions.  In addition, all dealers selling the certificates will be required to deliver a prospectus supplement and prospectus for ninety days following the date of this prospectus supplement.


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

 
 

 

For European Investors Only

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of certificates to the public in that Relevant Member State prior to the publication of a prospectus in relation to the certificates which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of certificates to the public in that Relevant Member State at any time:
 
 
(a)
to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
 
 
(b)
to any legal entity which has two or more of (1) an average of at least 250 employees, during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or
 
 
(c)
in any other circumstances which do not require the publication by the issuing entity of a prospectus pursuant to Article 3 of the Prospectus Directive.

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

United Kingdom
 
Each underwriter has represented and agreed that:
 
 
(a)
it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act (the “FSMA”)) received by it in connection with the issue or sale of the certificates  in circumstances in which Section 21(1) of the FSMA does not apply to the issuer; and
 
 
(b)
it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the certificates in, from or otherwise involving the United Kingdom.
 
 
 

 

TABLE OF CONTENTS

   
Page No.
 
THE OFFERED CERTIFICATES
   
S-1
 
SUMMARY OF TERMS
   
S-3
 
Sponsor
   
S-3
 
Seller
   
S-3
 
Depositor
   
S-3
 
Issuing Entity
   
S-3
 
Trustee
   
S-3
 
Servicer
   
S-4
 
Originator
   
S-4
 
Custodian
   
S-4
 
Cut-off Date
   
S-4
 
Closing Date
   
S-4
 
The Certificates
   
S-4
 
Distributions of Interest
   
S-5
 
Distributions of Principal
   
S-5
 
Priority of Distributions
   
S-6
 
Limited Recourse
   
S-6
 
Credit Enhancement
   
S-7
 
Final Scheduled Distribution Date
   
S-7
 
Fees and Expenses
   
S-7
 
The Mortgage Loans
   
S-7
 
Mortgage Loan Representations and Warranties
   
S-9
 
Mortgage Loan Servicing
   
S-9
 
Optional Termination
   
S-10
 
Tax Status
   
S-10
 
ERISA Considerations
   
S-10
 
Legal Investment
   
S-10
 
Certificate Rating
   
S-11
 
Listing
   
S-11
 
RISK FACTORS
   
S-12
 
Turbulence in the Financial Markets and Economy May Adversely Affect the Performance and Market Value of Your Certificates and These Conditions May Not Improve in the Near Future
   
S-12
 
Recent Trends in the Residential Mortgage Market May Adversely Affect the Performance and Market Value of Your Certificates
   
S-13
 
Potential Changes in Ratings Present Risks
   
S-14
 
Ratings of the Certificates May Not Accurately Reflect Risks Associated With Those Certificates
   
S-14
 
Appraisals May Not Accurately Reflect the Value or Condition of the Mortgaged Property
   
S-15
 
Loan-to-Value Ratios Are Calculated Based on Appraised Value, Which May Not Be An Accurate Reflection of Current Market Value; Borrowers May Have, or May in the Future Incur, Additional Indebtedness Secured by Mortgaged Properties
   
S-16
 
Proposed Financial Regulatory Reforms Could Have a Significant Impact on the Depositor, the Servicer or any Successor Servicer or on the Value of the Certificates
   
S-16
 
Governmental Actions May Affect Servicing of Mortgage Loans and May Limit the Servicer’s Ability to Foreclose
   
S-16
 
Underwriting Standards May Affect Risk of Loss on the Mortgage Loans
   
S-17
 
In Underwriting the Mortgage Loans, the Originator May Not Have Followed its Underwriting Guidelines; Underwriting Guidelines May Not Identify or Appropriately Assess Repayment Risks
   
S-18
 
Pre-offering Review of the Mortgage Loans Underlying the Certificates May Not Reveal Aspects of the Mortgage Loans Which Could Lead to Losses
   
S-18
 
Risks Related to Mortgage Loans with Interest-Only Payments
   
S-18
 

 
 

 


Geographic Concentration of Mortgage Loans
   
S-19
 
Mortgage Loan Interest Rates May Limit Interest Rates on the Certificates
   
S-19
 
The Return on Your Certificates Could be Reduced by Shortfalls Due to the Servicemembers Civil Relief Act
   
S-20
 
Potential Inadequacy of Credit Enhancement
   
S-21
 
Unpredictability and Effect of Prepayments
   
S-21
 
The Timing of Realized Losses May Impact Returns on the Certificates
   
S-23
 
Delay in Receipt of Liquidation Proceeds; Liquidation Proceeds May Be Less Than Mortgage Balance
   
S-23
 
Mortgage Loan Modification Programs and Future Legislative Action May Adversely Affect the Performance and Market Value of Your Certificates
   
S-23
 
Special Assessments and Energy Efficiency Liens May Take Priority over the Mortgage Lien
   
S-24
 
Helping Families Save Their Homes Act
   
S-24
 
Risks Associated with Potential New Laws Relating to Mortgage Loan Origination
   
S-25
 
Changes in the Accounting Rules May Affect You
   
S-25
 
Reduced Lending Capacities May Hinder Refinancing and Increase Risk of Loss
   
S-25
 
Market Exit of Originators and Servicers
   
S-25
 
Investors will be Dependent on Certain Third Parties Performing their Responsibilities in an Accurate and Timely Manner
   
S-26
 
Bankruptcy of a Mortgage Loan Seller Could Result in Losses on the Certificates
   
S-26
 
Bankruptcy of the Servicer Could Result in Losses on the Certificates
   
S-27
 
Insolvency, Receivership or Conservatorship of Citibank, N.A. Could Result in Losses on the Certificates
   
S-28
 
The Trustee May Not Have a Perfected Interest in Collections Held by the Servicer
   
S-28
 
The Recording of the Mortgages in the Name of MERS Could Increase the Risk of Loss
   
S-29
 
Conflicts of Interest May Exist Between the Sponsor and the Issuing Entity and the Holders of Offered Certificates
   
S-29
 
Changes in the Market Value of the Certificates May Not be Reflective of the Performance or Anticipated Performance of the Mortgage Loans Underlying the Certificates    
S-29
 
The Marketability of Your Certificates May be Limited    
S-29
 
Proposed Changes to Rules with respect to the Offering of Asset-backed Securities May Adversely Affect the Marketability of Your Certificates    
S-30
 
The Servicing Fee May Need to be Increased in Order to Engage a Replacement Servicer
   
S-30
 
DESCRIPTION OF THE MORTGAGE POOL
   
S-30
 
General
   
S-30
 
Adjustable Mortgage Rates
   
S-32
 
The Index
   
S-32
 
Primary Mortgage Insurance
   
S-32
 
Certain Characteristics of the Mortgage Loans
   
S-33
 
THE ORIGINATOR
   
S-33
 
PRE-OFFERING REVIEW OF THE MORTGAGE LOANS
   
S-37
 
Introduction
   
S-37
 
Credit and Compliance Review
   
S-38
 
Appraisal Review
   
S-39
 
Estimates of Current Value
   
S-39
 
Limitations of the Pre-offering Review Process
   
S-41
 
STATIC POOL INFORMATION
   
S-41
 
ADDITIONAL INFORMATION
   
S-42
 
THE ISSUING ENTITY
   
S-43
 
DESCRIPTION OF THE CERTIFICATES
   
S-43
 
General
   
S-43
 
Book-Entry Certificates
   
S-44
 
Payments on Mortgage Loans; Accounts
   
S-48
 
Glossary of Terms
   
S-48
 

 
 

 

Available Distribution Amount
   
S-53
 
Distributions of Interest
   
S-54
 
Distributions of Principal
   
S-54
 
Priority of Distributions and Allocation of Shortfalls
   
S-56
 
Subordination of the Payment of the Subordinate Certificates
   
S-57
 
Allocation of Realized Losses
   
S-57
 
Final Scheduled Distribution Date
   
S-58
 
Optional Purchase of Defaulted Mortgage Loans
   
S-58
 
Optional Purchase of the Mortgage Loans
   
S-58
 
Credit Enhancement
   
S-59
 
THE TRUSTEE AND CUSTODIAN
   
S-59
 
Trustee
   
S-59
 
Custodian
   
S-60
 
THE ISSUING ENTITY
   
S-60
 
FEES AND EXPENSES OF THE ISSUING ENTITY
   
S-60
 
MATERIAL LEGAL PROCEEDINGS
   
S-61
 
THE SPONSOR
   
S-62
 
THE DEPOSITOR
   
S-63
 
AFFILIATIONS AND RELATED TRANSACTIONS
   
S-63
 
THE SERVICER
   
S-63
 
ADMINISTRATION OF THE ISSUING ENTITY
   
S-65
 
Servicing and Administrative Responsibilities
   
S-65
 
Issuing Entity Accounts
   
S-66
 
Example of Payments
   
S-67
 
THE AGREEMENTS
   
S-67
 
General
   
S-67
 
Assignment of the Mortgage Loans
   
S-68
 
Representations and Warranties
   
S-69
 
Mortgage Loan Servicing
   
S-72
 
Reports to Certificateholders
   
S-77
 
Voting Rights
   
S-77
 
Termination of the Issuing Entity
   
S-77
 
The Custodial Agreement
   
S-77
 
YIELD, PREPAYMENT AND WEIGHTED AVERAGE LIFE
   
S-79
 
General
   
S-79
 
Subordination of the Subordinate Certificates
   
S-81
 
Weighted Average Life
   
S-81
 
Decrement Tables
   
S-83
 
PRE-TAX YIELD TO MATURITY OF THE CLASS A-IO CERTIFICATES AT THE FOLLOWING PERCENTAGES OF CPR
   
S-87
 
USE OF PROCEEDS
   
S-88
 
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
   
S-88
 
General
   
S-88
 
Tax Treatment of the Offered Certificates Other Than the Class R Certificates
   
S-88
 
Original Issue Discount
   
S-88
 
Information Reporting
   
S-89
 
Special Tax Considerations Applicable to Residual Interest Securities
   
S-89
 
Recent Investor Disclosure and Withholding Legislation
   
S-90
 
ERISA CONSIDERATIONS
   
S-90
 
METHOD OF DISTRIBUTION
   
S-91
 
LEGAL MATTERS
   
S-92
 
RATINGS
   
S-92
 
ANNEX A – CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
   
S-94
 
ANNEX B – GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
   
S-109
 
 
 
 

 

THE OFFERED CERTIFICATES

The certificates consist of the classes of certificates listed in the tables below, together with the Class B-3 Certificates and Class B-4 Certificates.  Only the classes of certificates listed in the tables below are offered by this prospectus supplement.
 
Class
 
Initial Class
Principal or Notional
Amount(1)
 
Approximate Initial Interest
Rate(2)
 
Interest Rate
Formula
 
Principal Type
 
Initial Certificate Ratings
by Moody’s
A-1
 
$222,378,000
 
[_____]%
 
(3)(4)
 
Senior
 
Aaa
R
 
$50
 
4.545%
 
Net WAC(3)
 
Residual/Senior
 
Aaa
LT-R
 
$50
 
4.545%
 
Net WAC(3)
 
Residual/Senior
 
Aaa
A-IO
 
 $222,378,000(5)
 
[_____]%
 
(5)
 
Notional/Senior
 
Aaa
B-1
 
$5,946,000
 
4.545%
 
Net WAC(3)
 
Subordinate
 
A2
B-2
 
$2,379,000
 
4.545%
 
Net WAC(3)
 
Subordinate
 
Baa2

_____________________
(1)
These principal amounts and notional amount are approximate and are subject to an increase or decrease of up to 5%, as described in this prospectus supplement.
(2)
Reflects the interest rate as of the closing date for the mortgage pool described in this prospectus supplement.
(3)
“Net WAC” means an annual rate equal to the weighted average of the net mortgage rates of the mortgage loans during the applicable period, as described in this prospectus supplement.
(4)
Until the distribution date in September 2014, the interest rate on the Class A-1 Certificates will be an annual rate equal to the lesser of (i) Net WAC for such distribution date and (ii) [__]%.  On and after the distribution date in September 2014, the interest rate on the Class A-1 Certificates will be an annual rate equal to Net WAC for such distribution date minus [__]%.
(5)
The Class A-IO Certificates are interest-only certificates; they will not be entitled to distributions of principal.  As described in this prospectus supplement, the Class A-IO Certificates will accrue interest on a notional amount equal to the class principal amount of the Class A-1 Certificates immediately prior to such distribution date.  Until the distribution date in September 2014, the interest rate on the Class A-IO Certificates will be an annual rate equal to the excess, if any, of Net WAC over [__]%.  On and after the distribution date in September 2014, the interest rate on the Class A-IO Certificates will be an annual rate equal to [__]%.


 
S-1

 

The offered certificates will also have the following characteristics:

Class
 
 
Record Date(1)
 
Delay/Accrual
Period(2)
 
Interest Accrual Convention
 
Final
Scheduled
Distribution Date(3)
 
Expected Final
Distribution Date(4)
 
Minimum
Denomination or
Percentage
Interest
 
Incremental
Denomination
 
CUSIP
Number
A-1
 
(1)
 
24 Day
 
30/360
 
February 2040
 
January 2015
 
$100,000
 
$1
 
81744P AA3
R
 
(1)
 
24 Day
 
30/360
 
February 2040
 
January 2015
 
100%(5)
 
--
 
81744P AG0
LT-R
 
(1)
 
24 Day
 
30/360
 
February 2040
 
January 2015
 
100%(5)
 
--
 
81744P AH8
A-IO
 
(1)
 
24 Day
 
30/360
 
February 2040
 
January 2015
 
100%
 
--
 
81744P AB1
B-1
 
(1)
 
24 Day
 
30/360
 
February 2040
 
October 2014
 
$100,000
 
$1
 
81744P AC9
B-2
 
(1)
 
24 Day
 
30/360
 
February 2040
 
October 2014
 
$100,000
 
$1
 
81744P AD7

_____________________
(1)
For the first distribution date, the closing date.  For any other distribution date, the close of business on the last business day of the calendar month preceding the month of the related distribution date.
(2)
24 Day = For any distribution date, the interest accrual period will be the calendar month immediately preceding that distribution date.
(3)
Determined by adding one month to the month of scheduled maturity of the latest maturing mortgage loan in the mortgage pool.
(4)
The expected final distribution date, based upon a constant prepayment rate of 15% per annum and the modeling assumptions used in this prospectus supplement, as described under “Yield, Prepayment and Weighted Average Life—Weighted Average Life.”  The actual final distribution date for each class of offered certificates may be earlier or later, and could be substantially earlier or later, than the applicable expected final distribution date listed above.
(5)
The Class R Certificate and the Class LT-R Certificate will be issued in definitive, fully registered form, representing the entire percentage interest of that class.


 
S-2

 

SUMMARY OF TERMS
 
 
·
This summary highlights selected information from this prospectus supplement and does not contain all of the information that you need to consider in making your investment decision.  To understand all of the terms of the offering of the certificates, you should carefully read this entire prospectus supplement and the accompanying prospectus.
 
 
·
While the summary contains an overview of certain calculations, cash flow priorities and other information to aid your understanding, you should read carefully the full description of these calculations, cash flow priorities and other information in this prospectus supplement and the accompanying prospectus before making any investment decision.
 
 
·
Whenever we refer to a percentage of some or all of the mortgage loans in the trust fund, that percentage has been calculated on the basis of the total stated principal balance of those mortgage loans as of the cut-off date unless we specify otherwise.  We explain in this prospectus supplement how the stated principal balance of a mortgage loan is determined.  Whenever we refer in this Summary of Terms or in the Risk Factors section to the total stated principal balance of any mortgage loans, we mean the total of their stated principal balances determined by that method, unless we specify otherwise.

Sponsor

RWT Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of Redwood Trust, Inc.

Seller

RWT Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of Redwood Trust, Inc., will acquire the mortgage loans directly from the originator.  On the closing date, RWT Holdings, Inc., as seller, will sell all of its interest in the mortgage loans to the depositor.

Depositor

Sequoia Residential Funding, Inc., a Delaware special purpose corporation and indirect wholly-owned subsidiary of Redwood Trust, Inc.  On the closing date, Sequoia Residential Funding, Inc. will assign all of its interest in the mortgage loans to the trustee for the benefit of the certificateholders.  The depositor’s address is One Belvedere Place, Suite 330, Mill Valley, California 94941, and its telephone number is (415) 389-7373.

Issuing Entity

Sequoia Mortgage Trust 2010-H1, a common law trust formed under the laws of the State of New York.

Trustee

Wells Fargo Bank, N.A., a national banking association.  Wells Fargo Bank, N.A. will also act as authenticating agent, certificate registrar and paying agent in accordance with the pooling agreement.


 
S-3

 

Servicer

CitiMortgage, Inc. will service the mortgage loans.  Servicing may subsequently be transferred to successor servicers other than the servicer, in accordance with the pooling agreement and the servicing agreement, as described in this prospectus supplement.  The initial servicer and any successor servicer under the servicing agreement will be referred to as the servicer in this prospectus supplement.

The servicer will service the mortgage loans, directly or through subservicers, pursuant to an existing servicing agreement between the servicer and the seller.  The rights of the seller under the servicing agreement with respect to the mortgage loans sold to the issuing entity will be assigned to the depositor, and the depositor, in turn, will assign such rights to the trustee for the benefit of the certificateholders, in each case pursuant to an assignment, assumption and recognition agreement.

We refer you to “The Agreements—Mortgage Loan Servicing” in this prospectus supplement for more information.

Originator

CitiMortgage, Inc. originated or acquired the mortgage loans, directly or through its correspondents.

Custodian

Wells Fargo Bank, N.A. will maintain custody of the mortgage loan documents relating to the mortgage loans on behalf of the issuing entity.

Cut-off Date

April 1, 2010, the cut-off date, is the date after which the issuing entity will be entitled to receive all collections on and proceeds of the mortgage loans.

Closing Date

The closing date will be on or about April 28, 2010.

The Certificates

The classes of Sequoia Mortgage Trust Mortgage Pass-Through Certificates, Series 2010-H1, issued with the initial approximate characteristics set forth under “The Offered Certificates” in the table on page S-1, together with the Class B-3 Certificates and Class B-4 Certificates.

The offered certificates, except for the Class R Certificate and the Class LT-R Certificate, will be issued in book-entry form and in the minimum denominations (or multiples thereof) set forth under “The Offered Certificates” in the table beginning on page S-1.  The Class R Certificate and the Class LT-R Certificate will be issued in fully registered definitive form.

The certificates will represent beneficial ownership interests in a pool of hybrid mortgage loans secured by first liens on one- to two-family residential properties, condominiums, cooperative units planned unit developments and townhouses, which generally provide for interest at a fixed rate during an initial period of five years from their origination and at an adjustable rate thereafter.

The Class B-3 Certificates and Class B-4 Certificates are not offered by this prospectus supplement.  The offered certificates will have an approximate total initial principal amount of $230,703,100.  Any difference between the total principal amount of the offered certificates on the date they are issued and the approximate total principal amount of the offered certificates as reflected in this prospectus supplement will not exceed 5%.  Notwithstanding any variance between the total stated principal balance of the mortgage loans and the total principal amount of the certificates reflected in this prospectus supplement, on the closing date, the initial total principal amount of the certificates will equal the total aggregate stated principal balance of the mortgage loans as of the cut-off date.  The aggregate principal amount of the Class B-3 Certificates and Class B-4 Certificates as of the closing date will be $7,135,233, subject to a permitted variance of 5%.


 
S-4

 

Principal and interest on the certificates will be payable on the 25th day of each month, beginning in May 2010.  However, if the 25th day is not a business day, payments will be made on the next business day after the 25th day of the month.  Distributions on each distribution date will be made to the certificateholders of record as of the related record date, except that the final distribution on the certificates will be made only upon presentment and surrender of the certificates at the corporate trust office of the trustee.

The rights of holders of the Class B-1 Certificates and Class B-2 Certificates to receive payments of principal and interest will be subordinate to the rights of the holders of certificates having a higher priority of distribution, as described in “—Credit Enhancement” below.  We refer to the Class B-1 Certificates and B-2 Certificates as “subordinate” certificates, and we refer to the Class A-1, Class R, Class LT-R and Class A-IO Certificates as “senior” certificates.  We also refer to the Class B-3 Certificates and Class B-4 Certificates as “subordinate” certificates.  We refer to the Class R Certificate and Class LT-R Certificate as “residual” certificates.

The Class A-IO, Class R, Class LT-R, Class B-1 and Class B-2 Certificates and the other subordinate certificates will be purchased by one or more affiliates of the seller, and 5% of the initial principal amount of the Class A-1 Certificates will be purchased by the seller.  The seller and affiliates of the seller will continue to retain these certificates until such time as regulations governing seller risk retention have been finalized and become effective.  Once regulations have become effective, the seller and its affiliates may cease to retain any portion of these retained certificates that are in excess of what is then required to be retained under applicable regulations, regardless of whether those regulations retroactively apply to the certificates.  If those regulations require sellers to retain a larger portion of the certificates than previously retained by the seller and its affiliates, the seller and its affiliates do not currently intend to correspondingly increase their holdings of certificates.

Distributions of Interest

On each distribution date, to the extent of the available distribution amount, each class of certificates will be entitled, subject to the limitations described herein, to receive accrued and unpaid interest determined on the basis of the outstanding class principal amount (or class notional amount, in the case of the Class A-IO Certificates) of such class immediately prior to such distribution date, the applicable certificate interest rate and the related accrual period.

Interest payments will be allocated among certificateholders of a class of certificates on a pro rata basis.

We refer you to “Description of the Certificates—Payments of Interest” in this prospectus supplement for more information.

Distributions of Principal

The amount of principal distributable on each class of certificates (other than the Class A-IO Certificates) will be determined by (1) funds received on the mortgage loans that are available to make payments of principal on the certificates, (2) distribution rules that allocate portions of principal payments received on the mortgage loans among different classes of certificates and (3) advances, if any, made by the servicer, as described in this prospectus supplement. Funds received on the mortgage loans may consist of monthly scheduled payments as well as unscheduled payments resulting from prepayments by borrowers, liquidation of defaulted mortgage loans or purchases of mortgage loans under the circumstances described in this prospectus supplement.

 
S-5

 

The senior certificates (other than the Class A-IO Certificates) will receive principal payments from the senior principal distribution amount. The Class B-1 Certificates and Class B-2 Certificates and the other subordinate classes generally will receive their pro rata share of scheduled principal collections as part of the subordinate principal distribution amount.  However, with respect to unscheduled principal collections, except under the limited circumstances described in this prospectus supplement, the Class B-1 Certificates and Class B-2 Certificates and the other subordinate classes will not receive unscheduled principal collections on the mortgage loans until the distribution date in May 2017.  From and after that distribution date, provided that certain tests are met, the subordinate classes will receive unscheduled principal collections in an amount equal to their allocated share of the subordinate principal distribution amount.

The manner of allocating payments of principal on the mortgage loans will differ, as described in this prospectus supplement, depending upon when a distribution date occurs, whether the delinquency and loss performance of the mortgage loans is worse than certain levels specified in the pooling agreement and, with respect to the subordinate certificates other than the Class B-1 Certificates, depending upon the subordination available to each class of subordinate certificates from classes with payment priorities subordinate to that class and, with respect to the subordinate certificates, whether the subordination level has reached the subordination floor.

We refer you to “Description of the Certificates—Payments of Principal” in this prospectus supplement and “Distribution of the Securities—Distributions on Securities” in the prospectus for more information.

Priority of Distributions

On each distribution date, the available distribution amount in respect of the mortgage loans will be distributed in the following order of priority:

 
·
first, to the Class A-1, Class R and Class LT-R Certificates, pro rata, and then to the Class A-IO Certificates, accrued and unpaid interest, as described under “Description of the Certificates—Priority of Distributions and Allocation of Shortfalls” in this prospectus supplement;

 
·
second, sequentially, to the Class LT-R, Class R and Class A-1 Certificates, in that order, the senior principal distribution amount, until their respective class principal amounts have been reduced to zero; and

 
·
third, sequentially, to the Class B-1, Class B-2, Class B-3 and Class B-4 Certificates, in that order, interest and then principal due, with both interest and principal being paid to one class before any payments are made to the next class.

We refer you to “Description of the Certificates — Priority of Distributions and Allocation of Shortfalls” in this prospectus supplement for more information.

 Limited Recourse

The only source of cash available to make interest and principal payments on the certificates will be the assets of the issuing entity.  The issuing entity will have no source of cash other than collections and recoveries on the mortgage loans through insurance or otherwise and advances made by the servicer, which are reimbursable to the servicer as discussed in this prospectus supplement. No other entity will be required or expected to make any payments on the certificates.


 
S-6

 

Credit Enhancement

The payment structure of the certificates includes limited subordination to enhance the likelihood that holders of more senior classes of certificates will receive regular distributions of interest and principal.

The Class B-4 Certificates are more likely to experience losses than the Class B-1, Class B-2 and Class B-3 Certificates and the senior certificates; the Class B-3 Certificates are more likely to experience losses than the Class B-1 Certificates and Class B-2 Certificates and the senior certificates; and the Class B-2 Certificates are more likely to experience losses than the Class B-1 Certificates and the senior certificates.

We refer you to “Description of the Certificates—Subordination of the Payment of Subordinate Certificates” and “—Allocation of Realized Losses” in this prospectus supplement.

Final Scheduled Distribution Date

The final scheduled distribution date for the certificates is the distribution date in February 2040, which is the distribution date in the month following the latest maturity date on any of the mortgage loans as of the cut-off date.  The actual final distribution date for any class may be earlier or later, and could be substantially earlier or later, than the final scheduled distribution date.  The servicer will be permitted to modify the mortgage loans to extend the maturity date beyond the final scheduled distribution date for the certificates.

Fees and Expenses

Before distributions are made on the certificates, the servicer and the trustee will each be paid a monthly fee calculated on the stated principal balances of the mortgage loans as of the first day of the related due period at a per annum rate of 0.25% and 0.0085%, respectively, as described in this prospectus supplement.  The servicing fee will be deducted by the servicer from interest collections, including liquidation proceeds and other proceeds from the mortgage loans, prior to remittance of funds to the trustee, and the trustee will deduct the trustee fee from such funds prior to distributions to certificateholders.  The trustee will pay certain fees and expenses of the custodian, including customary safekeeping and release fees, as specified in the custodial agreement.

The trustee and the custodian also will be entitled to reimbursement of certain expenses from the issuing entity before payments are made on the certificates, subject to an annual cap of $300,000.  See “Fees and Expenses of the Issuing Entity” in this prospectus supplement.

The Mortgage Loans

General.  On the closing date, the assets of the issuing entity will consist primarily of a pool of hybrid first lien residential mortgage loans with a total stated principal balance as of the cut-off date of approximately $237,838,333.  The mortgage loans will be secured by mortgages, deeds of trust or other security instruments, all of which are referred to in this prospectus supplement as mortgages.

The mortgage loans have interest rates that adjust annually after an initial period of five years, based on one-year LIBOR.  All of the mortgage loans have original terms to maturity of 30 years.  Interest rate readjustments are subject to limitations in the amount of the adjustment on any adjustment date, or initial and periodic caps, and to a minimum and maximum interest rate for each mortgage loan.

 
S-7

 

Approximately 73.74% of the mortgage loans are interest-only loans that provide for payments of interest at the related mortgage rate, but no payments of principal, for a period of ten years following origination of such mortgage loan.  Following such ten-year period, the monthly payment with respect to each such mortgage loan will be adjusted annually to an amount sufficient to pay interest and to amortize the principal balance of such mortgage loan over its remaining term at the current mortgage rate.

The mortgage loans will not be insured or guaranteed by any government agency.

The depositor expects that the mortgage loans will have the following approximate characteristics as of the cut-off date:

Mortgage Pool Summary
 
   
Range or Total
   
Weighted
Average
   
Total
Percentage
 
Number of Mortgage Loans
   
255
     
--
     
--
 
Total Stated Principal Balance
   
$237,838,333
     
--
     
--
 
Stated Principal Balances
   
$299,990 to $2,500,000
     
$932,699
     
--
 
Mortgage Rates
   
4.000% to 6.000%
     
4.803%
     
--
 
Original Terms to Maturity (in months)
   
360 to 360
     
360
     
--
 
Remaining Terms to Maturity (in months)
   
349 to 357
     
352
     
--
 
Original Loan-to-Value Ratios
   
7.96% to 80.00%
     
56.57%
     
--
 
Number of Interest-Only Mortgage Loans
   
184
     
--
     
73.74%
 
Geographic Concentration in Excess of 10.00% of the Total Stated Principal Balance:
                       
·             California
   
--
     
--
     
46.30%
 
·             New York
   
--
     
--
     
16.28%
 
Maximum Single Zip Code Concentration
·             95070 (Saratoga, California)
   
--
     
--
     
4.63%
 
FICO Scores at Origination
   
702 to 816
     
768
     
--
 
Number of Mortgage Loans with Prepayment Penalties at Origination
   
--
     
--
     
0.00%
 
Gross Margins
   
2.250% to 2.250%
     
2.250%
     
--
 
Maximum Mortgage Rates
   
9.000% to 11.000%
     
9.803%
     
--
 
Minimum Mortgage Rates
   
2.250% to 2.250%
     
2.250%
     
--
 
Months to Next Mortgage Rate Adjustment
   
49 to 57
     
52
     
--
 
Initial Caps
   
5.000% to 5.000%
     
5.000%
     
--
 
Periodic Caps
   
2.000% to 5.000%
     
2.011%
     
--
 
Product Type
                       
·             5/1 Hybrids
   
--
     
--
     
100.00%
 
Occupancy Type
                       
·             Primary
   
--
     
--
     
96.64%
 
·             Second Home
   
--
     
--
     
3.36%
 
Loan Purpose
                       
·             Purchase
   
--
     
--
     
19.41%
 
·             Cashout Refinance
   
--
     
--
     
4.14%
 

 
S-8

 


·             Rate Term Refinance
   
--
     
--
     
76.46%
 
Property Type
   
 
     
 
         
·             Single Family Residence
   
--
     
--
     
58.90%
 
·             Planned Unit Development
   
--
     
--
     
22.63%
 
·             Cooperative
   
--
     
--
     
8.11%
 
·             Condominium
   
--
     
--
     
7.51%
 
·             Townhouse
   
--
     
--
     
2.57%
 
·             Two to Four Family
   
--
     
--
     
0.27%
 
Documentation Type
                       
·             Less than One Year Income With Asset Verification
   
--
     
--
     
3.56%
 
·             One Year Income With Asset Verification
   
--
     
--
     
23.36%
 
·             One Year Income Without Asset Verification (Refinance Only)
   
--
     
--
     
0.21%
 
·             Two Years Income With Asset Verification
   
--
     
--
     
71.17%
 
·             Two Years Income Without Asset Verification (Refinance Only)
   
--
     
--
     
0.70%
 

Mortgage Loan Representations and Warranties

The originator of the mortgage loans has made certain representations and warranties concerning the mortgage loans.  The seller’s rights to these representations and warranties will be assigned to the depositor, and the depositor’s rights to these representations and warranties will be assigned to the trustee for the benefit of certificateholders under an assignment, assumption and recognition agreement.

Following the originator’s discovery or receipt of notice of a breach of any representation or warranty that materially and adversely affects the value of a mortgage loan or the interest of the trustee, for the benefit of the certificateholders, in a mortgage loan, the originator will be required to (1) cure that breach, (2) repurchase the affected mortgage loan from the issuing entity or (3) in some circumstances, substitute another mortgage loan.

In order to substitute a new mortgage loan for a mortgage loan that has been removed from the trust because of a breach of a representation or warranty, (a) substitution must take place within 120 days from the closing date and (b) the new mortgage loan must be materially similar to the deleted mortgage loan.

In some circumstances, an arbitration proceeding may be conducted to resolve a dispute arising out of an allegation of a breach of a representation or warranty concerning a mortgage loan.  See “The Agreements—Representations and Warranties” in this prospectus supplement.

Mortgage Loan Servicing

The mortgage loans will be serviced by CitiMortgage, Inc. under the servicing agreement.

If the servicer is removed due to default or otherwise, the trustee or a successor servicer appointed by the trustee will assume responsibility for the servicing of the mortgage loans, as described in this prospectus supplement.

We refer you to “The Agreements—Mortgage Loan Servicing” in this prospectus supplement for more detail.



 
S-9

 

Optional Termination

On any date on which the total stated principal balance of the mortgage loans has declined to less than 10% of the initial total stated principal balance of the mortgage loans as of the cut-off date, subject to satisfaction of the conditions described in the pooling agreement and the servicing agreement, the servicer may purchase all of the mortgage loans from the trust fund, thereby causing an early retirement of the certificates.  If this right is not exercised by the servicer, an affiliate of the depositor and the seller will have the option to purchase all of the mortgage loans from the trust fund on any date on which the initial total stated principal balance of the mortgage loans has declined to less than 5% of the initial total stated principal balance of the mortgage loans as of the cut-off date.

We refer you to “Description of the Certificates—Optional Purchase of the Mortgage Loans” in this prospectus supplement for more information.

Tax Status

The trustee will elect to treat all or a portion of the trust fund as one or more “real estate investment conduits” or “REMICs” for federal income tax purposes. Each of the offered certificates, other than the Class R Certificate, will represent ownership of “regular interests” in a REMIC.  The Class R Certificate will be designated as the sole class of “residual interest” in the upper tier REMIC.  The Class LT-R Certificate will represent ownership of the residual interest in each remaining REMIC formed pursuant to the pooling agreement.

There are restrictions on the types of investors that are permitted to purchase the residual certificates.


Certain of the offered certificates may be issued with original issue discount for federal income tax purposes.

We refer you to “Material Federal Income Tax Consequences” in this prospectus supplement and in the accompanying prospectus for additional information concerning the application of federal income tax laws to the certificates.

ERISA Considerations

A fiduciary of any employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (or ERISA), or Title I of Section 4975 of the Internal Revenue Code of 1986, as amended (or the Code) (each, a Plan), should carefully review with its legal advisors whether the purchase or holding of the Class A-1 Certificates could give rise to a transaction prohibited or not otherwise permissible under applicable law.

Sales of the Class A-IO, Class B-1, Class B-2, Class R and Class LT-R Certificates to Plans are prohibited, except as permitted under “ERISA Considerations” in this prospectus supplement.

We refer you to “ERISA Considerations” in this prospectus supplement and in the accompanying prospectus for more information.

Legal Investment

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

 
S-10

 

There may be other restrictions on the ability of certain types of investors to purchase the certificates that prospective investors should also consider.

We refer you to “Legal Investment” in the prospectus for more information.

Certificate Rating

Each class of offered certificates will initially have the ratings from Moody’s Investors Service, Inc., or Moody’s, specified on page S-1.  It is a condition of the issuance of the offered certificates that they receive ratings not lower than the ratings set forth in the table on page S-1.

These ratings are not recommendations to buy, sell or hold these certificates.  A rating may be changed or withdrawn at any time by the assigning rating agency.

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

There can be no assurance as to whether any other rating agency will rate the offered certificates, or, if it does, what rating would be assigned by any other rating agency.  A rating on the offered certificates by another rating agency, if assigned at all, may be lower than the ratings assigned to the offered certificates by Moody’s.

We refer you to “Ratings” in this prospectus supplement for a more complete discussion of the certificate ratings.

Listing

The offered certificates are not listed on any exchange, and no party to the transaction intends (or is obligated) to list the offered certificates on any exchange or to quote them in the automated quotation system of any registered securities organization.

 
S-11

 

RISK FACTORS

The following information, which you should carefully consider, identifies certain significant sources of risk associated with an investment in the offered certificates.  All statistical information referred to in this section is based on the mortgage pool as constituted as of the cut-off date.  Such risks give rise to the potential for significant loss over the life of the offered certificates and could prevent you from fully recovering your initial investment in the offered certificates.

You should also review the risk factors described in the accompanying prospectus, which describe additional risks that apply to your investment in the offered certificates.

Turbulence in the Financial Markets and Economy May Adversely Affect the Performance and Market Value of Your Certificates and These Conditions May Not Improve in the Near Future

Recent market and economic conditions have caused significant disruption in the credit markets.  Continued concerns about the availability and cost of credit, the U.S. mortgage market, declining real estate markets in the U.S. and the systemic impact of inflation or deflation, energy costs and geopolitical issues have contributed to increased market volatility and diminished expectations for the U.S. economy.  Beginning in 2008, concerns fueled by events such as the federal government’s conservatorships of Freddie Mac and Fannie Mae, and the failure of Lehman Brothers Holdings, Inc. led to increased market uncertainty and instability in both U.S. and international capital and credit markets.  These conditions, combined with declines in business and consumer confidence and increased unemployment, have contributed to volatility in domestic and international markets.

As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads.  Concern about the stability of the markets and the strength of counterparties has led many lenders and institutional investors to reduce, and in some cases cease, lending to borrowers.  Continued turbulence in the U.S. and international markets and economies may negatively affect the U.S. housing market and in the credit performance and market value of residential mortgage loans.

There is particular uncertainty about the prospects for growth in the U.S. economy as the country begins to exit the recent serious recession. A number of factors influence the potential uncertainty, including, but not limited to, high current unemployment, rising government debt levels, prospective Federal Reserve policy shifts, the withdrawal of government interventions into the financial markets, changing U.S. consumer spending patterns, and changing expectations for inflation and deflation. Income growth and unemployment levels affect borrowers’ ability to repay mortgage loans, and there is risk that economic activity could be weaker than anticipated as the country begins to exit the recent serious recession.

In addition, the difficult economic environment and rate of unemployment and other factors (which may or may not affect real property values) may affect the mortgagors’ timely payment of scheduled payments of principal and interest on the mortgage loans and, accordingly, the actual rates of delinquencies, foreclosures and losses with respect to the mortgage loans. Excessive home building or historically high foreclosure rates resulting in an oversupply of housing in a particular area may increase the amount of losses incurred on defaulted mortgage loans.

These factors and general market conditions could adversely affect the performance and market value of your certificates.  There can be no assurance that governmental or other actions will improve these conditions in the near future.


 
S-12

 

Recent Trends in the Residential Mortgage Market May Adversely Affect the Performance and Market Value of Your Certificates

Since late 2006, delinquencies, defaults and foreclosures on residential mortgage loans have increased, and they may continue to increase in the future.  These increases have not been limited to “subprime” mortgage loans, which are made to borrowers with impaired credit, but have also affected “Alt A” mortgage loans, which are made to borrowers often with limited documentation, and “prime” mortgage loans, which are made to borrowers with better credit who frequently provide full documentation.  In addition to higher delinquency, default and foreclosure rates, loss severities on all types of residential mortgage loans have increased due to declines in residential real estate values, resulting in reduced home equity.  Nationwide home price appreciation rates generally have been negative since late 2007, and this trend may continue for an indefinite period of time.  Higher loan-to-value ratios generally result in lower recoveries on foreclosure, and an increase in loss severities above those that would have been realized had property values remained the same or continued to appreciate.

Another factor that may have contributed to, and may in the future result in, higher delinquency rates is the increase in monthly payments on adjustable rate mortgage loans.  Borrowers with adjustable rate mortgage loans are exposed to increased monthly payments when the related mortgage interest rate adjusts upward from the initial fixed rate to the rate computed in accordance with the applicable index and margin.  This increase in borrowers’ monthly payments, together with any increase in prevailing market interest rates, may result in significantly increased monthly payments for borrowers with adjustable rate mortgage loans.  Prevailing interest rate indices, including one-year LIBOR, currently are low relative to historical levels.  If the level of one-year LIBOR were to increase, monthly payments for borrowers could be significantly higher after the initial fixed rate period than would otherwise be the case, thus increasing the likelihood of delinquency and default on the mortgage loans.  Mortgage loans that provide for the payment of interest, but not principal, for a certain period may also result in higher delinquency rates when, following the interest-only period, the monthly payment with respect to each of these mortgage loans is increased in order to amortize the principal balance of the mortgage loan over the remaining term and to pay interest at the applicable mortgage interest rate.  See “Risk Factors—Risks Related to Mortgage Loans with Interest-Only Payments” below.

               Current market conditions may impair borrowers’ ability to refinance or sell their residential properties, which may also contribute to higher delinquency and default rates.  Borrowers seeking to avoid increased monthly payments by refinancing may no longer be able to find available replacement loans at comparably low interest rates.  In response to increased delinquencies and losses with respect to mortgage loans, many mortgage loan originators recently have implemented more restrictive underwriting criteria for mortgage loans, which will likely result in reduced availability of refinancing alternatives for borrowers.  These risks would be exacerbated to the extent that prevailing mortgage interest rates increase from current levels.  Home price depreciation experienced to date, and any further price depreciation, may also leave borrowers with insufficient equity in their homes to enable them to refinance.  Borrowers who intend to sell their homes on or before the expiration of the fixed rate periods on their mortgage loans may find that they cannot sell their property for an amount equal to or greater than the unpaid principal balance of their mortgage loans.  While some mortgage loan originators and servicers have created or otherwise are participating in modification programs in order to assist borrowers with refinancing or otherwise meeting their payment obligations, not all borrowers will qualify for or will take advantage of these opportunities.

In response to these circumstances, federal, state and local authorities have enacted and continue to propose new legislation, rules and regulations relating to the origination, servicing and treatment of mortgage loans in default or in bankruptcy.  These initiatives could result in delayed or reduced collections from mortgagors, limitations on the foreclosure process and generally increased servicing costs.  Certain of these initiatives could also permit the servicer to take actions, such as with respect to the modification of mortgage loans, that might adversely affect the certificates, without any remedy or compensation to the holders of the certificates.

The conservatorships of Fannie Mae and Freddie Mac in September 2008 may adversely affect the real estate market and the value of real estate assets generally.  It is unclear at this time to what extent these conservatorships will curtail the long-term ability of Fannie Mae and Freddie Mac to continue to act as the primary sources of liquidity in the residential mortgage markets, both by purchasing mortgage loans for their own portfolios and by guaranteeing mortgage-backed securities.   A reduction in the ability of mortgage loan originators to access Fannie Mae and Freddie Mac to sell their mortgage loans may adversely affect the financial condition of mortgage loan originators.  In addition, any decline in the value of securities issued by Fannie Mae and Freddie Mac may affect the value of residential mortgage-backed securities in general.


 
S-13

 

These adverse changes in market and credit conditions have had, and may continue to have, the effect of depressing the market values of residential mortgage-backed securities generally, and substantially reducing the liquidity of residential mortgage-backed securities generally.  These developments may adversely affect the performance, marketability and overall market value of your certificates.

Potential Changes in Ratings Present Risks

Since mid-2007, the mortgage market has encountered difficulties which continue and which may adversely affect the performance or market value of your certificates.  Residential mortgage-backed securities backed by mortgage loans originated in relatively recent years, particularly since 2005, have generally been the focus of attention due to a higher and earlier than expected rate of delinquencies, defaults and foreclosures.  Many residential mortgage-backed securities, in particular those that were issued relatively recently, have been subject to rating agency downgrades.  These downgrades have included downgrades of “AAA”-rated securities.  There may be further downgrades of residential mortgage-backed securities in the future.  In addition, the rating agency rating the certificates may change its ratings criteria after issuance and any changes in ratings criteria may adversely affect the ratings assigned to the certificates.  There can be no assurance that the assigning rating agency will not downgrade the certificates or that any other rating agency will not assign ratings to the certificates that are lower than those assigned by the rating agency requested to assign ratings to the certificates.

None of the sponsor, the depositor, the trustee, the servicer, the underwriters or any other person will have any obligation to cause any rating of any of the offered certificates to be maintained. Changes affecting the mortgage loans, the parties to the pooling agreement or other persons may have an adverse effect on the ratings of the offered certificates, and thus their market value. Any such adverse changes do not by themselves constitute a default under the servicing agreement or the pooling agreement.

Ratings of the Certificates May Not Accurately Reflect Risks Associated With Those Certificates

The ratings of the certificates depend primarily on an assessment of the mortgage loans that are assets of the issuing entity, the credit enhancement provided to the certificates by more subordinate certificates and the ability of the servicer to service the mortgage loans.  Rating agencies rate debt securities based upon their assessment of the likelihood of the receipt of principal and interest payments.  Rating agencies do not consider the risks of fluctuations in market value or other factors that may influence the value of debt securities and, therefore, the assigned credit rating may not fully reflect the true risks of an investment in the certificates.  Credit rating agencies may change their methods of evaluating credit risk and determining ratings on securities backed by mortgage loans.  These changes may occur quickly and often.

The ratings of the certificates by the rating agency:
 
 
·
only address the likelihood of receipt by holders of certificates of distributions in the amount of scheduled payments on the mortgage loans;
 
 
·
do not take into consideration any of the tax aspects associated with the certificates;
 
 
·
do not address the possibility that, as a result of principal prepayments, the yield on your certificates may be lower than anticipated; and


 
S-14

 


 
·
do not comment as to the market price or suitability of the certificates for a particular investor.

The procedures used by rating agencies to determine ratings on securities have come under scrutiny as a result of the turbulence of the financial markets, and federal governmental authorities have enacted and continue to propose rules and regulations to reform the rating process.  The Securities and Exchange Commission, or SEC, recently has adopted rules aimed at enhancing transparency, objectivity and competition in the credit rating process.  The certificates will not be subject to these new rules because the certificates will be issued prior to the effective date of the new rules.  These rules will require a nationally recognized statistical rating organization, or an NRSRO, hired by an issuer, sponsor or underwriter of a security to disclose to other NRSROs that it is in the process of determining such a credit rating and will require the issuer, sponsor or underwriter to make a representation that it will disclose to other NRSROs the information it provided to the hired NRSRO in connection with the determination of an initial credit rating, including information about the characteristics of the underlying assets and the legal structure of the security.  The new rules also prohibit NRSROs from issuing or maintaining a credit rating with respect to an obligor or a security where it made recommendations to the issuer, sponsor or underwriter of the security about the legal structure, assets, liabilities or activities of the obligor or issuer of the security.  This could make it easier for other rating agencies to assign ratings to the certificates, which could be lower than those assigned by the rating agency requested to assign ratings to the certificates as described in this prospectus supplement.  Also, a breach of the representations required of the party hiring the rating agency could result in the hired NRSRO withdrawing its rating of the certificates.  In addition, other future changes to rating procedures or to the regulation of rating agencies could affect the ratings on the certificates.

Appraisals May Not Accurately Reflect the Value or Condition of the Mortgaged Property

In general, appraisals represent the analysis and opinion of the person performing the appraisal at the time the appraisal is prepared and are not guarantees of, and may not be indicative of, present or future value. We cannot assure you that another person would not have arrived at a different valuation, even if such person used the same general approach to and same method of valuing the property, or that different valuations would not have been reached by the originator based on its internal review of such appraisals.  Investors are encouraged to make their own determination as to whether an appraisal is an accurate representation of the value of a mortgaged property.

The appraisals obtained in connection with the origination of the mortgage loans sought to establish the amount a typically motivated buyer would pay a typically motivated seller at the time they were prepared. Such amount could be significantly higher than the amount obtained from the sale of a mortgaged property under a distressed or liquidation sale.  In addition, property values have in general declined since the time the appraisals were obtained, and therefore the appraisals may not be an accurate reflection of the current market value of the mortgaged properties.  The mortgage loans were originated between May 2009 and December 2009 and the appraisals were generally prepared at the time of origination.  The current market value of the mortgaged properties could be lower, and in some cases significantly lower, than the values indicated in the appraisals obtained at the origination of the mortgage loans and included in the original loan-to-value ratios reflected in this prospectus supplement.

Performing valuation and risk analysis of high-cost properties (such as the mortgaged properties) can involve challenges that are not generally present with respect to properties whose values fall within the average price range of their respective markets.  There may be fewer substitute properties available (from which to derive comparative values) in the high-cost market, unique buyer attitudes and preferences, and more difficult to quantify “appeal” issues, any of which can make valuations in the high-cost home segment less precise than for more average-priced housing.  In addition, differences exist between valuations due to the subjective nature of valuations and appraisals, particularly between different appraisers performing valuations at different points in time.

 
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Loan-to-Value Ratios Are Calculated Based on Appraised Value, Which May Not Be An Accurate Reflection of Current Market Value; Borrowers May Have, or May in the Future Incur, Additional Indebtedness Secured by Mortgaged Properties

As further described below under “Description of the Mortgage Pool—General,” the loan-to-value ratios and original loan-to-value ratios that are disclosed in this prospectus supplement are determined, in the case of a purchase money loan, based on the lesser of the selling price of the mortgaged property and its appraised value at origination of such mortgage loan, or, in the case of a refinance loan, based on the appraised value of the mortgaged property at the time of origination of the refinanced mortgage loan.  As described above, because appraisals may not accurately reflect the value or condition of the mortgaged property and because property values generally have declined since the time appraisals were obtained, the loan-to-value ratios and original loan-to-value ratios that are disclosed in this prospectus supplement may be lower, in some cases significantly lower, than the loan-to-value ratios that would be determined if current appraised values of the mortgaged properties were used to determine loan-to-value ratios.  Investors are encouraged to make their own determination as to the degree of reliance they place on the loan-to-value and original loan-to-value ratios that are disclosed in this prospectus supplement.

In addition, mortgage loan borrowers may have, or may in the future incur, additional indebtedness secured by mortgaged properties.  This additional indebtedness could increase the risk that the value of the mortgaged property is less than the total indebtedness secured by the mortgaged property and could increase the risk of default on the affected mortgage loan.

Proposed Financial Regulatory Reforms Could Have a Significant Impact on the Depositor, the Servicer or any Successor Servicer or on the Value of the Certificates

In response to the financial crisis and sweeping proposals announced by the Obama administration, the U.S. Congress is considering extensive changes to the laws regulating financial services firms.  In December 2009, the U.S. House of Representatives approved the “Wall Street Reform and Consumer Protection Act” and the Senate is considering its own version of financial regulatory reform legislation.  The proposals include significant changes to the regulation of financial institutions including the creation of new federal regulatory agencies, and additional authorities and responsibilities to existing regulatory agencies to identify and address emerging systemic risks posed by the activities of financial services firms.  The proposals also provide for enhanced regulation of derivatives and mortgage-backed securities offerings, restrictions on executive compensation and enhanced oversight of credit rating agencies.  The proposals include a new independent Consumer Financial Protection Agency that would regulate consumer financial services and products.  The proposals would also limit the ability of federal laws to preempt state and local consumer laws.

In addition, regulatory agencies, including the FDIC and the SEC, recently have proposed financial reform regulations.  For further description of recent proposals by the SEC, we refer you to “—Proposed Changes to Rules with Respect to the Offering of Asset-backed Securities May Adversely Affect the Marketability of Your Certificates” below.

It is not clear whether or when any pending legislation will be enacted or proposed regulations will be adopted, what the final form of any such legislation or regulations will be, how they will be implemented, or if the depositor, the servicer or any successor servicer will be affected.  No assurance can be given that the new standards will not have an adverse impact on the depositor, the servicer or any successor servicer or on the value of the certificates.

Governmental Actions May Affect Servicing of Mortgage Loans and May Limit the Servicer’s Ability to Foreclose

The federal government, state and local governments, consumer advocacy groups and others continue to urge servicers to be aggressive in modifying mortgage loans to avoid foreclosure, and federal, state and local governmental authorities have enacted and continue to propose numerous laws, regulations and rules relating to mortgage loans generally, and foreclosure actions particularly. Any of these laws, regulations and rules may provide new defenses to foreclosure, insulate the servicer from liability for modification of loans without regard to the terms of the pooling agreement or the servicing agreement or result in limitations on upward adjustment of mortgage interest rates, reduced payments by borrowers, permanent forgiveness of debt, increased prepayments due to the availability of government-sponsored refinancing initiatives and/or increased reimbursable servicing expenses, all of which are likely to result in delays and may result in reductions in the distributions to be made on the certificates.

 
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Several courts and state and local governments and their elected or appointed officials also have taken unprecedented steps to slow the foreclosure process or prevent foreclosures altogether.  A number of these laws have been enacted, including in California.  These laws, regulations and rules will result in delays in the foreclosure process, and may lead to reduced payments by borrowers or increased reimbursable servicing expenses.

Certificateholders will bear the risk that future regulatory and legal developments will result in losses on their certificates, to the extent not covered by the applicable credit enhancement. The effect on the certificates will likely be more severe if any of these future legal and regulatory developments occur in one or more states in which there is a significant concentration of mortgaged properties.

Underwriting Standards May Affect Risk of Loss on the Mortgage Loans

Generally, the mortgage loans have been originated using underwriting standards that are less stringent than the underwriting standards applied by certain other first lien mortgage purchase programs, such as those of Fannie Mae and Freddie Mac.  Applying less stringent underwriting standards creates additional risks that losses on the mortgage loans will occur and will be allocated to certificateholders.

Mortgage loans originated under the originator's underwriting criteria and which illustrate this additional risk include the following:

 
·
mortgage loans secured by properties acquired as second homes, which constitute approximately 3.36% of the mortgage pool by stated principal balance as of the cut-off date, may present a greater risk that the borrower will stop making monthly payments if the borrower's financial condition deteriorates;

 
·
mortgage loans made to borrowers who are self-employed, which constitute approximately 28.30% of the mortgage pool by stated principal balance as of the cut-off date, may present a greater risk that the borrower will default on the mortgage loan than mortgage loans made to salaried or commissioned borrowers because self-employed borrowers frequently have less predictable income, and self-employed borrowers who are small business owners may be personally liable for their business debt;

 
·
some of the mortgage loans were originated under programs pursuant to which some underwriting documentation concerning borrowers' income, employment and asset verification is waived, and certain non-standard documentation is permitted for income and employment verification, which may present greater uncertainty with regard to the borrower's income and assets and the rate of default on mortgage loans originated under such documentation programs may be higher than for other types of loans; and

 
·
mortgage loans with a stated principal balance over $1,000,000, which constitute approximately 41.97% of the mortgage pool by stated principal balance as of the cut-off date, may present a greater risk than mortgage loans with a lower principal balance because defaults on a mortgage loan with a larger principal balance may result in greater losses allocated to the certificateholders.

We refer you to “The Originator” in this prospectus supplement and to “Risk Factors—Aspects of the Mortgage Loan Origination Process May Result in Higher than Expected Delinquencies” and “Loan Program—Underwriting Standards” in the prospectus.

 
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In Underwriting the Mortgage Loans, the Originator May Not Have Followed its Underwriting Guidelines; Underwriting Guidelines May Not Identify or Appropriately Assess Repayment Risks

As described below under “The Originator—Underwriting Standards,” the originator, when originating the mortgage loans, generally does so in accordance with underwriting guidelines it has established and, in certain cases, based on exceptions to those guidelines.  These guidelines may not identify or appropriately assess the risk that the interest and principal payments due on a mortgage loan will be repaid when due, or at all, or whether the value of the mortgaged property will be sufficient to otherwise provide for recovery of such amounts.  To the extent exceptions are made to the originator’s underwriting guidelines in originating a mortgage loan, those exceptions may increase the risk that principal and interest amounts may not be received or recovered and compensating factors, if any, which may have been the premise for making an exception to the underwriting guidelines may not in fact compensate for any additional risk.  Furthermore, to the extent that the underwriting guidelines were not followed by the originator when originating the mortgage loans, there could also be an increased risk that principal and interest amounts may not be received or recovered.
 
See also “Description of the Mortgage Pool—Certain Characteristics of the Mortgage Loans” for a discussion of the limitations on the use of credit or FICO scores.
 
 
Pre-offering Review of the Mortgage Loans Underlying the Certificates May Not Reveal Aspects of the Mortgage Loans Which Could Lead to Losses
 
 
The sponsor and the underwriters have undertaken certain limited loan file review procedures with respect to various aspects of the mortgage loans underlying the certificates, including a review of the underwriting of mortgage loans conducted by the originator and verification of certain aspects of the mortgage loans.  In conducting these review procedures, the sponsor and the underwriters relied on information and resources available to them (which were limited and which, in most cases, were not independently verified) and on investigation by third party agents.  These review procedures were intended to discover certain material discrepancies and possible material defects in the mortgage loans.  However, these procedures did not constitute a re-underwriting of the loans, and were not designed or intended to discover every possible discrepancy or defect.  There can be no assurance that any review process conducted uncovered relevant facts that could be determinative of how the mortgage loans will perform.
 
Furthermore, to the extent that the limited review conducted by the sponsor and the underwriters  did reveal factors that could affect how the mortgage loans will perform, the sponsor or underwriters may have incorrectly assessed the potential severity of those factors.  For example, in conducting its procedures, the sponsor and the underwriters reviewed estimates of the current value of mortgaged properties that were obtained by using automated valuation models (or AVMs), appraiser price opinions (or APOs) and/or broker price opinions (or BPOs) and compared those current estimates of value with the original appraised value of the mortgaged properties.  Differences between the original appraised value and the current estimate of value obtained through AVMs, APOs and/or BPOs may, erroneously, not have been regarded as an indication that there was a defect in the original appraisal, which could result in an increased risk that payments on these mortgage loans may not be received or recovered.  Investors are encouraged to make their own determination as the extent to which they place reliance on the limited loan file review procedures of the sponsor and the underwriters of the certificates.

Risks Related to Mortgage Loans with Interest-Only Payments

Approximately 73.74% of the mortgage loans by stated principal balance as of the cut-off date to be included in the trust fund provide for payment of interest at the related mortgage interest rate, but no payment of principal, for a period of ten years following the origination of the mortgage loan.  Following the interest-only period, the monthly payment with respect to each of these mortgage loans will be increased to an amount sufficient to amortize the principal balance of the mortgage loan over the remaining term and to pay interest at the applicable mortgage interest rate. This increase may result in increased delinquencies by the related borrowers, particularly if interest rates have increased and the borrower is unable to refinance.  In addition, losses may be greater on these mortgage loans since there will be no principal amortization during the early years of these mortgage loans.

 
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Historical performance data for interest-only mortgage loans is limited compared to performance data for mortgage loans that amortize from origination.  The performance of interest-only mortgage loans may be significantly different from mortgage loans that amortize from origination.  In addition, these borrowers may expect to refinance their mortgage loans with new mortgage loans (if a refinancing opportunity is available), particularly at the end of the interest-only period, which may result in higher prepayment speeds than would otherwise be the case.  Also, the failure by a borrower to build equity in a mortgaged property may present special default and prepayment risks, particularly if the value of the mortgaged property declines below the principal balance of the mortgage loan.

We refer you to “Yield, Prepayment and Weighted Average Life— General” in this prospectus supplement and “Risk Factors — Risks Related to Mortgage Loans with Interest-Only Payments” and “— Changes in U.S. Economic Conditions May Adversely Affect the Performance of Mortgage Loans, Particularly Adjustable Rate Loans of Various Types” in the accompanying prospectus.

Geographic Concentration of Mortgage Loans

Approximately 46.30% of the mortgage loans by stated principal balance as of the cut-off date to be included in the trust fund are secured by properties located in California and approximately 16.28% of the mortgage loans by stated principal balance as of the cut-off date to be included in the trust fund are secured by properties located in New York.  Adverse economic conditions and natural disasters in those states with a higher concentration of mortgage loans will have a disproportionate impact on the rate of delinquencies, defaults and losses on the mortgage loans than if fewer of the mortgage loans were concentrated in those states.

From time to time, areas of the United States may be affected by flooding, severe storms, landslides, wildfires, earthquakes or other natural disasters or the effects of global climate change (which may include flooding, drought or severe weather).  Under the servicing agreement, the originator will represent and warrant that as of the closing date each mortgaged property was free of material damage.  In the event of an uncured breach of this representation and warranty that materially and adversely affects the interests of certificateholders, the originator will be required to repurchase the affected mortgage loan or substitute another mortgage loan.  If the originator fails to repurchase or substitute for the affected mortgage loan, no other party is obligated to do so.  If any damage caused by flooding, storms, wildfires, landslides or earthquakes (or other causes) occurs after the closing date, the originator will not have any repurchase obligation.  In addition, the standard hazard policies covering the mortgaged properties generally do not cover damage caused by earthquakes, flooding and landslides, and earthquake, flood or landslide insurance may not have been obtained with respect to such mortgaged properties.  As a consequence, realized losses could result.   In addition, significant changes in regional climate conditions could have effects that are difficult to foresee. To the extent that a locality becomes more susceptible to extreme temperatures or weather events or otherwise becomes less desirable as a place to live, property values could be adversely affected and rates of default could increase.

We refer you to “Yield, Prepayment and Weighted Average Life” in this prospectus supplement and “Risk Factors — Geographic Concentration of the Mortgage Loans” in the accompanying  prospectus.  For additional information regarding the geographic concentration of the mortgage loans to be included in the mortgage pool, see the applicable table(s) in Annex A of this prospectus supplement.

Mortgage Loan Interest Rates Will Limit Interest Rates on the Certificates

As described in this prospectus supplement, the interest rates of the certificates on each distribution date (other than the Class A-1 Certificates before, and the Class A-IO Certificates on or after the distribution date in September 2014) generally will be based on the weighted average interest rates of the mortgage loans, net of certain fees and expenses of the issuing entity.  The mortgage rate on each mortgage loan is fixed for an initial period of five years from the respective date of origination. Thereafter, the mortgage rate on each mortgage loan will be adjusted to equal the sum of one-year LIBOR and a margin. Increases and decreases in mortgage rates may be limited for any adjustment date due to application of an initial or periodic cap. In addition, the mortgage rates will be subject to overall maximum and minimum mortgage rates. As a result of those limitations, increases in the value of the related index will not necessarily be reflected in corresponding increases in the value of the weighted average net mortgage rates of the mortgage loans.  No prediction can be made as to future levels of one-year LIBOR or as to timing of any changes of that index, each of which will directly affect the yields of the certificates (other than the Class A-IO Certificates on or after the distribution date in September 2014).  Mortgage loans with higher margins are likely to have higher mortgage rates than mortgage loans with lower margins.  If borrowers prepay these mortgage loans faster than mortgage loans with lower margins, this will adversely affect yields on the certificates (other than the Class A-IO Certificates on or after the distribution date in September 2014).

 
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For each distribution date prior to the distribution date in September 2014, the Class A-1 Certificates will accrue interest at a rate equal to the lesser of the weighted average net mortgage rates of the mortgage loans and a fixed interest rate.  Therefore, if the value of the weighted average net mortgage rates of the mortgage loans decreases to a value less than the fixed rate, holders of the Class A-1 Certificates will only be entitled to payments of interest at that lower rate.  Additionally, for each distribution date prior to the distribution date in September 2014, the Class A-IO Certificates will only be entitled to receive payments of interest to the extent that the weighted average net mortgage rates of the mortgage loans is greater than the fixed interest rate.  Therefore, if the value of the weighted average net mortgage rates of the mortgage loans decreases to a value less than the fixed rate, holders of the Class A-IO Certificates will not be entitled to any payments of interest.

See “Description of the Certificates — Distributions of Interest” in this prospectus supplement.  For a general description of the interest rates of the related mortgage loans, we refer you to “Description of the Mortgage Pool” in this prospectus supplement.

The Return on Your Certificates Could be Reduced by Shortfalls Due to the Servicemembers Civil Relief Act

The Servicemembers Civil Relief Act, or Relief Act, provides relief to borrowers who enter active military service and to borrowers in reserve status who are called to active duty after the origination of their mortgage loan.  The Relief Act provides generally that a borrower who is covered by the Relief Act may not be charged interest on a mortgage loan in excess of 6% per annum during the period of the borrower’s active duty.  Current or future military operations of the United States may result in an increase in the number of borrowers who may be in active military service, and the activation of additional U.S. military reservists or members of the National Guard, which may in turn significantly increase the proportion of mortgage loans whose mortgage rates are reduced by application of the Relief Act.  The amount of interest available for payment to certificateholders will be reduced by any reductions in the amount of interest collectible as a result of application of the Relief Act or similar state or local laws and neither the servicer nor any other party will be required to fund any interest shortfall caused by any these reductions.  Interest shortfalls on the mortgage loans due to the application of the Relief Act or similar legislation or regulations will be applied to reduce accrued interest on each class of the certificates on a pro rata basis in accordance with the amount of interest due on each class on the applicable distribution date.

The Relief Act also limits the ability of the servicer to foreclose on a mortgage loan during the borrower’s period of active duty and, in some cases, during an additional three month period thereafter.  As a result, there may be delays in payment and increased losses on the mortgage loans.  Those delays and increased losses will be borne primarily by the class of certificates with a certificate principal amount greater than zero with the lowest payment priority.

We do not know how many mortgage loans have been or may be affected by the application of the Relief Act or similar legislation or regulations.

 
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We refer you to “Certain Legal Aspects of the Loans—Servicemembers Civil Relief Act” in the prospectus.

Potential Inadequacy of Credit Enhancement

The certificates are not insured by any financial guaranty insurance policy.  The credit enhancement features of subordination and loss allocation are intended to enhance the likelihood that holders of more senior classes of certificates will receive regular payments of interest and principal, but are limited in nature and may be insufficient to cover all losses on the related mortgage loans.

Subordination and Allocation of Losses.  The amount of any loss experienced on a mortgage loan will be applied to reduce the principal amount of the class of subordinate certificates with the highest numerical class designation, until the principal amount of that class has been reduced to zero.  If this loss allocation to the subordinate certificates is insufficient to absorb losses, then holders of more senior classes will incur losses and may never receive all of their principal payments.  You should consider that:
 
 
·
if you buy a Class B-2 Certificate and losses on the mortgage loans exceed the total principal amount of the Class B-3 Certificates and Class B-4 Certificates, the principal amount of your certificates will be reduced proportionately with the principal amounts of the other Class B-2 Certificates by the amount of that excess;
 
·
if you buy a Class B-1 Certificate and losses on the mortgage loans exceed the total principal amount of the Class B-2, Class B-3 and B-4 Certificates, the principal amount of your certificates will be reduced proportionately with the principal amounts of the other Class B-1 Certificates by the amount of that excess; and
 
·
after the total principal amount of the subordinate certificates has been reduced to zero, losses on the mortgage loans may reduce the principal amounts of the senior certificates.

Losses on the mortgage loans will reduce the loss protection provided by the subordinate certificates to the senior certificates and will increase the likelihood that the senior certificates will not receive all of their expected principal payments.

In addition, interest shortfalls resulting from reductions in the amount of monthly interest payments on mortgage loans due to application of the Relief Act, and from borrowers’ prepayments of their mortgage loans (to the extent such shortfalls exceed the servicing fee in any month) will be applied to reduce current interest on each class of certificates on a pro rata basis in accordance with the amount of interest due on each class on the applicable distribution date.  Accordingly, subordination will not provide the senior certificates with protection against these interest shortfalls.  In addition, servicing modifications that reduce the interest rate due on a mortgage loan will decrease the Net WAC, which will therefore reduce current interest on each class of certificates, and subordination will not protect holders of the senior certificates from these reductions.

No Primary Mortgage Insurance.  None of the mortgage loans have primary mortgage insurance coverage.  As a result, if a borrower defaults under a mortgage loan, foreclosure proceedings are brought by the servicer, and the value of the mortgaged property is not adequate to  pay principal and accrued interest on the mortgage loan along with related costs and expenses, there is unlikely to be any other source of payments available to reduce the amount of losses that would be incurred on that mortgage loan.

Unpredictability and Effect of Prepayments

The rate of principal distributions and yield to maturity on the certificates will be directly related to the rate of principal payments on the mortgage loans.  The rate of prepayments on the mortgage loans will be sensitive to prevailing interest rates.  Generally, if prevailing interest rates decline, mortgage loan prepayments may increase if refinancing is available at lower interest rates.  If prevailing interest rates rise, prepayments on the mortgage loans may decrease.

 
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For example, the mortgage loans could be subject to higher prepayment rates if fixed rate mortgage loans at competitive interest rates are available, allowing borrowers to refinance their mortgage loans to “lock-in” lower fixed interest rates. The features of adjustable rate mortgage loan programs during the past several years have varied significantly in response to market conditions including the interest rate environment, consumer demand, regulatory restrictions and other factors. The lack of uniformity of the terms and provisions of such adjustable rate mortgage loan programs have made it impracticable to compile meaningful comparative data on prepayment rates and, accordingly, we cannot assure you as to the rate of prepayments on the mortgage loans in stable or changing interest rate environments.  The prepayment experience of the mortgage loans to be included in the trust may differ significantly from that of other first lien residential mortgage loans.

Borrowers may prepay their mortgage loans in whole or in part at any time.

Prepayments on the mortgage loans may occur as a result of solicitations of the borrowers by mortgage loan lenders, including the originator.

The timing of prepayments of principal may also be affected by liquidations of or insurance payments on the mortgage loans.  In addition, the originator of the mortgage loans may be required to purchase mortgage loans from the trust fund in the event that certain breaches of representations and warranties made with respect to the mortgage loans are not cured, or in the event that a borrower’s monthly payment with respect to a mortgage loan is one or more monthly payments delinquent within three months of the date of origination.  These purchases will have the same effect on certificateholders as prepayments of mortgage loans.

In the event of an occurrence of a natural disaster in an area where mortgaged properties underlying the mortgage loans are located, the insurance proceeds received with respect to any damaged mortgaged properties that are not applied to the restoration of that property will be used to prepay the related mortgage loans in whole or in part.  Any repurchases or repayments of the mortgage loans may reduce the weighted average lives and will reduce the yields on the offered certificates to the extent they are purchased at a premium.

A prepayment of a mortgage loan will usually result in a payment of principal on the certificates:
 
 
·
If you purchase certificates at a discount, and principal prepayments on the related mortgage loans are received at a rate slower than you anticipate, then your yield may be lower than you anticipate.

 
·
If you purchase certificates at a premium, especially any interest-only certificates, and principal prepayments on the related mortgage loans are received at a rate faster than you anticipate, then your yield may be lower than you anticipate.

A faster than expected rate of principal prepayments on the mortgage loans could result in the failure of the investors in the Class A-IO Certificates to fully recover their initial investments.

We refer you to “Yield, Prepayment and Weighted Average Life” in this prospectus supplement and “Yield and Prepayment Considerations” in the accompanying prospectus for a description of factors that may influence the rate and timing of prepayments on the mortgage loans.


 
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The Timing of Realized Losses May Impact Returns on the Certificates

The timing of realized losses may impact the return earned on the certificates, in particular on the subordinate certificates.  The timing of realized losses could be affected by the creditworthiness of the borrower, the borrower’s willingness and ability to continue to make payments, and new legislation, legal actions or programs that allow for the modification of loans or for borrowers to obtain relief through bankruptcy or other avenues.  Because realized losses will be applied to reduce the principal amount of the subordinate certificates before being allocated to the senior certificates, they also reduce the interest paid on those certificates.  Therefore, the timing of realized losses, and not just the overall level of such realized losses, will impact the return on the subordinate certificates.

Delay in Receipt of Liquidation Proceeds; Liquidation Proceeds May Be Less Than Mortgage Balance

Substantial delays could be encountered in connection with the liquidation of delinquent mortgage loans.  Further, reimbursement of advances made by a servicer and liquidation expenses such as legal fees, real estate taxes and maintenance and preservation expenses may reduce the portion of liquidation proceeds payable to certificateholders.  If a mortgaged property fails to provide adequate security for the related mortgage loan, you could incur a loss on your investment if the applicable credit enhancement is insufficient to cover the loss.

Mortgage Loan Modification Programs and Future Legislative Action May Adversely Affect the Performance and Market Value of Your Certificates

To limit losses on delinquent mortgage loans, in accordance with the servicing agreement, the servicer may use loss mitigation techniques, including forbearance agreements and other modification agreements and pre-foreclosure sales.  Modifications of mortgage loans in an attempt to maximize the ultimate proceeds of such mortgage loans may have the effect of, among other things, reducing or otherwise changing the mortgage interest rate, forgiving payments of principal, interest or prepayment charges, extending the final maturity date, capitalizing or deferring delinquent interest and other amounts owed under the mortgage loans, deferring principal payments, with or without interest, or any combination of these or other modifications.  Since all of the classes of offered certificates (other than the Class A-IO Certificates) receive interest based on the weighted average net mortgage interest rate of the mortgage loans, modifications to mortgage interest rates will reduce interest payable on all of the offered certificates (other than the Class A-IO Certificates).  In addition, while the U.S. Congress recently failed to pass legislation to enhance the power of bankruptcy courts to reduce the principal amount of, or the interest rate on, a mortgage loan of an individual who is a debtor in bankruptcy secured by a primary residence, it is possible that such legislation could be enacted in the future.

A modification may result in reduced interest collections available for distribution to the certificates, reduced distributions of principal or the allocation of a realized loss to the most subordinate class of certificates outstanding.  Modifications that are designed to maximize collections to the issuing entity in the aggregate may adversely affect a particular class of certificates. The servicer is required to consider the interests of all classes of certificates as a whole when making servicing decisions.  If the servicer reduces the interest rate, extends the payment period or accepts a lesser amount than stated in the mortgage note in satisfaction of the mortgage note, or charges off or sells the mortgage loan, amounts available to make payments on the certificates will be reduced.  The actual final distribution date for any class might be later, and could be significantly later, than the final scheduled distribution date if the servicer extends the maturity date of a mortgage loan beyond the final scheduled distribution date for the certificates.

Recently, the federal government has commenced implementation of programs designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures.  In addition, certain mortgage lenders and servicers have voluntarily, or as part of settlements with law enforcement authorities, established loan modification programs relating to the mortgages they hold or service.  These programs may involve, among other things, the modification of mortgage loans to reduce the rate of interest payable on the loans, to extend the payment terms of the loans, to forgive principal or to forbear the payment of a portion of principal on the mortgage loan without interest.  In addition, members of the U.S. Congress have indicated support for additional legislative relief for homeowners, including a proposed amendment of the bankruptcy laws to permit the modification of mortgage loans in bankruptcy proceedings.  The U.S. Department of Treasury recently announced adjustments to the Home Affordable Modification Program, or HAMP, and to the Federal Housing Administration, or FHA, programs that will become effective in the coming months.  Although HAMP currently does not apply to mortgage loans in the mortgage pool, its applicability requirements could be revised in the future.  The changes to HAMP provide incentives to servicers to modify mortgage loans by writing down principal, to offer permanent modifications and to provide homeowners with more alternatives to foreclosure.  The changes also require servicers, in certain circumstances, to allow a 30-day response period after notice that a borrower has not been approved for HAMP before conducting a foreclosure sale, and prohibit servicers from referring a borrower to foreclosure until the borrower has been determined to be ineligible for HAMP or reasonable solicitation efforts have failed.  The changes to FHA programs will permit lenders to provide additional refinancing options to borrowers who owe more than their home is worth.  These loan modification programs, as well as future law enforcement and legislative or regulatory actions, including changes to HAMP and amendments to the bankruptcy laws that result in the modification of outstanding mortgage loans, could adversely affect the amounts payable on and market value of your certificates.  These programs may involve the modification of mortgage loans in default as well as mortgage loans where default is, in the judgment of the servicer, imminent.

 
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It is not yet certain whether the servicer or any successor servicer will modify the terms of any mortgage loans, what form any modified terms may take, how or when modifications may be implemented, or how the certificates may be impacted by such modifications.  No assurances can be given that the implementation of loan modifications or the failure to implement loan modifications will not adversely impact the certificates.

Special Assessments and Energy Efficiency Liens May Take Priority over the Mortgage Lien

Mortgaged properties securing the mortgage loans may be subject to the lien of special property taxes and/or special assessments. These liens are superior to the liens securing the mortgage loans, irrespective of the date of the mortgage.  In some instances, individual borrowers may be able to elect to enter into contracts with governmental agencies for Property Assessed Clean Energy (PACE) or similar assessments that are intended to secure the payment of energy and water efficiency and distributed energy generation improvements that are permanently affixed to their properties, possibly without notice to or the consent of the mortgagee. These assessments also have lien priority over the mortgages securing mortgage loans. No assurance can be given that any mortgaged property so assessed will increase in value to the extent of the assessment lien. Additional indebtedness secured by the assessment lien would reduce the amount of the value of the mortgaged property available to satisfy the affected mortgage loan.

Helping Families Save Their Homes Act

The Helping Families Save Their Homes Act of 2009,  Public Law 111-22, 123 Stat. 1632, effective as of May 20, 2009, amends the Truth in Lending Act to require purchasers or assignees of mortgage loans secured by a borrower’s principal dwelling to mail or deliver notice to borrowers of the sale or transfer of their mortgage loan no later than 30 days after a sale or transfer.  The sale of the mortgage loans from the depositor to the issuing entity will require that these notices be mailed or delivered reflecting the ownership of the mortgage loans by the issuing entity.  Failure to comply with these notice requirements may result in civil claims for compensatory and punitive damages against the issuing entity.  Any judgment against, or settlement by, the issuing entity relating to these violations would reduce the funds otherwise available for distribution to investors, and may result in shortfalls or losses on your certificates.  The servicing agreement will require the servicer to deliver the required notices to borrowers.


 
S-24

 

Risks Associated With Potential New Laws Relating to Mortgage Loan Origination

The U.S. Congress and various state and local legislatures are considering legislation, which, among other things, would permit limited assignee liability for certain violations in the mortgage loan origination process.  We cannot predict whether or in what form the U.S. Congress or various state and local legislatures may enact such legislation or how such legislation might impact your certificates.  We are also unable to predict how changes by federal, state or local authorities to regulations currently in effect relating to assignee liability may affect your certificates.

Changes in the Accounting Rules May Affect You

The Financial Accounting Standards Board recently adopted changes to the accounting standards for investments, such as offered certificates, in interests in securitization vehicles such as the issuing entity. These changes, and any other future changes in accounting standards, may affect the manner in which you must account for your investment in any offered certificates and, under some circumstances, may require that you consolidate the entire trust fund on your balance sheet. Prospective investors in the offered certificates should consult their accounting advisors to determine the effect that accounting standards, including the recent changes, may have on them. We make no representation or warranty regarding the treatment of any offered certificates or the trust fund for purposes of any accounting standards.

Reduced Lending Capacities May Hinder Refinancing and Increase Risk of Loss

Since 2006, a number of originators and servicers of residential mortgage loans have experienced serious financial difficulties and, in some cases, have gone out of business. These difficulties have resulted, in part, from declining markets for their mortgage loans as well as from claims for repurchases of mortgage loans previously sold under provisions that require repurchase in the event of early payment defaults or for breaches of representations and warranties regarding loan quality and characteristics.  Many originators with large servicing portfolios have experienced rising costs of servicing as mortgage loan delinquencies have increased, without a compensating increase in servicing compensation. The lack of a functioning secondary market for mortgage-backed securities and mortgage loans has also reduced the availability of certain types of mortgage products that do not fit within the criteria of Freddie Mac, Fannie Mae or Ginnie Mae.

These trends may reduce alternatives for mortgagors seeking to refinance their mortgage loans. The reduced availability of refinancing options for mortgagors may result in higher rates of delinquencies and losses on the mortgage loans.  These trends may also make it more difficult to engage a successor servicer if that becomes necessary.

Market Exit of Originators and Servicers

The financial difficulties of originators and servicers of residential mortgage loans may be exacerbated by higher delinquencies and defaults that reduce the value of mortgage loan portfolios, requiring originators to sell their portfolios at greater discounts to par.  In addition, the costs of servicing an increasingly delinquent mortgage loan portfolio may be rising without a corresponding increase in servicing compensation.  The value of many residual interests retained by sellers of mortgage loans in the securitization market has also been declining in these market conditions.  Overall origination volumes are down significantly in the current economic environment.  In addition, any regulatory oversight, proposed legislation and/or governmental intervention designed to protect consumers may have an adverse impact on originators and servicers.  These factors, among others, may have the overall effect of increasing costs and expenses of originators and servicers while at the same time decreasing servicing cash flow and loan origination revenues. Financial difficulties may result in the inability of originators to repurchase mortgage loans in the event of early payment defaults and other loan representation and warranty breaches or to make required advances of delinquent monthly payments which may also affect the value of residential mortgage-backed securities backed by those mortgage loans.  Financial difficulties may also have a negative effect on the ability of servicers to pursue collections on mortgage loans that are experiencing increased delinquencies and defaults and to maximize recoveries on the sale of underlying properties following foreclosure.

 
S-25

 

The financial institution of which the servicer is an affiliate has experienced financial difficulties in recent years.  We cannot assure you as to the current or continuing financial condition of the servicer or its ability to access markets for financing advances.  If the servicer is experiencing financial difficulties, it may not be able to perform its servicing duties, its advancing obligations or its obligations as originator to repurchase mortgage loans as required.  None of the sponsor, the seller, the depositor or the underwriters is required to repurchase the mortgage loans if the originator or servicer fails to do so.
 
Investors will be Dependent on Certain Third Parties Performing their Responsibilities in an Accurate and Timely Manner
 
The mortgage loans held by the trust fund are serviced by a third-party servicer.  The servicer’s obligation to make advances on behalf of a delinquent borrower is limited to the extent that it does not expect to recover the advances from the ultimate disposition of the mortgaged property securing the mortgage loan, which could therefore affect the timing and amount of payments available for distribution to the certificateholders.  In addition, as with any external service provider, investors are subject to the risks associated with inadequate or untimely services for reasons such as errors or miscalculations. In the current economic environment, many servicers are experiencing higher delinquencies and defaults than they have in the past and, as a result, there is a risk that their operational infrastructures cannot properly process this increased volume. To the extent the servicer fails to fully perform its obligations, the certificates could experiences losses. In addition, certificateholders generally do not have the right to directly enforce remedies against the servicer or issuing entity and instead must rely on the trustee to enforce their rights under the agreements.  If the trustee is not required to take action under the terms of the agreements, or if the trustee fails to take action, certificateholders could experience losses.
 
Under the assignment, assumption and recognition agreement, the controlling holder is any affiliate of the depositor, other than the seller, for so long as that entity is a holder of a majority of the most subordinate class of certificates then outstanding with a class principal amount greater than zero.  The controlling holder will have the right, in its sole discretion, to pursue an action in respect of an alleged breach by the originator of a representation and warranty relating to the characteristics of the mortgage loans.  If the controlling holder has notified the trustee that it will not take such action, then, in certain circumstances, holders of 66 2/3% of the aggregate voting interests of the Class A-1 and Class A-IO Certificates can direct the trustee to pursue an action against the originator with respect to such breach.  If there is no controlling holder, then, in certain circumstances, holders of more than 50% of the aggregate voting interests of the certificates can direct the trustee to pursue an action against the originator with respect to an alleged breach of a mortgage loan representation and warranty.  The controlling holder is under no obligation to pursue such actions and the trustee will pursue such actions only under the limited circumstances described in this prospectus supplement.  Furthermore, there can be no assurance that, if the controlling holder or the trustee pursues such an action, that such action will be successful, which could result in losses on your certificates.  See “The Agreements—Representations and Warranties” in this prospectus supplement.

Bankruptcy of a Mortgage Loan Seller Could Result in Losses on the Certificates

The originator will sell the mortgage loans to the sponsor, the sponsor will sell the mortgage loans to the depositor and the depositor will sell the mortgage loans to the issuing entity. Each of the originator, the sponsor and the depositor, as transferors, will represent and warrant in the applicable agreement that its transfer of the mortgage loans is a sale, so that its transferee will be the sole owner of the mortgage loans. Nonetheless, if any transferor were to go into bankruptcy, and a party in interest (including the transferor) were to assert that the transfer of the mortgage loans to the transferee is not a sale, but rather should be recharacterized as the grant of a security interest in the mortgage loans to secure a borrowing of the transferor, delays in distributions on the certificates could result. If a court were to adopt such a position, then delays or reductions in distributions on, or other losses with respect to, the certificates could result.

Should a transferor go into bankruptcy, there could be other adverse effects that could result in delays or reductions in distributions on, or other losses with respect to, the certificates. These adverse effects could include, but may not be limited to, one or more of the following. The automatic stay provisions of the bankruptcy laws could prevent (unless approval of the bankruptcy court was obtained) any action by any transferee, the trustee, the servicer, or any holder of certificates to enforce any obligations of the bankrupt transferor under any transaction document or to collect any amount owing by the transferor under any transaction document. In addition, with the authorization of the bankruptcy court, the transferor may be able to repudiate any of the transaction documents to which it is a party. Such a repudiation would excuse the transferor from performing any of its obligations. The rights of the transferee under the transaction documents may be limited or eliminated. Such a repudiation could also excuse the other parties to the transaction documents from performing any of their obligations. In particular, a transferor may be able to repudiate its obligations to make payments or to repurchase or substitute for mortgage loans as required by the transaction documents.

 
S-26

 

There may be other possible effects of a bankruptcy or insolvency of a mortgage loan transferor that could result in delays or reductions in distributions on, or other losses with respect to, the certificates.

Regardless of any ruling made by a court, moreover, the mere fact that a mortgage loan transferor or any of its affiliates has become insolvent or gone into bankruptcy, conservatorship, or receivership could have an adverse effect on the value of the mortgage loans and on the liquidity and value of the certificates.

Bankruptcy of the Servicer Could Result in Losses on the Certificates

The servicer will be permitted to commingle collections on the mortgage loans with its own funds for one business day.  In addition, the servicer will deposit collections in an account that is not under the control of the trustee, and collections will be held in this account before they are remitted each month to the trustee.  In the event of a bankruptcy of the servicer, the issuing entity, the trustee and the holders of the certificates may not have a perfected or priority interest in any collections on mortgage loans that are in the servicer’s possession or have not been remitted to the trustee at the time of the commencement of the bankruptcy case. The servicer may not be required to remit to the issuing entity or the trustee any collections on mortgage loans that are in its possession or have not been remitted to the trustee at the time it goes into bankruptcy.

To the extent that the servicer has commingled collections of mortgage loans with its own funds, the holders of the certificates may be required to return to the servicer as preferential transfers all payments received on the certificates during the one year prior to the bankruptcy.

If the servicer were to go into bankruptcy, it may stop performing its functions as servicer, and it may be difficult to find a third party to act as successor servicer. Alternatively, the servicer may take the position that unless the amount of its compensation is increased or the terms of its obligations are otherwise altered, it will stop performing its functions as servicer. If it would be difficult to find a third party to act as successor servicer, the trustee, as a practical matter, may have no choice but to agree to the demands of the servicer. The servicer may also have the power, with the approval of the bankruptcy court, to assign its rights and obligations as servicer to a third party without the consent, and even over the objection, of the sponsor, the depositor, the issuing entity, the trustee, or the holders of the certificates, and without complying with the requirements of the applicable documents.

The automatic stay provisions of the Bankruptcy Code would prevent (unless approval of the bankruptcy court was obtained) any action by the sponsor, the depositor, the issuing entity, the trustee or the holders of the certificates to enforce any obligations of the servicer under the applicable documents or to collect any amount owing by the servicer under the applicable documents.

If the servicer is in bankruptcy, then, despite the terms of the documents, the sponsor, the depositor, the issuing entity, the trustee and the holders of the certificates may be prohibited from terminating the servicer and appointing a successor servicer.

 
S-27

 

It is possible that a period of adverse economic conditions resulting in high defaults and delinquencies on the mortgage loans will pose a potential bankruptcy risk to the servicer if its servicing compensation is less than its cost of servicing.

The occurrence of any of these events could result in delays or reductions in distributions on, or other losses with respect to, the certificates. There may also be other possible effects of a bankruptcy of the servicer that could result in delays or reductions in distributions on, or other losses with respect to, the certificates. Regardless of any specific adverse determinations in a bankruptcy case of the servicer, the fact that such a case has been commenced could have an adverse effect on the value of the mortgage loans and the liquidity and value of the certificates.

Insolvency, Receivership or Conservatorship of Citibank, N.A. Could Result in Losses on the Certificates

The originator and servicer is a wholly-owned subsidiary of Citibank, N.A., or Citibank. The initial custodial account will be established with Citibank.  Certain banking laws and regulations may apply not only to Citibank but to its subsidiaries as well. If the originator or servicer were found to have violated any of these laws or regulations, the certificates could suffer losses.

If certain events occur relating to Citibank’s financial condition or the propriety of its actions, the Federal Deposit Insurance Corporation, or FDIC, may be appointed as conservator or receiver for Citibank.

If a conservator or receiver were appointed for Citibank at a time when the custodial account is maintained with Citibank, then there may be losses on the certificates unless FDIC deposit insurance covers the full amount on deposit in the custodial account. No assurance can be given as to whether FDIC deposit insurance will cover the full amount on deposit in the custodial account.

Arguments also may be made that the FDIC’s rights and powers as conservator or receiver extend to the originator and servicer and that, as a consequence, the FDIC could exercise control over the assets of the originator or the servicer, or repudiate or otherwise directly affect the rights of holders of the certificates under the transaction documents to which the originator or the servicer is a party. If the FDIC were to take this position, losses on the certificates could result. In the receivership of an unrelated national bank, the FDIC successfully argued that certain of its rights and powers extended to a statutory trust formed by that national bank in connection with a securitization of credit card receivables.

If the FDIC is appointed as conservator or receiver for Citibank, it could increase the likelihood that the originator and servicer will file for bankruptcy. See “Bankruptcy of a Mortgage Loan Seller Could Result in Losses on the Certificates” and “Bankruptcy of the Servicer Could Result in Losses on the Certificates” in this prospectus supplement.

There may also be other possible effects of an insolvency, receivership or conservatorship of Citibank that could result in delays or reductions in distributions on, or other losses with respect to, the certificates. Regardless of any specific adverse determinations in an insolvency, receivership, or conservatorship of Citibank, the fact that such a situation exists could have an adverse effect on the value of the mortgage loans and the liquidity and value of the certificates.

The Trustee May Not Have a Perfected Interest in Collections Held by the Servicer
 
The servicer will be permitted to commingle collections on the mortgage loans with its own funds for one business day.  In addition, the servicer will deposit collections in an account that is not under the control of the trustee, and collections will be held in this account before they are remitted each month to the trustee.  If the servicer is unable to, or fails to, turn over collections as required by the transaction documents, then the issuing entity, the trustee and the holders of the certificates may not have a perfected or priority interest in collections on mortgage loans prior to the time they are remitted to the trustee.

 
S-28

 

 
The Recording of the Mortgages in the Name of MERS Could Increase the Risk of Loss
 
The mortgages or assignments of mortgage for some of the mortgage loans have been recorded in the name of Mortgage Electronic Registration Systems, Inc., or MERS, solely as nominee for the originator and its successors and assigns, including the issuing entity. Subsequent assignments of those mortgages are registered electronically through the MERS system. However, if MERS discontinues the MERS system and it becomes necessary to record an assignment of mortgage to the trustee, any related expenses will be paid by the issuing entity and will reduce the amounts available to make distributions on the certificates.
 
The recording of mortgages in the name of MERS is a relatively new practice in the mortgage lending industry. Public recording officers and others may have limited, if any, experience with lenders seeking to foreclose mortgages, assignments of which are registered with MERS. Accordingly, delays and additional costs in commencing, prosecuting and completing foreclosure proceedings and conducting foreclosure sales of the mortgaged properties could result. Those delays and the additional costs could in turn delay the distribution of liquidation proceeds to certificateholders and increase the amount of losses on the mortgage loans.

Conflicts of Interest May Exist Between the Sponsor and the Issuing Entity and the Holders of Offered Certificates
 
An affiliate of the depositor and the sponsor, directly or indirectly, will initially retain a portion of the offered certificates and all of the subordinate certificates, and may retain all or a portion of these certificates until maturity.  As controlling holder, this affiliate will have the ability to affect the timing of foreclosures and sales of the mortgage loans or related mortgaged properties and certain loss mitigation decisions which in turn may affect the weighted average lives and yields on the offered certificates. Investors in the offered certificates should consider that the timing of such foreclosures or sales and certain loss mitigation decisions may not be in the best interests of all certificateholders and that any conflict of interest among different certificateholders may not be resolved in favor of investors in the offered certificates.
 
Changes in the Market Value of the Certificates May Not be Reflective of the Performance or Anticipated Performance of the Mortgage Loans Underlying the Certificates.
 
The market value of the certificates can be volatile. These market values can change rapidly and significantly and changes can result from a variety of factors.  However, a decrease in market value may not necessarily be the result of deterioration in the performance or anticipated performance of the mortgage loans underlying those certificates.  For example, changes in interest rates, perceived risk, supply and demand for similar or other investment products, accounting standards, capital requirements that apply to regulated financial institutions, and other factors that are not directly related to the mortgage loans underlying the certificates can adversely and materially affect the market value of the certificates.
 
The Marketability of Your Certificates May be Limited
 
Each underwriter intends to make a secondary market for the offered certificates, but neither underwriter nor any other person will have any obligation to do so.  We cannot assure you that a secondary market for your certificates will develop or, if it develops, that it will continue.  Consequently, you may not be able to find a buyer to buy your certificates readily or at prices that will enable you to realize a desired yield.  Illiquidity can have a severe adverse effect on the market value of your certificates.
 
Recent developments in the residential mortgage market in the United States, and credit markets generally, have greatly reduced, and in some time periods, virtually eliminated, any liquidity for mortgage-backed securities, such as the certificates.  The secondary mortgage markets have experienced and could continue to experience unprecedented and significant disruptions resulting from, among other things, reduced investor demand for mortgage loans and mortgage-backed securities, increased investor yield requirements for those loans and securities, downgrades of the ratings of mortgage-backed securities and monoline insurers by the rating agencies and liquidations of investment portfolios, collateralized debt obligations and structured investment vehicles that contain mortgage-backed securities. Fluctuating investor confidence in the mortgage industry also could contribute to illiquidity in the market for mortgage-backed securities, generally.  As a result, the secondary market for mortgage-backed securities has recently experienced extremely limited liquidity.  These conditions may continue or worsen in the future.

 
S-29

 

 
           There have been very few issuances of non-agency residential mortgage-backed securities since January 2008.  The absence of a market for new residential mortgage-backed securities issuances may adversely affect the marketability of the certificates, and may make it difficult to accurately value your certificates.  Many new criteria have been proposed by rating agencies, industry groups, regulatory agencies, the U.S. Congress and the Obama administration with respect to residential mortgage-backed securities issuances going forward.  To the extent that this transaction does not conform to those proposals, the market value of the certificates may be adversely affected.
 
Proposed Changes to Rules with respect to the Offering of Asset-backed Securities May Adversely Affect the Marketability of Your Certificates
 
In April 2010, the SEC issued a release soliciting public comment on proposed rules that, if adopted, would substantially revise Regulation AB and other rules regarding the offering process, disclosure and reporting for publicly-issued asset-backed securities.  Among other things, the proposed changes would require the sponsor or an affiliate of the sponsor to retain at least 5% of each tranche of a securitization, net of any related hedge positions, enhanced disclosure of loan level information at the time of securitization and on an ongoing basis and periodic assessments of an asset-backed security issuer's continued ability to conduct shelf offerings.  We cannot predict what effect the proposed rules will have, if adopted, on the marketability of asset-backed securities such as the certificates.  In addition, if the proposed rules are adopted, your certificates, which will not be subject to the requirements included in the proposed rules, may be less marketable than those that are offered in compliance with the proposed rules.
 
The Servicing Fee May Need to be Increased in Order to Engage a Replacement Servicer
 
The fee payable to the servicer is based on a fee rate equal to a percentage of the outstanding mortgage loan balances.  No assurance can be made that such fee rate in the future will be sufficient to attract a replacement servicer to accept an appointment, although the trustee will have the right to increase the servicing fee if necessary and appropriate in order to engage a replacement servicer.  Any increase in the servicing fee paid to a replacement servicer will decrease the amount of collections available for distribution to the certificateholders.
 

DESCRIPTION OF THE MORTGAGE POOL

Wherever reference is made herein to a percentage of some or all of the mortgage loans, that percentage (unless otherwise specified) is determined on the basis of the total stated principal balance of such mortgage loans as of the cut-off date.

General

On the closing date, the issuing entity is expected to own approximately 255 hybrid mortgage loans secured by first liens on one- to two-family residential properties, condominiums, cooperative units, planned unit developments and townhouses, all of which have original terms to maturity from the first due date of the monthly payment of not more than 30 years, and which have a total stated principal balance of approximately $237,838,333.

The underwriting guidelines generally applied by the originator in originating the mortgage loans are described under “The Originator—Underwriting Standards” below.  Approximately 13.20% of the mortgage loans by original principal balance were originated with exceptions to the underwriting guidelines, including debt-to-income ratios in excess of the guidelines, credit scores that were lower than required, debt-to-income ratios and loan-to-value ratios on second homes in excess of the guidelines and credit history provided by a borrower that was less than what is required.  In these instances, compensating factors were present such as documented excess funds in reserves, FICO scores within the guidelines, income greater than what is required under the guidelines and length of employment that is longer than required under the guidelines.   See “Annex A—Exceptions to Underwriting Guidelines” in this prospectus supplement.

 
S-30

 

The mortgage loans will be acquired by the seller from the originator, will be acquired by the depositor from the seller and the depositor will, in turn, convey the mortgage loans to the issuing entity.  The servicer will service the mortgage loans, directly or through subservicers, pursuant to an existing servicing agreement with the seller, which has been assigned to the issuing entity with respect to the mortgage loans.  We refer you to “The Agreements—Assignment of the Mortgage Loans” in this prospectus supplement.

Pursuant to its terms, each mortgage loan, other than a loan secured by a condominium unit, is required to be covered by a standard hazard insurance policy in an amount generally equal to the lower of the unpaid principal amount thereof or the replacement value of the improvements on the related mortgage loan.  Generally, a condominium association is responsible for maintaining hazard insurance covering the entire building.

Approximately 73.74% of the mortgage loans provide for monthly payments of interest, but not principal, for a period of up to ten years following origination, after which the monthly payments will be increased to amounts sufficient to pay interest and to amortize the principal balances over the remaining terms. Because the monthly payment at the end of the interest-only period will be substantially higher than the interest-only payment, that loan may be subject to an increased risk of default.

None of the mortgage loans will be guaranteed by any governmental agency.

Approximately 46.30%, 16.28% and 7.30% of the mortgage loans are secured by mortgaged properties located in the states of California, New York and Connecticut, respectively.

The mortgage loans were originated from May 2009 through December 2009.  No more than approximately 4.63% of the mortgage loans are secured by properties located in any one zip code area.  The latest stated maturity date of any mortgage loan is January 2040.

As of the cut-off date, approximately 41.97% of the mortgage loans have a stated principal balance of more than $1,000,000 and the average stated principal balance of the mortgage loans is approximately $932,699.

As of the cut-off date, no payment required under any of the mortgage loans has been delinquent.

As of the cut-off date, none of the mortgage loans have been modified.

As of the cut-off date, the weighted average mortgage rate of the mortgage loans is approximately 4.803% per annum, the weighted average margin is approximately 2.250% per annum, the weighted average remaining term to maturity is approximately 352 months, and the non-zero weighted average remaining interest-only term is approximately 112 months. The weighted average seasoning of the mortgage loans is approximately 8 months.  The servicing fee rate for the mortgage loans is 0.25% per annum.

No mortgage loan, based on the original appraisals, had an original loan-to-value ratio at origination of more than 80%.  In addition, none of the mortgage loans have original combined loan-to-value ratios in excess of 80%.

 
S-31

 

The “loan-to-value ratio” of a mortgage loan at any given time is a fraction, expressed as a percentage, the numerator of which is the principal balance of the related mortgage loan at the date of determination and the denominator of which is (a) in the case of a purchase money loan, the lesser of the selling price of the mortgaged property and its appraised value determined in an appraisal obtained by the originator at origination of such mortgage loan, or (b) in the case of a refinance loan, the appraised value of the mortgaged property at the time of origination of the refinanced mortgage loan. No assurance can be given that the value of any mortgaged property has remained or will remain at the level that existed on the appraisal or sale date. If residential real estate values generally or in a particular geographic area decline, the loan-to-value ratios might not be a reliable indicator of the rates of delinquencies, foreclosures and losses that could occur with respect to such mortgage loans. The “original loan-to-value ratio” means a fraction, expressed as a percentage, the numerator of which is the original principal balance of the related mortgage loan, and the denominator of which is the amount discussed above.  The “combined loan-to-value ratio” means a fraction, expressed as a percentage, the numerator of which is the principal balance of the related mortgage loan at the date of determination, together with any second lien loan balance(s), if available, and the denominator of which is the amount discussed above.

Adjustable Mortgage Rates

As of the cut-off date, the mortgage loans will provide for annual adjustment of the related mortgage rate based on the one-year LIBOR index, as described under “—The Index” below.  With respect to each mortgage loan, there will be corresponding adjustments to the monthly payment amount, in each case on each adjustment date applicable thereto; provided that the first such adjustment for all of the mortgage loans will occur after an initial period of five years following origination.   On each adjustment date for a mortgage loan, the mortgage rate will be adjusted to equal the sum, rounded generally to the next highest or nearest multiple of 1/8%, of the related index and the related gross margin, provided that the mortgage rate on each such mortgage loan will not increase or decrease by more than the related periodic cap (ranging from 2.000% to 5.000% per annum) as specified in the related mortgage note on any related adjustment date and will not exceed the related maximum rate over the life of such mortgage loan or be less than the minimum rate.  In addition, the interest rate on the first adjustment date cannot exceed the initial interest rate by more than 5.000% per annum.  Effective with the first monthly payment due on each mortgage loan after each related adjustment date after the interest-only period, if any, has concluded, the monthly payment amount will be adjusted to an amount that will amortize fully the outstanding principal balance of the related mortgage loan over its remaining term, and pay interest at the mortgage rate as so adjusted.  Due to the application of the periodic caps and maximum rates, the mortgage rate on each such mortgage loan, as adjusted on any related adjustment date, may be less than the sum of the related index and the related gross margin, rounded as described herein.

The mortgage loans do not permit the related borrower to convert the adjustable mortgage rate to a fixed mortgage rate.

The Index

As indicated above, the index applicable to the determination of the mortgage rates for the mortgage loans will be the one-year LIBOR index, as published in the Wall Street Journal, as most recently available as of the date 45 days before each adjustment date.  In the event that the one-year LIBOR index becomes unavailable or otherwise unpublished, the servicer, on behalf of the trustee as the noteholder, will choose a new index that is based on comparable information.

Primary Mortgage Insurance

None of the mortgage loans have primary mortgage insurance coverage.  As a result, if a borrower defaults under a mortgage loan, foreclosure proceedings are brought by the servicer, and the value of the mortgaged property is not adequate to  pay principal and accrued interest on the mortgage loan along with related costs and expenses, there is unlikely to be any other source of payments available to reduce the amount of losses that would be incurred on that mortgage loan.

 
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Certain Characteristics of the Mortgage Loans

The mortgage loans are expected to have the approximate aggregate characteristics as of the cut-off date as set forth in Annex A attached to this prospectus supplement and incorporated by reference herein.  Prior to the issuance of the certificates, mortgage loans may be removed from the mortgage pool as a result of incomplete documentation or otherwise, if the depositor deems such removal necessary or appropriate.

The FICO score information in the table appearing in Annex A attached to this prospectus supplement shows the credit scores, if any, that the originator collected for some borrowers in connection with the origination of the mortgage loans.  Third-party credit reporting organizations provide credit, or FICO, scores as an aid to lenders in evaluating the creditworthiness of borrowers.  Although different credit reporting organizations use different methodologies, higher credit scores indicate greater creditworthiness.  Credit scores do not necessarily correspond to the probability of default over the life of the related mortgage loan, because they reflect past credit history, rather than an assessment of future payment performance.  In addition, the credit scores shown were collected from a variety of sources over a period of weeks or months, and the credit scores do not necessarily reflect the credit scores that would be reported as of the date of this prospectus supplement.  Credit scores also only indicate general consumer creditworthiness, and credit scores are not intended to specifically apply to mortgage debt.  Therefore, credit scores should not be considered as an accurate predictor of the likelihood of repayment of the related mortgage loans.

THE ORIGINATOR

CitiMortgage, Inc. (“CitiMortgage”), a New York corporation, originated or acquired the mortgage loans in the trust fund.  CitiMortgage is an indirect wholly owned subsidiary of Citibank, N.A. (“Citibank”), a national banking association, and ultimately of Citigroup Inc., a Delaware corporation.  CitiMortgage is also an affiliate of Citigroup Global Markets Inc., one of the underwriters.   CitiMortgage provided the information in this section.
 
CitiMortgage provides mortgage services throughout the United States.  CitiMortgage began originating mortgage loans in 1979 and derives its income primarily from interest on mortgages that it owns, secondary market mortgage sales, mortgage loan servicing fees, and mortgage origination fees.  From and including 2007 through 2009, CitiMortgage originated or acquired $349 billion of residential mortgage loans, which includes adjustable rate mortgage loans like those included in the trust fund and other types of fixed rate and adjustable rate first- and second-lien residential mortgage loans.
 
Origination Channel
 
CitiMortgage originates or acquires mortgage loans through three “channels” – retail, wholesale, and correspondent.
 
Retail:  Loans originated through the retail channel come primarily from:
 
 
·
applications received via toll-free telephone numbers that can be called from anywhere in the United States or through the internet;
 
 
·
direct contact with prospective borrowers (including borrowers with mortgage loans serviced by CitiMortgage or its affiliates);
 
 
·
referrals from or originations by Citibank and other affiliates of Citibank; and
 

 
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·
referrals from realtors, real estate professionals and corporate clients of Citibank or its affiliates.
 
Retail loans are underwritten by CitiMortgage based on CitiMortgage’s underwriting standards or by third parties, such as mortgage insurance companies, with whom CitiMortgage contracts to underwrite mortgage loans on CitiMortgage’s behalf using CitiMortgage’s underwriting standards (referred to as “contract underwriting”).
 
Wholesale:  Loans originated through the wholesale channel are based on loan applications prepared by qualifying mortgage brokers in accordance with CitiMortgage’s underwriting standards.  Wholesale loans are underwritten by CitiMortgage, a contract underwriter, or in some cases, by a qualifying broker approved by CitiMortgage in advance to underwrite loans using CitiMortgage’s underwriting standards (referred to as “delegated underwriting”).
 
Correspondent:  In the correspondent channel, CitiMortgage purchases qualifying mortgage loans from qualifying third party originators, or “correspondent lenders”, who underwrite loans in accordance with their own underwriting guidelines.  In order to qualify for participation in CitiMortgage’s correspondent program, lending institutions must (i) meet and maintain certain net worth and other financial standards, (ii) demonstrate experience in originating residential mortgage loans, (iii) meet and maintain certain operational standards, (iv) evaluate each loan offered to CitiMortgage for consistency with CitiMortgage’s underwriting guidelines and (v) utilize the services of qualified appraisers.  When selling loans to CitiMortgage, the correspondent lenders must also represent to CitiMortgage that their loans meet CitiMortgage’s underwriting standards.  CitiMortgage reviews samples of loans purchased from correspondent lenders to determine whether they generally conform to CitiMortgage’s underwriting standards.  CitiMortgage will credit score or partially or fully re-underwrite the sample to determine whether the original underwriting process adequately assessed the borrower’s ability to repay and the adequacy of the property as collateral, based on CitiMortgage’s underwriting standards.
 
See “Annex A–Certain Characteristics of the Mortgage Loans” for a breakdown of the mortgage loans in the trust fund by origination channel.  No single broker with delegated underwriting authority or single correspondent lender originated more than 5% of the mortgage loans in the trust fund.
 
Underwriting Standards and Process
 
CitiMortgage’s underwriting standards are applied by or on behalf of CitiMortgage to evaluate an applicant’s credit standing and ability to repay a loan, as well as the value and adequacy of mortgaged property as collateral.  CitiMortgage’s underwriting standards represent a balancing of several factors that may affect the ultimate recovery of the loan, including, among others, the amount of the loan, the ratio of the loan amount to the property value, the borrower’s means of support and the borrower’s credit history. Because differing characteristics may present different levels of risk, CitiMortgage’s standards and process for underwriting vary according to the nature of the borrower or the type of loan.
 
Documentation:  Initially, a prospective borrower must provide information about the borrower, the property to be financed and the type of loan desired. Prospective borrowers of mortgage loans generally were required to provide:
 
 
·
proof of income for the preceding 12 months in the case of loans originated under CitiMortgage’s “standard” or “Citiquick” documentation programs or for the preceding  month in the case of loans evaluated using solely an automated or “desktop” underwriting system, which proof could have been obtained from a variety of sources, such as direct deposit history, pay stubs, W-2s, proof of ownership of income producing assets (such as CDs, money market accounts, savings accounts, stocks and bonds), income statements for rental properties, tax returns and similar documentation,
 

 
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·
if the loan was for the purchase of property, proof of liquid assets in an amount at least equal to 6 months of principal, interest, taxes, insurance and association dues (or 12 months, if the loan amount was greater than $1 million or the loan was originated through the wholesale or correspondent channels), and
 
 
·
telephone verification of employment, which may have been by a third-party national employment verification service.
 
For mortgage loans originated under any documentation program, CitiMortgage also obtains a tri-merged credit report or a full residential credit report on the prospective borrower(s).  A “tri-merged” credit report is prepared by an independent consumer credit reporting agency or national credit repository, and electronically combines the data from “in-file” credit reports from three different national credit repositories; a “full residential mortgage” credit report is prepared by an independent consumer credit reporting agency and combines “on-file” information from at least two national credit repositories with attempts at direct verification of employment and, if the prospective borrower has been employed for less than two years, previous employment and income.
 
Underwriting Evaluation:  Mortgage loan applications are evaluated by an automated or “desktop” underwriting system (“AUS”), a human underwriter, or in some cases, both to determine the appropriate credit decision and documentation requirements for the loan transaction.  CitiMortgage uses its own proprietary AUS, but contract underwriters, brokers with delegated underwriting authority or correspondent lenders may use an AUS developed by a third party, such as Fannie Mae (Desktop Underwriter®), Freddie Mac (Loan Prospector®) or one that CitiMortgage otherwise deems acceptable.  Loans not automatically approved or declined by an AUS are directed to a human underwriter who evaluates applications against a set of specific criteria.
 
Credit Scoring:  CitiMortgage uses credit scoring as part of its underwriting process.  Credit scores are based on CitiMortgage’s own proprietary scoring method or credit (also known as “FICO”) scores obtained from up to three national credit bureaus.  FICO scores are statistical credit scores obtained by many mortgage lenders in connection with the loan application to help assess a borrower's creditworthiness.  FICO scores from the national credit bureaus are generated by models developed by the credit bureaus or other third parties and are derived by analyzing data on consumers in order to establish patterns believed to be indicative of the borrower's probability of default.  Both CitiMortgage’s proprietary credit scores and FICO scores are based on a borrower's historical credit data, including, among other things, payment history, delinquencies on accounts, levels of outstanding indebtedness, length of credit history, types of credit, and bankruptcy experience. FICO scores range from approximately 300 to approximately 850, with higher scores indicating an individual with a more favorable credit history compared to an individual with a lower score.  Because FICO scores are based solely on information at a particular credit repository, one person may have several different FICO scores.  CitiMortgage uses the middle score if 3 FICO scores are obtained.  If 2 FICO scores are obtained, CitiMortgage uses the lower score.  If there are multiple borrowers on an application and 3 FICO scores are obtained for each, the lowest middle score is used; if fewer than 3 FICO scores are obtained for each borrower, the lowest score is used.  If the credit bureaus cannot generate a credit score due to insufficient information about an applicant, CitiMortgage will consider proof of an applicant's alternative credit history, such as a history of consistent rent and utility payments.
 
The minimum FICO score generally required for mortgage loans in the trust fund was 620 for loans originated  through the retail channel and 720 for loans originated through wholesale and correspondent channels.
 
Loan-to-Value Ratio:  Loan-to-value ratio is considered in the underwriting process.  The loan-to-value ratio is the percentage equal to (i) the principal balance of the mortgage loan at origination divided by (ii) the lesser of (a) the appraised value of the related mortgaged property determined in an appraisal obtained at origination or an automated valuation model or tax assessed value (if permitted by the applicable product type) and (b) except for mortgage loans made for refinancing purposes, the purchase price for the mortgaged property. The maximum loan-to-value ratio permitted under CitiMortgage’s underwriting standards varies based on loan purpose, property type, and size of loan, but for mortgage loans included in the trust fund, generally ranged from 50% to 80%.
 

 
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Combined Loan-to-Value Ratio or “CLTV”: CLTV is also considered in the underwriting process.  CLTV is the ratio, expressed as a percentage, of (i) the principal amount of the mortgage loan at origination plus (a) any junior mortgage encumbering the related mortgaged property originated by CitiMortgage or of which CitiMortgage has knowledge at the time of origination or (b) the total available amount of any home equity line of credit originated by CitiMortgage or of which CitiMortgage has knowledge at the time of origination, over (ii) the lesser of (a) the appraised value of the related mortgaged property at origination or (b) the purchase price for such property.  The maximum combined loan-to-value ratio permitted under CitiMortgage’s underwriting standards varies based on loan purpose, property type and size of loan, but for mortgage loans in the trust fund generally ranged from 65% to 90%.
 
Debt-to-Income Ratio:  An applicant's debt-to-income ratio is considered in the underwriting process and is calculated as the amount of the monthly debt obligations (including the proposed new housing payment and related expenses such as property taxes and hazard insurance) to his or her gross monthly income.  The maximum debt-to-income ratio permitted under CitiMortgage’s underwriting standards for mortgage loans in the trust fund was generally 40%.
 
Compensating Factors
 
In making lending decisions, CitiMortgage generally determines:
 
 
·
whether the prospective borrower has enough monthly income to meet monthly obligations on the proposed loan and related property expenses as well as the borrower’s other financial obligations and monthly living expenses, and
 
 
·
if the loan is for the purchase of the mortgaged property, whether the prospective borrower has enough liquid assets to acquire the mortgaged property and make the initial monthly mortgage payments, taking into account, among other things, proceeds from the sale of a prior residence. This determination may be made from evidence such as a contract for sale of a prior residence and bank statements supplied by the prospective borrower.
 
Other credit considerations may cause a loan underwriter (either AUS or human) to depart from CitiMortgage’s underwriting standards, as described above, and a loan underwriter may use additional information or verification to compensate for the departure.  Compensating factors may include, but are not limited to, 20% or more down payments, high monthly income, low loan-to-value ratio (for refinance transactions), low debt ratio, other liquid assets, good credit or pay history (either generally or with CitiMortgage or its affiliates), stable employment or residency, employment outlook (potential for increased earnings and advancement because of education or job training) or erroneous credit information.  For example, CitiMortgage permits debt-to-income ratios to exceed guidelines when the applicant has documented compensating factors for exceeding ratio guidelines such as documented excess funds in reserves after closing, a history of making a similar sized monthly debt payment on a timely basis, substantial residual income after monthly obligations are met, evidence that ratios will be reduced shortly after closing when a financed property under contract for sale is sold, or additional income has been verified for one or more applicants that is ineligible for consideration as qualifying income.
 
Leasehold Loans
 
Leasehold loans are approved in accordance with CitiMortgage’s standard underwriting guidelines.  An American Land Title Association (ALTA) leasehold title insurance policy is required that
 
 
·
contains no exceptions for any adjustable features of the lease and
 

 
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•    assures that the mortgage is not subordinated to any lien or encumbrance other than the land lease.
 
The term of the land lease must extend at least through the scheduled maturity of the mortgage loan and must give the originator the right to receive notice of and to cure any default by the borrower. The leasehold must be assignable or transferable if it is subjected to the mortgage lien. (California branches of Citibank may require the borrower to obtain and record a consent to assignment of lease and/or subordination agreement.) Payments due pursuant to the land lease are taken into account in debt ratio calculations.
 
Appraisals
 
CitiMortgage requires the value of the mortgaged property, together with any other collateral, to support the principal balance of the mortgage loan with enough excess value to protect against minor declines in real estate values. CitiMortgage requires an appraisal of each property to be financed. A second appraisal may be required if the loan amount is greater than $1 million, and is always required if the loan amount is greater than $2 million. Each appraisal is conducted by an independent fee appraiser. The appraiser personally visits the property and estimates its market value on the basis of comparable properties. CitiMortgage also accepts, in lieu of originals, electronic appraisals without photographs from appraisers who utilize approved appraisal software packages.
 
The independent appraisers do not receive any compensation that is dependent upon either the amount of the loan or its consummation.  CitiMortgage’s judgment of the appraisal determines the maximum amount of the mortgage loan.
 
If CitiMortgage refinances a mortgage loan originated by CitiMortgage or an affiliate, CitiMortgage may not require a current appraisal of the property if the principal balance of the mortgage loan is only increased by an amount used to pay off junior liens on the property plus the homeowner’s out-of-pocket costs for the refinancing, or if the interest rate on an existing mortgage loan is modified.
 
Lien Records; Title Insurance
 
At origination, CitiMortgage obtains a search of the recorded liens on the property being financed. Title insurance, or an attorney's opinion of title in jurisdictions where the practice is acceptable, is required for all mortgage loans, except that for cooperative apartment loans, CitiMortgage will not require title insurance or a title search of the cooperative apartment building.  For mortgage loans that are refinancings of loans serviced by CitiMortgage or its affiliates, CitiMortgage will not require a lien search, and the mortgage loan may close before a subordination agreement on an existing lien is obtained as long as title insurance insuring a first lien position on the mortgage loan is obtained.

Please refer to “Risk Factors—Underwriting Standards May Affect Risk of Loss on Mortgage Loans” and “Risk Factors—In Underwriting the Mortgage Loans, the Originator May Not Have Followed its Underwriting Guidelines; Underwriting Guidelines May Not Identify or Appropriately Assess Repayment Risks” for certain risks that should be considered by investors.  See also “Description of the Mortgage Pool—Certain Characteristics of the Mortgage Loans” for a discussion of the limitations on the use of credit or FICO scores.

 PRE-OFFERING REVIEW OF THE MORTGAGE LOANS
Introduction
 
 
The sponsor, prior to acquiring the mortgage loans for the mortgage pool, and the underwriters, as part of their pre-offering review procedures, engaged third-party loan review firms to conduct their respective reviews of the mortgage loans considered for inclusion in the mortgage pool.  In the case of the sponsor, the review included the use of a loan review firm to review 100% of the mortgage loans and, in the case of the underwriters, the review was conducted on a sample of the mortgage loans by a different loan review firm.
 

 
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With respect to the mortgage loans that they respectively reviewed, each of the sponsor’s and the underwriters’ review consisted of a credit and compliance review on those mortgage loans and a review of the independent appraisals of the mortgaged properties that were obtained by the originator in connection with the origination of those mortgage loans.  The credit and compliance reviews involved a review of the mortgage loan documentation in the originator’s mortgage loan files to assess the originator’s analysis of the creditworthiness of the borrowers, adherence to the originator’s stated underwriting guidelines, and compliance with applicable law and regulations.  The appraisal reviews assessed the reasonableness of the original appraisals of the mortgaged properties.
 
None of the procedures conducted as part of the pre-offering reviews constituted, either separately or in combination, an independent underwriting of the mortgage loans.  It is also important to note that the procedures conducted as part of the review of the original appraisals were not re-appraisals of the mortgaged properties.  Estimates of the value of mortgaged properties that were obtained as part of the appraisal review process should not be relied upon as an assessment of value of the mortgaged properties comparable to that which an appraisal might provide.  See “—Limitations of the Pre-offering Review Process” below and “Risk Factors—Pre-offering Review of the Mortgage Loans Underlying the Certificates May Not Reveal Aspects of the Mortgage Loans Which Could Lead to Losses” for additional information regarding the limitations of the pre-offering review procedures and estimates of mortgaged property values described in this section.
 
Credit and Compliance Review
 
As noted above, prior to acquiring the mortgage loans for the mortgage pool, the sponsor conducted a credit and compliance review of 100% of the mortgage loans.  This review consisted of a review of the documentation in the originator’s loan files relating to the creditworthiness of the borrowers, and an assessment of whether the characteristics of the mortgage loans and the borrowers reasonably conformed to the data contained in the loan file, the loan documentation, and the underwriting guidelines previously provided to the sponsor by the originator.  The sponsor also considered exceptions to the underwriting guidelines that were permitted by the originator and related compensating factors for those mortgage loans.  See “Annex A – Certain Characteristics of the Mortgage Loans” for additional information regarding exceptions to the originator’s mortgage loan underwriting criteria and borrower asset and income verification, which information was derived from documentation contained in the originator’s loan files.  In addition, the sponsor reviewed each mortgage loan for compliance with applicable law and regulations.
 
As part of their pre-offering procedures, the underwriters’ third party loan review firm performed credit and compliance reviews of a sample of 141 mortgage loans (constituting approximately 50%, by number of loans, of the mortgage loans considered for inclusion in the mortgage pool).  A portion of that mortgage loan sample was chosen randomly and a portion was adversely selected based on various criteria such as largest principal balances, highest mortgage rates, and highest debt-to-income ratios.
 
The credit and compliance review by the underwriters' third party loan review firm of those 141 mortgage loans involved a review of the originator’s loan files to determine whether the mortgage loans complied with the originator’s stated underwriting guidelines. As with the sponsor’s review, the underwriters’ review identified some mortgage loans where exceptions to the underwriting guidelines were present but other factors were deemed sufficient to compensate for such exceptions.  See “Annex A – Certain Characteristics of the Mortgage Loans” for additional information regarding exceptions to the originator’s mortgage loan underwriting criteria and borrower asset and income verification, which was derived from documentation contained in the originator’s loan files. In addition, the underwriters' third party loan review firm reviewed each of those 141 mortgage loans for compliance with applicable law and regulations. Following this review, the sponsor and the underwriters determined that four of the 141 loans reviewed would not be included in the mortgage pool.  One of these four loans was removed because necessary documentation to confirm compliance was not available at the time the pre-offering reviews were conducted.   Three of these four loans were removed for other reasons relating to the interpretation of the applicable regulatory requirements.

 
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Investors should note that only those mortgage loans included in the sample described above were subject to any credit or compliance review by the underwriters and that mortgage loans not included in the sample described above were not the subject of a credit or compliance review by the underwriters.  See “—Limitations of the Pre-offering Review Process,” below and “Risk Factors—Pre-offering Review of the Mortgage Loans Underlying the Certificates May Not Reveal Aspects of the Mortgage Loans Which Could Lead to Losses.”
 
Appraisal Review
 
Prior to acquiring the mortgage loans for the mortgage pool, the sponsor reviewed 100% of the appraisals for the mortgaged properties obtained by the originator in connection with the origination of the mortgage loans to assess compliance with the originator's appraisal guidelines and standards in effect at the time of origination.  The sponsor reviewed each original appraisal to assess whether it appeared on its face to comply with those guidelines and standards and to assess the appropriateness of the comparables used in the original appraisal process.  As an additional procedure designed to assess the appraisal, the sponsor then compared the original appraisal to an estimate of the current value of the mortgaged property based on an automated valuation model (or AVM) or, if an AVM was not available, a broker price opinion (or BPO) regarding the current value of the mortgaged property.  BPOs were also obtained where the estimate of value derived from the AVM showed a greater than 8% negative variance from the original appraised value.
 
In cases in which a BPO was obtained by the sponsor, the BPO was compared to the original appraisal.   In cases where the current estimate of value of the mortgaged property based on the BPO was lower than the original appraised value, and where the difference was significantly greater than the corresponding decline in the comparable Case-Schiller index of home prices, further analysis was conducted to attempt to determine whether the difference was suggestive of a defect in the appraisal, reflective of a defect in the BPO or attributable to the limitations inherent in any reliance on BPOs.
 
The underwriters and their third-party loan review firm reviewed valuations and appraisals of all of the mortgaged properties using AVMs, appraiser price opinions (or APOs) or retroactive valuations, which are estimates of the value of the mortgaged property at the time of origination of the related mortgage loan. Based upon the underwriters’ and sponsor’s review of these AVMs, APOs and retroactive estimations of value, the sponsor decided (without having made a determination as to the accuracy of any of the estimates of value obtained) to exclude any mortgage loan from the mortgage pool for which both (i) it was unable to reasonably determine that the difference between the original appraisal and the APO obtained by the underwriters was substantiated solely by a general decline in property values in the area in which the mortgage property is located, and (ii) based on the APO estimated value, the ratio of current principal balance (together with any second lien loan balance(s), if available) to estimated value would be greater than 90%.
 
Estimates of Current Value
 
As described above, estimates of the current value of the mortgaged properties were obtained for some or all of the mortgage loans by the sponsor through AVMs and BPOs and by the underwriters through AVMs and APOs. Mortgage loans for which APOs were obtained by the underwriters constitute approximately 52% of the mortgage pool.  APOs for those mortgage loans were obtained by the underwriters because the AVMs obtained by the underwriters for those mortgage loans indicated that there may have been a decline in the value of those mortgaged properties of more than 8% since origination.
 
Differences between original appraised values and the estimates of current value obtained through the use of AVMs, BPOs and APOs could be due to a number of factors, including, without limitation, change in the value of the home, as well as inherent limitations in the methodology for estimating property values through the use of AVMs, BPOs and APOs.  AVMs are statistical algorithms that provide a range of estimated property values based on disclosed factual data such as the size of the house, the number of bedrooms and bathrooms, age and proximity to comparable sales collected from historical information accessed through county records and, in some cases, appraisal reports. Comparable sales used in these algorithms are automatically selected and consist of all similarly sized and located properties.  The estimation of value produced by an AVM can be quite different from that provided by an appraisal, a BPO or and APO due to, among other factors, property uniqueness, upgrades, interior or exterior quality and overall condition.  In some cases, AVMs are not available.  This may be due to numerous factors including limited comparable sales, a wide range of property values over a concentrated area, or unique property characteristics that are difficult to value.
 

 
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BPOs are estimates of property values rendered by real estate agents based on a review of comparable sales and a review of the property characteristics and conditions based on an external view from the nearest public property, which is typically from the street on which the property is located.  Providers of BPOs are not licensed appraisers and, like estimates obtained through the use of AVMs, BPOs do not take into account the condition of the interior or other factors not easily viewed from outside of the property.  Comparable sales used to determine the value range are selected by the broker based on commonalities such as size, location and conditions.
 
An APO is an appraiser’s current assessment of the value of a home; it does not constitute a full appraisal (or involve a physical inspection of the interior) but it involves a physical inspection of the exterior and an assessment of the property information and the local market conditions.  An APO differs from a BPO in that an APO uses a qualified appraiser to conduct the review and estimate value, whereas a BPO is performed by a real estate agent.
 
For the 133 mortgage loans for which APOs were obtained by the underwriters, which represent approximately 54.70% of the stated cut-off date balance of the mortgage loans, the weighted average original combined loan-to-value ratio, using the sum of the original loan balance and the full lien amount (drawn and undrawn) for any second mortgages, if available, and the appraised value at the time of origination, was approximately 58.26%.  For those same 133 loans, the weighted average combined loan-to-value ratio using the sum of the cut-off date loan balance and the full lien amount (drawn and undrawn) for any second mortgages, if available, to the estimated current value from the APO was approximately 64.47%.  There are 122 mortgage loans in the mortgage pool for which the underwriters did not obtain an APO and, accordingly, the information in the preceding sentence may not be representative of what this ratio would be for any mortgage loan for which an APO was not obtained or representative of what the weighted average of this ratio would be for all of the mortgage loans.
 
For the 64 mortgage loans for which BPOs were obtained by the sponsor, representing approximately 25.45% of the cut-off date balance of the mortgage loans, the weighted average original loan-to-value ratio, using the sum of the original loan balance and the full lien amount (drawn and undrawn) for any second mortgages, if available, and the appraised value at the time of origination, was approximately 58.18%.  For those same 64 loans, the weighted average ratio of the sum of the cut-off date loan balance and the full lien amount (drawn and undrawn) for any second mortgages, if available, to the estimated current value from the BPO was approximately 62.40%.  There are 191 mortgage loans in the mortgage pool for which the sponsor did not obtain a BPO and, accordingly, the information in the preceding sentence may not be representative of what this ratio would be for any mortgage loan for which a BPO was not obtained or representative of what the weighted average of this ratio would be for all of the mortgage loans. Investors should also note that the 133 mortgage loans for which an APO was obtained by the underwriters include some but not all of the mortgage loans for which a BPO was obtained by the sponsor.
 
As noted above, the various estimates of current value of mortgaged properties obtained through use of APOs and BPOs should not be relied upon as an assessment of value of the mortgaged properties comparable to that which an appraisal might provide. Differences between original appraised values and the estimates of current value obtained through the use of APOs and BPOs could be due to a number of factors, including, without limitation, change in the value of the home, as well as inherent limitations in the methodology for estimating property values through the use of APOs and BPOs. See “—Limitations of the Pre-offering Review Process” below and “Risk Factors—Pre-offering Review of the Mortgage Loans Underlying the Certificates May Not Reveal Aspects of the Mortgage Loans Which Could Lead to Losses” for additional information regarding the limitations of estimates of mortgaged property values described herein.
 

 
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Limitations of the Pre-offering Review Process
 
As noted above under the Risk Factor captioned “Pre-offering Review of the Mortgage Loans Underlying the Certificates May Not Reveal Aspects of the Mortgage Loans Which Could Lead to Losses,” there can be no assurance that the loan review procedures the sponsor and the underwriters conducted uncovered all relevant factors that could affect the performance of the mortgage loans.
 
In addition to the differences that exist among and between estimated valuations due to the subjective nature of estimated valuations and appraisals, particularly between different appraisers and brokers estimating valuations or performing appraisals at different points in time, estimating or appraising the value of, and performing other analysis of, high-cost properties (such as the mortgaged properties) can involve challenges that may not generally be present with respect to properties whose values fall within the average price range of their respective markets.  There may be fewer substitute properties available (from which to derive comparative values) in the high-cost market, unique buyer attitudes and preferences, and more difficult to quantify “appeal” issues, any of which can make valuations in the high-cost home segment less precise than for more averaged-price housing.
 
            Similarly, estimates of value for this segment (such as the APOs performed for the underwriters and BPOs performed for the sponsor) are also imprecise.  The unique nature of some of these properties, the use in some cases of highly customized and top-quality materials, overall interior design/appeal issues, and in most cases limited notations in the original appraisal report regarding key elements that drove the original property valuation, pose further challenges for a subsequent reviewer.  Also, the reviewer (or the preparer of a BPO or APO) does not typically have access to an interior inspection of the property and therefore is not able to gain an appreciation for the interior appointments and amenities associated with the valuation of these types of properties.
 
As described above, APOs and BPOs were obtained by the underwriters only on a sample of the mortgage pool, and not with respect to each mortgage loan in the mortgage pool.  Had the sample been larger, it may have revealed additional mortgage loans where the estimate of current values was lower than the origination appraised value or whose original appraisal could not be reasonably substantiated, in each case based on the review performed. Indeed, such a larger sample might have noted such estimated declines in value and discrepancies not only on additional mortgage loans but also to a greater degree than was noted for the mortgage loans for which APOs and BPOs were obtained.
 
Investors should also note that the underwriters conducted credit and compliance reviews on a limited sample of the mortgage loans, as described above.  Had that sample been larger, or had different mortgage loans been included in the sample, issues requiring further review might have been found in numbers greater than were uncovered in the sample, or other issues of concern might have been identified, any or all of which could have a potential adverse affect on the credit quality of the mortgage loans.
 
Investors are encouraged to make their own determination as the extent to which they place reliance on the limited loan review procedures of the sponsor and the underwriters of the certificates.

STATIC POOL INFORMATION

Static pool information with respect to mortgage loans similar to the mortgage loans originated and serviced by the originator during the period from March 2005 to February 2010, presented by month of origination, is available online at http://www.sequoia-reports.com under “SMT 2010-H1” for the deal name.  Access to this web address is unrestricted and free of charge.    Information available at this web address under “SMT 2010-H1” is deemed to be part of this prospectus supplement.

Various factors may affect the prepayment, delinquency and loss performance of the mortgage loans over time.  The various mortgage loans for which performance information is shown at the above internet addresses had initial characteristics that differed, and may have differed in ways that were material to the performance of those mortgage loans.  These differing characteristics include, among others, product type, credit quality, geographic concentration, average principal balance, weighted average interest rate, weighted average loan-to-value ratio, weighted average term to maturity and the presence or absence of prepayment penalties.  We do not make any representation, and you should not assume, that the performance information shown at the above internet addresses is in any way indicative of the performance of the mortgage loans in the trust fund.  The mortgage loans will continue to be serviced in accordance with accepted servicing practices through charge-off, which we define as the ultimate liquidation of the loan or any REO acquired in respect of the loan.  For purposes of Form 10-D reporting and other such reporting under the Securities Exchange Act of 1934, delinquency information on the mortgage loans will be provided through charge-off in thirty (30) day segments, measured as of the end of the month prior to the reporting month.

 
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As used in the static pool information and in this prospectus supplement, a loan is considered to be “30 to 59 days” or “30 or more days” delinquent when a payment due on any scheduled due date remains unpaid as of the close of business on the last business day immediately prior to the next following monthly scheduled due date; “60 to 89 days” or “60 or more days” delinquent when a payment due on any scheduled due date remains unpaid as of the close of business on the last business day immediately prior to the second following monthly scheduled due date; and so on.  The determination as to whether a mortgage loan falls into these categories is made as of the close of business on the last business day of each month.  Grace periods and partial payments do not affect these determinations.

ADDITIONAL INFORMATION

The depositor has filed the registration statement with the Securities and Exchange Commission (the “SEC”) (Registration Nos. 333-159791 and 333-159791-01). The depositor is also subject to some of the information requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), and, accordingly, will file reports thereunder with the SEC.  The registration statement and the exhibits thereto, and reports and other information filed by the depositor under the Exchange Act can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, and at certain of its regional offices located as follows: Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office, 233 Broadway, New York, New York 10279 and electronically through the SEC’s Electronic Data Gathering, Analysis and Retrieval System at the SEC’s website (http://www.sec.gov).

The description in this prospectus supplement of the trust fund and the mortgaged properties is based upon the mortgage pool as it is expected to be constituted at the close of business on the cut-off date, as adjusted for the scheduled principal payments due on or before the cut-off date and by principal prepayments received prior to the cut-off date. Prior to the issuance of the offered certificates, mortgage loans may be removed from the trust fund as a result of incomplete documentation or otherwise, if the depositor deems that removal necessary or appropriate. A limited number of other mortgage loans may be added to the trust fund prior to the issuance of the offered certificates. The depositor believes that the information in this prospectus supplement will be substantially representative of the characteristics of the mortgage pool as it will be constituted at the time the offered certificates are issued although the range of mortgage rates and maturities and some other characteristics of the mortgage loans in the trust fund may vary.

A current report on Form 8-K will be available to purchasers of the offered certificates and will be filed, together with the pooling agreement, with the SEC after the initial issuance of the offered certificates. In the event a material number of mortgage loans are removed from or added to the trust fund as described in the preceding paragraph, that removal or addition will be noted in the current report.

Pursuant to the pooling agreement, the trustee will prepare a monthly statement to certificateholders containing the information described under “The Agreements — Reports to Certificateholders.” The trustee will make available each month, to any interested party, the monthly statement to certificateholders via the trustee’s website.  The trustee’s website will be located at www.ctslink.com, and assistance in using the website can be obtained by calling the trustee’s customer service desk at 1-866-846-4526.  Parties that are unable to use the above distribution option are entitled to have a paper copy mailed to them via first class mail by notifying the trustee at the following address: Wells Fargo Bank, N.A., 9062 Old Annapolis Road, Columbia, Maryland, 21045, Attention: Client Manager—Sequoia Mortgage Trust 2010-H1.

 
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In addition, within a reasonable period of time after the end of each calendar year, the trustee will, upon request, prepare and deliver to each certificateholder of record during the previous calendar year a statement containing information necessary to enable certificateholders to prepare their tax returns.  These statements will not have been examined and reported upon by an independent public accountant.

See “Available Information” in the accompanying prospectus.


THE ISSUING ENTITY

General

The issuing entity is a common law trust formed under the laws of the State of New York by a pooling agreement dated as of April 1, 2010. The issuing entity was formed for the sole purpose of issuing the certificates. The depositor is the settlor of the issuing entity. The depositor is a limited purpose finance corporation and an indirect wholly-owned subsidiary of Redwood Trust, Inc., a Maryland corporation.  None of the depositor, Redwood Trust, Inc. or any of their respective affiliates has guaranteed or is otherwise obligated with respect to payment of the certificates and no person or entity other than the issuing entity is obligated to pay the certificates.

The issuing entity’s assets will consist almost entirely of the mortgages conveyed to the trustee.

The only source of cash available to make interest and principal payments on the certificates will be the assets of the issuing entity.  The issuing entity will have no source of cash other than collections and recoveries on the mortgage loans through insurance or otherwise and advances made by the servicer, which are reimbursable to the servicer as discussed in this prospectus supplement.  The amount of funds available to pay the certificates may be affected by, among other things, realized losses incurred on defaulted mortgage loans.

DESCRIPTION OF THE CERTIFICATES

General

On the closing date, the certificates will be issued pursuant to the pooling agreement.  Set forth below are summaries of the specific terms and provisions pursuant to which the certificates will be issued. The following summaries are subject to, and are qualified in their entirety by reference to, the provisions of the pooling agreement.  Capitalized terms used in this prospectus supplement to describe payment characteristics of the certificates are defined under “—Glossary of Terms” below.

The Sequoia Mortgage Trust 2010-H1 Mortgage Pass-Through Certificates will consist of the Class A-1, Class A-IO, Class R and Class LT-R Certificates, or the senior certificates, and the Class B-1, Class B-2, Class B-3 and Class B-4 Certificates, or the subordinate certificates. The senior certificates, the Class B-1 Certificates and Class B-2 Certificates are collectively referred to herein as the offered certificates.  Only the senior certificates, the Class B-1 Certificates and the Class B-2 Certificates are offered by this prospectus supplement.  The Class B-3 Certificates and Class B-4 Certificates are referred to in this prospectus supplement as the privately-offered certificates.  The privately-offered certificates are not offered under this prospectus supplement.  Accordingly, the description of the privately-offered certificates provided in this prospectus supplement is solely for informational purposes.  On the closing date, affiliates of the seller will purchase the subordinate certificates, the Class A-IO, the Class R and the Class LT-R Certificates and the seller will purchase a portion of the Class A-1 Certificates.

 
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 On the closing date, the initial total Class Principal Amount of the certificates will equal the total principal balance of the mortgage loans as of the cut-off date. The offered certificates will be issued in the initial amounts set forth in the table under “The Offered Certificates.” The Class B-3 Certificates and Class B-4 Certificates will be issued in the approximate initial Class Principal Amounts of $4,162,000 and $2,973,233, respectively.  The initial issued amount of each class may be increased or decreased by up to 5% to the extent that the principal balance of the mortgage loans is increased or decreased as described under “Description of the Mortgage Pool.”

The minimum denominations and incremental denominations of the offered certificates are set forth in the table on page S-2.

The certificates represent beneficial ownership interests in the issuing entity. On the closing date, the assets of the issuing entity will consist primarily of (1) the mortgage loans; (2) such assets as from time to time are identified as deposited in respect of the mortgage loans in the custodial account and the certificate distribution account (see “— Payments on Mortgage Loans; Accounts” below); (3) the issuing entity’s rights under the assignment, assumption and recognition agreement pursuant to which the seller and the depositor assigned their respective interests in the servicing agreement with respect to the mortgage loans originally entered into between the seller and the originator; (5) the issuing entity’s rights under the mortgage loan purchase agreement, as described above under “The Agreements — Assignment of the Mortgage Loans,” (6) property acquired by foreclosure of the mortgage loans or deed in lieu of foreclosure; (7) any applicable insurance policies and (8) the proceeds of all of the foregoing.

Book-Entry Certificates

The certificates (other than the Class R Certificate) will be book-entry certificates. Persons acquiring beneficial ownership interests in the certificates, or certificate owners, may elect to hold their certificates through the Depository Trust Company, or DTC, in the United States, or Clearstream Banking, societe anonyme (formerly Cedelbank), commonly known as Clearstream, Luxembourg, or Euroclear (in Europe) if they are participants of such systems, or indirectly through organizations which are participants in such systems.

The book-entry certificates will be issued in one or more global certificates which equal the initial principal amount of each class and will initially be registered in the name of Cede & Co., the nominee of DTC.  Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf of their participants through customers’ securities accounts in Clearstream, Luxembourg’s and Euroclear’s names on the books of their respective depositaries which in turn will hold such positions in customers’ securities accounts in the depositaries’ names on the books of DTC. Except as described below, no person acquiring a book-entry certificate, or beneficial owner, will be entitled to receive a physical certificate representing such certificate.  Unless and until definitive certificates are issued, it is anticipated that the only “certificateholders” of the certificates will be Cede & Co., as nominee of DTC.  Certificate owners will not be certificateholders as that term is used in the pooling agreement. Certificate owners are only permitted to exercise their rights indirectly through the participating organizations that utilize the services of DTC, including securities brokers and dealers, banks and trust companies and clearing corporations and certain other organizations, or Participants, and DTC.

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 in turn be recorded on the records of DTC, if the beneficial owner’s Financial Intermediary is not a DTC participant, and on the records of Clearstream, Luxembourg or Euroclear, as appropriate).

 
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Certificate owners will receive all payments of principal of, and interest on, the certificates from the trustee through DTC and DTC participants. While the certificates are outstanding (except under the circumstances described below), under the rules, regulations and procedures creating and affecting DTC and its operations (or the Rules), DTC is required to make book-entry transfers among Participants on whose behalf it acts with respect to the certificates and is required to receive and transmit payments of principal of, and interest on, the certificates. Participants and indirect participants which have indirect access to the DTC system, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (or the Indirect Participants), with whom certificate owners have accounts with respect to certificates are similarly required to make book-entry transfers and receive and transmit such payments on behalf of their respective certificate owners. Accordingly, although certificate owners will not possess certificates, the Rules provide a mechanism by which certificate owners will receive payments and will be able to transfer their interest.

Certificate owners will not receive or be entitled to receive certificates representing their respective interests in the certificates, except under the limited circumstances described below. Unless and until definitive certificates are issued, certificate owners who are not Participants may transfer ownership of certificates only through Participants and Indirect Participants by instructing such Participants and Indirect Participants to transfer certificates, by book-entry transfer, through DTC for the account of the purchasers of such certificates, which account is maintained with their respective Participants. Under the Rules and in accordance with DTC’s normal procedures, transfers of ownership of certificates will be executed through DTC and the accounts of the respective Participants at DTC will be debited and credited. Similarly, the Participants and Indirect Participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing certificate owners.

Because of time zone differences, credits of securities received in Clearstream, Luxembourg 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 Clearstream, Luxembourg Participants on such business day. Cash received in Clearstream, Luxembourg or Euroclear as a result of sales of securities by or through a Clearstream, Luxembourg Participant (as defined herein) or Euroclear Participant (as defined herein) to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream, Luxembourg or Euroclear cash account only as of the business day following settlement in DTC.

Transfers between Participants will occur in accordance with DTC rules. Transfers between Clearstream Luxembourg Participants and Euroclear Participants will occur in accordance with their respective rules and operating procedures.

Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream Luxembourg Participants or Euroclear Participants, on the other, will be effected in DTC in accordance with the DTC rules on behalf of the relevant European international clearing system by the relevant depositary; however, such cross market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to the relevant depositary to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same day funds settlement applicable to DTC. Clearstream Luxembourg Participants and Euroclear Participants may not deliver instructions directly to the European depositaries.

DTC, which is a New York-chartered limited purpose trust company, performs services for its participants, some of which (and/or their representatives) own DTC. In accordance with its normal procedures, DTC is expected to record the positions held by each DTC participant in the book-entry certificates, whether held for its own account or as a nominee for another person. In general, beneficial ownership of book-entry certificates will be subject to the rules, regulations and procedures governing DTC and DTC participants as in effect from time to time.

 
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Clearstream Luxembourg is incorporated under the laws of Luxembourg as a professional depository. Clearstream Luxembourg holds securities for its participating organizations (“Clearstream Luxembourg Participants”) and facilitates the clearance and settlement of securities transactions between Clearstream Luxembourg Participants through electronic book-entry changes in accounts of Clearstream Luxembourg Participants, thereby eliminating the need for physical movement of certificates. Transactions may be settled in Clearstream Luxembourg in any of various currencies, including United States dollars. Clearstream Luxembourg provides to its Clearstream Luxembourg Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally-traded securities and securities lending and borrowing. Clearstream Luxembourg interfaces with domestic markets in several countries. As a professional depository, Clearstream Luxembourg is subject to regulation by the Luxembourg Monetary Institute. Clearstream Luxembourg Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to Clearstream Luxembourg is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Clearstream Luxembourg Participant, either directly or indirectly.

Euroclear was created in 1968 to hold securities for its participants (or Euroclear Participants) and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Transactions may be settled in any of various currencies, including United States dollars. Euroclear includes various other services, including securities lending and borrowing, and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. Euroclear is operated by Euroclear Bank, S.A./N.V. (or the Euroclear Operator). All operations are conducted by the Euroclear Operator, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly.

Securities clearance accounts and cash accounts with the Euroclear Operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System and applicable Belgian law (collectively, the Terms and Conditions). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no record of or relationship with persons holding through Euroclear Participants.

Payments 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 DTC participants in accordance with DTC’s normal procedures. Each DTC participant will be responsible for disbursing such payment 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.

Under a book-entry format, certificate owners of the book-entry certificates may experience some delay in their receipt of payments, since such payments will be made by the trustee to Cede & Co. Payments with respect to certificates held through Clearstream Luxembourg or Euroclear will be credited to the cash accounts of Clearstream Luxembourg Participants or Euroclear Participants in accordance with the relevant system’s rules and procedures, to the extent received by the relevant depositary. Such payments will be subject to tax reporting in accordance with relevant United States tax laws and regulations. See “Federal Income Tax Consequences — Withholding with Respect to Certain Foreign Investors” and “— Backup Withholding” in the accompanying prospectus.

 
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Because DTC can only act 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 the Depository system, or otherwise take actions in respect of such book-entry certificates, may be limited due to the lack of physical certificates for such book-entry certificates. In addition, issuance of the book-entry certificates in book-entry form may reduce the liquidity of such certificates in the secondary market since certain potential investors may be unwilling to purchase certificates for which they cannot obtain physical certificates.

Monthly and annual reports will be provided to Cede & Co., as nominee of DTC, and may be made available by Cede & Co. to beneficial owners upon request, in accordance with the rules, regulations and procedures creating and affecting the Depository, and to the Financial Intermediaries to whose DTC accounts the book-entry certificates of such beneficial owners are credited.

DTC has advised the trustee that, unless and until definitive certificates are issued, DTC will take any action permitted to be taken by the holders of the book-entry certificates under the pooling agreement only at the direction of one or more Financial Intermediaries to whose DTC accounts the book-entry certificates are credited, to the extent that such actions are taken on behalf of Financial Intermediaries whose holdings include such book-entry certificates. Clearstream Luxembourg or the Euroclear Operator, as the case may be, will take any other action permitted to be taken by a certificateholder under the pooling agreement on behalf of a Clearstream Luxembourg Participant or Euroclear Participant only in accordance with its relevant rules and procedures and subject to the ability of the relevant depositary to effect such actions on its behalf through DTC. DTC may take actions, at the direction of the related Participants, with respect to some book-entry certificates which conflict with actions taken with respect to other certificates.

Although DTC, Clearstream Luxembourg and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of book-entry certificates among participants of DTC, Clearstream Luxembourg and Euroclear, they are under no obligation to perform or continue to perform such procedures and such procedures may be discontinued at any time.

None of the seller, the depositor, the servicer or the trustee will have any responsibility for any aspect of the records relating to or payments made on account of beneficial ownership interests of the book-entry certificates held by Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or transfers thereof.

Definitive certificates will be issued to certificate owners or their nominees, respectively, rather than to DTC or its nominee, only under the limited conditions set forth in the accompanying prospectus under “Description of the Securities — Book-Entry Registration of Securities.” Upon the occurrence of an event described in the penultimate paragraph thereunder, the trustee is required to direct DTC to notify Participants that have ownership of book-entry certificates as indicated on the records of DTC of the availability of definitive certificates for the book-entry certificates. Upon surrender by DTC of the definitive certificates representing the book-entry certificates, and upon receipt of instruction from DTC for re-registration, the trustee will re-issue the book-entry certificates as definitive certificates in the respective principal amounts owned by the individual beneficial owner and thereafter the trustee will recognize the holders of such definitive certificates as certificateholders under the pooling agreement.

For information relating to tax documentation procedures relating to the certificates, see “Material Federal Income Tax Consequences — Withholding with Respect to Certain Foreign Investors” and “— Backup Withholding” in the prospectus and “Global Clearance, Settlement and Tax Documentation Procedures — Certain U.S. Federal Income Tax Documentation Requirements” in Annex B hereto, which Annex B is attached to this prospectus supplement and is incorporated by reference herein.


 
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Payments on Mortgage Loans; Accounts

On or prior to the closing date, the servicer will establish and maintain or cause to be established and maintained the custodial account, which will be a separate account or accounts for the collection of payments on the mortgage loans and which will be separate from the servicer’s other assets.  In the event that the rating of the servicer falls below Moody’s short-term rating of “P-1”, the custodial account will be transferred within 30 days to a depository institution having a Moody’s short-term rating of at least “P-1”.  On or prior to the closing date, the trustee will establish the certificate distribution account, which will be an account established by the trustee in trust for the benefit of the certificateholders.  In the event that the rating of the trustee falls below Moody’s short-term rating of “P-1”, the certificate distribution account will be transferred within 30 days to a depository institution having a Moody’s short-term rating of at least “P-1”.  On the Servicer Remittance Date immediately preceding each distribution date, the servicer will withdraw from the custodial account collections and recoveries in respect of the mortgage loans that are required to be distributed to the certificateholders on the next distribution date, and will remit such amounts to the trustee for deposit in the certificate distribution account.  Funds credited to the custodial account may be invested at the direction of the servicer for the benefit and at the risk of the servicer in eligible investments, as defined in the servicing agreement, that are scheduled to mature on or prior to the business day preceding the next Servicer Remittance Date.  Funds credited to the certificate distribution account may be invested at the direction of the trustee for the benefit and at the risk of the trustee in eligible investments, as defined in the pooling agreement, that are scheduled to mature on or prior to the next distribution date.

Glossary of Terms

The following terms are given the meanings shown below to help describe the cash flows on the certificates:

Accrual Period” means, with respect to any distribution date and for each class of certificates, the calendar month immediately preceding the month in which the distribution date occurs.  For each distribution date and each related Accrual Period, interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months.

Aggregate Expense Rate” means the sum of the servicing fee rate and the trustee fee rate.

Applicable Credit Support Percentage” means, for each class of subordinate certificates and any distribution date, the sum of the Class Subordination Percentage of that class and the aggregate Class Subordination Percentage of all other classes of subordinate certificates having higher numerical class designations than that class.

Available Distribution Amount means, with respect to any distribution date, the sum of the following amounts: (i) all scheduled payments of interest (net of the servicing fee and the trustee fee) and principal due during the related Due Period, whether or not received, together with any advances in respect thereof; (ii) Insurance Proceeds received during the related Prepayment Period; (iii) Liquidation Proceeds received during the related Prepayment Period (net of unreimbursed expenses incurred in connection with a liquidation or foreclosure and unreimbursed advances, if any); (iv) Subsequent Recoveries received during the related Prepayment Period; (v) all partial or full prepayments of principal, together with any accrued interest thereon, identified as having been received on the mortgage loans during the related Prepayment Period, plus any amounts received from the servicer in respect of Prepayment Interest Shortfalls on such mortgage loans; (vi) amounts received with respect to such distribution date as the Substitution Amount and the purchase price in respect of a deleted mortgage loan or a mortgage loan purchased by the originator or the seller as of such distribution date as a result of a breach of a representation or warranty, or by the Controlling Holder pursuant to its option to purchase mortgage loans that are at least 90 days delinquent; (vii) the purchase price paid by the party exercising its right to purchase the mortgage loans and terminate the trust fund, if applicable; minus (viii) amounts in reimbursement for advances previously made and other amounts as to which the servicer is entitled to be reimbursed pursuant to the servicing agreement and (ix) the sum of all related fees, charges and costs, including indemnification amounts and costs of arbitration (other than the trustee fee and amounts required to be paid by the trustee from its own funds pursuant to the custodial agreement), payable or reimbursable to the trustee from the trust fund under the pooling agreement and the custodian under the custodial agreement, subject to an aggregate maximum amount of $300,000 annually (per year from the closing date to the first anniversary of the closing date and each subsequent anniversary year thereafter) to be paid to such parties collectively, in the order claims for payment of such amounts are received by the trustee; provided, however, that if a claim is presented for an amount that, when combined with the amount of prior claims paid during that year, would exceed $300,000, then only a portion of such claim will be paid that will make the total amount paid during that year equal to $300,000 and the excess remaining unpaid, together with any additional claims received during that year, will be deferred until the following anniversary year and if the total amount of such deferred claims exceeds $300,000 then payment in such following anniversary year (and each subsequent anniversary year as may be needed until such deferred claims are paid in full) shall be apportioned between the trustee and the custodian, in proportion to the aggregate amount of deferred claims submitted as of the last day of the prior year.

 
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Certificate Interest Rate” means, for any class of certificates (other than the Class A-1 Certificates and the Class A-IO Certificates) and any distribution date, the Net WAC for that distribution date.  For the Class A-1 Certificates and any distribution date prior to September 2014, the lesser of (i) Net WAC for that distribution date and (ii) [__]% per annum and thereafter, Net WAC for that distribution date minus [__]% per annum, provided that such rate is not less than zero.  For the Class A-IO Certificates and any distribution date prior to September 2014, a per annum rate equal to Net WAC for that distribution date minus [__]%, provided that such rate is not less than zero, and thereafter, [__]% per annum.

Certificate Principal Amountmeans, for any certificate (other than the Class A-IO Certificates), at the time of determination, the maximum specified dollar amount of principal to which the holder of the certificate is then entitled, that amount being equal to the initial principal amount set forth on the face of the certificate, as reduced by the amount of all principal distributions previously made with respect to that certificate, the principal portion of any Realized Losses previously allocated to that certificate and any Certificate Writedown Amount previously allocated to that certificate; provided, however, that on any distribution date on which a Subsequent Recovery is distributed, the Certificate Principal Amount of any certificate then outstanding to which a Realized Loss amount has been applied will be increased, sequentially in order of seniority, by an amount equal to the lesser of (i) the principal portion of any Realized Loss amount previously allocated to that certificate to the extent not previously recovered and (ii) the principal portion of any Subsequent Recovery allocable to such certificate, after application (for this purpose) to more senior classes of certificates, and provided further that on any distribution date on which the aggregate Stated Principal Balance of the mortgage loans exceeds the aggregate of the Certificate Principal Amounts of the certificates, the Certificate Principal Amounts of the certificates with the lowest payment priority, including any certificates whose Certificate Principal Amount has been reduced to zero, will be increased, up to the principal portion of any Realized Loss amounts previously allocated to those certificates and not recovered.

Certificate Writedown Amount” means the amount by which the aggregate Certificate Principal Amount of all the certificates (other than the Class A-IO Certificates) on any distribution date (after giving effect to distributions of principal and allocations of Realized Losses on that distribution date) exceeds the aggregate Stated Principal Balance of the mortgage loans for the distribution date.

Class Notional Amount means, in respect of the Class A-IO Certificates on any distribution date, an amount equal to the Class Principal Amount on the Class A-1 Certificates immediately prior to such distribution date.

Class Principal Amount means, for each class of certificates on any distribution date, an amount equal to the aggregate Certificate Principal Amounts of the certificates of that class immediately prior to each distribution date.

Class Subordination Percentage” means, for any distribution date and each class of subordinate certificates, an amount equal to a fraction (expressed as a percentage), the numerator of which is the Class Principal Amount of that class immediately before that distribution date and the denominator of which is the aggregate of the Class Principal Amounts of all classes of certificates (other than the Class A-IO Certificates) immediately before that distribution date.

 
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Current Interest” means, for each class of certificates on any distribution date, an amount equal to the interest accrued during the related Accrual Period on the related Class Principal Amount immediately prior to that distribution date (or in the case of the Class A-IO Certificates, the Class Notional Amount immediately prior to that distribution date) at the applicable Certificate Interest Rate.

Controlling Holder” means, at any time, any affiliate of the depositor, other than the seller, so long as that entity is the holder of the majority of the Class Principal Amount of the most subordinate class of certificates then outstanding with a Class Principal Amount greater than zero.

Due Datemeans, with respect to a mortgage loan, the date specified in the related mortgage note on which the monthly scheduled payment of interest and principal (or interest only during the applicable interest-only period following origination) is due, which is generally the first day of the calendar month.

Due Periodmeans, with respect to any distribution date, the period beginning on the second day of the calendar month preceding the month in which the distribution date occurs and ending on the first day of the calendar month in which that distribution date occurs.

Insurance Proceeds” means all proceeds of any insurance policies with respect to the mortgage loans, to the extent such proceeds are not applied to the restoration of the related mortgaged property or released to the related borrower in accordance with the servicer’s normal servicing procedures and excluding insured expenses.

Interest Distribution Amountmeans, for each class of certificates on any distribution date, the Current Interest for that class on that distribution date as reduced by each such class’ share of Net Interest Shortfalls, which will be allocated to each class on a pro rata basis based on the amount of Current Interest payable to each such class.

Interest Shortfall” means, as to any class of certificates and any distribution date, the amount by which (i) the Interest Distribution Amount for such class on such distribution date and all prior distribution dates exceeds (ii) amounts distributed in respect of interest to such class on prior distribution dates.

Liquidated Mortgage Loanmeans a defaulted mortgage loan as to which the servicer has determined that all recoverable Liquidation Proceeds and Insurance Proceeds have been received.

Liquidation Proceeds” means all cash amounts received in connection with the liquidation of defaulted mortgage loans, by foreclosure or otherwise, including net proceeds from any REO Property or amounts received in connection with a condemnation or partial release of a mortgaged property.

Net Interest Shortfall” means, for any distribution date, the sum of (i) any Net Prepayment Interest Shortfalls for that distribution date and (ii) the amount of interest which would otherwise have been received with respect to any mortgage loan that was subject to a reduction in the amount of monthly interest payment on a mortgage loan pursuant to the Relief Act or similar state or local law.

Net Mortgage Rate” means, respect to any mortgage loan and any distribution date, the related mortgage rate as of the Due Date in the month preceding the month of such distribution date, reduced by the Aggregate Expense Rate.

Net Prepayment Interest Shortfallmeans, with respect to a mortgage loan and any distribution date, the amount by which a Prepayment Interest Shortfall for the related Due Period exceeds the amount that the servicer is obligated to remit pursuant to the servicing agreement to cover such shortfall for such Due Period.

 
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Net WAC” means, for any distribution date, the weighted average of the Net Mortgage Rates of the mortgage loans as of the first day of the calendar month immediately preceding the calendar month of that distribution date, weighted on the basis of their stated principal balances.

Original Subordinate Class Principal Amount” means the aggregate Class Principal Amount of the subordinate certificates as of the closing date.

Prepayment Interest Shortfallmeans, with respect to a mortgage loan and any distribution date, the amount by which interest paid by a borrower in connection with a prepayment of principal on a mortgage loan is less than one month’s interest at the related mortgage rate on the Stated Principal Balance of that mortgage loan as of the preceding distribution date.

Prepayment Period” means, for any distribution date, the calendar month preceding the month of that distribution date.

Principal Forbearance Amountmeans, with respect to a mortgage loan that was the subject of a servicing modification, the amount of principal of the mortgage loan that has been deferred and that does not accrue interest.

Realized Loss” means (a) with respect to each Liquidated Mortgage Loan, an amount (not less than zero or more than the Stated Principal Balance of the mortgage loan plus accrued interest) as of the date of such liquidation, equal to (i) the unpaid principal balance of the Liquidated Mortgage Loan as of the date of such liquidation, plus (ii) interest at the Net Mortgage Rate from the Due Date as to which interest was last paid by the borrower up to the Due Date in the month in which Liquidation Proceeds are required to be distributed on the Stated Principal Balance of such Liquidated Mortgage Loan from time to time, minus (iii) the Liquidation Proceeds received during the month in which such liquidation occurred, to the extent not previously applied as recoveries of interest at the Net Mortgage Rate and to principal of the Liquidated Mortgage Loan, (b) the amount by which, in the event of bankruptcy of a borrower, a bankruptcy court reduces the secured debt to the value of the related mortgaged property or (c) with respect to a mortgage loan that has been the subject of a servicing modification, any principal due on the mortgage loan that has been written off by the servicer and any Principal Forbearance Amount.

REMIC Provisions” means the provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at sections 860A through 860G of the Code, and related provisions, and regulations, including proposed regulations and rulings, and administrative pronouncements promulgated thereunder, as the foregoing may be in effect from time to time.

REO Property” means a mortgaged property acquired by the trust fund through foreclosure or deed-in-lieu of foreclosure in connection with a defaulted mortgage loan or otherwise treated as having been acquired pursuant to the REMIC Provisions.

Senior Percentage” means, for any distribution date, the percentage equivalent of a fraction, the numerator of which is the aggregate Class Principal Amount of the senior certificates (other than the Class A-IO Certificates) immediately prior to such date and the denominator of which is the aggregate Stated Principal Balance of all of the mortgage loans as of the preceding distribution date.

Senior Prepayment Percentage” means, for any distribution date occurring before the distribution date in May 2017, 100%.  For any distribution date in or after May 2017, Senior Prepayment Percentage means the following:

 
o
for any distribution date occurring in or after May 2017 to and including April 2018, the Senior Percentage plus 70% of the Subordinate Percentage for that date;

 
o
for any distribution date occurring in or after May 2018 to and including April 2019, the Senior Percentage plus 60% of the Subordinate Percentage for that date;

 
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o
for any distribution date occurring in or after May 2019 to and including April 2020, the Senior Percentage plus 40% of the Subordinate Percentage for that date;

 
o
for any distribution date occurring in or after May 2020 to and including April 2021, the Senior Percentage plus 20% of the Subordinate Percentage for that date; and

 
o
for any distribution date occurring in May 2021 or thereafter, the Senior Percentage for that date;

provided, however, that there will be no reduction in the Senior Prepayment Percentage on any distribution date unless the Step-Down Test is satisfied; and provided, further, that if on any distribution date on or after the distribution date in May 2017, the Senior Percentage exceeds the initial Senior Percentage, the Senior Prepayment Percentage for that distribution date will again equal 100%.

Notwithstanding the above, if the Two Times Test is satisfied on any distribution date (i) before the distribution date in May 2013, the Senior Prepayment Percentage will equal the Senior Percentage for that distribution date plus 50% of an amount equal to 100% minus the Senior Percentage for that distribution date and (ii) on or after the distribution date in May 2013, the Senior Prepayment Percentage will equal the Senior Percentage for that distribution date.  In addition, if on any distribution date the allocation to the Senior Certificates then entitled to distributions of principal of full and partial principal prepayments and other amounts in the percentage required above would reduce the aggregate of the Class Principal Amounts of those certificates to below zero, the related Senior Prepayment Percentage for that distribution date will be limited to the percentage necessary to reduce that Class Principal Amount to zero.

Senior Principal Distribution Amount” has the meaning set forth under “Description of the Certificates—Distributions of Principal—Senior Principal Distribution Amount.

Servicer Remittance Date” means the 18th of any month, or if such 18th day is not a business day, the first business day immediately following that 18th day.

Stated Principal Balance” means, for a mortgage loan at any date of determination, the unpaid principal balance of the mortgage loan as of the most recent Due Date as determined by the amortization schedule for the mortgage loan at the time relating thereto (before any adjustment to that amortization schedule by reason of any moratorium or similar waiver or grace period) after giving effect to any previous servicing modification, principal prepayments and related Liquidation Proceeds allocable to principal and to the payment of principal due on such Due Date (but not unscheduled principal prepayments received on such Due Date) and irrespective of any delinquency in payment by the related borrower.

Step-Down Test” means, as to any distribution date, the test that will be satisfied if both of the following conditions are met: first, the outstanding principal balance of all mortgage loans delinquent 60 days or more (including mortgage loans in foreclosure, REO Property or bankruptcy status), any mortgage loan subject to a servicing modification within the 12 months prior to that distribution date and any mortgage loans 90 or more days delinquent that were purchased by the Controlling Holder within the 12 months prior to that distribution date, averaged over the preceding six-month period, as a percentage of the aggregate Class Principal Amounts on such distribution date (without giving effect to any payments on such distribution date) of the subordinate certificates, does not equal or exceed 50%; and second, cumulative Realized Losses on the mortgage loans do not exceed:

 
o
for each distribution date occurring in the period from May 2017 to and including April 2018, 30% of the Original Subordinate Class Principal Amount;

 
o
for each distribution date occurring in the period from May 2018 to and including April 2019, 35% of the Original Subordinate Class Principal Amount;

 
o
for each distribution date occurring in the period from May 2019 to and including April 2020, 40% of the Original Subordinate Class Principal Amount;

 
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o
for each distribution date occurring in the period from May 2020 to and including April 2021, 45% of the Original Subordinate Class Principal Amount; and

 
o
for the distribution date in May 2021 and thereafter, 50% of the Original Subordinate Class Principal Amount.

Subordinate Percentage” means, with respect to any distribution date, an amount equal to the difference between 100% and the Senior Percentage on that distribution date.

Subordinate Prepayment Percentage” means, for any distribution date, the difference between 100% and the related Senior Prepayment Percentage on that distribution date.

Subordinate Principal Distribution Amount” has the meaning set forth under “Description of the Certificates—Distributions of Principal—Subordinate Principal Distribution Amount.

Subsequent Recovery” means any amount recovered by the servicer (i) with respect to a Liquidated Mortgage Loan (after reimbursement of any unreimbursed advances or expenses of the servicer) with respect to which a Realized Loss was incurred after the liquidation or disposition of such mortgage loan or (ii) as a Principal Forbearance Amount.

Substitution Amount” means, for any month in which the originator substitutes one or more qualified substitute mortgage loans for one or more deleted mortgage loans as a result of a breach of a representation or warranty with respect to a mortgage loan, the amount by which the aggregate purchase price of all of the deleted mortgage loans exceeds the aggregate Stated Principal Balance of the qualified substitute mortgage loans, together with one month's interest at the Net Mortgage Rate.

Two Times Test” means, as to any distribution date, the test that will be satisfied if all of the following conditions are met:

 
o
the Subordinate Percentage is at least two times the Subordinate Percentage as of the closing date; and

 
o
the conditions described in clauses first and second of the definition of “Step-Down Test” are satisfied.

Available Distribution Amount

Distributions on the certificates will be made by the trustee on each distribution date, which will be the 25th day of each month, or if such day is not a business day, on the first business day thereafter commencing in May 2010, to the persons in whose names such certificates are registered on the applicable record date. For this purpose, a business day is any day other than (i) a Saturday or Sunday, or (ii) legal holiday in the State of New York, the State of Maryland, the State of Minnesota, the State of Missouri or the State of California, (iii) a day on which banks in the State of New York, the State of Maryland, the State of Minnesota, the State of Missouri or the State of California are authorized or obligated by law or executive order to be closed or (iv) a day on which the New York Stock Exchange or the Federal Reserve Bank of New York is closed.

Payments on each distribution date will be made by check mailed to the address of the holder of the certificate entitled thereto as it appears on the applicable certificate register or, in the case of a certificateholder who holds 100% of the Class R Certificate or the Class LT-R Certificate or who holds certificates with an aggregate initial Certificate Principal Amount of $1,000,000 or more, by wire transfer in immediately available funds to the account of such certificateholder at a bank or other depository institution having appropriate wire transfer facilities. However, the final payment in retirement of the certificates will be made only upon presentment and surrender of the certificates at the corporate trust office of the trustee. See “— Book Entry Certificates” above for the method of payment to beneficial owners of Book-Entry Certificates.

 
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Distributions will be made on each distribution date from, and to the extent of, the Available Distribution Amount as described under “—Priority of Distributions and Allocation of Shortfalls” below.

Distributions of Interest

General. The Certificate Interest Rate for each class of certificates for each distribution date is described on page S-49 of this prospectus supplement.  On each distribution date, to the extent of funds available therefor, each class of certificates will be entitled to receive Current Interest for such date and class, as reduced by that class’s share of Net Interest Shortfalls.

Net Interest Shortfalls for any distribution date will be allocated among all classes of senior certificates and all classes of subordinate certificates proportionately based on Current Interest otherwise distributable on each class on such distribution date.

Any unpaid interest amount on a class of certificates will be carried forward and added to the amount which holders of those certificates will be entitled to receive on the next distribution date.  Interest Shortfalls could occur if losses realized on the mortgage loans were exceptionally high or were concentrated in a particular month.  Any unpaid interest amount so carried forward will not bear interest.

Distributions of Principal

General.  All payments and other amounts received in respect of principal of the mortgage loans will be allocated between the senior certificates (other than the Class A-IO Certificates in respect of principal payments) and the subordinate certificates.  On each distribution date, the senior certificates will be entitled to the Senior Principal Distribution Amount and the subordinate certificates will be entitled to the Subordinate Principal Distribution Amount.

Senior Principal Distribution Amount.  On each distribution date, the Available Distribution Amount remaining after payment of interest with respect to the senior certificates, up to the amount of the Senior Principal Distribution Amount for such distribution date, will be distributed as principal of the senior certificates (other than the Class A-IO Certificates).

The “Senior Principal Distribution Amount” for any distribution date will equal the sum of:

(1)           the product of (a) the Senior Percentage and (b) the principal portion of the scheduled payment due on each mortgage loan on the related Due Date, whether or not received;

(2)           the product of (a) the Senior Prepayment Percentage and (b) each of the following amounts: (i) the principal portion of each full and partial principal prepayment made by a borrower on a mortgage loan during the related Prepayment Period; (ii) each other unscheduled collection, including Subsequent Recoveries, Insurance Proceeds and net Liquidation Proceeds (other than with respect to any mortgage loan that was finally liquidated during the related Prepayment Period) representing or allocable to recoveries of principal of the related mortgage loans received during the related Prepayment Period; (iii) the principal portion of the purchase price of each mortgage loan purchased by the originator or seller due to a material breach of a representation and warranty with respect to such mortgage loan or, in the case of a permitted substitution of a defective mortgage loan, the amount representing any principal adjustment in connection with any such replaced mortgage loan included in the Available Distribution Amount for such distribution date; and (iv) the principal portion of the purchase price for mortgage loans that are at least 90 days delinquent that the Controlling Holder may elect to purchase and the principal portion of the purchase price for mortgage loans paid by a party exercising its right to terminate the trust fund;

 
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(3)           with respect to each mortgage loan that became a Liquidated Mortgage Loan during the related Prepayment Period, the lesser of (a) the net Liquidation Proceeds allocable to principal and (b) the product of (i) the Senior Prepayment Percentage for that distribution date and (ii) the remaining principal balance of the mortgage loan at the time of liquidation; and

(4)           any amounts described in clauses (1) through (3) above that remain unpaid with respect to the senior certificates from prior distribution dates.

If on any distribution date the allocation to the senior certificates then entitled to distributions of principal of related full and partial principal prepayments and other amounts in the percentage required above would reduce the sum of the Class Principal Amounts of the senior certificates below zero, the distribution to the class or classes of senior certificates of the related Senior Prepayment Percentage of those amounts for that distribution date will be limited to the percentage necessary to reduce the related Class Principal Amounts to zero.

In addition, if on any distribution date the aggregate of the Class Principal Amounts of the subordinate certificates was reduced to less than or equal to 0.75% of the Stated Principal Balance of the mortgage loans as of the closing date, the Senior Principal Distribution Amount for each succeeding distribution date will include all principal collections on the mortgage loans distributable on that distribution date, and the Subordinate Principal Distribution Amount will be zero, until the aggregate of the Class Principal Amounts of the senior certificates (other than the Class A-IO Certificates) is reduced to zero.

Subordinate Principal Distribution Amount.  To the extent funds are available, and except as provided in the next paragraph, each class of subordinate certificates will be entitled to receive, on each distribution date, its share of the Subordinate Principal Distribution Amount for that date.  Distributions of principal with respect to the subordinate certificates will be made on each distribution date in the order of their numerical class designations, beginning with the Class B-1 Certificates.  See “— Priority of Distributions and Allocation of Shortfalls.”

With respect to each class of subordinate certificates other than the Class B-1 Certificates, if on any distribution date the sum of the Class Subordination Percentage of that class and the aggregate Class Subordination Percentages of all classes of subordinate certificates which have higher numerical class designations than that class is less than the Applicable Credit Support Percentage for that class on the date of issuance of the certificates, no distribution of principal will be made to any such classes.  The Subordinate Principal Distribution Amount will be allocated among the more senior classes of subordinate certificates, pro rata, based upon their respective Class Principal Amounts, and principal and interest will be distributed in the order described below under “— Priority of Distributions and Allocation of Shortfalls.”

The approximate original Applicable Credit Support Percentages for each class of subordinate certificates on the date of issuance of such certificates are expected to be as follows:
 
Class B-1
6.50%
 
Class B-2
4.00%
 
Class B-3
3.00%
 
Class B-4
1.25%
 

The “Subordinate Principal Distribution Amount” for each distribution date is equal to the sum of:

(1)      the product of (a) the Subordinate Percentage and (b) the principal portion of each related scheduled payment on each mortgage loan due during the related Due Period, whether or not received;


 
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(2)      the product of (a) the Subordinate Prepayment Percentage and (b) each of the following amounts: (i) the principal portion of each full and partial principal prepayment made by a borrower on a mortgage loan during the related Prepayment Period, (ii) each other unscheduled collection, including Subsequent Recoveries, Insurance Proceeds and net Liquidation Proceeds (other than with respect to any mortgage loan that was finally liquidated during the related Prepayment Period), representing or allocable to recoveries of principal of mortgage loans received during the related Prepayment Period; (iii) the principal portion of the purchase price of each mortgage loan that was purchased by the originator or seller due to a material breach of a representation and warranty with respect to such mortgage loan or, in the case of a permitted substitution of a defective mortgage loan, the amount representing any principal adjustment in connection with any such replaced mortgage loan included in the Available Distribution Amount for such distribution date; and (iv) the principal portion of the purchase price for mortgage loans that are at least 90 days delinquent that the Controlling Holder may elect to purchase and the principal portion of the purchase price for mortgage loans paid by a party exercising its right to terminate the trust fund;

(3)      with respect to unscheduled recoveries allocable to principal of any mortgage loan that was finally liquidated during the related Prepayment Period, the related net Liquidation Proceeds allocable to principal, to the extent not distributed pursuant to clause (3) of the definition of Senior Principal Distribution Amount); and

(4)      any amounts described in clauses (1) through (3) for any previous distribution date that remain unpaid.

Notwithstanding the above, with respect to each class of subordinate certificates other than the Class B-1 Certificates, if on any distribution date the Class Principal Amount of that class and the aggregate of the Class Principal Amounts of all classes of subordinate certificates which have a lower payment priority than that class was reduced to less than or equal to 0.75% of the Stated Principal Balance of the mortgage loans as of the closing date, the portion of the Subordinate Principal Distribution Amount otherwise distributable to such class or classes on that distribution date will, on each succeeding distribution date, be allocated among the subordinate certificates with a higher payment priority then entitled to principal, pro rata, based on their respective Class Principal Amounts.

If on any distribution date the aggregate of the Class Principal Amounts of the subordinate certificates was reduced to less than or equal to 0.75% of the Stated Principal Balance of the mortgage loans as of the closing date, the Senior Principal Distribution Amount for each succeeding distribution date will include all principal collections on the mortgage loans distributable on that distribution date, and the Subordinate Principal Distribution Amount will be zero, until the aggregate of the Class Principal Amounts of the senior certificates is reduced to zero, then to the subordinate certificates then outstanding, sequentially in order of payment priority, until the Class Principal Amount of each such certificate is reduced to zero.

Priority of Distributions and Allocation of Shortfalls

On each distribution date, the Available Distribution Amount for such date will be applied to distributions on the certificates in the following order of priority:
 
 
(1)
to the payment of the Interest Distribution Amount and any outstanding Interest Shortfalls on the Class A-1, Class R and Class LT-R Certificates, pro rata, based on the amount of interest to which each such class is entitled and then to the Class A-IO Certificates, the Interest Distribution Amount for such date and class and any outstanding Interest Shortfalls for such date and class;
     
 
(2)
sequentially to the Class LT-R, Class R and Class A-1 Certificates, in that order, the Senior Principal Distribution Amount for such date, until their respective Class Principal Amounts have been reduced to zero;


 
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(3)
to the Class B-1 Certificates, the Interest Distribution Amount for such date and class and any outstanding Interest Shortfalls for such date and class;
     
 
(4)
to the Class B-1 Certificates, the portion of the Subordinate Principal Distribution Amount payable to such class for such date, until its Class Principal Amount has been reduced to zero;
     
 
(5)
to the Class B-2 Certificates, the Interest Distribution Amount for such date and class and any outstanding Interest Shortfalls for such date and class;
     
 
(6)
to the Class B-2 Certificates, the portion of the Subordinate Principal Distribution Amount payable to such class for such date, until its Class Principal Amount has been reduced to zero;
     
 
(7)
to the Class B-3 Certificates, the Interest Distribution Amount for such date and class and any outstanding Interest Shortfalls for such date and class;
     
 
(8)
to the Class B-3 Certificates, the portion of the Subordinate Principal Distribution Amount payable to such class for such date, until its Class Principal Amount has been reduced to zero;
     
 
(9)
to the Class B-4 Certificates, the Interest Distribution Amount for such date and class and any outstanding Interest Shortfalls for such date and class;
     
 
(10)
to the Class B-4 Certificates, the portion of the Subordinate Principal Distribution Amount payable to such class for such date, until its Class Principal Amount has been reduced to zero; and
     
 
(11)
to the Class R Certificate and the Class LT-R Certificate, any remaining amounts allocated between such classes in the manner specified in the pooling agreement (with any such amounts representing net gain resulting from the sale of any REO Properties or Liquidation Proceeds allocated solely to the Class LT-R Certificate).
 

Subordination of the Payment of the Subordinate Certificates

The rights of the holders of the subordinate certificates to receive payments with respect to the mortgage loans will be subordinated to the rights of the holders of the senior certificates and the rights of the holders of each class of subordinate certificates (other than the Class B-1 Certificates) to receive such payments will be further subordinated to the rights of the class or classes of subordinate certificates with lower numerical class designations, in each case only to the extent described in this prospectus supplement.  The subordination of the subordinate certificates to the senior certificates and the further subordination among the subordinate certificates is intended to provide the certificateholders having higher relative payment priority with protection against Realized Losses and shortfalls in the Available Distribution Amount.

Allocation of Realized Losses

If a Realized Loss occurs on the mortgage loans (including a servicing modification resulting in a reduction of the outstanding principal amount of such mortgage loan or a principal forbearance), then, on each distribution date, the principal portion of that Realized Loss will be allocated first, to reduce the Class Principal Amount of each class of subordinate certificates, in inverse order of priority, until the Class Principal Amount thereof has been reduced to zero (that is, such Realized Losses will be allocated to the Class B-4 Certificates while those certificates are outstanding, then to the Class B-3 Certificates while those certificates are still outstanding, and so forth) and second, to the senior certificates (other than the Class A-IO Certificates).  In determining whether a Realized Loss is a loss of principal or of interest, Liquidation Proceeds and other recoveries on a mortgage loan will be applied first to outstanding expenses incurred with respect to such mortgage loan, then to accrued, unpaid interest, and finally to principal.

 
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The Class Principal Amount of the lowest ranking class of certificates then outstanding will also be reduced by the Certificate Writedown Amount.

Any class of certificates whose Class Principal Amount has been reduced to zero due to the allocation of Realized Losses will nonetheless remain outstanding under the pooling agreement and will continue to be entitled to receive Subsequent Recoveries until the termination of the trust fund; provided that any such class of certificates will not have any voting rights with respect to matters under the pooling agreement requiring or permitting actions to be taken by the certificateholders.

Subsequent Recoveries will be distributed to the certificates still outstanding, in accordance with the priorities described under “—Priority of Distribution and Allocations of Shortfalls,” and the Class Principal Amount of each class of certificates then outstanding that has been reduced due to application of a Realized Loss will be increased, sequentially in order of seniority, by the lesser of (i) the amount of such Subsequent Recovery (reduced by any amounts applied for this purpose to senior ranking certificates) and (ii) the Realized Loss amount previously allocated to such class.  Any Subsequent Recovery that is received during a Prepayment Period will be distributed together with the Available Distribution Amount for the related distribution date.

Final Scheduled Distribution Date

The final scheduled distribution date for each class of certificates is the distribution date in the month immediately following the latest maturity date of any mortgage loan as of the cut-off date. The final scheduled distribution date of each class of certificates is the distribution date in February 2040.  The actual final distribution date for any class may be earlier or later, and could be substantially earlier or later, than the final scheduled distribution date.  The servicer will be permitted to modify mortgage loans to extend the maturity date beyond that date.

Optional Purchase of Defaulted Mortgage Loans

In accordance with the terms of the pooling agreement, the Controlling Holder, if any, will have the option (but not the obligation) to purchase from the trust fund any mortgage loan that is 90 days or more delinquent at a purchase price determined in accordance with guidelines adopted by the Controlling Holder to be equal to the then fair market value of the mortgage loan at the time of purchase, provided that at the time of purchase the mortgage loan remains delinquent.‬‬

Optional Purchase of the Mortgage Loans

When the outstanding principal balance of the mortgage loans is less than 10% of the outstanding stated principal balance of the mortgage loans as of the cut-off date, the servicer will have the option to purchase the mortgage loans, any REO Property and any other property remaining in the trust fund at a price equal to 100% of the unpaid principal balance of each mortgage loan (or, if less than such unpaid principal balance in the case of any REO Property, the fair market value of any REO Property) on the day of repurchase, plus accrued interest thereon, to, but not including, the first day of the month in which the repurchase price is distributed; provided that the servicer has provided not less than 30 days prior written notice to the trustee.  If the servicer does not exercise such option, when the outstanding principal balance of the mortgage loans is less than 5% of the outstanding principal balance of the mortgage loans as of the cut-off date, an affiliate of the depositor and seller will have the option to purchase the mortgage loans, any REO Property and any other property remaining in the trust fund at the price set forth in the preceding sentence; provided that the such affiliate has provided not less than 30 days prior written notice to the trustee.  Distributions on the certificates relating to any optional termination will be paid first to reimburse the depositor, the servicer, the trustee and the custodian for any advances, accrued and unpaid servicing fees or other amounts with respect to the mortgage loans reimbursable to such parties, and then to the certificateholders in the order of priority set forth above under “—Priority of Distributions and Allocation of Shortfalls.”  The proceeds of any such distribution may not be sufficient to distribute the full amount of principal and accrued and unpaid interest on each class of certificates to the extent of any such unpaid fees and expenses and if the purchase price is based in part on the fair market value of any REO Property and the fair market value is less than 100% of the unpaid principal balance of the related mortgage loan.  If such option is exercised, the trust fund will be terminated.

 
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Credit Enhancement

Credit enhancement for the senior certificates will be provided by the subordinate certificates.

THE TRUSTEE AND CUSTODIAN

Wells Fargo Bank, National Association (“Wells Fargo Bank”) will act as trustee and custodian under the pooling agreement and custodial agreement.  Wells Fargo Bank is a national banking association and a wholly-owned subsidiary of Wells Fargo & Company.  A diversified financial services company, Wells Fargo & Company is a U.S. bank holding company with approximately $1.2 trillion in assets and 281,000 employees as of December 31, 2009.  Those numbers are the result of the merger on December 31, 2008 of Wachovia Corporation into Wells Fargo & Company.  The resulting institution provides banking, insurance, trust, mortgage and consumer finance services throughout the United States and internationally.  Wells Fargo Bank provides retail and commercial banking services and corporate trust, custody, securities lending, securities transfer, cash management, investment management and other financial and fiduciary services.   The depositor, the sponsor, the seller and the servicer may maintain banking and other commercial relationships with Wells Fargo Bank and its affiliates.  Wells Fargo Bank maintains principal corporate trust offices located at 9062 Old Annapolis Road, Columbia, Maryland 21045-1951 (among other locations), and its office for certificate transfer services is located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479.

Wells Fargo Bank serves or may have served within the past two years as loan file custodian for various mortgage loans owned by the sponsor or an affiliate of the sponsor and anticipates that one or more of those mortgage loans may be included in the trust fund.  The terms of any custodial agreement under which those services are provided by Wells Fargo Bank are customary for the mortgage-backed securitization industry and provide for the delivery, receipt, review and safekeeping of mortgage loan files.

Wells Fargo Bank serves or has served within the past two years as warehouse master servicer for various mortgage loans owned by the sponsor or an affiliate of the sponsor and anticipates that one or more of those mortgage loans may be included in the trust fund.  The terms of the warehouse master servicing agreement under which those services are provided by Wells Fargo Bank are customary for the mortgage-backed securitization industry.

Trustee

Wells Fargo Bank has provided corporate trust services since 1934.  Wells Fargo Bank acts as a trustee for a variety of transactions and asset types, including corporate and municipal bonds, mortgage-backed and asset-backed securities and collateralized debt obligations.  As of December 31, 2009, Wells Fargo Bank was acting as trustee on approximately 1,962 series of residential mortgage-backed securities with an aggregate principal balance of approximately $324,318,000,000.

Under the terms of the pooling agreement, the trustee also is responsible for securities administration, which includes pool performance calculations, distribution calculations and the preparation of monthly distribution reports.  Wells Fargo Bank is responsible for the preparation and filing of all REMIC tax returns on behalf of the trust fund REMICs and the preparation of monthly reports on Form 10-D, certain current reports on Form 8-K and annual reports on Form 10-K that are required to be filed with the Securities and Exchange Commission on behalf of the issuing entity.  Wells Fargo Bank has been engaged in the business of securities administration since June 30, 1995.  As of December 31, 2009, Wells Fargo Bank was acting as securities administrator with respect to more than $877,762,000,000 of outstanding residential mortgage-backed securities.


 
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Custodian

Wells Fargo Bank is acting as custodian of the mortgage loan files pursuant to the custodial agreement.  In that capacity, Wells Fargo Bank is responsible to hold and safeguard the mortgage notes and other contents of the mortgage files on behalf of the trustee and the certificateholders.  Wells Fargo Bank maintains each mortgage loan file in a separate file folder marked with a unique bar code to assure loan-level file integrity and to assist in inventory management.  Files are segregated by transaction or investor.  Wells Fargo Bank has been engaged in the mortgage document custody business for more than 25 years.

THE ISSUING ENTITY

On the closing date, and until the termination of the issuing entity pursuant to the pooling agreement, Sequoia Mortgage Trust 2010-H1, the issuing entity, will be a common law trust formed under the laws of the State of New York.  The issuing entity will be created under the pooling agreement by the depositor for the sole purpose of issuing the certificates and its assets will consist of the trust fund.

On the closing date, the assets included in the trust fund will be the only assets of the issuing entity.  The issuing entity will not have any liabilities as of the closing date, other than as provided in the pooling agreement. The fiscal year end of the issuing entity will be December 31 of each year.

The issuing entity will not have any employees, officers or directors. The trustee, the depositor, the servicer and the custodian will act on behalf of the issuing entity, and may only perform those actions on behalf of the issuing entity that are specified in the pooling agreement, the servicing agreement or the custodial agreement, as set forth in this prospectus supplement.

The trustee, on behalf of the issuing entity, is only permitted to take such actions as are specifically provided in the pooling agreement.  Under the pooling agreement, the trustee on behalf of the issuing entity will not have the power to issue additional certificates representing interests in the issuing entity, borrow money on behalf of the issuing entity or make loans from the assets of the issuing entity to any person or entity, without the amendment of the pooling agreement by certificateholders and the other parties thereof as described under “—Certain Matters Under the Pooling Agreement—Amendment of the Pooling Agreement.”

If the assets of the issuing entity are insufficient to pay the certificateholders all principal and interest owed, holders of some or all classes of certificates will not receive their expected payments of interest and principal and will suffer a loss.  The risk of loss to holders of subordinate certificates is greater than to holders of senior certificates.  See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement” in this prospectus supplement.  The issuing entity, as a common law trust, may not be eligible to be a debtor in a bankruptcy proceeding.  In the event of a bankruptcy of the seller, the depositor or the originator, it is not anticipated that the issuing entity would become part of the bankruptcy estate of such entity.


FEES AND EXPENSES OF THE ISSUING ENTITY

In consideration of their duties on behalf of the trust fund, the servicer, the trustee and the custodian will receive from the assets of the issuing entity certain fees as set forth in the following table:
 
 Fee Payable to:
 
Frequency
of Payment:
 
 
Amount of Fee:
 
How and When
Fee Is Payable:
             
Servicer
 
Monthly
 
A monthly fee paid to the servicer, from amounts that would otherwise be distributed to certificateholders in respect of interest, calculated on the Stated Principal Balance of each mortgage loan as of the first day of the related Due Period, at a per annum rate of 0.25%, plus all income earned on amounts on deposit in the custodial account.  The servicer will also be entitled to a fee of 1.5% of the sale price of an REO Property in accordance with the servicing agreement.
 
Withdrawn from the custodial account in respect of each mortgage loan before distribution of any amounts to certificateholders.

 
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Trustee
 
Monthly
 
A monthly fee paid to the trustee, from amounts that would otherwise be distributed to certificateholders in respect of interest, calculated on the Stated Principal Balance of each mortgage loan as of the first day of the related Due Period, at a per annum rate of 0.0085%, plus all income earned on amounts on deposit in the certificate distribution account.
 
Withdrawn from the certificate distribution account in respect of each mortgage loan before distribution of any amounts to certificateholders.
             
Custodian
 
Monthly
 
Monthly fees and certain expenses invoiced by and paid to the custodian, from the trustee's own funds.
 
Paid by the trustee from the trustee's own funds.
             
The custodian’s fees set forth in the table above may not be increased without amendment of the custodial agreement.  The servicing fees set forth in the table above may not be increased without amendment of the servicing agreement as described under “ The Agreements— Mortgage Loan Servicing  — Amendment of the Servicing Agreement and Pooling Agreement” in this prospectus supplement.  The trustee’s fees set forth in the table above may be not be increased without amendment of the pooling agreement as described under “The Agreements— Mortgage Loan Servicing  — Amendment of the Servicing Agreement and Pooling Agreement” in this prospectus supplement.

Certain expenses of the trustee and the custodian will be reimbursed up to $300,000 annually before distributions of interest and principal are made on the certificates.

MATERIAL LEGAL PROCEEDINGS

At the closing date, other than litigation in the ordinary course of business, such as litigation involving foreclosures or other exercise of its rights as a creditor, and other than as described below, there were no material pending proceedings to which any of the sponsor, the seller, the depositor, the trustee, the issuing entity or the servicer were a party or of which any of their property was subject, and, other than as described below, the depositor is not aware of any material pending legal proceedings known to be contemplated by governmental authorities against the sponsor, the seller, the depositor, the trustee, the issuing entity, the servicer or the originator.

On December 23, 2009, the Federal Home Loan Bank of Seattle filed a claim in Superior Court for the State of Washington against Sequoia Residential Funding, Inc., Redwood Trust, Inc., Morgan Stanley & Co., and Morgan Stanley Capital, Inc. The complaint relates in part to residential mortgage-backed securities that were issued in 2005 by a securitization trust with respect to which Sequoia Residential Funding, Inc. was the depositor. The Federal Home Loan Bank of Seattle has alleged that, at the time of issuance, Sequoia Residential Funding, Inc., Redwood Trust, Inc., and the underwriters of the Sequoia Mortgage Trust 2005-4 securitization made various misstatements and omissions about these securities in violation of Washington state law. The Federal Home Loan Bank of Seattle seeks, under Washington law, to rescind the purchase of these residential mortgage-backed securities and to collect interest on the original purchase price at the statutory rate of 8% per annum from the date of original purchase (net of interest received), as well as attorneys’ fees and costs.

 
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Sequoia Residential Funding, Inc. and Redwood Trust, Inc. believe that this claim is without merit and intend to defend the action vigorously. However, the outcome of this matter cannot be determined at this time, and the results cannot be predicted with certainty; there can be no assurance that this matter will not have a material adverse effect on Sequoia Residential Funding, Inc. or Redwood Trust, Inc., and any loss and expense related to this litigation could have a material adverse impact on the consolidated financial statements of Sequoia Residential Funding, Inc. or Redwood Trust, Inc. or on the value of your certificates.

THE SPONSOR

RWT Holdings, Inc. (“RWT Holdings”) is a Delaware corporation and wholly-owned subsidiary of Redwood Trust, Inc. and is headquartered in Mill Valley, California.  RWT Holdings has acquired residential mortgage loans, directly or indirectly, from originators since it was organized in February 1998.  RWT Holdings has been a sponsor in the securitization market since 2002.  As a sponsor, RWT Holdings acquires residential mortgage loans in the secondary mortgage market and initiates the securitization of the loans it acquires by transferring the mortgage loans to the depositor, which loans will ultimately be transferred to the issuing entity for the related securitization.

As of December 31, 2009, RWT Holdings has sponsored the securitization of approximately $25.8 billion of residential mortgage loans ($4,077,538,500 in 2002, $6,198,200,700 in 2003, $10,199,107,364 in 2004, $1,440,123,400 in 2005, $1,035,362,200 in 2006 and $2,833,909,600 in 2007).  RWT Holdings buys residential mortgage loans under several loan purchase agreements from mortgage loan originators or sellers nationwide that meet its seller/servicer eligibility requirements.  We refer you to “Loan Program—Qualifications of Sellers” in the prospectus for a general description of the characteristics used to determine eligibility of collateral sellers.  Prior to acquiring the mortgage loans, RWT Holdings conducts a review of the related mortgage loan seller and of the mortgage loans.  We refer you to “Risk Factors—Appraisals May Not Accurately Reflect the Value or Condition of the Mortgaged Property” and “—Pre-offering Review of the Mortgage Loans Underlying the Certificates May Not Reveal Aspects of the Mortgage Loans Which Could Lead to Losses” and  “Pre-offering Review of the Mortgage Loans” above for a discussion of the pre-offering review procedures conducted by the sponsor with respect to the mortgage loans.  No assurance can be made that the mortgage pool does not contain mortgage loans as to which there may be breaches of the original representations and warranties or that the mortgage loans will not default for other reasons.

RWT Holdings acquires mortgage loans secured by first and second liens on one- to four- family residential properties.  On the closing date, RWT Holdings, as seller, will sell all of its interest in the mortgage loans to the depositor.  RWT Holdings works in coordination with the underwriters in structuring each securitization transaction.  RWT Holdings does not currently service mortgage loans but rather contracts with third party servicers for servicing of the mortgage loans that it acquires. Third party servicers are assessed based upon the servicing rating and the credit quality of the servicing institution, as well as for their systems and reporting capabilities, review of collection procedures and confirmation of servicers’ ability to provide detailed reporting on the performance of the securitization pool.


 
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THE DEPOSITOR

Sequoia Residential Funding, Inc., a Delaware corporation and indirect wholly-owned subsidiary of Redwood Trust, Inc., was organized in September 1999 and is headquartered in Mill Valley, California.  The depositor has been engaged since the end of 2001 in the securitization of mortgage loans of the types described in the accompanying prospectus.  Since 2002, Sequoia Residential Funding, Inc. has been the depositor on 31 securitization deals that have issued approximately $25 billion of residential mortgage securities ($2 billion in 2002, $10 billion in 2003, $8 billion in 2004, $1 billion in 2005, $1 billion in 2006 and $3 billion in 2007).

The certificate of incorporation of the depositor limits its activities to those necessary or convenient to carry out its securitization activities. The depositor will have limited obligations with respect to a series of securities. The depositor will obtain the mortgage loans from the sponsor/seller and on the closing date will assign all of its interest in the mortgage loans to the trustee for the benefit of certificateholders.  In addition, the depositor may have certain approval or consent rights as described in this prospectus supplement.

AFFILIATIONS AND RELATED TRANSACTIONS

The seller and sponsor and the depositor are both wholly-owned subsidiaries of Redwood Trust, Inc.  Citigroup Global Markets Inc., an underwriter, is an affiliate of CitiMortgage, Inc., the originator and servicer of the mortgage loans.

There is not currently, and there was not during the past two years, any material business relationship, agreement, arrangement, transaction or understanding that is or was entered into outside the ordinary course of business or is or was on terms other than would be obtained in an arm’s length transaction with an unrelated third party, between (a) any of the seller, the sponsor, the depositor and the issuing entity on the one hand and (b) any of the servicer, the custodian, the trustee or the originator of the mortgage loans on the other hand.

THE SERVICER

CitiMortgage is the servicer of the mortgage loans.  CitiMortgage has been servicing mortgage loans for more than two decades.  As of February 26, 2010, CitiMortgage had a serviced mortgage loan portfolio of approximately $674 billion, with 4.6 million customers. The following table shows the growth from 2003 of CitiMortgage’s serviced mortgage portfolio on its Citilink servicing platform.  The table includes mortgage loans that have been sold to Fannie Mae, Freddie Mac, Ginnie Mae, securitized into public and private mortgage backed securities, sold as packages of whole loans, or owned by CitiMortgage or its affiliates. CitiMortgage has from time to time transferred the servicing of loans.
 
December 31,
 
Number
 
Principal balance
($ millions)
2009
 
4,681,288
 
$685,648
2008
 
5,230,468
 
$774,748
2007
 
4,856,319
 
$719,625
2006
 
3,099,417
 
$452,797
2005
 
2,581,561
 
$377,652
2004
 
1,552,571
 
$239,700
2003
 
1,444,700
 
$195,256

Pursuant to the terms of the servicing agreement, CitiMortgage may delegate its servicing duties to a subservicer. Despite any delegation, CitiMortgage will remain ultimately responsible for the servicing of the mortgage loans.
 

 
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Servicing Procedures
 
Shortly after the funding of a loan, various types of loan information are loaded into CitiMortgage’s automated loan servicing system. CitiMortgage then makes reasonable efforts to collect all payments called for under the mortgage loan documents and will, consistent with the servicing agreement and any primary mortgage insurance policy, follow such collection procedures as are customary with respect to loans that are comparable to the mortgage loans in the trust fund. CitiMortgage may, in its discretion, (i) waive any assumption fee, 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 primary mortgage insurance policy, if applicable, waive, vary or modify any term of any mortgage loan, consent to the postponement of strict compliance with any such term or in any matter grant indulgence to any borrower, subject to the limitations set forth in the servicing agreement.
 
CitiMortgage’s collections policy is designed to identify payment problems sufficiently early to permit CitiMortgage to address such delinquency problems and, when necessary, to act to preserve equity in a pre-foreclosure mortgaged property. Borrowers are billed on a monthly basis in advance of the due date. Collection procedures commence upon identification of a past due account by CitiMortgage’s automated servicing system. If timely payment is not received, CitiMortgage’s automated loan servicing system automatically places the mortgage loan in the assigned collection queue and collection procedures are generally initiated on the 3rd to 15th day of delinquency based on the risk score of the loan. The account remains in the queue unless and until a payment is received, at which point CitiMortgage’s automated loan servicing system automatically removes the mortgage loan from that collection queue.
 
When a mortgage loan appears in a collection queue, a collector will remind the borrower by telephone that a payment is due. Follow-up telephone contacts with the borrower are attempted until the account is current or other payment arrangements have been made. When contact is made with a delinquent borrower, collectors present such borrower with alternative payment methods, such as Western Union, in order to expedite payments. Standard form letters are utilized when attempts to reach the borrower by telephone fail and/or in some circumstances, to supplement the phone contacts. Company collectors have computer access to telephone numbers, payment histories, loan information and all past collection notes. CitiMortgage supplements the collectors’ efforts with advanced technology such as predictive dialers and statistical behavioral software used to determine the optimal time to initiate collection activity. Additionally, collectors may attempt to mitigate losses through the use of behavioral or other models that are designed to assist in identifying workout options in the early stages of delinquency. For those loans in which collection efforts have been exhausted without success, CitiMortgage determines whether foreclosure proceedings are appropriate. The course of action elected with respect to a delinquent mortgage loan generally will be guided by a number of factors, including the related borrower’s payment history, ability and willingness to pay, the condition and occupancy of the mortgaged property, the amount of borrower equity in the mortgaged property and whether there are any junior liens.
 
Regulations and practices regarding the liquidation of properties (e.g., foreclosure) and the rights of a borrower in default vary greatly from state to state. As such, foreclosures typically are assigned to outside counsel licensed to practice in the same state as the mortgaged property. Bankruptcies filed by borrowers are similarly assigned to appropriate local counsel. Communication with foreclosure and bankruptcy attorneys is maintained through the use of a software program, thus reducing the need for phone calls and faxes and simultaneously creating a permanent record of communication. Attorney timeline performance is managed using quarterly report cards. The status of foreclosures and bankruptcies is monitored by CitiMortgage through its use of such software system. Bankruptcy filing and release information is received electronically from a third-party notification vendor.
 
Prior to a foreclosure sale, CitiMortgage performs a market value analysis. This analysis includes: (i) a current valuation of the mortgaged property obtained through a drive-by appraisal or broker’s price opinion conducted by an independent appraiser and/or a broker from a network of real estate brokers, complete with a description of the condition of the mortgaged property, as well as other information such as recent price lists of comparable properties, recent closed comparables, estimated marketing time and required or suggested repairs, and an estimate of the purchase price; (ii) an evaluation of the amount owed, if any, for real estate taxes; and (iii) estimated carrying costs, brokers’ fees, repair costs and other related costs associated with real estate owned properties. CitiMortgage bases the amount it will bid at foreclosure sales on this analysis.
 

 
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If CitiMortgage acquires title to a property at a foreclosure sale or otherwise, it obtains an estimate of the sale price of the property and then hires one or more real estate brokers to begin marketing the property. If the mortgaged property is not vacant when acquired, local eviction attorneys are hired to commence eviction proceedings and/or negotiations are held with occupants in an attempt to get them to vacate without incurring the additional time and cost of eviction. Repairs are performed if it is determined that they will increase the net liquidation proceeds, taking into consideration the cost of repairs, the carrying costs during the repair period and the marketability of the property both before and after the repairs.
 
CitiMortgage’s loan servicing software also tracks and maintains tax and homeowners’ insurance information and tax and insurance escrow information.  Expiration reports are generated periodically listing all policies scheduled to expire. When policies lapse, a letter is automatically generated and issued advising the borrower of such lapse and notifying the borrower that CitiMortgage will obtain lender-placed insurance at the borrower’s expense.
 
ADMINISTRATION OF THE ISSUING ENTITY

Servicing and Administrative Responsibilities

The servicer, the trustee and the custodian will have the following responsibilities with respect to the issuing entity:

Servicer.  Performing the servicing functions with respect to the mortgage loans and the mortgaged properties in accordance with the provisions of the servicing agreement, including, but not limited to:
 
·
collecting monthly remittances of principal and interest on the mortgage loans from the related borrowers, depositing such amounts (net of the related servicing fees) in the custodial account, and delivering all amounts on deposit in the custodial account to the trustee for deposit in the certificate distribution account on the Servicer Remittance Date;

·
collecting amounts in respect of taxes and insurance from the related borrowers, depositing such amounts in the related escrow account, and paying such amounts to the related taxing authorities and insurance providers, as applicable;

·
making monthly advances with respect to delinquent payments of principal and interest on the mortgage loans, to the extent the servicer believes these monthly advances will be recoverable;

·
making servicing advances in respect of reasonable and customary “out of pocket” costs and expenses;

·
providing monthly loan-level reports to the trustee;

·
maintaining certain insurance policies relating to the mortgage loans; and

·
initiating foreclosure proceedings and other methods of default resolution.
 
We refer you to “The Agreements—Mortgage Loan Servicing” below.


 
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Trustee.  Performing the trustee functions in accordance with the provisions of the pooling agreement, including but not limited to:
 
·
acting as certificate registrar, authenticating agent and paying agent;

·
receiving monthly remittances from the servicer for deposit in the certificate distribution account;

·
determining the amounts payable to each class of certificates based on information supplied by the servicer, and distributing all amounts on deposit in the certificate distribution account in accordance with the priorities described under “Description of the Certificates—Payments of Interest,” “—Payments of Principal” on each distribution date;

·
preparing and making available on its website a monthly distribution date statement to certificateholders based on information received from the servicer; and

·
if the servicer is terminated in accordance with the provisions of the servicing agreement and the pooling agreement, making, as successor servicer, or appointing a successor servicer to make, monthly advances with respect to delinquent payments of principal and interest on the mortgage loans upon a failure by the servicer to make these advances as required by the servicing agreement, to the extent the successor servicer believes these monthly advances will be recoverable; and

·
preparing and filing periodic reports with the SEC on behalf of the issuing entity with respect to the certificates.
 
We refer you to “The Agreements —Reports to Certificate holders”  below.

Depositor.  Filing certain current reports with the SEC on behalf of the issuing entity with respect to the certificates.

Custodian.  Performing the custodial functions in accordance with the provisions of the pooling agreement, including but not limited to holding and maintaining the mortgage loan documents related to the mortgage loans on behalf of the trustee.

We refer you to “The Agreements—The Custodial Agreement” below.

Issuing Entity Accounts

All amounts in respect of principal and interest received from the borrowers or other recoveries in respect of the mortgage loans will, at all times before payment thereof to the certificateholders, be deposited in the custodial account and the certificate distribution account, or the issuing entity accounts.  The custodial account will be established in the name of the servicer in trust for the trustee as trustee for the benefit of holders of the certificates, and the certificate distribution account will be established in the name of the trustee in trust for the benefit of the certificateholders. Funds on deposit in the issuing entity accounts may be invested in eligible investments. The issuing entity accounts will be established by the applicable parties listed below, and any investment income earned on each issuing entity account will be retained or distributed as follows:

Issuing Entity
Account
 
Responsible Party:
 
Application of any Investment Earnings:
         
Custodial Account
 
Servicer (or Subservicer on its behalf)
 
Any investment earnings (net of any losses realized) will be paid as compensation to the servicer and will not be available for payments to certificateholders.
         
Certificate Distribution Account
 
Trustee
 
Any investment earnings (net of any losses realized) will be paid as compensation to the trustee and will not be available for payments to certificateholders.
         


 
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If funds deposited in the custodial account or the certificate distribution account are invested by the responsible party identified in the table above, the amount of any net losses incurred in respect of any such investments will be deposited in the related issuing entity account by such responsible party, out of its own funds, without any right of reimbursement therefor.

Example of Payments

The following sets forth an example of collection of payments from borrowers on the mortgage loans, transfer of amounts among the issuing entity accounts and payments on the certificates for the distribution date in June 2010:

 May 2 through June 1
 
Due Period:
 
Payments due during the related Due Period (May 2  through June 1) from borrowers will be deposited in the custodial account as received and will include scheduled principal and interest payments due during the related Due Period.
         
May 1 through May 31
 
Prepayment Period for
partial and full prepayments
received from mortgage
loans:
 
Partial principal prepayments and principal prepayments in full received by the servicer during the related Prepayment Period (May 1 through May 31) will be deposited into the custodial account for remittance to the trustee on the servicer remittance date (June 18).
         
May 28
 
Record Date:
 
Distributions will be made to certificateholders of record for all classes of certificates as of the last business day of the calendar month preceding the month of the related distribution date.
         
June 18
 
Servicer Remittance Date:
 
The servicer will remit collections and recoveries in respect of the mortgage loans to the trustee for deposit into the certificate distribution account on or prior to the 18th day of each month (or if the 18th day is not a business day, the next business day).
         
June 25
 
Distribution Date:
 
On the 25th day of each month (or if the 25th day is not a business day, the next business day), the trustee will make payments from amounts on deposit in the certificate distribution account to certificateholders.

Succeeding months follow the same pattern.

THE AGREEMENTS

General

The following summary describes certain terms of the pooling agreement, the mortgage loan purchase agreement, the servicing agreement and the custodial agreement.  The summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the agreements.  The following summary supplements, and to the extent inconsistent with, replaces, the description of the general terms and provisions of the agreements under the heading “The Agreements” in the accompanying prospectus.

 
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The certificates will be issued pursuant to the pooling agreement, dated as of April 1, 2010 between the depositor and the trustee.  Reference is made to the accompanying prospectus for information in addition to that set forth in this prospectus supplement regarding the terms and conditions of the pooling agreement and the offered certificates.  Certificates in certificated form will be transferable and exchangeable at the corporate trust office of the trustee, which will serve as certificate registrar and paying agent.  The trustee will provide to a prospective or actual certificateholder, without charge, on written request, an electronic copy (without exhibits) of the pooling agreement.  Requests should be addressed to 9062 Old Annapolis Road, Columbia, Maryland, 21045, Attention: Client Manager—Sequoia Mortgage Trust 2010-H1.

Assignment of the Mortgage Loans

Under the servicing agreement, the originator will sell the mortgage loans to RWT Holdings, Inc., and will make certain representations, warranties and covenants relating to, among other things, certain characteristics of the mortgage loans.  Under the mortgage loan purchase agreement, RWT Holdings, Inc., as seller, will sell the mortgage loans to the depositor.  Pursuant to the pooling agreement, on the closing date the depositor will sell, transfer, assign, set over and otherwise convey without recourse to the trustee all of its rights to the mortgage loans.  The originator's representations and warranties will include the representations and warranties set forth under “—Representations and Warranties” below and “Loan Program—Representations and Warranties; Repurchases” in the prospectus and will be assigned to the depositor and then to the trustee pursuant to the assignment, assumption and recognition agreement.  Subject to the limitations described below, the originator will be obligated as described herein to cure or purchase or substitute a similar mortgage loan for any mortgage loan as to which there exists deficient documentation if the deficiency also constitutes a material breach of a representation or warranty regarding the mortgage loan, or as to which there has been an uncured breach of any such representation or warranty relating to the characteristics of the mortgage loan that materially and adversely affects the value of such mortgage loan or the interests of the certificateholders in such mortgage loan.

Pursuant to the assignment, assumption and recognition agreement, the Controlling Holder will have the right to enforce the originator's repurchase obligation so long as an affiliate of the depositor, other than the seller, continues to hold at least a majority of the most subordinate class of certificates outstanding with a Class Principal Amount greater than zero.  The obligations of the originator with respect to the certificates are limited to the originator's obligation to purchase or substitute for defective mortgage loans and its obligations to service the mortgage loans pursuant to the servicing agreement.

In connection with such transfer and assignment of the mortgage loans, pursuant to a custodial agreement dated as of April 1, 2010, among the depositor, the seller, the trustee and the custodian, except as provided below, the depositor will deliver or cause to be delivered to Wells Fargo Bank, N.A., as custodian, on behalf of the trustee, among other things, the original promissory note, or mortgage note, (and any modification or amendment thereto) endorsed in blank without recourse, the original instrument creating a first lien on the related mortgaged property, or mortgage, with evidence of recording indicated thereon, an assignment in recordable form of the mortgage for each non-MERS mortgage loan, the title policy with respect to the related mortgaged property and, if applicable, all recorded intervening assignments of the mortgage and any riders or modifications to such mortgage note and mortgage (except for any such document not returned from the public recording office, which is required to be delivered by the originator to the trustee or custodian as soon as the same is available to the issuing entity), collectively, the mortgage loan documents.

With respect to mortgage loans that are not recorded in the name of MERS, assignments of the mortgage loans to the trustee (or its nominee) will be recorded by the depositor in the appropriate public office for real property records.  With respect to mortgage loans that are recorded in the name of MERS, the depositor will cause the trustee to be recorded as the beneficial owner of the mortgage loans pursuant to the MERS rules for electronically tracking changes in ownership rights.

 
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The custodian will review the mortgage loan documents with respect to a mortgage loan generally within one business day of the later of its receipt of the mortgage loan documents or the mortgage loan schedule.  If any mortgage loan document is found to be missing or defective in a material respect and the originator does not cure such defect within 180 days of the closing date, the originator will be obligated to purchase the related mortgage loan if the missing or defective document also would cause a material breach of any representation or warranty made by the originator in connection with the mortgage loans.  Rather than purchase the mortgage loan as provided above, the originator may remove that mortgage loan, or a deleted mortgage loan, from the trust fund and substitute in its place another mortgage loan, or a replacement mortgage loan. Any replacement mortgage loan generally will, on the date of substitution, among other characteristics set forth in the servicing agreement, (i) have a principal balance, after deduction of all scheduled payments due in the month of substitution (or in the case of a substitution of more than one mortgage loan for a deleted mortgage loan, an aggregate principal balance), not in excess of the Stated Principal Balance of the deleted mortgage loan, (ii) have a mortgage rate that adjusts in accordance with the same index and a margin equal to the margin of the deleted mortgage loan, (iii) have a remaining term to maturity not greater than (and not more than one year less than) that of the deleted mortgage loan, (iv) have a loan-to-value ratio at origination no greater than that of the deleted mortgage loan and (vi) comply with all of the representations and warranties set forth in the servicing agreement as of the date of substitution.  This cure, purchase or substitution obligation constitutes the sole remedy available to certificateholders or the trustee for omission of, or a material defect in, a mortgage loan document.

Representations and Warranties

In the servicing agreement, pursuant to which the seller purchased the mortgage loans from the originator, the originator made representations and warranties to the seller concerning the mortgage loans.  In the assignment, assumption and recognition agreement, the seller will assign the representations and warranties made by the originator relating to the characteristics of the mortgage loans to the depositor, and the depositor will assign those representations and warranties to the trustee.  These representations and warranties include the representations and warranties set forth under “Loan Program—Representations and Warranties; Repurchases” in the prospectus, as well as the following representations and warranties, among others:

 
·
Each mortgage loan either (i) was underwritten in conformance with the originator's underwriting guidelines in effect at the time of origination without regard to any underwriter discretion or (ii) if not underwritten in conformance with the originator's underwriting guidelines, has reasonable and documented compensating factors.  The methodology used in underwriting the extension of credit for the mortgage loan includes objective mathematical principles that relate to the relationship between the borrower's income, assets and liabilities and the proposed payment;

 
·
The originator has given due consideration to factors, including but not limited to, other real estate owned by a borrower, commuting distance to work, appraiser comments and notes, the location of the property and any difference between the mailing address active in the servicing system and the subject property address to evaluate whether the occupancy status of the property as represented by the borrower is reasonable, and that all owner occupied properties are occupied by the owner at the time of purchase of the mortgage.

 
·
With respect to each mortgage loan, the originator verified the borrower’s income, employment, and assets in accordance with its written underwriting guidelines and employed procedures designed to authenticate the documentation supporting the income, employment and assets.  This verification may include the transcripts received from the Internal Revenue Service pursuant to a filing of IRS Form 4506-T.  With respect to each Mortgage Loan, in order to test the reasonableness of the income, the originator used (i) pay statements reflecting current and year-to-date earnings and deductions, (ii) copies of tax returns provided by borrowers, (iii) transcripts received from the Internal Revenue Service pursuant to a filing of IRS Form 4506-T or (iv) public and/or commercially available information acceptable to the trustee for the benefit of the certificateholders;

 
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·
Each mortgage file contains a written appraisal prepared by a qualified appraiser.  The appraisal was written, in form and substance, to (i) customary Fannie Mae or Freddie Mac standards for mortgage loans of the same type as the related mortgage loans and (ii) Uniform Standards of Professional Appraisal Practice standards, and satisfies applicable legal and regulatory requirements.  The appraisal was made and signed prior to the final approval of the mortgage loan application.  The person performing any property valuation (including an appraiser) received no benefit from, and that person’s compensation or flow of business from the originator was not affected by, the approval or disapproval of the mortgage loan.  The selection of the person performing the property valuation was made independently of the broker (where applicable) and the originator’s loan sales and loan production personnel.  The selection of the appraiser met the criteria of Fannie Mae and Freddie Mac for selecting an independent appraiser; and

 
·
Any and all requirements of any federal, state or local law including, without limitation, usury, truth-in-lending, real estate settlement procedures, consumer credit protection, equal credit opportunity, fair housing, or disclosure laws applicable to the mortgage loans have been complied with in all material respects.

If the originator cannot cure a breach of a representation and warranty concerning a mortgage loan, which breach materially and adversely affects the value of, or the interest of the certificateholders in, that mortgage loan, within 90 days of the originator's discovery or receipt of notice of that breach, then, not later than 120 days after its discovery or receipt of notice, the originator will be obligated to repurchase or substitute a replacement mortgage loan for the mortgage loan.  Any substitution under the servicing agreement is only permitted within 120 days of the date of sale of the affected mortgage loan.  This cure, purchase or substitution obligation constitutes the sole remedy available to certificateholders or the trustee for these breaches.  Neither the seller nor the depositor has any obligation to repurchase or substitute a mortgage loan if the originator fails to do so.

Pursuant to the servicing agreement, the assignment, assumption and recognition agreement and the pooling agreement, the Controlling Holder will have the right to enforce the obligation of the originator to cure any breach of a representation and warranty relating to the characteristics of the mortgage loans, or to repurchase or substitute for any mortgage loan if such breach is not cured.  If an affiliate of the depositor is no longer the holder of the majority of the Class Principal Amount of the most subordinate class of certificates then outstanding with a Class Principal Amount greater than zero, then no entity will have any rights as a Controlling Holder.  In this circumstance, all of the rights of the Controlling Holder described in this prospectus supplement, other than the right to approve a loan modification by the servicer as described below under “Mortgage Loan Servicing—Waiver or Modification of Mortgage Loan Terms,” would then revert to the trustee on behalf of the certificateholders.

Pursuant to the servicing agreement and the assignment, assumption and recognition agreement, if an allegation of a breach of a representation or warranty is not resolved to the satisfaction of the Controlling Holder and the originator, either party may initiate an arbitration proceeding to resolve the dispute.  Arbitration will be conducted in accordance with the rules of the American Arbitration Association. Each of the originator and the Controlling Holder will bear its own costs of arbitration, except that the cost of the arbitrator will be shared equally.

To the extent practicable, disputes with respect to breaches of representations and warranties are to be aggregated in a single arbitration, and arbitrations will be limited to no more than twice in any calendar year.  The finding of the arbitrator shall be final and binding upon both parties.

 
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In addition, if the Controlling Holder has notified the trustee that it will not pursue an action in respect of any alleged breach of a representation and warranty, then the trustee will pursue such action only upon its receipt of (i) written direction to do so by the holders of 66 2/3% of the aggregate voting interests of the Class A-1 Certificates and Class A-IO Certificates and (ii) an agreement by holders directing the trustee to take such action to provide in advance to the trustee funds to pay for any costs and expenses incurred by the trustee, and provide any indemnification reasonably requested by the trustee.  In connection with any such action, the trustee will seek reimbursement for the trustee's costs and expenses from the originator under the terms of the servicing agreement.  If the trustee recovers any such costs and expenses from the originator, the trustee will pay such amounts to the certificateholders that had provided such funds to the trustee as described above.  These costs and expenses incurred by the trustee will not be reimbursed by the trust fund.

If there is no longer a Controlling Holder under the pooling agreement, the trustee will review or cause to be reviewed each mortgage loan that has been delinquent for more than 120 days, other than any such mortgage loan that was the subject of a previous arbitration proceeding under the servicing agreement,  to review whether any breaches of the representations and warranties given by the originator or seller occurred.  The trustee may engage a third party or Wells Fargo Bank, N.A., to perform such review and report its findings.  Any such review will include, at a minimum, a review as to whether the mortgage loan was underwritten in accordance with the originator's underwriting standards in effect at the time of origination, whether the mortgage loan was originated in accordance with all applicable laws and regulations, and whether any fraud may have occurred in connection with the origination of the mortgage loan.   If, as a result of such review, there is evidence that a breach of a representation or warranty may have occurred requiring the originator or seller to repurchase the related mortgage loan, then the trustee will enforce such repurchase obligation, including participating in an arbitration proceeding pursuant to the servicing agreement if necessary.  Any fees, costs and expenses incurred by the trustee in performing such review and enforcing the repurchase obligation, to the extent not reimbursed by the originator or seller, as applicable, within 90 days of a written request from the trustee will be reimbursed by the trust fund, subject to an annual limit of $300,000 as described in the definition of Available Distribution Amount.  In connection with any such action against the originator, the trustee will seek reimbursement for its fees, costs and expenses from the originator under the terms of the servicing agreement.  If the trustee recovers any such fees, costs and expenses from the originator, the trustee will pay these amounts to the trust fund.

In addition, if there is no longer a Controlling Holder under the pooling agreement, then the trustee will pursue an action in respect of an alleged breach by the originator of a representation and warranty relating to the characteristics of the mortgage loans only upon its receipt of  (i) written direction to do so by the holders of more than 50% of the aggregate voting interests of the certificates and (ii) an agreement by holders directing the trustee to take such action to provide in advance to the trustee funds to pay for any costs and expenses incurred by the trustee and to provide any indemnification reasonably requested by the trustee.  In connection with any such action, the trustee will seek reimbursement for the trustee's costs and expenses from the originator under the terms of the servicing agreement.  If the trustee recovers any such costs and expenses from the originator, the trustee will pay such amounts to the certificateholders that had provided such funds to the trustee as described above.  These costs and expenses, to the extent not reimbursed by the originator or the applicable certificateholders, will be reimbursed by the trust fund, subject to an annual limit of $300,000 as described in the definition of Available Distribution Amount.  There can be no assurance that the procedures described above will be adequate to identify all breaches of representations and warranties relating to the characteristics of the mortgage loans or to enforce the obligations of the originator to cure a breach, or to repurchase or substitute for a mortgage loan if such breach is not cured.

The seller and the depositor will each represent and warrant that immediately prior to its transfer of the mortgage loans, it will own and have good, valid and marketable title to the mortgage loans free and clear of any lien, claim or encumbrance of any person.  If the seller cannot cure a breach of this representation or warranty within 90 days of the seller's discovery or receipt of notice of that breach, then the trustee will enforce the seller’s obligation under the mortgage loan purchase and sale agreement to repurchase that mortgage loan.  This representation and warranty is the only representation and warranty concerning the mortgage loans made by the seller and depositor; all other representations and warranties concerning the mortgage loans are made only by the originator.

 
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Mortgage Loan Servicing

The servicer will service the mortgage loans pursuant to an existing servicing agreement, as modified pursuant to the assignment, assumption and recognition agreement, or the servicing agreement.  The rights of the seller under the servicing agreement will be assigned to the depositor, and the depositor, in turn, will assign such rights to the trustee for the benefit of certificateholders.  Any transfer of servicing to a successor servicer will be subject to the conditions set forth in the servicing agreement and the pooling agreement.

The servicer will have primary responsibility for servicing the mortgage loans, including, but not limited to, all collection, advancing and loan-level reporting obligations, maintenance of custodial and escrow accounts, maintenance of insurance and enforcement of foreclosure proceedings with respect to the mortgage loans and the mortgaged properties, in accordance with the provisions of the servicing agreement.

Under the servicing agreement, the trustee will have the authority to terminate the servicer for certain events of default which indicate that either the servicer is not performing, or is unable to perform, its duties and obligations under the servicing agreement.  If the trustee terminates the servicer, the trustee will be required to appoint a successor servicer as provided in the servicing agreement.  The trustee will have the right to increase the servicing fee rate if it determines that an increase is necessary and appropriate in order to engage a successor servicer.  Any increase in the servicing fee rate to engage a successor servicer will reduce the Net Mortgage Rate for purposes of calculating the Net WAC, and may thus reduce the Certificate Interest Rate payable to the Certificateholders.

The servicer generally may not transfer the servicing to a successor servicer without the consent of the trustee.

Waiver or Modification of Mortgage Loan Terms.  The servicer will make reasonable efforts to collect all payments called for under the mortgage loans and will follow such collection procedures as are customary with respect to mortgage loans that are comparable to the mortgage loans.  Consistent with the above, the servicer may, in its discretion, (i) waive any assumption fee, late payment or other charge in connection with a mortgage loan and (ii) arrange with a borrower a schedule for the satisfaction of delinquencies.  The servicer may also modify mortgage loans so long as the modifications are consistent with the servicing agreement and subject to the REMIC Provisions; provided, that the servicer may not enter into a payment plan or agreement to modify payments with a borrower lasting more than six months or permit a modification with respect to a mortgage loan that would change the mortgage rate, the initial cap, the periodic cap, the maximum rate or the gross margin, agree to the capitalization of arrearages, including interest, fees or expenses owed under a mortgage loan, make any future advances or extend the final maturity date with respect to a mortgage loan, or accept substitute or additional collateral or release any collateral for a mortgage loan unless (i) the borrower is in default with respect to its mortgage loan or where default is, in the judgment of the servicer, imminent, (ii) the modification is in accordance with the customary procedures of the servicer, which may change from time to time, or industry-accepted programs and (iii) the Controlling Holder, if any, has approved the modification. The servicer’s monthly advancing obligations will reflect the new payment terms of the modified mortgage loans.

Due-on-Sale Clauses; Assumptions.  Under the servicing agreement, when any mortgaged property has been conveyed by the borrower, the servicer will, to the extent it has knowledge of the reconveyance, exercise its rights on behalf of the trustee to accelerate the maturity of the mortgage loan under any “due-on-sale” clause applicable to the mortgage loan, if any, unless (1) the servicer is prohibited by law from exercising those rights, or (2) if the exercise of those rights would impair or threaten to impair any  recovery under the related insurance policy, if any.  If the servicer reasonably believes that it is unable under applicable law to enforce the due-on-sale clause, where the due-on-sale clause will not be exercised, the servicer is authorized to take or enter into an assumption and modification agreement from or with the person to whom such mortgaged property has been or is about to be conveyed, pursuant to which that person becomes liable under the mortgage note and, unless prohibited by applicable state law, the borrower remains liable thereon.  In connection with any assumption, the monthly payment and mortgage interest rate, and the lifetime cap, the initial rate cap or the periodic rate cap (if applicable) of the related mortgage note will not be changed, and the term of the mortgage loan will not be increased or decreased.  The servicer will also be authorized, with the prior approval of the insurer under any required insurance policies, to enter into a substitution of liability agreement with such person, pursuant to which the original borrower is released from liability and such person is substituted as borrower and becomes liable under the mortgage note.  See “Certain Legal Aspects of the Mortgage Loans—Due-on-Sale Clauses” in the prospectus.

 
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Prepayment Interest Shortfalls.  When a borrower prepays a mortgage loan in full between Due Dates, the borrower is required to pay interest on the amount prepaid only to the date of prepayment and not thereafter.  In general, partial prepayments are treated as having been paid on the most recent Due Date, so no interest on the partial prepayment amount will accrue.  Principal prepayments by borrowers received by the servicer during the related Prepayment Period for a distribution date will be distributed to certificateholders on the related distribution date.  Thus, less than one month’s interest may have been collected on mortgage loans that have been prepaid in full or in part with respect to any distribution date.  Pursuant to the servicing agreement, either (i) the related servicing fee for any month will be reduced (but not below zero) by the amount of any Prepayment Interest Shortfall or (ii) the servicer will be required to make payments in respect of Prepayment Interest Shortfalls from its own funds with respect to the mortgage loans, to the extent of the aggregate amount of servicing fees actually received for that month.  The amount of interest available to be paid to certificateholders will be reduced by any uncompensated Prepayment Interest Shortfalls.

Advances. Subject to the limitations described in the following paragraph, the servicer will be required to advance prior to each distribution date, from its own funds, or funds in the custodial account that are not otherwise required to be remitted to the certificate distribution account for such distribution date, an amount equal to the scheduled payment of interest at the related mortgage rate (less the servicing fee rate) and scheduled principal payments on each mortgage loan which were due on the related Due Date and which were not received prior to the related Determination Date (any such advance, a monthly advance).

Monthly advances are intended to maintain a regular flow of scheduled interest and principal payments on the certificates rather than to guarantee or insure against losses.  The servicer is obligated to make monthly advances with respect to delinquent payments of interest and principal on each mortgage loan serviced by it, to the extent that such monthly advances are, in its reasonable judgment, recoverable from future payments and collections or insurance payments or proceeds of liquidation of the related mortgage loans.  Any failure by the servicer to make a monthly advance as required under the servicing agreement will constitute a default thereunder, and if the servicer is terminated as a result of such default or otherwise, the trustee, as successor servicer, or a successor appointed by the trustee, will be required to make a monthly advance in accordance with the terms of the pooling agreement; provided, however, that in no event will a successor servicer be required to make a monthly advance that is not, in its reasonable judgment, recoverable from future payments and collections or insurance payments or proceeds of liquidation of the related mortgage loans.  If the servicer determines on any Determination Date to make a monthly advance, such monthly advance will be included with the payment to certificateholders on the related distribution date.  To the extent the servicer uses funds in the custodial account that are not otherwise required to be remitted to the certificate distribution account for such distribution date to make monthly advances, the servicer is required to replenish those funds prior to the remittance date on which those funds are to be distributed.

The servicer will be permitted to temporarily reimburse itself for monthly advances from amounts in the custodial account provided that it replenishes those amounts prior to the Servicer Remittance Date on which those funds are required to be distributed.  The servicer will be permitted to permanently reimburse itself from collections on the related mortgage loans for which a monthly advance was made with the servicer's own funds or was made with funds held for a future distribution and replenished with the servicer's own funds.

 
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The servicer will be permitted to reimburse itself for monthly advances from amounts in the custodial account to the extent those monthly advances are nonrecoverable from collections on the related mortgage loan for which the monthly advance was made, provided that the mortgage loan is not required to be repurchased as a result of a breach of a representation or warranty relating to that mortgage loan.

The servicer also will be entitled to reimburse itself for monthly advances and servicing advances at the time of a servicing modification where the servicer adds those amounts to the Stated Principal Balance of the mortgage loans as part of the modification.

Servicing Compensation and Payment of Expenses.  The servicer will be entitled to receive, from interest actually collected on each mortgage loan serviced by it, a servicing fee equal to the product of (1) the principal balance of the mortgage loans as of the first day of the related Due Period and (2) a per annum rate, or the servicing fee rate, equal to 0.25% annually.  The servicer will also be entitled to receive, to the extent provided in the servicing agreement, additional compensation in the form of prepayment premiums and any interest or other income earned on funds it has deposited in the custodial account pending remittance to the certificate distribution account, as well as late charges and certain fees paid by borrowers and, in certain cases, REO management fees.  The amount of the servicer’s servicing fee is subject to adjustment with respect to prepaid mortgage loans, as described above under “— Prepayment Interest Shortfalls.”

Evidence as to Compliance.  The servicing agreement will require the servicer to deliver to the trustee, on or before the date in each year specified in the servicing agreement, and, if required, deliver to the trustee for filing with the SEC as part of a Report on Form 10-K filed on behalf of the issuing entity, the following documents:
 
·
a report on its assessment of compliance during the preceding calendar year with all applicable servicing criteria set forth in relevant SEC regulations with respect to asset-backed securities transactions taken as a whole involving the servicer that are backed by the same types of assets as those backing the offered securities, as well as similar reports on assessment of compliance received from certain other parties participating in the servicing function as required by relevant SEC regulations;

·
with respect to each assessment report described in the immediately preceding bullet point, a report by a registered public accounting firm that attests to, and reports on, the assessment made by the asserting party, as set forth in relevant SEC regulations; and

·
a statement of compliance from the servicer, and similar statements from certain other parties involved in servicing the mortgage loans as required by relevant SEC regulations, signed by an authorized officer, to the effect that: (a) a review of the servicer’s activities during the reporting period and of its performance under the servicing agreement has been made under such officer’s supervision; and (b) to the best of such officer’s knowledge, based on such review, the servicer has fulfilled all of its obligations under the servicing agreement in all materials respects throughout the reporting period or, if there has been a failure to fulfill any such obligation in any material respect, specifying each such failure known to such officer and the nature and status thereof.
 
               Events of Default. Events of default under the servicing agreement include (i) any failure of the servicer to remit to the trustee any required payment which continues unremedied for one business day after written notice of such failure has been given by the trustee to the servicer; (ii) any failure by the servicer duly to observe or perform in any material respect any of its other covenants or agreements in the servicing agreement which continues unremedied for 30 days after the giving of written notice of such failure by the trustee to the servicer; (iii) any failure of the originator or the servicer to repurchase a mortgage loan within 30 days of the final decision of an arbitrator that the originator or the servicer, as the case may be, is obligated to repurchase the mortgage loan; and (iv) certain events of insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding and certain actions by or on behalf of the servicer indicating its insolvency, reorganization or inability to pay its obligations.

 
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 If an event of default involving the failure of the servicer to make a monthly advance prior to the related distribution date occurs, the trustee is required to terminate the servicer and either appoint a successor servicer in accordance with the servicing agreement and the pooling agreement or succeed to the responsibilities of the terminated servicer, unless 100% of the certificateholders waive the default of the servicer.  If any other event of default by the servicer under the servicing agreement has occurred, the trustee may, at its option, and will, if it has been directed to do so by either (a) certificateholders holding more than 50% of the Class Principal Amount (or Class Notional Amount) of each class of certificates, or (b) certificateholders holding 50% of  the aggregate Class Principal Amount of the subordinate certificates, terminate the defaulting servicer and either appoint a successor servicer in accordance with the servicing agreement and the pooling agreement or succeed to the responsibilities of the terminated servicer. However, in the event of (b) above, the trustee will provide written notice to all of the certificateholders within two business days of receiving such direction prior to terminating the servicer and will not terminate the servicer if, within 30 days of sending such written notice, the trustee has received contrary instructions from certificateholders holding more than 50% of the aggregate voting interests of the certificateholders.  Upon termination of the servicer, there will be a period of transition of not more than 90 days before the servicing functions of the servicer can be fully transferred to a successor servicer (including the trustee as successor servicer).

To the extent that the costs and expenses incurred by the trustee in connection with any alleged or actual default by the servicer, the termination of the servicer, any appointment of a successor servicer and/or any transfer and assumption of servicing by the trustee or any successor servicer with respect to the servicing agreement are not fully and timely reimbursed by the terminated servicer, then (a) the successor servicer will deduct these amounts from any amounts that it otherwise would have paid to the predecessor servicer in reimbursement of outstanding monthly advances and servicing advances, and the successor servicer will reimburse itself and the trustee for any unreimbursed costs and expenses, and (b) if the trustee is not required to be reimbursed by the servicer pursuant to the servicing agreement or if those costs and expenses are not satisfied pursuant to clause (a) within 90 days, then the trustee and successor servicer will be entitled to reimbursement of such costs and expenses from the certificate distribution account, subject to an annual limit of $300,000 as described in the definition of Available Distribution Amount.

Limitation on Liability of the Servicer.  The servicing agreement provides that the servicer and any director, officer, employee or agent of the servicer may rely on any document of any kind which it in good faith reasonably believes to be genuine and to have been adopted or signed by the proper authorities with respect to matters arising under the servicing agreement.  The servicer generally will have no obligation to appear with respect to, prosecute or defend any legal action that is not incidental to its duty to service the mortgage loans in accordance with the servicing agreement.

Resignation of Servicer.  The servicer may not resign from its obligations and duties under the servicing agreement or assign or transfer its rights, duties or obligations except upon a determination that its duties thereunder are no longer permissible under applicable law and the incapacity cannot be cured by the servicer.  No such resignation will become effective until the trustee or a successor servicer approved by it has assumed the servicer’s obligations and duties under the servicing agreement.  Any successor servicer must be an established housing and home finance institution servicer, master servicer, servicing or mortgage servicing institution having a net worth of not less than $15,000,000, be Fannie Mae or Freddie Mac-approved and meet such other standards for a successor servicer as are set forth in the pooling agreement and the servicing agreement.

Any person into which the servicer may be merged or consolidated, any person resulting from any merger or consolidation to which the servicer is a party, any person succeeding to the business of the servicer or any person to whom the servicer assigns or transfers its duties and obligations, will be the successor of the servicer under the servicing agreement.

 
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Limitation on Rights of Certificateholders.  No certificateholder will have any right under the pooling agreement to institute any suit, action or proceeding with respect to the pooling agreement unless (1) that certificateholder previously gave written notice to the trustee of an event of default, (2) certificateholders evidencing not less than 25% of the Class Principal Amount or Class Notional Amount of certificates of each class affected by the event of default have made written request to the trustee to institute proceedings in its own name as trustee and have offered to the trustee reasonable indemnity, (3) the trustee, for 60 days after its receipt of such notice, request and offer of indemnity, has failed to institute any proceeding and (4) no direction inconsistent with such written request has been given to the trustee during that 60-day period by certificateholders evidencing not less than 25% of the Class Principal Amount or Class Notional Amount of certificates of each affected class.

Amendment of the Servicing Agreement and Pooling Agreement.   The servicing agreement may generally be amended by written agreement between the servicer and the trustee without notice to or consent of the certificateholders.  The pooling agreement may be amended by written agreement between the depositor and the trustee, without notice to or consent of the certificateholders, (i) to cure any ambiguity or mistake, (ii) to cause the provisions of the pooling agreement to conform to or be consistent with or in furtherance of the statements made with respect to the certificates, the trust fund or the pooling agreement in this prospectus supplement and the accompanying prospectus, or to correct any error, (iii) to make any other provisions with respect to matters or questions arising under the pooling agreement, (iv) to add, delete or amend any provisions to the extent necessary or desirable to comply with any requirements imposed by the Code and the REMIC Provisions or (v) if necessary in order to avoid a violation of any applicable law or regulation.

The pooling agreement may also be amended by the trustee and the depositor with the consent of the holders of certificates of each class affected by the amendment, in each case evidencing not less than 66 2/3% of the aggregate percentage interests constituting that class, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the pooling agreement or of modifying in any manner the rights of the certificateholders; provided, however, that no amendment may (i) reduce in any manner the amount of or delay the timing of, collections of payments on the mortgage loans or distributions that are required to be made on a certificate of any class without the consent of the holder of that certificate or (ii) reduce the percentage of certificates of any class the holders of which are required to consent to that amendment unless the holders of all certificates of that class have consented to the change in percentage.  The trustee will not be entitled to consent to an amendment to the pooling agreement without having first received an opinion of counsel to the effect that the proposed amendment is duly authorized and permitted under the pooling agreement and that it will not cause the issuing entity to fail to qualify as a REMIC.

Limitation on Liability of Trustee and Rights of Trustee.  The Trustee will have the rights, immunities and privileges (including limitations on its liability and rights to indemnification, but subject to the annual cap specified elsewhere in this prospectus supplement) with respect to its duties and responsibilities under the transaction documents as set forth in the prospectus under “The Agreements—the Pooling and Servicing Agreement and the Trustee” (provided that references therein to “pooling and servicing agreement” and “master servicer” are deemed to refer to the pooling agreement and the servicer) and in the pooling agreement.

Inability to Perform or Bankruptcy of Deal Party.  If  the servicer, depositor or seller or any other party with obligations relating to the transaction described herein (each, a Deal Party) ceases to exist, becomes subject to a bankruptcy or similar proceeding or for any other reason is unable to satisfy its obligations under the transaction documents,  the trustee, at the direction of more than 50% of the aggregate voting interests of the certificateholders, may undertake such obligations, provided that the trustee will not undertake any indemnification or reimbursement obligations of any Deal Party.  In addition, the requirements to obtain certain consents or provide certain notices, and the rights to direct certain actions, will be waived with respect to any such Deal Parties or transferred to the trustee, as described more specifically in the pooling agreement.  The trustee may charge a reasonable and customary fee, and will be reimbursed for certain costs, in connection with its actions on behalf of such Deal Parties, to be paid from the certificate distribution account, subject to an annual cap of $300,000 as described in the definition of Available Distribution Amount.  The trustee may also require reimbursement or reasonable indemnity for its costs from the parties requesting its actions pursuant to these provisions in the pooling agreement.


 
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Reports to Certificateholders

On each distribution date, the trustee will make available on the trustee’s website at www.ctslink.com a distribution statement containing certain of the items set forth under “The Agreements—Reports to Certificateholders” in the prospectus and as specified in the pooling agreement, based solely on information received from the servicer.  For purposes of any electronic version of this prospectus supplement, the preceding uniform resource locator, or URL, is an inactive textual reference only. The depositor has taken steps to ensure that this URL reference was inactive at the time the electronic version of this prospectus supplement was created.  This URL can be accessed in an internet browser at https:// followed by the URL. In addition, for so long as the issuing entity is required to file reports with the SEC under the Exchange Act, the issuing entity’s annual report on Form 10-K, distribution reports on Form 10-D, current reports on Form 8-K and amendments to those reports will be made available on such website as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC.

Voting Rights

Voting rights under the pooling agreement will be allocated as follows:
 
·
98% to the classes of certificates, other than the Class A-IO Certificates and the Class R Certificates, in proportion to their respective outstanding Class Principal Amounts;

·
1% to the Class A-IO Certificates; and

·
1% to the Class R Certificates.
 
Termination of the Issuing Entity

The issuing entity will terminate upon the payment to the holders of all classes of certificates of all amounts required to be paid to the holders and upon the last to occur of:
 
·
the final payment or other liquidation, or any related advance, of the last mortgage loan;

·
the disposition of all property acquired in respect of any mortgage loan remaining in the trust fund; and

·
exercise by the servicer of its right to purchase the mortgage loans and other property of the trust as described under “Description of the Certificates—Optional Purchase of the Mortgage Loans” in this prospectus supplement.
 
The Custodial Agreement

In connection with the sale of the mortgage loans by the depositor to the issuing entity on the closing date, the depositor will be required to deliver a loan file to the custodian with respect to each mortgage loan consisting of, as to each mortgage loan that is not a cooperative loan:
 
·
the original mortgage note endorsed in blank;
 
 
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·
the original recorded mortgage or a certified copy thereof, or, if the original mortgage has not yet been returned from the applicable public recording office, a certified electronic copy of the original mortgage;
 
 
·
for any mortgage loan not recorded with MERS(R) System, the original assignment of the mortgage in blank, in recordable form;
 
 
·
each original recorded intervening assignment of the mortgage, or if any assignment has been submitted for recordation but has not been returned from the applicable public recording office or is otherwise not available, a certified copy thereof;
 
 
·
the original title insurance policy, note of title insurance or written commitment, or a copy of such policy certified as true and correct by the insurer;
 
 
·
the original or copies of each assumption agreement and modification agreement, if any; and

 
·
the original or copies of each power of attorney, if any.

As to each cooperative loan, the depositor will be required to deliver a loan file to the custodian consisting of:

 
·
the original mortgage note together with any applicable riders, endorsed in blank, with all prior and intervening endorsements as may be necessary to show a complete chain of endorsements;
 
 
·
the original security agreement;
     
 
·
the original stock certificate representing the shares of stock issued by a cooperative corporation and allocated to a cooperative unit (or the “Cooperative Shares”) and original stock power in blank;
 
 
·
the original lease on a cooperative unit evidencing the possessory interest of the owner of the Cooperative Shares in such cooperative unit (or the “Proprietary Lease”) and an original assignment of the Proprietary Lease in blank;
 
 
·
the original recognition agreement;
 
 
·
the original UCC-1 financing statement with evidence of filing; and
 
 
·
the original UCC-3 assignment in blank.

Limitation on Liability of Custodian.  The custodial agreement provides, among other privileges and protections, that neither the custodian nor any of its directors, officers, agents or employees will be liable for any action taken or omitted to be taken in good faith pursuant to the custodial agreement and believed to be within the purview of the custodial agreement.

Resignation and Removal of Custodian.   The custodian may resign from its obligations and duties under the custodial agreement upon 60 days' prior written notice to the trustee, and the trustee may remove the custodian upon 60 days' prior written notice to the custodian, whereupon the trustee will either take custody of the mortgage files itself or appoint a successor custodian.  If the trustee has neither taken custody of the mortgage files nor appointed a successor custodian within 30 days after notice of resignation or removal was given, the custodian may petition any court of competent jurisdiction for the appointment of a successor custodian.

 
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Any person into which the custodian may be merged or consolidated, any person resulting from any merger or consolidation to which the custodian is a party, any person succeeding to the business of the custodian or any person to whom the custodian assigns or transfers its duties and obligations, will be the successor to the custodian under the custodial agreement.

See “The Agreements—The Custodial Agreement” in the prospectus.

YIELD, PREPAYMENT AND WEIGHTED AVERAGE LIFE

General

The yields to maturity (or to early termination) of the offered certificates will be affected by the rate of principal payments (including prepayments, which may include amounts received by virtue of purchase, condemnation, insurance or foreclosure) on the mortgage loans to reduce the Class Principal Amounts of the certificates.  Yields will also be affected by the extent to which mortgage loans bearing higher mortgage rates prepay at a more rapid rate than mortgage loans with lower mortgage rates, the amount and timing of borrower delinquencies and defaults resulting in Realized Losses, the purchase price paid by investors for the offered certificates, and other factors.

Yields on the offered certificates will be affected by the rate of principal payments on the mortgage loans.  Principal prepayments may be influenced by a variety of economic, geographic, demographic, social, tax, legal and other factors, including the credit quality of the mortgage loans.  In general, if prevailing interest rates fall below the interest rates on the mortgage loans, the mortgage loans are likely to be subject to a higher rate of prepayments than if prevailing rates remain at or above the interest rates on the mortgage loans.  Conversely, if prevailing interest rates rise above the interest rates on the mortgage loans, the rate of prepayment would be expected to decrease.  Other factors affecting prepayment of the mortgage loans include such factors as changes in borrowers’ housing needs, job transfers, unemployment, borrowers’ net equity in the mortgaged properties, changes in the values of mortgaged properties, mortgage market interest rates and servicing decisions, as well as refinancings resulting from solicitations by mortgage lenders.  The mortgage loans generally have due-on-sale clauses.

In addition, the rate of principal prepayments may also be influenced by programs offered by the servicer and its affiliates or by other lenders.  Many mortgage lenders solicit borrowers to refinance their loans.  These refinancings may increase the rate of prepayment of the mortgage loans.

The mortgage loans have mortgage rates that provide for a fixed interest rate during an initial period of five years from the date of the origination and thereafter provide for adjustments to the mortgage rates on an annual basis.  When a mortgage loan begins its adjustable rate period, increases and decreases in the mortgage rate will be limited by the initial cap, the periodic cap, the maximum rate and the minimum rate, if any, and will be based on the index in effect on the applicable date prior to the related adjustment date plus the applicable gross margin.  The index may not rise and fall consistently with mortgage interest rates.  As a result, the mortgage rates on the mortgage loans at any time may not equal the prevailing mortgage interest rates of similar adjustable rate mortgage loans, and accordingly the prepayment rate may be lower or higher than would otherwise be anticipated.  Some borrowers who prefer the certainty provided by fixed rate mortgage loans may nevertheless obtain adjustable rate mortgage loans at a time when they regard the mortgage interest rates (and, therefore, the payments) on fixed rate mortgage loans as unacceptably high or if the mortgage loans, such as the mortgage loans in the mortgage pool, have a fixed rate for a period of time.  These borrowers may be induced to refinance adjustable rate loans when the interest rates and monthly payments on comparable fixed rate mortgage loans decline to levels which these borrowers regard as acceptable, even though such mortgage interest rates and monthly payments may be significantly higher than the current mortgage interest rates and monthly payments on the borrowers’ adjustable rate mortgage loans.  The ability to refinance a mortgage loan will depend on a number of factors prevailing at the time refinancing is desired, including, without limitation, real estate values, the borrower’s financial situation, prevailing mortgage interest rates, the borrower’s equity in the related mortgaged property, tax laws and prevailing general economic conditions.  Mortgage loans with higher margins are likely to have higher mortgage rates than mortgage loans with lower margins.  If borrowers prepay these mortgage loans faster than mortgage loans with lower margins, the Net WAC will be reduced as a result.

 
S-79

 

Approximately 73.74% of the mortgage loans provide for payment of interest at the related mortgage rate, but no payment of principal, for a period of ten years following the origination of the related mortgage loan.  Following the applicable interest-only period, the monthly payment with respect to these mortgage loans will be increased to an amount sufficient to amortize the principal balance of such mortgage loan over its remaining term, and to pay interest at the related mortgage rate.

In recent years, modifications and other default resolution procedures other than foreclosure, such as deeds in lieu of foreclosure and short sales, have become more common and those servicing decisions, rather than foreclosure, may affect the rate of principal prepayments on the mortgage loans.

The rate of principal payments on the mortgage loans will also be affected by the amortization schedules of the mortgage loans, the rate and timing of prepayments thereon by the borrowers, liquidations of defaulted mortgage loans and repurchases of mortgage loans due to certain breaches of representations and warranties.  The timing of changes in the rate of prepayments, liquidations and purchases of the mortgage loans may, and the timing of Realized Losses will, significantly affect the yield to an investor, even if the average rate of principal payments experienced over time is consistent with an investor’s expectation.  Because the rate and timing of principal payments on the mortgage loans will depend on future events and on a variety of factors (as described more fully herein and in the prospectus under “Yield and Prepayment Considerations”), no assurance can be given as to such rate or the timing of principal payments on the offered certificates.  In general, the earlier a prepayment of principal of the mortgage loans, the greater will be the effect on an investor’s yield.  The effect on an investor’s yield of principal payments occurring at a rate higher (or lower) than the rate anticipated by the investor during the period immediately following the issuance of the certificates may not be offset by a subsequent like decrease (or increase) in the rate of principal payments.

Prepayments, liquidations and purchases of mortgage loans will result in payments to holders of certificates of principal amounts that would otherwise be paid over the remaining terms of such mortgage loans.  The rate of defaults on the mortgage loans will also affect the rate and timing of principal payments on the mortgage loans.  In general, defaults on mortgage loans are expected to occur with greater frequency in their early years, and after the initial fixed rate period, as increases in monthly payments may result in a default rate higher than on level payment mortgage loans.  Furthermore, the rate of default on mortgage loans with high original loan-to-value ratios may be higher than for other mortgage loans.

Certain characteristics of the mortgage loans that may influence the rate of defaults or losses are described under “Risk Factors” and “Description of the Mortgage Pool.”

  The inclusion of interest-only mortgage loans in the trust fund will generally, absent other considerations, result in longer weighted average lives of the offered certificates than would be the case if these mortgage loans provided for monthly payments of principal throughout their terms.  If an investor purchases offered certificates at a discount, the yield may be reduced.  In addition, a borrower may view the interest-only period as a disincentive to prepayment.

The yields on the offered certificates may be adversely affected by Net Prepayment Interest Shortfalls on the mortgage loans.  The yields on the offered certificates will be affected by the level of one-year LIBOR from time to time, and by the mortgage rates of the mortgage loans from time to time as described under “Risk Factors — Mortgage Loan Interest Rates May Limit Interest Rates on the Certificates.”

If the purchaser of an offered certificate offered at a discount from its initial principal amount calculates its anticipated yield to maturity (or early termination) based on an assumed rate of payment of principal that is faster than that actually experienced on the related mortgage loans, the actual yield may be lower than that so calculated.  Conversely, if the purchaser of an offered certificate offered at a premium calculates its anticipated yield based on an assumed rate of payment of principal that is slower than that actually experienced on the related mortgage loans, the actual yield may be lower than that so calculated.  For this purpose, prepayments of principal include not only voluntary prepayments made by the borrower, but also Liquidation Proceeds and repurchases of mortgage loans by the originator due to breaches of representations and warranties.

 
S-80

 

Subordination of the Subordinate Certificates

As described herein, certificates having a relatively higher priority of distribution will have a preferential right to receive payments of interest and principal.  As a result, the yields of the subordinate certificates will be more sensitive, in varying degrees, to delinquencies and losses on the mortgage loans than the yields of more senior certificates.

Weighted Average Life

Weighted average life refers to the average amount of time that will elapse from the date of issuance of a security to the date of payment to the investor of each dollar paid in net reduction of principal of such security (assuming no losses).  The weighted average lives of the offered certificates will be influenced by, among other things, the rate at which principal of the related mortgage loans is paid, which may be in the form of scheduled amortization, prepayments or liquidations.

Prepayments on mortgage loans are commonly measured relative to a constant prepayment standard or model.  The model used in this prospectus supplement for the mortgage loans is a Constant Prepayment Rate (or CPR).  CPR assumes a constant rate of prepayment each month relative to the then outstanding balance of the related pool of mortgage loans for the life of such loans.

CPR does not purport to be either a historical description of the prepayment experience of the mortgage loans or a prediction of the anticipated rate of prepayment of any mortgage loans, including the mortgage loans to be owned by the issuing entity.  The percentages of CPR in the tables below do not purport to be historical correlations of relative prepayment experience of the mortgage loans or predictions of the anticipated relative rate of prepayment of the mortgage loans.  Variations in the prepayment experience and the principal balance of the mortgage loans that prepay may increase or decrease the percentages of initial Class Principal Amounts (and weighted average lives) shown in the following table.  Such variations may occur even if the average prepayment experience of all such mortgage loans equals any of the specified percentages of CPR.

The tables below were prepared based on the following assumptions (collectively, the “Modeling Assumptions”): (1) the initial Class Principal Amounts are as set forth in the table on page S-[__]; (2) each monthly payment of principal and interest is timely received on the first day of each month commencing in May 2010; (3) principal prepayments are received in full on the last day of each month commencing in April 2010 and there are no Net Prepayment Interest Shortfalls; (4) there are no defaults or delinquencies on the mortgage loans; (5) distribution dates occur on the 25th day of each month commencing in May 2010; (6) there are no purchases or substitutions of mortgage loans (except in the case of an Optional Termination of the issuing entity); (7) the mortgage rate of each mortgage loan is adjusted on the next applicable rate adjustment date and any subsequent adjustment dates to equal the value of the related Index set forth below plus the related gross margin subject to the applicable caps and floor; (8) the adjustment date with respect to each assumed mortgage loan occurs in the month immediately following the applicable interest adjustment date; (9) the value of one-year LIBOR is equal to 0.9410% and remains constant; (10) there is no optional termination of the issuing entity (except in the case of Weighted Average Life in Years With Optional Termination); (11) the certificates are issued on April 28, 2010; (12) the servicing fee rate for any mortgage loan is equal to the rate for such mortgage loan as described under “Fees and Expenses of the Issuing Entity” herein; (13) the Certificate Interest Rates are as set forth on page [S-56], and (14) the mortgage loans are aggregated into assumed mortgage loans having the following characteristics:

 
S-81

 

Assumed Characteristics of the Mortgage Loans
 
Loan
Number
 
Principal
Balance
($)
   
Gross
Mortgage
Rate (%)
   
Net
Mortgage
Rate (%)
   
Expense
Fee
Rate (%)
   
Remaining
Term to
Maturity
(months)
   
Original
Term to
Maturity
(months)
   
Months to
Next Rate
Adjustment
Date
   
Maximum
Rate (%)
   
Minimum
Rate (%)
   
Gross
Margin
(%)
   
Initial
Periodic
Rate
Cap
(%)
   
Subsequent
Periodic
Rate
Cap (%)
   
Rate
Adjustment
Frequency
(months)
   
Remaining
IO Term
(months)
   
Index
Type
 
1
   
888,125.65
     
5.12500000000
     
4.86650000000
     
0.2585
     
349
     
360
     
49
     
10.125000
     
2.250000
     
 2.250
     
5.000000
     
2.000000
     
12
     
NA
     
1 Year LIBOR
 
2
   
10,503,656.16
     
4.83191395250
     
4.57341395250
     
0.2585
     
350
     
360
     
50
     
9.831910
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
NA
     
1 Year LIBOR
 
3
   
13,957,789.40
     
4.72200307150
     
4.46350307150
     
0.2585
     
351
     
360
     
51
     
9.722000
     
2.250000
     
2.250
     
5.000000
     
2.182980
     
12
     
NA
     
1 Year LIBOR
 
4
   
12,334,699.91
     
4.71520345890
     
4.45670345890
     
0.2585
     
352
     
360
     
52
     
9.715200
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
NA
     
1 Year LIBOR
 
5
   
12,066,721.54
     
4.81248385930
     
4.55398385930
     
0.2585
     
353
     
360
     
53
     
9.812480
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
NA
     
1 Year LIBOR
 
6
   
5,497,595.12
     
4.89927188310
     
4.64077188310
     
0.2585
     
354
     
360
     
54
     
9.899270
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
NA
     
1 Year LIBOR
 
7
   
3,739,583.68
     
5.17034135600
     
4.91184135600
     
0.2585
     
355
     
360
     
55
     
10.170340
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
NA
     
1 Year LIBOR
 
8
   
3,460,107.22
     
5.06116044940
     
4.80266044940
     
0.2585
     
356
     
360
     
56
     
10.061160
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
NA
     
1 Year LIBOR
 
9
   
19,743,154.62
     
4.76527491460
     
4.50677491460
     
0.2585
     
350
     
360
     
50
     
9.765270
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
110
     
1 Year LIBOR
 
10
   
40,446,729.67
     
4.70225310500
     
4.44375310500
     
0.2585
     
351
     
360
     
51
     
9.702250
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
111
     
1 Year LIBOR
 
11
   
45,246,535.17
     
4.73366675980
     
4.47516675980
     
0.2585
     
352
     
360
     
52
     
9.733670
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
112
     
1 Year LIBOR
 
12
   
40,925,069.48
     
4.79913114950
     
4.54063114950
     
0.2585
     
353
     
360
     
53
     
9.799130
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
113
     
1 Year LIBOR
 
13
   
18,686,204.14
     
4.96839662230
     
4.70989662230
     
0.2585
     
354
     
360
     
54
     
9.968400
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
114
     
1 Year LIBOR
 
14
   
3,337,519.52
     
4.72273424190
     
4.46423424190
     
0.2585
     
355
     
360
     
55
     
9.722730
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
115
     
1 Year LIBOR
 
15
   
3,594,841.99
     
5.27156737420
     
5.01306737420
     
0.2585
     
356
     
360
     
56
     
10.271570
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
116
     
1 Year LIBOR
 
16
   
3,410,000.00
     
5.50000000000
     
5.24150000000
     
0.2585
     
357
     
360
     
57
     
10.500000
     
2.250000
     
2.250
     
5.000000
     
2.000000
     
12
     
117
     
1 Year LIBOR
 

The actual characteristics and the performance of the mortgage loans will differ from the assumptions used in constructing the tables set forth below, which are hypothetical in nature and are provided only to give a general sense of how the principal cashflows might behave under varying prepayment scenarios.  For example, it is not expected that the mortgage loans will prepay at a constant rate until maturity, that all of the mortgage loans will prepay at the same rate or that there will be no defaults or delinquencies on the mortgage loans.  Moreover, the diverse remaining terms to maturity of the mortgage loans could produce slower or faster principal payments than indicated in the tables at the various percentages of CPR specified, even if the weighted average remaining term to maturity are as assumed.  Any difference between such assumptions and the actual characteristics and performance of the mortgage loans, or the actual prepayment or loss experience, will cause the percentages of initial Class Principal Amounts outstanding over time and the weighted average lives of the offered certificates to differ (which difference could be material) from the corresponding information in the tables for each indicated percentage of CPR.

The mortgage loans are expected to have the approximate actual aggregate characteristics as of the cut-off date as set forth in Annex A attached to this prospectus supplement and incorporated by reference herein.

Subject to the foregoing discussion and assumptions, the following tables indicate the weighted average lives of the offered certificates and set forth the percentages of the initial Class Principal Amounts of the offered certificates that would be outstanding after each of the distribution dates shown at various percentages of CPR.

The weighted average life of a class of offered certificates is determined by (1) multiplying the net reduction, if any, of the applicable Class Principal Amount by the number of years from the date of issuance of the offered certificate to the related distribution date, (2) adding the results and (3) dividing the sum by the aggregate of the net reductions of Class Principal Amount described in (1) above.

 
S-82

 

Decrement Tables

The following tables indicate the percentages of the initial Class Principal Amounts of the classes of certificates that would be outstanding after each of the dates shown at various CPRs and the corresponding weighted average lives of such classes. The tables have been prepared on the basis of the Modeling Assumptions.  Significant discrepancies exist between the characteristics of the actual mortgage loans which will be delivered to the trustee and characteristics of the mortgage loans assumed in preparing the tables herein.  It is not likely that (i) all of the mortgage loans will prepay at the CPR specified in the tables or at any CPR or (ii) all of the mortgage loans will prepay at the same rate. Moreover, the diverse remaining terms to maturity of the mortgage loans could produce slower or faster principal payments than indicated in the tables at the specified CPRs, even if the weighted average remaining term to maturity of the mortgage loans is consistent with the remaining terms to maturity of the mortgage loans specified in the Modeling Assumptions.




 
S-83

 

Percentage of Initial Class Principal Amount of the
 Class A-1 Certificates Outstanding
at the Following Percentages of CPR

   
Class A-1 Certificates
Prepayment Assumption
 
0%
 
10%
 
20%
 
30%
 
40%
 
50%
Distribution Date
                                   
Initial Percentage
    100       100       100       100       100       100  
April 2011
    100       89       78       68       57       46  
April 2012
    99       79       61       45       32       22  
April 2013
    99       70       47       30       18       10  
April 2014
    98       62       37       21       11       5  
April 2015
    98       55       30       15       6       2  
April 2016
    97       48       24       10       4       1  
April 2017
    96       43       19       7       2       *  
April 2018
    96       38       15       5       1       0  
April 2019
    95       34       12       3       *       0  
April 2020
    92       30       9       2       0       0  
April 2021
    89       26       7       1       0       0  
April 2022
    85       22       5       *       0       0  
April 2023
    82       19       4       *       0       0  
April 2024
    78       17       3       0       0       0  
April 2025
    74       14       2       0       0       0  
April 2026
    70       12       1       0       0       0  
April 2027
    65       10       1       0       0       0  
April 2028
    61       9       *       0       0       0  
April 2029
    56       7       *       0       0       0  
April 2030
    52       6       0       0       0       0  
April 2031
    47       5       0       0       0       0  
April 2032
    42       4       0       0       0       0  
April 2033
    37       3       0       0       0       0  
April 2034
    31       2       0       0       0       0  
April 2035
    26       1       0       0       0       0  
April 2036
    20       1       0       0       0       0  
April 2037
    14       *       0       0       0       0  
April 2038
    8       0       0       0       0       0  
April 2039
    2       0       0       0       0       0  
April 2040
    0       0       0       0       0       0  
Weighted Average Life in Years (to Maturity)
    19.61       7.58       4.07       2.59       1.81       1.33  
Weighted Average Life in Years (to Call)
    19.53       7.21       3.78       2.39       1.67       1.23  
Weighted Average Life in Years (to Roll)
    4.29       3.40       2.68       2.11       1.65       1.29  
____
*
Indicates a value between 0.0% and 0.5%.

 
S-84

 

Percentage of Initial Class Principal Amount of the
 Class B-1 Certificates Outstanding
at the Following Percentages of CPR


   
Class B-1 Certificates
Prepayment Assumption
 
0%
 
10%
 
20%
 
30%
 
40%
 
50%
Distribution Date
                                 
Initial Percentage
    100       100       100       100       100       100  
April 2011
    100       100       100       100       100       100  
April 2012
    99       99       99       99       86       70  
April 2013
    99       99       99       83       66       48  
April 2014
    98       98       82       57       35       17  
April 2015
    98       98       65       35       15       1  
April 2016
    97       97       50       20       4       0  
April 2017
    96       92       37       10       0       0  
April 2018
    96       82       26       3       0       0  
April 2019
    95       74       18       0       0       0  
April 2020
    92       64       11       0       0       0  
April 2021
    89       55       5       0       0       0  
April 2022
    85       45       1       0       0       0  
April 2023
    82       37       0       0       0       0  
April 2024
    78       30       0       0       0       0  
April 2025
    74       23       0       0       0       0  
April 2026
    70       18       0       0       0       0  
April 2027
    65       13       0       0       0       0  
April 2028
    61       8       0       0       0       0  
April 2029
    56       5       0       0       0       0  
April 2030
    50       1       0       0       0       0  
April 2031
    44       0       0       0       0       0  
April 2032
    38       0       0       0       0       0  
April 2033
    31       0       0       0       0       0  
April 2034
    25       0       0       0       0       0  
April 2035
    18       0       0       0       0       0  
April 2036
    11       0       0       0       0       0  
April 2037
    4       0       0       0       0       0  
April 2038
    0       0       0       0       0       0  
Weighted Average Life in Years (to Maturity)
    19.00       11.91       6.44       4.57       3.58       2.85  
Weighted Average Life in Years (to Call)
    19.00       11.76       6.33       4.42       3.37       2.59  
Weighted Average Life in Years (to Roll)
    4.41       4.38       4.15       3.76       3.31       2.80  
 
 
S-85

 

Percentage of Initial Class Principal Amount of the
 Class B-2 Certificates Outstanding
at the Following Percentages of CPR


   
Class B-2 Certificates
Prepayment Assumption
 
0%
 
10%
 
20%
 
30%
 
40%
 
50%
Distribution Date
                                 
Initial Percentage
    100       100       100       100       100       100  
April 2011
    100       100       100       100       100       100  
April 2012
    99       99       99       99       86       70  
April 2013
    99       99       99       83       66       48  
April 2014
    98       98       82       57       35       17  
April 2015
    98       98       65       35       15       1  
April 2016
    97       97       50       20       4       *  
April 2017
    96       92       37       10       1       *  
April 2018
    96       82       26       3       1       0  
April 2019
    95       74       18       *       1       0  
April 2020
    92       64       11       *       0       0  
April 2021
    89       55       5       *       0       0  
April 2022
    85       45       1       *       0       0  
April 2023
    82       37       0       *       0       0  
April 2024
    78       30       0       0       0       0  
April 2025
    74       23       0       0       0       0  
April 2026
    70       18       0       0       0       0  
April 2027
    65       13       0       0       0       0  
April 2028
    61       8       0       0       0       0  
April 2029
    56       5       0       0       0       0  
April 2030
    50       1       0       0       0       0  
April 2031
    44       0       0       0       0       0  
April 2032
    38       0       0       0       0       0  
April 2033
    31       0       0       0       0       0  
April 2034
    25       0       0       0       0       0  
April 2035
    18       0       0       0       0       0  
April 2036
    11       0       0       0       0       0  
April 2037
    4       0       0       0       0       0  
April 2038
    0       0       0       0       0       0  
Weighted Average Life in Years (to Maturity)
    19.00       11.91       6.44       4.58       3.60       2.85  
Weighted Average Life in Years (to Call)
    19.00       11.76       6.33       4.42       3.37       2.59  
Weighted Average Life in Years (to Roll)
    4.41       4.38       4.16       3.76       3.31       2.80  
 

*
Indicates a value between 0.0% and 0.5%.
 
Class A-IO Certificates Yield Considerations

The following table indicates the sensitivity of the pre-tax yields to maturity on the Class A-IO Certificates to various constant rates of prepayment on the mortgage loans by projecting the monthly aggregate payments on the Class A-IO Certificates and computing the corresponding pre-tax yields to maturity on a corporate bond equivalent basis, based on the Modeling Assumptions, including the assumptions regarding the characteristics and performance of the mortgage loans, which differ from their actual characteristics and performance and assuming the aggregate purchase prices, including accrued interest, if any, set forth below.  Any differences between the assumptions and the actual characteristics and performance of the mortgage loans and of the Class A-IO Certificates may result in yields being different from those shown in the table.  Discrepancies between assumed and actual characteristics and performance underscore the hypothetical nature of the tables, which are provided only to give a general sense of the sensitivity of yields in varying prepayment scenarios.

 
S-86

 

The yields to investors in the Class A-IO Certificates will be sensitive to the rate and timing of principal payments (including prepayments, liquidations, repurchases and defaults) on the mortgage loans, which may fluctuate significantly from time to time. An investor should fully consider the associated risks, including the risk that a relatively fast rate of principal payments (including prepayments, liquidations, repurchases and defaults) on the mortgage loans will have a material negative effect on the yield to investors in the Class A-IO Certificates and could result in the failure of investors in such certificates to recoup their initial investment.

The following table was prepared on the basis of the modeling assumptions and demonstrate the sensitivity of the pre-tax yield on the Class A-IO Certificates to various constant rates of prepayment by projecting the aggregate payments of interest on such certificates and the corresponding pre-tax yields on a corporate bond equivalent (“CBE”) basis, assuming distributions on the mortgage loans are made as set forth in the pooling agreement.

PRE-TAX YIELD TO MATURITY OF THE CLASS A-IO CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF CPR

 
Price (%)
 
10%
 
15%
 
20%
 
25%
 
30%
 
35%
 
40%
 
50%
0.545
 
96.63
 
88.14
 
79.42
 
70.41
 
61.04
 
51.31
 
41.15
 
19.31
0.681
 
72.56
 
64.67
 
56.61
 
48.27
 
39.57
 
30.52
 
21.02
 
0.44
0.817
 
57.07
 
49.59
 
41.97
 
34.06
 
25.79
 
17.15
 
8.04
 
(11.86)
0.953
 
46.29
 
39.10
 
31.79
 
24.19
 
16.20
 
7.82
 
(1.08)
 
(20.60)
1.089
 
38.36
 
31.40
 
24.33
 
16.94
 
9.13
 
0.90
 
(7.86)
 
(27.19)
1.226
 
32.25
 
25.47
 
18.57
 
11.34
 
3.66
 
(4.48)
 
(13.18)
 
(32.42)
1.362
 
27.46
 
20.82
 
14.06
 
6.93
 
(0.67)
 
(8.76)
 
(17.43)
 
(36.63)
1.498
 
23.58
 
17.06
 
10.40
 
3.34
 
(4.22)
 
(12.28)
 
(20.95)
 
(40.14)
1.634
 
20.37
 
13.95
 
7.36
 
0.35
 
(7.19)
 
(15.25)
 
(23.92)
 
(43.13)


Based upon the above assumptions, at approximately 29.6% CPR (at an assumed purchase price of 1.362% of the related Class Notional Amount, excluding accrued interest, but adding accrued interest to the price for purposes of calculating yield), the pre-tax yield to the Class A-IO Certificates will be less than approximately 0%. If the rate of prepayments on the mortgage loans were to exceed the applicable levels for as little as one month, while equaling such level for all other months, the Class A-IO Certificateholders would not fully recoup their initial investment.

The pre-tax yields set forth in the preceding table were calculated by determining the monthly discount rates which, when applied to the assumed streams of cash flows to be paid on the Class A-IO Certificates, would cause the discounted present value of such assumed stream of cash flows to the closing date to equal the assumed purchase prices (plus accrued interest), and converting such monthly rates to CBE rates. Such calculation does not take into account the interest rates at which funds received by Certificateholders as distributions on the Class A-IO Certificates may be reinvested and consequently does not purport to reflect the return on any investment in such Certificates when such reinvestment rates are considered.

 
S-87

 

USE OF PROCEEDS

The depositor will use the net proceeds of the issuance of the certificates to purchase the mortgage loans from the seller.  Expenses incurred by the depositor in connection with this offering are expected to be approximately $563,620 ($88,890.00 of which expenses were incurred in connection with the selection and acquisition of the mortgage loans and other assets of the issuing entity).

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

Investors should review the material set forth in this section together with the information in the section “Material Federal Income Tax Consequences” in the prospectus.

General

For federal income tax purposes, the trust estate will consist of a pool of assets for which two elections will be made to treat such pool as a “real estate mortgage investment conduit” (or REMIC) within the meaning of section 860D of the Internal Revenue Code, of 1986 (or the Code). The offered certificates other than the residual certificates will be designated as “regular interests” in one of the REMICs.  The Class R Certificate will represent ownership of the “residual interest” in the upper tier REMIC.   The Class LT-R Certificate will represent ownership of the residual interest in each remaining REMIC formed pursuant to the pooling agreement.  Accordingly, prospective investors should review “Material Federal Income Tax Consequences — REMIC Securities” in the prospectus.

Tax Treatment of the Offered Certificates other than the Residual Certificates

A holder of an offered certificate other than a residual certificate will be treated for tax purposes as holding an undivided interest in a REMIC regular interest corresponding to that certificate. Consequently, each beneficial owner of such a certificate will be required to report income accruing with respect to that certificate as discussed under “Material Federal Income Tax Consequences – REMIC Securities – Taxation of Regular Interest Securities” in the prospectus.

For federal income tax purposes, the offered certificates other than the residual certificates, as regular interests in a REMIC, are treated as debt instruments issued by the REMIC on the date on which those interests are created, and not as ownership interests in the REMIC or its assets. Owners of such certificates that otherwise report income under a cash method of accounting will be required to report income with respect to those certificates under an accrual method of accounting.

Original Issue Discount

The Class A-IO Certificates will, and each remaining offered certificate other than a residual certificate may, be treated as having been issued with original issue discount (or OID). A beneficial owner of such an offered certificate must include any OID with respect to such certificate in income as it accrues using a constant yield method, regardless of whether the beneficial owner receives currently the cash attributable to such OID.  We refer you to “Material Federal Income Tax Consequences — Taxation of Debt Securities Generally —Original Issue Discount” in the prospectus. The prepayment assumption that will be used for purposes of computing OID, market discount or certificate premium, if any, for federal income tax purposes is a CPR of [__]%. No representation is made that the mortgage loans will, in fact, prepay at this or any other rate.
 
 
S-88

 
 
Information Reporting
 
The trustee will furnish or make available, within a reasonable time after the end of each calendar year, to each person who held an offered certificate at any time during the year, the information required by applicable rules to assist the holders in preparing their federal income tax returns, or to enable holders to make the information available to beneficial owners or financial intermediaries that hold the certificates on behalf of beneficial owners.

Special Tax Considerations Applicable to Residual Interest Securities

Based on the REMIC regulations, the residual certificates may constitute noneconomic residual interests during some or all of their terms for purposes of the REMIC regulations and, accordingly, unless no significant purpose of a transfer is to impede the assessment or collection of tax, transfers of the residual certificates may be disregarded and purported transferors may remain liable for any taxes due relating to the income on the residual certificates.  All transfers of the residual certificates will be restricted in accordance with the terms of the pooling agreement that are intended to reduce the possibility of any transfer of a residual certificate being disregarded to the extent that the residual certificates constitute noneconomic residual interests.   See “Material Federal Income Tax Consequences—Taxation of Holders of Residual Interest Securities—Transfers of Noneconomic Residual Interests” in the prospectus.

A residual certificateholder may be required to report an amount of taxable income with respect to the earlier accrual periods of the term of the related REMIC that significantly exceeds the amount of cash distributions received by such residual certificateholder from the REMICs with respect to those periods.  Furthermore, the tax on that income may exceed the cash distributions with respect to those periods.  Consequently, the residual certificateholders should have other sources of funds sufficient to pay any federal income taxes due in the earlier years of each REMIC’s term as a result of their ownership of the residual certificates.   In addition, the required inclusion of this amount of taxable income during REMIC’s earlier accrual periods and the deferral of corresponding tax losses or deductions until later accrual periods or until the ultimate sale or disposition of a residual certificate, or possibly later under the “wash sale” rules of Section 1091 of the Internal Revenue Code may cause the residual certificateholders’ after-tax rate of return to be zero or negative even if the residual certificateholders’ pre-tax rate of return is positive.  That is, on a present value basis, the residual certificateholders’ resulting tax liabilities could substantially exceed the sum of any tax benefits and the amount of any cash distributions on the residual certificates over their life.

The rules for accrual of OID with respect to certain classes of certificates are subject to significant complexity and uncertainty.  Because OID on the certificates will be deducted by the related REMIC in determining its taxable income, any changes required by the IRS in the application of those rules to the certificates may significantly affect the timing of OID deductions to the related REMIC and therefore the amount of the related REMIC’s taxable income allocable to holders of the residual certificates.
 
An individual, trust or estate that holds, whether directly or indirectly through certain pass-through entities, a residual certificate may have significant additional gross income with respect to, but may be limited on the deductibility of, servicing and trustee’s fees and other administrative expenses properly allocable to the related REMIC in computing the certificateholder’s regular tax liability and will not be able to deduct those fees or expenses to any extent in computing the certificateholder’s alternative minimum tax liability.  Those expenses will be allocated for federal income tax information reporting purposes entirely to the residual certificates.  See “Material Federal Income Tax Consequences—Taxation of Holders of Residual Interest Securities” in the prospectus.

The IRS has issued proposed regulations that, if adopted as final regulations, would cause the question of whether a transfer of residual interests will be respected for federal income tax purposes to be determined in the audits of the transferee and transferor rather than an item to be determined as a partnership item in the audit of the REMIC’s return.

Purchasers of the residual certificates are strongly encouraged to consult their tax advisors as to the economic and tax consequences of investment in the residual certificates.

 
S-89

 

For further information regarding the federal income tax consequences of investing in the residual certificates, see “Certain Yield and Prepayment Considerations—Additional Yield Considerations Applicable Solely to the Residual Certificates” in this prospectus supplement and “Material Federal Income Tax Consequences—Taxation of Holders of Residual Interest Securities” in the prospectus.

Other Matters

For a discussion of backup withholding and taxation of foreign investors in the offered certificates. We refer you to “Material Federal Income Tax Consequences — Backup Withholding” and “— Withholding with Respect to Certain Foreign Investors” in the accompanying prospectus.

Recent Investor Disclosure and Withholding Legislation

The recently enacted Hiring Incentives to Restore Employment Act (or the Act) imposes withholding taxes on certain types of payments made to “foreign financial institutions” and certain other non-U.S. entities.  Failure to comply with additional certification, information reporting and other specified requirements imposed pursuant to the Act could result in withholding tax being imposed on payments of interest (including original issue discount) and sales proceeds to certificateholders who are U.S. persons who own securities through foreign accounts or foreign intermediaries and to certain certificateholders who are non-U.S. persons.  The Act may result in changes to some of the general rules discussed above and under “Material Federal Income Tax Consequences” in the prospectus relating to certification requirements, information reporting and withholding.  The Act generally would apply to payments made after December 31, 2012, but would exempt from withholding payment on, or proceeds in respect of, offered certificates outstanding on the date two years after the date of enactment, which exemption generally appears to exclude the offered certificates from the broader provisions of the Act.  Prospective investors should nonetheless consult their own tax advisers regarding the Act and any effect on them.

ERISA CONSIDERATIONS

A fiduciary of any Plan, any insurance company, whether through its general or separate accounts, or any other person investing ERISA “plan assets” of any Plan, as defined under “ERISA Considerations” in the prospectus, should carefully review with its legal advisors whether the purchase or holding of offered certificates could give rise to a transaction prohibited or not otherwise permissible under ERISA or Section 4975 of the Code.  The purchase or holding of the Class A-1 Certificates by or on behalf of, or with ERISA “plan assets” of, a Plan may qualify for exemptive relief under U.S. Department of Labor (or DOL) Prohibited Transaction Exemption (or PTE) 90-88, as amended (or the Underwriter Exemption), as described under “ERISA Considerations” in the prospectus, provided that those certificates are rated at least “BBB-” (or its equivalent) by Standard & Poor’s, Moody’s, Fitch, DBRS Limited or DBRS Inc., at the time of purchase.  The Underwriter Exemption contains a number of other conditions which must be met for the Underwriter Exemption to apply, including the requirement that any ERISA Plan must be an “accredited investor” as defined in Rule 501(a)(1) of Regulation D under the Securities Act.  The depositor expects that the specific conditions of the Underwriter Exemption should be satisfied with respect to the Class A-1 Certificates so that the Underwriter Exemption should provide an exemption from the application of the prohibited transaction provisions of Sections 406(a) and (b) of ERISA and Section 4975(c) of the Code, for transactions in connection with the servicing, management and operation of the mortgage pools and contract pools, provided that the general conditions of the Underwriter Exemption are satisfied.

The DOL issued PTE 2002-41, 67 Fed. Reg. 54487 (August 22, 2002) which amended the Underwriter Exemption and similar exemptions issued to other underwriters.  This allows the trustee to be affiliated with the underwriters despite the restriction in PTE 90-88 to the contrary.

Each beneficial owner of Class A-1 Certificates or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of that certificate or interest therein, that either (i) it is not a Plan investor; (ii) it has acquired and is holding such Class A-1 Certificates in reliance on the Underwriter Exemption, and it understands that there are certain conditions to the availability of the Underwriter Exemption, including that the Class A-1 Certificates must be rated, at the time of purchase, not lower than “BBB-” (or its equivalent) by Standard & Poor’s, Moody’s, Fitch, DBRS Limited or DBRS Inc.; or (iii) (1) it is an insurance company, (2) the source of funds used to acquire or hold the certificate or interest therein is an “insurance company general account,” as such term is defined in Section V(e) of Prohibited Transaction Class Exemption, or PTCE, 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied.

 
S-90

 

If any Class A-1 Certificate or any interest therein is acquired or held in violation of the conditions described in the preceding paragraph, the next preceding permitted beneficial owner will be treated as the beneficial owner of that Class A-1 Certificate, retroactive to the date of transfer to the purported beneficial owner.  Any purported beneficial owner whose acquisition or holding of any such certificate or interest therein was effected in violation of the conditions described in the preceding paragraph shall indemnify and hold harmless the depositor, the trustee, the servicer, any subservicer, the underwriters and the issuing entity from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding.

Because the exemptive relief afforded by the Underwriter Exemption or any similar exemption that might be available will not likely apply to the purchase, sale or holding of the Class A-IO, Class B-1, Class B-2, Class B-3, Class R or Class LT-R Certificates, transfers of those certificates to any Plan investor will not be registered by the trustee unless the transferee provides the depositor, the trustee and the servicer with an opinion of counsel satisfactory to those parties, which opinion will not be at the expense of those entities, that the purchase of those certificates by or on behalf of the Plan investor:

 
·
is permissible under applicable law;

 
·
will not constitute or result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Internal Revenue Code; and

 
·
will not subject the depositor, the trustee or the servicer to any obligation in addition to those undertaken in the pooling agreement or the servicing agreement.

Any fiduciary or other investor of ERISA “plan assets” that proposes to acquire or hold the offered certificates on behalf of or with ERISA “plan assets” of any Plan should consult with its counsel with respect to (i) whether the specific and general conditions and the other requirements in the Underwriter Exemption would be satisfied, or whether any other prohibited transaction exemption would apply, and (ii) the potential applicability of the general fiduciary responsibility provisions of ERISA and the prohibited transaction provisions of ERISA and Section 4975 of the Code to the proposed investment.  See “ERISA Considerations” in the prospectus.

The sale of any of the offered certificates to a Plan is in no respect a representation by the depositor or the underwriters that such an investment meets all relevant legal requirements  relating to investments by Plans generally or any particular Plan, or that such an investment is appropriate for Plans generally or any particular Plan.


METHOD OF DISTRIBUTION

Subject to the terms and conditions set forth in the underwriting agreement among the depositor, the seller and the underwriters, the depositor has agreed to sell to the underwriters, and each underwriter has severally agreed to purchase from the depositor, [__]% and [__]%, respectively, of the principal amount of the Class A-1 Certificates. Distribution of the Class A-1 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.

 
S-91

 

Each underwriter may effect these transactions by selling their underwritten certificates to or through dealers, and those dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the underwriter for whom they act as agent.  In connection with the sale of the underwritten certificates, the underwriter may be deemed to have received compensation from the depositor in the form of underwriting compensation.  The underwriter and any dealers that participate with the underwriter in the distribution of the related underwritten certificates are also underwriters under the Securities Act of 1933.  Any profit on the resale of the underwritten certificates positioned by an underwriter would be underwriter compensation in the form of underwriting discounts and commissions under the Securities Act, as amended.

Each underwriter intends to make a secondary market in the Class A-1 Certificates but has no obligation to do so. There can be no assurance that a secondary market for those certificates will develop or, if it does develop, that it will continue or that it will provide certificateholders with a sufficient level of liquidity of investment. The certificates will not be listed on any national securities exchange.

The depositor, the seller and Redwood Trust, Inc. have agreed to indemnify each underwriter against, or make contributions to each underwriter with respect to, certain liabilities, including liabilities under the Securities Act of 1933, as amended.

The Class A-IO, Class R, Class LT-R, Class B-1 and Class B-2 Certificates will be purchased by one or more affiliates of the seller, and 5% of the original principal balance of the Class A-1 Certificates will be purchased by the seller.  The seller (or affiliates of the seller) will continue to retain these certificates until such time as regulations governing seller risk retention have been finalized and become effective.  Once regulations have become effective, the seller (and its affiliates) may cease to retain any portion of these retained certificates that are in excess of what is then required to be retained under applicable regulations, regardless of whether those regulations retroactively apply to this transaction.  These retained certificates may be offered by the depositor from time to time directly or through an underwriter or agent in one or more negotiated transactions, or otherwise, at varying prices to be determined at the time of sale.  There is currently no underwriting agreement in effect for these certificates.  Proceeds to the depositor from any sale of the retained portion of the Class A-1 Certificates and from any sale of the Class A-IO, Class R, Class LT-R, Class B-1 or Class B-2 Certificates will equal the purchase price paid by their purchaser, net of any expenses payable by the depositor and any compensation payable to any underwriter or agent.

LEGAL MATTERS

The validity of the certificates will be passed upon for the issuing entity by Tobin & Tobin, a professional corporation, San Francisco, California.  REMIC status and certain other federal income tax consequences will be passed upon for the issuing entity by Chapman and Cutler LLP, San Francisco, California.  Certain other matters with respect to the certificates will be passed upon for the issuing entity by Orrick, Herrington & Sutcliffe LLP, New York, New York.  Bingham McCutchen LLP, Washington, District of Columbia will act as counsel for the underwriters.

RATINGS

It is a condition of the issuance of the senior certificates that they have the applicable rating or ratings by Moody’s indicated under “Initial Certificate Rating” in the table on page S-1.

The rating of “Aaa” is the highest rating that Moody’s assigns to securities.  The ratings assigned by Moody’s to mortgage pass-through certificates address the likelihood of the receipt of all payments on the mortgage loans by the related certificateholders under the agreements pursuant to which such certificates are issued. The ratings assigned by Moody’s take into consideration the credit quality of the related mortgage pool, including any credit support providers, structural and legal aspects associated with such certificates, and the extent to which the payment stream on the mortgage pool is adequate to make the payments required by such certificates.  The ratings assigned by Moody’s on such certificates do not, however, constitute a statement regarding frequency of prepayments of the mortgage loans.


 
S-92

 

The ratings of the rating agency do not address the possibility that, as a result of principal prepayments, certificateholders may receive a lower than anticipated yield.

The ratings assigned to the certificates should be evaluated independently from similar ratings on other types of securities. A 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 issuing entity has not requested a rating of the certificates by any rating agency other than Moody’s; there can be no assurance, however, as to whether any other rating agency will rate the certificates or, if it does, what rating would be assigned by such other rating agency. The rating assigned by such other rating agency to the certificates could be lower than the ratings assigned by Moody’s.

A portion of the fees paid by the depositor or an affiliate of the depositor to the rating agency is contingent upon the issuance of the certificates.  In addition, the fees paid by this entity to the rating agency at closing include a fee for ongoing surveillance by the rating agency for so long as the certificates are outstanding.  However, the rating agency is under no obligation to continue to monitor or provide a rating on the certificates.



 
S-93

 

ANNEX A – CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS

The mortgage loans are expected to have the following approximate aggregate characteristics as of the cut-off date.  Prior to the issuance of the certificates, mortgage loans may be removed from the trust fund as a result of incomplete documentation or otherwise, if the depositor deems such removal necessary or appropriate.

Set forth below is a description of certain additional characteristics of the mortgage loans as of the cut-off date (except as otherwise indicated).  All percentages of the mortgage loans are approximate percentages by cut-off date stated principal balance (except as otherwise indicated).  In some instances, percentages may not add to 100% due to rounding.

The credit scores shown in the tables below are based on the FICO scores obtained by the originator.
 
Mortgage Loan Type

Mortgage Loan Type
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated
Principal
Balance
Outstanding (%)
Average
Stated
Principal Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Hybrid 5 Years Fixed
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Original Principal Balance
 
Range of Original
Principal Balances ($)
Number
of Mortgage Loans
Aggregate
Stated Principal
Balance
Outstanding ($)
Percent of
Aggregate Stated Principal
Balance
Outstanding (%)
Average
Stated
Principal Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
428,000.00 - 500,000.00
13
6,027,351.16
2.53
463,642.40
4.726
774
64.46
67.42
500,000.01 - 600,000.00
20
10,882,882.65
4.58
544,144.13
4.704
784
63.35
64.35
600,000.01 - 700,000.00
28
18,261,916.59
7.68
652,211.31
4.761
768
58.11
63.26
700,000.01 - 800,000.00
30
22,544,338.04
9.48
751,477.93
4.811
776
57.87
60.54
800,000.01 - 900,000.00
32
26,088,603.84
10.97
815,268.87
4.874
773
55.11
61.57
900,000.01 - 1,000,000.00
53
51,666,336.37
21.72
974,836.54
4.815
766
55.99
60.79
1,000,000.01 - 1,100,000.00
15
16,052,467.88
6.75
1,070,164.53
4.700
756
49.74
55.37
1,100,000.01 - 1,200,000.00
22
24,314,703.30
10.22
1,105,213.79
4.672
761
61.08
63.08
1,200,000.01 - 1,300,000.00
9
11,127,198.71
4.68
1,236,355.41
4.944
758
55.66
60.68
1,300,000.01 - 1,400,000.00
5
6,794,417.31
2.86
1,358,883.46
5.127
770
63.98
69.60
1,400,000.01 - 1,500,000.00
19
26,778,831.24
11.26
1,409,412.17
4.800
772
53.26
55.72
1,600,000.01 - 1,700,000.00
1
1,598,191.80
0.67
1,598,191.80
4.875
774
68.04
68.04
1,700,000.01 - 1,800,000.00
1
1,760,000.00
0.74
1,760,000.00
5.000
748
62.86
62.86
1,800,000.01 - 1,900,000.00
2
3,719,000.00
1.56
1,859,500.00
4.814
786
54.53
54.53
1,900,000.01 - 2,000,000.00
2
3,494,494.38
1.47
1,747,247.19
4.943
744
61.64
61.64
2,000,000.01 - 2,100,000.00
1
2,027,600.00
0.85
2,027,600.00
4.875
769
36.87
45.96
2,100,000.01 - 2,200,000.00
1
2,200,000.00
0.92
2,200,000.00
4.875
737
42.31
42.31
2,400,000.01 - 2,500,000.00
1
2,500,000.00
1.05
2,500,000.00
4.625
766
43.86
43.86
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The average loan balance of the mortgage loans at origination was approximately $952,280.08.
 
 
S-94

 

Cut-off Date Stated Principal Balance

Range of Cut-off Date
Stated Principal Balances ($)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
299,990.00 - 300,000.00
1
299,990.00
0.13
299,990.00
5.000
796
45.30
45.30
400,000.01 - 500,000.00
15
6,934,507.84
2.92
462,300.52
4.705
775
61.87
65.14
500,000.01 - 600,000.00
21
11,520,630.91
4.84
548,601.47
4.693
782
62.77
64.48
600,000.01 - 700,000.00
29
19,110,484.56
8.04
658,982.23
4.778
768
58.17
62.62
700,000.01 - 800,000.00
31
23,441,567.45
9.86
756,179.60
4.854
777
58.33
61.54
800,000.01 - 900,000.00
28
24,013,003.93
10.10
857,607.28
4.839
773
56.11
62.29
900,000.01 - 1,000,000.00
54
52,703,336.37
22.16
975,987.71
4.816
766
55.99
61.13
1,000,000.01 - 1,100,000.00
18
19,299,094.79
8.11
1,072,171.93
4.653
761
52.77
57.45
1,100,000.01 - 1,200,000.00
19
21,958,432.73
9.23
1,155,706.99
4.724
759
58.39
59.57
1,200,000.01 - 1,300,000.00
9
11,290,442.75
4.75
1,254,493.64
4.903
765
56.14
61.08
1,300,000.01 - 1,400,000.00
9
12,348,987.33
5.19
1,372,109.70
4.957
775
51.49
57.85
1,400,000.01 - 1,500,000.00
12
17,618,568.43
7.41
1,468,214.04
4.827
765
58.17
59.62
1,500,000.01 - 1,600,000.00
2
3,186,315.80
1.34
1,593,157.90
4.875
767
69.02
69.02
1,700,000.01 - 1,800,000.00
1
1,760,000.00
0.74
1,760,000.00
5.000
748
62.86
62.86
1,800,000.01 - 1,900,000.00
2
3,719,000.00
1.56
1,859,500.00
4.814
786
54.53
54.53
1,900,000.01 - 2,000,000.00
1
1,906,370.38
0.80
1,906,370.38
5.000
732
54.67
54.67
2,000,000.01 - 2,100,000.00
1
2,027,600.00
0.85
2,027,600.00
4.875
769
36.87
45.96
2,100,000.01 - 2,200,000.00
1
2,200,000.00
0.92
2,200,000.00
4.875
737
42.31
42.31
2,400,000.01 - 2,500,000.00
1
2,500,000.00
1.05
2,500,000.00
4.625
766
43.86
43.86
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The average stated principal balance of the mortgage loans as of the cut-off date was approximately $932,699.35.
 
Current Rate
 
 
Range of Current Rates
(%)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
4.000 or Less
1
937,370.67
0.39
937,370.67
4.000
796
76.53
76.53
4.001 - 4.250
3
2,862,077.89
1.20
954,025.96
4.202
786
68.61
68.61
4.251 - 4.500
31
28,371,195.29
11.93
915,199.85
4.474
766
56.46
60.97
4.501 - 4.750
122
108,053,965.76
45.43
885,688.24
4.688
768
52.88
58.34
4.751 - 5.000
68
67,362,563.65
28.32
990,625.94
4.920
767
59.45
61.78
5.001 - 5.250
18
18,447,259.44
7.76
1,024,847.75
5.188
767
60.83
62.84
5.251 - 5.500
6
6,010,892.22
2.53
1,001,815.37
5.446
759
58.87
59.63
5.501 - 5.750
3
3,518,668.65
1.48
1,172,889.55
5.625
782
68.72
68.72
5.751 - 6.000
3
2,274,339.70
0.96
758,113.23
5.930
778
64.64
64.64
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

Distribution of Seasoning

Seasoning (Months)
Number
of Mortgage Loans
Aggregate
Stated Principal
Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
3
3
3,410,000.00
1.43
1,136,666.67
5.500
754
69.32
69.32
4
8
7,054,949.21
2.97
881,868.65
5.168
757
61.37
61.37
5
8
7,077,103.20
2.98
884,637.90
4.959
788
59.86
64.22
6
24
24,183,799.26
10.17
1,007,658.30
4.953
768
56.52
59.67
7
55
52,991,791.02
22.28
963,487.11
4.802
763
53.41
58.96
8
60
57,581,235.08
24.21
959,687.25
4.730
765
55.57
61.93
9
59
54,404,519.07
22.87
922,110.49
4.707
774
57.53
59.16
10
37
30,246,810.78
12.72
817,481.37
4.788
771
58.28
60.27
11
1
888,125.65
0.37
888,125.65
5.125
777
80.00
80.00
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The weighted-average seasoning of the mortgage loans as of the cut-off date was approximately 8 months.

 
S-95

 
 
Months to Next Rate Adjustment Date

Months to Next Rate Adjustment Date
(Months)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
49
1
888,125.65
0.37
888,125.65
5.125
777
80.00
80.00
50
37
30,246,810.78
12.72
817,481.37
4.788
771
58.28
60.27
51
59
54,404,519.07
22.87
922,110.49
4.707
774
57.53
59.16
52
60
57,581,235.08
24.21
959,687.25
4.730
765
55.57
61.93
53
55
52,991,791.02
22.28
963,487.11
4.802
763
53.41
58.96
54
24
24,183,799.26
10.17
1,007,658.30
4.953
768
56.52
59.67
55
8
7,077,103.20
2.98
884,637.90
4.959
788
59.86
64.22
56
8
7,054,949.21
2.97
881,868.65
5.168
757
61.37
61.37
57
3
3,410,000.00
1.43
1,136,666.67
5.500
754
69.32
69.32
Total: 
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
The weighted-average months to next rate adjustment date of the mortgage loans as of the cut-off date was approximately 52 months.
 
Original Loan-To-Value Ratios

Range of Original
Loan-To-Value Ratios (%)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
7.96 - 10.00
1
526,450.70
0.22
526,450.70
4.500
804
7.96
7.96
15.01 - 20.00
3
2,710,152.66
1.14
903,384.22
4.742
757
17.36
24.13
20.01 - 25.00
7
6,659,128.54
2.80
951,304.08
4.634
760
22.96
31.56
25.01 - 30.00
11
9,870,219.74
4.15
897,292.70
4.781
766
28.22
40.11
30.01 - 35.00
6
5,307,272.04
2.23
884,545.34
4.843
764
33.20
41.45
35.01 - 40.00
15
15,477,549.99
6.51
1,031,836.67
4.871
776
37.54
46.16
40.01 - 45.00
25
26,924,506.90
11.32
1,076,980.28
4.726
760
43.21
48.98
45.01 - 50.00
17
14,161,986.61
5.95
833,058.04
4.701
774
48.34
54.06
50.01 - 55.00
23
23,711,040.43
9.97
1,030,914.80
4.739
760
52.24
57.94
55.01 - 60.00
22
21,891,289.11
9.20
995,058.60
4.831
773
57.81
61.79
60.01 - 65.00
24
21,297,670.62
8.95
887,402.94
4.832
765
63.06
65.37
65.01 - 70.00
36
36,265,587.61
15.25
1,007,377.43
4.934
766
68.18
69.25
70.01 - 75.00
29
28,035,325.38
11.79
966,735.36
4.761
774
73.80
73.80
75.01 - 80.00
36
25,000,152.94
10.51
694,448.69
4.830
775
79.05
79.05
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The weighted-average original loan-to-value ratio of the mortgage loans at origination was approximately 56.57%.

 
S-96

 

Original Combined Loan-To-Value Ratios

Range of Original Combined
Loan-To-Value Ratios (%)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
7.96 - 10.00
1
526,450.70
0.22
526,450.70
4.500
804
7.96
7.96
15.01 - 20.00
1
888,152.66
0.37
888,152.66
4.625
780
16.26
16.26
20.01 - 25.00
5
4,470,000.00
1.88
894,000.00
4.733
764
21.58
23.93
25.01 - 30.00
6
5,273,890.36
2.22
878,981.73
4.900
772
28.87
28.87
30.01 - 35.00
5
4,972,499.96
2.09
994,499.99
4.839
765
28.55
32.77
35.01 - 40.00
8
7,082,925.79
2.98
885,365.72
4.840
776
35.74
38.10
40.01 - 45.00
19
20,800,444.70
8.75
1,094,760.25
4.785
758
41.43
43.30
45.01 - 50.00
17
16,064,290.74
6.75
944,958.28
4.681
762
41.79
47.87
50.01 - 55.00
19
20,804,173.94
8.75
1,094,956.52
4.746
768
49.16
52.65
55.01 - 60.00
18
18,705,378.14
7.86
1,039,187.67
4.816
765
53.62
57.67
60.01 - 65.00
35
30,912,555.21
13.00
883,215.86
4.785
772
56.53
63.12
65.01 - 70.00
36
36,058,536.43
15.16
1,001,626.01
4.925
768
65.08
68.24
70.01 - 75.00
42
41,198,227.89
17.32
980,910.19
4.759
767
69.00
73.51
75.01 - 80.00
43
30,080,806.75
12.65
699,553.65
4.835
775
76.32
78.96
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The weighted-average combined loan-to-value ratio of the mortgage loans at origination was approximately 60.42%. The original combined loan-to-value was calculated using full lien amount (drawn and undrawn) for the second mortgage. Using only the drawn amount of the second mortgage at the time of origination, the original combined loan-to-value ratio would have been approximately 58.44%.

Original FICO Score

FICO Score
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
702 - 720
16
15,330,427.32
6.45
958,151.71
4.749
713
56.92
60.46
721 - 740
20
23,318,116.34
9.80
1,165,905.82
4.816
732
52.58
56.27
741 - 760
43
39,423,024.69
16.58
916,814.53
4.841
751
55.57
60.74
761 - 780
73
69,740,923.78
29.32
955,355.12
4.825
770
55.96
59.86
781 - 800
82
74,145,153.18
31.17
904,209.19
4.756
789
58.32
62.05
801 - 816
21
15,880,687.96
6.68
756,223.24
4.868
806
58.99
60.55
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The weighted-average FICO score of the mortgage loans at origination was approximately 768.
 
Document Type(1)(2)
 
Document Type
Number
of Mortgage Loans
Aggregate
Stated Principal Balance Outstanding ($)
Percent of Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Less than One Year Income with Assets
10
8,466,681.53
3.56
846,668.15
4.664
753
58.69
66.32
One Year Income with Assets
64
55,556,926.33
23.36
868,076.97
4.784
766
57.47
61.18
One Year Income without Assets (Refinance Only)
1
498,156.68
0.21
498,156.68
4.625
778
39.23
39.23
Two Years Income with Assets
178
171,647,568.73
72.17
964,312.18
4.818
769
56.04
59.80
Two Years Income without Assets (Refinance Only)
2
1,669,000.00
0.70
834,500.00
4.673
790
75.38
75.38
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

1 Based on the sponsor's review, the loan documentation indicated in this table reflects the actual loan documentation contained in each mortgage origination loan file. The originator's servicing system indicates the minimum loan documentation required for the loan program pursuant to which the mortgage loan was originated (“standard”, “Citiquick” or an automated or “desktop” underwriting system). Therefore, the information relating to document type on the originator's servicing system may differ from the documentation types set forth in the table.

2 Income and employment information was verified by the originator on 100.00% of the mortgage loans in the pool.
 
 
S-97

 

Original Monthly Income

Range of Original
Monthly Income ($)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance
Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
9,675.63 - 10,000.00
2
1,183,000.00
0.50
591,500.00
4.550
801
62.84
67.45
10,000.01 - 20,000.00
57
40,470,936.13
17.02
710,016.42
4.777
778
65.05
68.21
20,000.01 - 30,000.00
59
50,459,639.95
21.22
855,248.13
4.904
768
62.92
64.94
30,000.01 - 40,000.00
46
47,269,891.95
19.87
1,027,606.35
4.779
767
57.86
62.20
40,000.01 - 50,000.00
17
17,600,645.93
7.40
1,035,332.11
4.692
764
53.44
58.93
50,000.01 - 60,000.00
14
13,878,219.91
5.84
991,301.42
4.770
764
47.41
57.86
60,000.01 - 70,000.00
14
13,805,837.01
5.80
986,131.22
4.743
757
50.41
55.06
70,000.01 - 80,000.00
11
14,429,500.30
6.07
1,311,772.75
4.784
764
50.44
50.44
80,000.01 - 90,000.00
7
7,386,512.69
3.11
1,055,216.10
4.690
781
47.08
56.75
90,000.01 - 100,000.00
6
6,143,948.66
2.58
1,023,991.44
4.968
752
42.33
46.16
100,000.01 - 598,333.34
22
25,210,200.74
10.60
1,145,918.22
4.834
765
47.83
50.82
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The weighted-average monthly income of the mortgage borrower at origination was approximately $53,936.57.

Original Debt-To-Income Ratio

Range of
Debt-To-Income Ratios (%)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
3.23 - 5.00
4
3,681,905.11
1.55
920,476.28
4.585
781
39.24
47.00
5.01 - 10.00
13
11,994,121.13
5.04
922,624.70
4.791
768
53.39
53.39
10.01 - 15.00
26
22,498,939.84
9.46
865,343.84
4.736
767
52.69
56.82
15.01 - 20.00
27
23,696,669.66
9.96
877,654.43
4.774
773
52.76
59.05
20.01 - 25.00
35
32,912,312.80
13.84
940,351.79
4.738
767
53.18
59.34
25.01 - 30.00
41
40,821,591.56
17.16
995,648.57
4.879
763
56.16
58.11
30.01 - 35.00
32
26,741,208.57
11.24
835,662.77
4.843
772
66.12
70.88
35.01 - 40.00
44
43,685,022.23
18.37
992,841.41
4.860
766
60.94
63.60
40.01 - 45.00
31
30,284,929.89
12.73
976,933.22
4.755
768
55.51
59.48
45.01 - 48.63
2
1,521,632.48
0.64
760,816.24
4.875
792
51.60
51.60
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The weighted-average debt-to-income ratio of the mortgage loans at origination was approximately 27.32%.
 
S-98

 
Original Verified Assets

Range of Original
Verified Assets ($)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance
Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Not Available
3
2,167,156.68
0.91
722,385.56
4.662
787
67.07
67.07
0.01 - 50,000.00
6
4,259,888.77
1.79
709,981.46
4.751
739
55.53
55.53
50,000.01 - 100,000.00
7
6,838,680.08
2.88
976,954.30
4.839
780
54.05
58.71
100,000.01 - 150,000.00
20
17,522,820.47
7.37
876,141.02
4.785
773
60.43
63.05
150,000.01 - 200,000.00
20
16,516,419.07
6.94
825,820.95
4.851
754
62.17
64.35
200,000.01 - 250,000.00
11
8,028,930.54
3.38
729,902.78
4.765
772
67.37
71.92
250,000.01 - 300,000.00
12
10,566,012.67
4.44
880,501.06
4.819
760
55.13
60.53
300,000.01 - 350,000.00
12
9,128,671.71
3.84
760,722.64
4.824
785
65.18
67.38
350,000.01 - 400,000.00
5
4,235,012.75
1.78
847,002.55
4.724
775
67.05
67.05
400,000.01 - 450,000.00
9
7,955,458.05
3.34
883,939.78
4.788
773
57.09
65.31
450,000.01 - 500,000.00
6
5,272,400.00
2.22
878,733.33
4.857
786
61.92
70.03
500,000.01 - 550,000.00
11
11,748,807.19
4.94
1,068,073.38
4.796
772
58.94
62.69
550,000.01 - 600,000.00
9
8,308,331.23
3.49
923,147.91
4.818
760
64.99
65.80
600,000.01 - 650,000.00
8
7,351,747.05
3.09
918,968.38
4.821
752
65.66
66.74
650,000.01 - 750,000.00
16
14,782,551.05
6.22
923,909.44
4.795
770
57.39
65.16
750,000.01 - 850,000.00
8
7,608,694.53
3.20
951,086.82
4.749
777
58.06
60.08
850,000.01 - 950,000.00
7
6,830,423.76
2.87
975,774.82
4.686
771
53.46
55.77
950,000.01 - 1,050,000.00
9
9,822,372.61
4.13
1,091,374.73
4.737
766
42.85
52.69
1,050,000.01 - 9,970,841.53
76
78,893,955.06
33.17
1,038,078.36
4.825
767
51.23
54.77
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The weighted-average verified assets of the mortgage borrower at origination was approximately $1,228,220.05.

Self Employment Status at Origination

Self-Employment Status
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Not Self-Employed
191
170,520,167.23
71.70
892,775.74
4.800
769
58.16
61.70
Self-Employed
64
67,318,166.04
28.30
1,051,846.34
4.812
764
52.52
57.16
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

Interest Only Term at Origination

Interest Only Term
(Months)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance
Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
None
71
62,448,278.68
26.26
879,553.22
4.824
769
61.09
62.83
120
184
175,390,054.59
73.74
953,206.82
4.796
768
54.95
59.56
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
S-99

 
Occupancy Type

Occupancy Type
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Primary
247
229,838,892.39
96.64
930,521.83
4.805
769
56.83
60.80
Second Home
8
7,999,440.88
3.36
999,930.11
4.743
748
49.02
49.41
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

Loan Purpose

Loan Purpose
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance
Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Rate/Term Refinance
193
181,841,000.45
76.46
942,181.35
4.788
767
54.00
58.65
Purchase
52
46,159,196.98
19.41
887,676.87
4.878
772
69.41
69.84
Cash Out Refinance
10
9,838,135.84
4.14
983,813.58
4.740
770
43.65
48.88
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

Property Type

Property Type
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance
Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Single Family Residence
144
140,087,149.61
58.90
972,827.43
4.800
768
54.35
58.94
PUD
60
53,830,877.91
22.63
897,181.30
4.768
769
58.51
62.23
Co-op
22
19,293,542.47
8.11
876,979.20
4.922
762
62.27
63.20
Condominium
21
17,854,132.46
7.51
850,196.78
4.844
773
62.51
65.45
Townhouse
7
6,122,630.82
2.57
874,661.55
4.689
773
55.86
56.34
Two to Four Family
1
650,000.00
0.27
650,000.00
4.750
706
46.43
46.43
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
S-100

 
Geographic Distribution of Mortgaged Properties (States)
 
 State
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance
Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
California
110
110,128,866.14
46.30
1,001,171.51
4.802
768
54.57
58.95
New York
41
38,712,006.20
16.28
944,195.27
4.874
762
57.57
60.71
Connecticut
15
17,359,655.96
7.30
1,157,310.40
4.748
772
45.22
49.16
Illinois
13
9,656,779.60
4.06
742,829.20
4.777
774
59.09
60.93
Massachusetts
9
8,378,125.58
3.52
930,902.84
4.790
766
61.03
66.16
Texas
12
7,811,762.81
3.28
650,980.23
4.676
763
68.23
68.23
Colorado
7
6,331,030.34
2.66
904,432.91
5.047
783
63.30
69.29
New Jersey
6
5,871,288.60
2.47
978,548.10
4.660
754
46.11
53.37
Georgia
6
4,465,368.77
1.88
744,228.13
4.845
760
64.67
68.30
Virginia
5
4,113,474.84
1.73
822,694.97
4.499
754
76.23
76.23
Washington
4
3,511,258.00
1.48
877,814.50
5.006
790
68.11
73.81
Michigan
4
3,060,365.66
1.29
765,091.42
4.810
797
53.23
53.23
Florida
3
3,021,462.79
1.27
1,007,154.26
4.989
751
58.47
58.47
North Carolina
3
2,809,644.85
1.18
936,548.28
4.450
786
70.65
71.59
District of Columbia
2
2,196,349.38
0.92
1,098,174.69
4.665
786
34.45
55.67
Arizona
3
2,117,774.82
0.89
705,924.94
5.014
766
63.28
65.85
Nevada
1
1,299,977.96
0.55
1,299,977.96
4.750
715
73.55
73.55
Maryland
2
1,198,906.11
0.50
599,453.06
4.846
769
61.40
71.41
Missouri
2
1,070,447.92
0.45
535,223.96
4.699
806
73.68
73.68
Oregon
1
833,000.00
0.35
833,000.00
5.000
780
69.42
69.42
Minnesota
1
761,141.61
0.32
761,141.61
4.750
780
70.00
70.00
Pennsylvania
1
700,000.00
0.29
700,000.00
4.750
746
66.67
66.67
Hawaii
1
699,380.50
0.29
699,380.50
4.500
763
59.20
59.20
Oklahoma
1
616,247.07
0.26
616,247.07
4.625
789
38.82
38.82
Nebraska
1
600,000.00
0.25
600,000.00
4.750
813
69.77
69.77
Kentucky
1
514,017.76
0.22
514,017.76
4.750
762
80.00
80.00
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Geographic Distribution of Mortgaged Properties (Top Ten Cities)

City
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance
Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
New York, NY
32
29,149,494.67
12.26
910,921.71
4.916
765
61.47
63.71
Saratoga, CA
11
11,011,611.77
4.63
1,001,055.62
4.891
770
51.09
55.13
Los Altos, CA
8
8,556,254.49
3.60
1,069,531.81
4.918
769
53.22
62.90
Pacific Palisades, CA
4
5,418,492.22
2.28
1,354,623.06
5.031
755
31.70
36.66
Palo Alto, CA
5
4,921,885.01
2.07
984,377.00
4.761
780
55.01
57.34
Darien, CT
2
4,400,000.00
1.85
2,200,000.00
4.733
772
47.22
47.22
Santa Monica, CA
4
3,912,523.54
1.65
978,130.89
4.852
775
44.99
50.76
Newport Beach, CA
3
3,896,499.92
1.64
1,298,833.31
4.949
771
48.16
51.01
Greenwich, CT
4
3,793,550.70
1.60
948,387.68
4.939
789
34.14
40.94
Redwood City, CA
4
3,763,800.00
1.58
940,950.00
4.802
757
64.55
73.09
Others
178
159,014,220.95
66.86
893,338.32
4.758
768
58.22
61.95
Total: 
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

 
S-101

 
 
Index

Index
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance
Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
1 Year LIBOR
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

Rate Adjustment Frequency

Rate Adjustment Frequency
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Annually
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42


 
S-102

 

Margin
 
Margin (%)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
2.250
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total: 
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

Initial Periodic Rate Cap
 
Initial Periodic Rate Cap
(%)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance
Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
5.000
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total: 
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Subsequent Periodic Rate Cap
 
Subsequent Periodic Rate
Cap (%)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
2.000
254
236,986,998.57
99.64
933,019.68
4.803
768
56.48
60.35
5.000
1
851,334.70
0.36
851,334.70
5.000
797
80.00
80.00
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The weighted-average subsequent periodic rate cap of the mortgage loans at origination was approximately 2.011%.
 
Maximum Mortgage Rate
 
Range of Maximum
Mortgage Rates (%)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average 
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
9.000 - 9.499
11
9,643,471.42
4.05
876,679.22
4.287
773
69.34
69.34
9.500 - 9.999
189
173,583,146.40
72.98
918,429.35
4.710
768
54.13
58.99
10.000 - 10.499
46
45,408,707.10
19.09
987,145.81
5.098
767
60.86
62.48
10.500 - 10.999
8
8,208,036.62
3.45
1,026,004.58
5.612
767
69.04
69.04
11.000 or Greater
1
994,971.73
0.42
994,971.73
6.000
804
58.82
58.82
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

The weighted-average maximum mortgage rate of the mortgage loans at origination was approximately 9.803%.

 
S-103

 

Minimum Mortgage Rate
 
Minimum Mortgage Rate (%)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
2.250
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Next Rate Adjustment Date

Next Rate Adjustment
Date
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
May 2014
1
888,125.65
0.37
888,125.65
5.125
777
80.00
80.00
June 2014
37
30,246,810.78
12.72
817,481.37
4.788
771
58.28
60.27
July 2014
59
54,404,519.07
22.87
922,110.49
4.707
774
57.53
59.16
August 2014
60
57,581,235.08
24.21
959,687.25
4.730
765
55.57
61.93
September 2014
55
52,991,791.02
22.28
963,487.11
4.802
763
53.41
58.96
October 2014
24
24,183,799.26
10.17
1,007,658.30
4.953
768
56.52
59.67
November 2014
8
7,077,103.20
2.98
884,637.90
4.959
788
59.86
64.22
December 2014
8
7,054,949.21
2.97
881,868.65
5.168
757
61.37
61.37
January 2015
3
3,410,000.00
1.43
1,136,666.67
5.500
754
69.32
69.32
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Original Term to Maturity
 
Original
Term to Maturity
(Month)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
360
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

Remaining Term to Maturity
 
Remaining
Term to Maturity
(Months)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
349
1
888,125.65
0.37
888,125.65
5.125
777
80.00
80.00
350
37
30,246,810.78
12.72
817,481.37
4.788
771
58.28
60.27
351
59
54,404,519.07
22.87
922,110.49
4.707
774
57.53
59.16
352
60
57,581,235.08
24.21
959,687.25
4.730
765
55.57
61.93
353
55
52,991,791.02
22.28
963,487.11
4.802
763
53.41
58.96
354
24
24,183,799.26
10.17
1,007,658.30
4.953
768
56.52
59.67
355
8
7,077,103.20
2.98
884,637.90
4.959
788
59.86
64.22
356
8
7,054,949.21
2.97
881,868.65
5.168
757
61.37
61.37
357
3
3,410,000.00
1.43
1,136,666.67
5.500
754
69.32
69.32
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
The weighted-average remaining term to maturity of the mortgage loans as of the cut-off date was approximately 352 months.
 
S-104

 
Prepayment Penalty Term at Origination
 
Prepayment Penalty Term
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
None
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Originator

Originator
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
CitiMortgage
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42

Channel

Channel
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Retail
214
201,630,615.75
84.78
942,199.14
4.744
767
56.28
60.56
Correspondent
29
23,184,594.16
9.75
799,468.76
5.086
780
60.25
61.44
Wholesale
12
13,023,123.36
5.48
1,085,260.28
5.210
767
54.43
56.48
Total: 
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Servicer

Servicer
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
CitiMortgage
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total: 
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42


 
S-105

 

Lien Position at Origination

Lien Position
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
First
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total: 
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Silent Second Status

Silent Second Status
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
None
186
173,249,111.45
72.84
931,446.84
4.825
769
60.62
60.62
Has Silent Second
69
64,589,221.82
27.16
936,075.68
4.744
765
45.68
59.87
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Mortgage Insurance Status at Origination

Mortgage Insurance Status
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
No PMI
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Origination Date

Origination Date
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
May 2009
42
34,347,985.33
14.44
817,809.17
4.778
773
58.81
61.01
June 2009
55
51,191,470.17
21.52
930,754.00
4.715
773
57.51
58.94
July 2009
71
68,077,080.34
28.62
958,832.12
4.733
764
55.47
61.97
August 2009
45
43,902,708.06
18.46
975,615.73
4.804
764
53.72
58.70
September 2009
23
22,777,036.96
9.58
990,305.95
4.981
767
55.40
58.74
October 2009
9
8,427,103.20
3.54
936,344.80
4.986
777
61.22
64.88
November 2009
7
5,704,949.21
2.40
814,992.74
5.179
765
59.72
59.72
December 2009
3
3,410,000.00
1.43
1,136,666.67
5.500
754
69.32
69.32
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
S-106

 
Maturity Date

Maturity Date
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
May 2039
1
888,125.65
0.37
888,125.65
5.125
777
80.00
80.00
June 2039
37
30,246,810.78
12.72
817,481.37
4.788
771
58.28
60.27
July 2039
59
54,404,519.07
22.87
922,110.49
4.707
774
57.53
59.16
August 2039
60
57,581,235.08
24.21
959,687.25
4.730
765
55.57
61.93
September 2039
55
52,991,791.02
22.28
963,487.11
4.802
763
53.41
58.96
October 2039
24
24,183,799.26
10.17
1,007,658.30
4.953
768
56.52
59.67
November 2039
8
7,077,103.20
2.98
884,637.90
4.959
788
59.86
64.22
December 2039
8
7,054,949.21
2.97
881,868.65
5.168
757
61.37
61.37
January 2040
3
3,410,000.00
1.43
1,136,666.67
5.500
754
69.32
69.32
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Delinquency Status

Delinquency Status
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Current
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
Historical Delinquency

Historical Delinquency    
(Past 12 Months)
Number
of Mortgage Loans
Aggregate
Stated Principal Balance
Outstanding ($)
Percent of
Aggregate Stated Principal Balance Outstanding (%)
Average
Stated
Principal
Balance ($)
Weighted
Average
Mortgage
Rate (%)
Weighted
Average
Original
Credit Score
Weighted
Average
Original
Loan-to-Value
Ratio (%)
Weighted
Average
Original
Combined
Loan-to-Value
Ratio (%)
Never Delinquent
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
Total:
255
237,838,333.27
100.00
932,699.35
4.803
768
56.57
60.42
 
S-107

 
Exceptions to Underwriting Guidelines at Origination
 
Exception Type
Number of Mortgage Loans
Aggregate Original
Principal Balance ($)
Summary of Compensating Factors
Debt to Income Exceeds Guidelines
24
22,932,204.58
Compensating excess reserves,  employment length and stability, time in property
First Mortgage Credit Score1Below Guideline Requirements
5
4,626,157.32
FICO score within guidelines
Debt to Income and Loan to Value on Second Home Exceeds Guidelines
1
1,500,000.00
Compensating excess reserves
Loan Amount for Second Home Greater than Guidelines
1
1,908,777.80
Compensating excess income and excess reserves
Credit history less than required
1
1,110,000.00
Compensating excess reserves
Total:
32
32,077,139.70
 
1First Mortgage Credit Score (FMCS) is a proprietary alternative credit score metric used by CitiMortgage, Inc.

 
S-108

 

ANNEX B – GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES

Except in certain limited circumstances, the globally offered Sequoia Mortgage Trust 2010-H1, Mortgage Pass-Through Certificates (the “Global Certificates”) will be available only in book-entry form. Investors in the Global Certificates may hold such Global Certificates through any of The Depository Trust Company (“DTC”), Clearstream, Luxembourg or Euroclear. The Global Certificates 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 holding Global Certificates through Clearstream, Luxembourg and Euroclear will be conducted in the ordinary way in accordance with their normal rules and operating procedures and in accordance with conventional Eurocertificate practice (i.e., seven-calendar day settlement).

Secondary market trading between investors holding Global Certificates through DTC will be conducted according to the rules and procedures applicable to U.S. corporate debt obligations and prior mortgage pass-through certificate issues.

Secondary cross-market trading between Clearstream, Luxembourg or Euroclear and DTC Participants holding Global Certificates will be effected on a delivery-against-payment basis through the respective Depositaries of Clearstream, Luxembourg and Euroclear (in such capacity) and as DTC Participants.

Non-U.S. holders (as described below) of Global Certificates will be subject to U.S. withholding taxes unless such holders meet certain requirements and deliver appropriate U.S. tax documents to the securities clearing organizations or their participants.

Initial Settlement

All Global Certificates will be held in book-entry form by DTC in the name of Cede & Co. as nominee of DTC. Investors’ interests in the Global Certificates will be represented through financial institutions acting on their behalf as direct and indirect participants in DTC (each, a “DTC Participant”). As a result, Clearstream, Luxembourg and Euroclear will hold positions on behalf of their participants through their respective Depositaries, which in turn will hold such positions in accounts as DTC Participants.

Investors electing to hold their Global Certificates through DTC will follow the settlement practices’ applicable to other mortgage pass-through certificate issues. 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 Certificates through Clearstream, Luxembourg or Euroclear accounts will follow the settlement procedures applicable to conventional Eurocertificates, except that there will be no temporary global security and no “lock-up” or restricted period. Global Certificates will be credited to the securities custody accounts on the settlement date against payment in same-day funds.

Secondary Market Trading

Since the purchaser determines the place of delivery, it is important to establish at the time of the trade where both the purchaser’s and seller’s accounts are located to ensure that settlement can be made on the desired value date.


 
S-109

 

Trading Between DTC Participants.  Secondary market trading between DTC Participants will be settled using the procedures applicable to prior mortgage pass-through certificate issues in same-day funds.

Trading Between Clearstream, Luxembourg and/or Euroclear Participants.  Secondary market trading between Clearstream, Luxembourg Participants or Euroclear Participants will be settled using the procedures applicable to conventional Eurocertificates in same-day funds.

Trading Between DTC Seller and Clearstream, Luxembourg or Euroclear Purchaser.  When Global Certificates are to be transferred from the account of a DTC Participant to the account of a Clearstream, Luxembourg Participant or a Euroclear Participant, the purchaser will send instructions to Clearstream, Luxembourg or Euroclear through a Clearstream, Luxembourg Participant or Euroclear Participant at least one business day prior to settlement. Clearstream, Luxembourg or Euroclear will instruct the respective Depositary, as the case may be, to receive the Global Certificates against payment. Payment will include interest accrued on the Global Certificates from and including the last coupon distribution date to and excluding the settlement date, on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. Payment will then be made by the respective Depositary of the DTC Participant’s account against delivery of the Global Certificates. After settlement has been completed, the Global Certificates will be credited to the respective clearing system and by the clearing system, in accordance with its usual procedures, to the Clearstream, Luxembourg 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 Certificates will accrue from, the value date (which would be the preceding day when settlement occurred in New York). If settlement is not completed on the intended value date (i.e., the trade fails), the Clearstream, Luxembourg or Euroclear cash debt will be valued instead as of the actual settlement date.

Clearstream, Luxembourg Participants and Euroclear Participants will need to make available to the respective clearing systems the funds necessary to process same-day funds settlement. The most direct means of doing so is to preposition funds for settlement, either from cash on hand or existing lines of credit, as they would for any settlement occurring within Clearstream, Luxembourg or Euroclear. Under this approach, they may take on credit exposure to Clearstream, Luxembourg or Euroclear until the Global Certificates are credited to their accounts one day later.

As an alternative, if Clearstream, Luxembourg or Euroclear has extended a line of credit to them, Clearstream, Luxembourg Participants or Euroclear Participants can elect not to preposition funds and allow that credit line to be drawn upon the finance settlement. Under this procedure, Clearstream, Luxembourg Participants or Euroclear Participants purchasing Global Certificates would incur overdraft charges for one day, assuming they cleared the overdraft when the Global Certificates were credited to their accounts. However, interest on the Global Certificates would accrue from the value date. Therefore, in many cases the investment income on the Global Certificates earned during that one-day period may substantially reduce or offset the amount of such overdraft charges, although this result will depend on each Clearstream, Luxembourg 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 sending Global Certificates to the respective European depository for the benefit of Clearstream, Luxembourg Participants or Euroclear Participants. The sale proceeds will be available to the DTC seller on the settlement date. Thus, to the DTC Participants a cross-market transaction will settle no differently than a trade between two DTC Participants.

Trading Between Clearstream, Luxembourg or Euroclear Seller and DTC Purchaser.  Due to time zone differences in their favor, Clearstream, Luxembourg Participants and Euroclear Participants may employ their customary procedures for transactions in which Global Certificates are to be transferred by the respective clearing system, through the respective Depositary, to a DTC Participant. The seller will send instructions to Clearstream, Luxembourg or Euroclear through a Clearstream, Luxembourg Participant or Euroclear Participant at least one business day prior to settlement. In these cases Clearstream, Luxembourg or Euroclear will instruct the respective Depositary, as appropriate, to deliver the Global Certificates to the DTC Participant’s account against payment. Payment will include interest accrued on the Global Certificates from and including the last coupon payment to and excluding the settlement date on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. The payment will then be reflected in the account of the Clearstream, Luxembourg Participant or Euroclear Participant the following day, and receipt of the cash proceeds in the Clearstream, Luxembourg Participant’s or Euroclear Participant’s account would be back-valued to the value date (which would be the preceding day, when settlement occurred in New York). Should the Clearstream, Luxembourg 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 valued date (i.e., the trade fails), receipt of the cash proceeds in the Clearstream, Luxembourg Participant’s or Euroclear Participant’s account would instead be valued as of the actual settlement date.


 
S-110

 

Finally, day traders that use Clearstream, Luxembourg or Euroclear and that purchase Global Certificates from DTC Participants for delivery to Clearstream, Luxembourg Participants or Euroclear Participants should note that these trades would automatically fail on the sale side unless affirmative action were taken. At least three techniques should be readily available to eliminate this potential problem:
 
 
(a)
borrowing through Clearstream, Luxembourg or Euroclear for one day (until the purchase side of the day trade is reflected in their Clearstream, Luxembourg or Euroclear accounts) in accordance with the clearing system’s customary procedures;

 
(b)
borrowing the Global Certificates in the U.S. from a DTC Participant no later than one day prior to settlement, which would give the Global Certificates sufficient time to be reflected in their Clearstream, Luxembourg or Euroclear account in order to settle the sale side of the trade; or

 
(c)
staggering the value dates for the buy and sell sides of the trade so that the value date for the purchase from the DTC Participant is at least one day prior to the value date for the sale to the Clearstream, Luxembourg Participant or Euroclear Participant.

CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS

A holder that is not a “United States person” within the meaning of Section 7701(a)(30) of the Internal Revenue Code of 1986 holding a book-entry certificate through Clearstream, Euroclear or DTC may be subject to U.S. withholding tax at a rate of 30% unless such holder provides certain documentation to the trustee or to the U.S. entity required to withhold tax (the “U.S. withholding agent”) establishing an exemption from withholding.  A holder that is not a United States person may be subject to 30% withholding unless:

 
I.
the trustee, or the U.S. withholding agent receives a statement —
 
 
(a)
from the holder on Internal Revenue Service (“IRS”) Form W-8BEN (or any successor form) that —
 
 
(i)
is signed by the certificateholder under penalty of perjury,

 
(ii)
certifies that such owner is not a United States person, and

 
(iii)
provides the name and address of the certificateholder, or


 
S-111

 


 
(b)
from a securities clearing organization, a bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business that —
 
 
(i)
is signed under penalties of perjury by an authorized representative of the financial institution,

 
(ii)
states that the financial institution has received an IRS Form W-8BEN (or any successor form) from the certificateholder or that another financial institution acting on behalf of the certificateholder has received such IRS Form W-8BEN (or any successor form),

 
(iii)
provides the name and address of the  certificateholder, and

 
(iv)
attaches the IRS Form W-8BEN (or any successor form) provided by the certificateholder;
 
 
II.
the holder claims an exemption or reduced rate based on a treaty and provides a properly executed IRS Form W-8BEN (or any successor form) to the trustee or the U.S. withholding agent;

 
III.
the holder claims an exemption stating that the income is effectively connected to a U.S. trade or business and provides a properly executed IRS Form W-8ECI (or any successor form) to the trustee or the U.S. withholding agent; or

 
IV.
the holder is a “nonwithholding partnership” and provides a properly executed IRS Form W-8IMY (or any successor form) with all necessary attachments to the trustee or the U.S. withholding agent.  Certain pass-through entities that have entered into agreements with the Internal Revenue Service (for example “qualified intermediaries”) may be subject to different documentation requirements; and such holders are encouraged to consult with their tax advisors when purchasing the certificate.

A book-entry certificateholder holding through Clearstream or Euroclear provides the forms and statements referred to above by submitting them to the person through which it holds an interest in the book-entry certificate, which is the clearing agency, in the case of persons holding directly on the books of the clearing agency.  Under certain circumstances a Form W-8BEN, if furnished with a taxpayer identification number, (“TIN”), will remain in effect until the status of the beneficial owner changes, or a change in circumstances makes any information on the form incorrect.  A Form W-8BEN, if furnished without a TIN, and a Form W-8ECI will remain in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect.

In addition, a book-entry certificateholder holding through Clearstream, Euroclear or DTC may be subject to backup withholding unless the holder:

I.          provides a properly executed IRS Form W-8BEN, Form W-8ECI or Form W-8IMY(or any successor forms) if that person is not a United States person;

II.         provides a properly executed IRS Form W-9 (or any substitute form) if that person is a United States person; or

III.        is a corporation, within the meaning of Section 7701(a) of the Internal Revenue Code of 1986, or otherwise establishes that it is a recipient exempt from United States backup withholding.

 
S-112

 

This summary does not deal with all aspects of federal income tax withholding or backup withholding that may be relevant to investors that are not “United States persons” within the meaning of Section 7701(a)(30) of the Internal Revenue Code.  Such investors are encouraged to consult their own tax advisors for specific tax advice concerning their holding and disposing of the book-entry certificate.

The term “United States person” means (1) a citizen or resident of the United States, (2) a corporation or partnership organized in or under the laws of the United States or any state or the District of Columbia (other than a partnership that is not treated as a United States person under any applicable Treasury regulations), (3) an estate the income of which is includible in gross income for United States tax purposes, regardless of its source, or (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the issuing entity and one or more United States persons have authority to control all substantial decisions of the trust.  Notwithstanding the preceding sentence, to the extent provided in regulations, certain trusts in existence on August 20, 1996 and treated as United States persons prior to such date that elect to continue to be so treated also will be considered United States persons.

 
S-113

 

 
PROSPECTUS

Sequoia Mortgage Funding Corporation
or
Sequoia Residential Funding, Inc.
(Depositor)

RWT Holdings, Inc.
(Sponsor)

$2,405,109,936
(Aggregate Amount)

Asset-Backed Securities
(Issuable in Series)

Please carefully consider our discussion of some of the risks of investing in the securities under “Risk Factors” beginning on page 1.
 
The securities will represent obligations of or interests in the related issuing entity only and do not represent an interest in or obligation of either Sequoia Mortgage Funding Corporation or Sequoia Residential Funding, Inc., as the depositor, RWT Holdings, Inc., as the sponsor, or any of their affiliates.
 
The Issuing Entities
 
Each issuing entity will be established to hold the assets transferred to it by the depositor, either Sequoia Mortgage Funding Corporation or Sequoia Residential Funding, Inc.  The assets of each issuing entity will be specified in the prospectus supplement and may consist of:
 
·      residential mortgage loans secured by senior and junior liens on one-to-four family residential properties, including closed-end and/or revolving home equity loans or specified balances thereof and cooperative dwelling loans;
 
·      mortgage pass-through securities issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac;
 
·      private mortgage-backed securities;
 
·      various forms of credit enhancement of the types described in this base prospectus; and
 
·      other related assets described in this base prospectus.
     
 
The Securities
 
The depositor, either Sequoia Mortgage Funding Corporation or Sequoia Residential Funding, Inc., will sell the securities pursuant to a prospectus supplement.  The securities will be grouped into one or more series, each having its own distinct designation.  Each series will consist of either certificates representing interests in the assets of the related issuing entity or notes or bonds secured by the issuing entity assets.
 
Offers of Securities
 
The securities may be offered through several different methods, including offerings through underwriters.
 

 
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
 
April 22, 2010
 

 

 
 
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS
AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
 
 
Information about each series of securities is contained in two separate documents.
 
·
this prospectus, which provides general information, some of which may not apply to a particular series; and
 
·
the accompanying prospectus supplement for a particular series, which describes the specified terms of the securities of that series.
 
The prospectus supplement will contain information about a particular series that supplements the information contained in this prospectus.
 
We have not authorized anyone to provide you with information that is different from that contained in this prospectus and the accompanying prospectus supplement.
 
You can find a listing of the pages on which many of the terms used in this prospectus are defined under “Index of Defined Terms” beginning on page I-1 of this prospectus.

 
ii

 

TABLE OF CONTENTS

 
Page No.
     
RISK FACTORS
1
 
Ratings on the Securities by the Rating Agencies May Not Accurately Reflect the Risks Associated  With Those Securities
1
 
There Is No Source of Payments For Your Securities Other Than the Assets of the Issuing Entity and  Any Credit Enhancements.
1
 
You Bear the Risk of Losses on the Mortgage Loans; Some Kinds of Mortgage Loans May Be  Especially Prone to Default and Losses
1
 
Risks Related to Adjustable Rate Mortgage Loans
2
 
Risks Related to Mortgage Loans with Interest-Only Payments
4
 
Risks Related to Mortgage Loans that Provide for Negative Amortization
4
 
Special Default Risk of Second Lien Mortgage Loans
5
 
Risks Relating to Declines in Property Values and Second Lien Mortgage Loans
5
 
Risks Related to Simultaneous Second Liens and Other Borrower Debt
6
 
Balloon Loans
6
 
Mortgage Loans with High Original Loan-to-Value Ratios May Present a Greater Risk of Loss
6
 
Default Risk on High Balance Mortgage Loans
6
 
Geographic Concentration of Mortgage Loans
6
 
Aspects of the Mortgage Loan Origination Process May Result in Higher Expected Delinquencies
7
 
Our Due Diligence of the Mortgage Loans Supporting Your Securities May Not Reveal Aspects of Such Mortgage Loans Which Could Lead to Losses
8
 
Early or Multiple Payment Defaults May Be Indicative of Higher Rates of Delinquencies and Losses  in the Future
8
 
Mortgage Loan Interest Rates May Limit Interest Rates on the Variable Rate Securities
9
 
Potential Inadequacy of Credit Enhancement
9
 
Effect of Creditworthiness of Primary Mortgage Insurers on Ratings of Securities
11
 
Risks Related to Any Interest Rate Swap Agreement
12
 
Effect of Creditworthiness of Swap Counterparty on Ratings of Securities
12
 
Special Risks for Certain Classes of Securities
12
 
You Will Be Subject to the Risks Associated With Potential Inadequate or Untimely Services From  Third-Party Service Providers, Which May Adversely Impact Your Yield; You will Also Be Dependent on Corporate Trustees to Act on Your Behalf in Enforcing Your Rights
13
 
Delay in Receipt of Liquidation Proceeds; Liquidation Proceeds May Be Less Than Mortgage Balance
13
 
There are Risks Relating to Alternatives to Foreclosure
13
 
Delinquencies Due to Servicing Transfers
13
 
Military Action and Terrorist Attacks
14
 
Unpredictability and Effect of Prepayments
14
 
Violation of Various Federal, State and Local Laws May Result in Losses on the Mortgage Loans
15
 
Predatory Lending Laws/High Cost Loans
15
 
Bankruptcy or Insolvency Proceedings Could Delay or Reduce Payments on the Securities
16
 
Risks Related to Amounts in Pre-Funding Account(s) Being Applied to Pay Principal on the Securities
16
 
The Addition of Subsequent Mortgage Collateral to the Pre-Funding Account(s) During the Funding  Period May Adversely Affect the Performance of the Securities
16
 
Risks Related to Owning Book-Entry Securities
17
 
Limited Ability to Resell Securities
17
 
The Securities May Not Be Suitable Investments
17
 
Owners of Original Issue Discount Securities Should Consider Federal Income Tax Consequences
17
 

 
iii

 


THE SPONSOR
17
 
THE DEPOSITORS
18
 
THE ISSUING ENTITIES AND THE ISSUING ENTITY ASSETS
19
 
General
19
 
The Loans
21
 
Pre-Funding
28
 
Revolving Period
28
 
Agency Securities
29
 
Private Mortgage-Backed Securities
35
 
SEC Rule 190
37
 
USE OF PROCEEDS
37
 
LOAN PROGRAM
37
 
Underwriting Standards
38
 
Qualifications of Sellers
39
 
Quality Control
39
 
Representations and Warranties; Repurchases
39
 
Status of the Mortgage Loans and Related Assets in the Event of Insolvency of the Seller
42
 
DESCRIPTION OF THE SECURITIES
42
 
General
43
 
Distributions on Securities
44
 
Categories of Classes of Securities
46
 
Compensating Interest
49
 
Reports to Securityholders
49
 
Optional Termination
51
 
Optional Purchase of Securities
52
 
Other Purchases or Redemption
52
 
Book-Entry Registration of Securities
52
 
CREDIT ENHANCEMENT
55
 
General
55
 
Subordination
56
 
Derivative Instruments
57
 
Insurance Policies, Surety Bonds and Guaranties
57
 
Special Hazard Insurance Policies
58
 
Cross Support
58
 
Reserve Accounts
58
 
Pool Insurance Policies
59
 
Bankruptcy Bonds
60
 
Overcollateralization
60
 
Letter of Credit or Demand Note
61
 
DERIVATIVES
61
 
YIELD AND PREPAYMENT CONSIDERATIONS
62
 
Yield
62
 
Maturity and Prepayment
65
 
THE AGREEMENTS
68
 
Assignment of the Issuing Entity Assets
68
 
Servicing Provisions
69
 
Events of Default; Rights Upon Event of Default
79
 
The Pooling and Servicing Agreement
81
 
The Pooling and Servicing Agreement and Trustee
83
 
The Indenture
84
 
The Indenture Trustee
87
 
The Trust Agreement
88
 
The Custodial Agreement
90
 
The Trustees; Agents
90
 
Loss Mitigation Advisor; Investment Manager; Other Parties
91
 
CERTAIN LEGAL ASPECTS OF THE LOANS
91
 

 
iv

 


General
91
 
Foreclosure/Repossession
92
 
Environmental Risks
94
 
Rights of Redemption
96
 
Anti-Deficiency Legislation; Tax Liens
96
 
Bankruptcy Laws
97
 
Due-on-Sale Clauses
99
 
Prepayment Charges and Prepayments
99
 
Applicability of Usury Laws
100
 
Alternative Mortgage Instruments
100
 
Servicemembers Civil Relief Act
101
 
Junior Mortgages; Rights of Senior Mortgagees
101
 
Consumer Protection Laws
102
 
Forfeitures in Drug and RICO Proceedings
103
 
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
103
 
Types of Securities
104
 
Taxation of Debt Securities Generally
104
 
REMIC Securities
109
 
Taxation of Regular Interest Securities
109
 
Taxation of Holders of Residual Interest Securities
111
 
Taxation of the REMIC
114
 
Non-REMIC Debt Securities
116
 
Special Tax Attributes
117
 
Withholding With Respect to Certain Foreign Investors
118
 
Backup Withholding
119
 
Tax Return Disclosure Requirements
119
 
STATE TAX CONSIDERATIONS
119
 
ERISA CONSIDERATIONS
120
 
LEGAL INVESTMENT
125
 
METHOD OF DISTRIBUTION
127
 
LEGAL MATTERS
128
 
FINANCIAL INFORMATION
128
 
STATIC POOL INFORMATION
128
 
AVAILABLE INFORMATION
129
 
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
129
 
RATING
130
 
INDEX OF DEFINED TERMS
I-1
 
PART II – INFORMATION NOT REQUIRED IN PROSPECTUS
II-1
 
 
 
v

 

RISK FACTORS
 
The following information, which you should carefully consider, identifies certain significant sources of risk associated with an investment in the offered securities.  You should also carefully consider the information set forth under “Risk Factors” in the related prospectus supplement.
 
Ratings on the Securities by the Rating Agencies May Not Accurately Reflect the Risks Associated With Those Securities
 
The ratings on the securities depend primarily on an assessment by the rating agencies of the mortgage loans and other assets of the issuing entity, any credit enhancement and the ability of the servicers and the master servicer to service the loans.  Rating agencies rate debt securities based upon their assessment of the safety of the receipt of principal and interest payments.  Rating agencies do not consider the risks of fluctuations in fair value or other factors that may influence the value of debt securities and, therefore, the assigned credit rating may not fully reflect the true risks of an investment in the securities.  Credit rating agencies may change their methods of evaluating credit risk and determining ratings on securities backed by mortgage loans.  These changes may occur quickly and often.
 
The ratings of the securities by the rating agencies:
 
·
only address the likelihood of receipt by holders of securities of distributions in the amount of scheduled payments on the mortgage loans;
 
·
do not take into consideration any of the tax aspects associated with the securities;
 
·
do not address the possibility that, as a result of principal prepayments, the yield on your securities may be lower than anticipated;
 
·
do not address the payment of any basis risk shortfalls with respect to the securities; and
 
·
do not comment as to the market price or suitability of the securities for a particular investor.
 
Ratings are not recommendations to buy, sell or hold the securities.  A rating may be changed or withdrawn at any time by the assigning rating agency.
 
There Is No Source of Payments For Your Securities Other Than the Assets of the Issuing Entity and Any Credit Enhancements.
 
The assets of the issuing entity together with any applicable credit enhancement are the sole source of payments on the related securities.  The securities are not the obligations of any other entity.  None of the sponsor, the seller, the depositor, any underwriter, the trustee, any administrator, any master servicer, any servicer or any of their affiliates will have any obligation to replace or supplement the credit enhancement, or take any other action to maintain the applicable ratings of the securities.  If credit enhancement is not available, holders of securities may suffer losses on their investments.
 
You Bear the Risk of Losses on the Mortgage Loans; Some Kinds of Mortgage Loans May Be Especially Prone to Default and Losses
 
Because your securities are backed by mortgage loans, your investment may be affected by losses incurred on the mortgage loans.  Losses on residential mortgage loans can occur for many reasons, including:  poor origination practices; fraud; faulty appraisals; documentation errors; poor underwriting; legal errors; poor servicing practices; weak economic conditions; increases in payments required to be made by borrowers; declines in the value of homes; earthquakes and other natural events; uninsured

 
1

 

property loss; over-leveraging of the borrower; costs of remediation of environmental conditions, such as indoor mold; changes in zoning or building codes and the related costs of compliance; acts of war or terrorism; changes in legal protections for lenders; and other personal events affecting borrowers, such as reduction in income, job loss, divorce, or health problems.  To the extent your securities are not covered by credit enhancements, you will bear all of the risks resulting from losses on the mortgage loans.  In addition, several types of mortgage loans which have higher than average rates of default and loss may be included in the entity that issues your security, including adjustable rate, interest-only, negative amortization, second lien, balloon, high loan-to-value ratio, and high balance mortgage loans.

Risks Related to Adjustable Rate Mortgage Loans
 
Recently, an increasingly large proportion of residential mortgage loans originated in the United States have been adjustable rate mortgage loans, including loans that have interest-only or negative amortization features. Mortgage loans that are referred to generally as adjustable rate mortgage loans, or ARMs, may include any of the following types of loans:
 
·
mortgage loans whose interest rate adjusts on the basis of a variable index plus a margin, with the initial adjustment occurring after a specified period of time from origination of the related mortgage loan and adjustments occurring periodically at specified intervals thereafter; these loans may or may not have a low introductory interest rate;
 
·
“hybrid” mortgage loans, whose interest rate is fixed for the initial period specified in the related mortgage note, and thereafter adjusts periodically based on the related index plus a margin;
 
·
“interest-only” mortgage loans, which provide for payment of interest at the related mortgage interest rate, but no payment of principal, for the period specified in the related mortgage note; thereafter, the monthly payment is increased to an amount sufficient to amortize the principal balance of the mortgage loan over the remaining term and to pay interest at the applicable mortgage interest rate;
 
·
“negative amortization” mortgage loans, which may have a low introductory interest rate, and thereafter have a mortgage interest rate which adjusts periodically based on the related index plus a margin; however, the borrower is only required to make a minimum monthly payment which may not be sufficient to pay the monthly interest accrued, resulting in an increase to the principal balance of the mortgage loan by the amount of unpaid interest; and
 
·
“option ARMs,” which combine several of the features described above and permit the borrower to elect whether to make a monthly payment sufficient to pay accrued interest and amortize the principal balance, make an interest-only payment or make a minimum payment that may be insufficient to pay accrued interest (with the unpaid interest added to the principal balance of the loan).
 
If specified in the related prospectus supplement, the issuing entity may include significant concentrations of these types of adjustable rate mortgage loans, which present special default and prepayment risks.
 
The primary attraction to borrowers of these adjustable rate mortgage loan products is that initial monthly mortgage loan payments can be significantly lower than fixed rate or level pay mortgage loans under which the borrower pays both principal and interest at an interest rate fixed for the life of the mortgage loan.  As a result, many borrowers have been able to incur substantially greater mortgage debt using one of these adjustable rate mortgage loan products than if they used a fixed rate mortgage loan.
 
In addition, many borrowers have used adjustable rate mortgage loan products to purchase homes that are comparatively larger or more expensive than they would otherwise have purchased with a fixed rate mortgage loan with relatively higher monthly payments.  These borrowers may have taken out these

 
2

 

mortgage loan products in the expectation that either (1) their income will rise by the time their fixed rate period or interest-only period expires, thus enabling them to make the higher monthly payments, or (2) in an appreciating real estate market, they will be able to sell their property for a higher price or will be able to refinance the mortgage loan before the expiration of the fixed rate or interest-only period.
 
When evaluating a mortgage loan application from a prospective borrower for an adjustable rate or interest-only mortgage loan, many mortgage originators determined the amount of loan that borrower could afford based on the borrower’s initial scheduled monthly payments, or the scheduled monthly payments on the first mortgage interest rate reset date, rather than based on the adjusted monthly payments as of future mortgage interest reset dates (in the case of adjustable rate mortgage loans) or the principal amortization date (in the case of interest-only mortgage loans).  These origination practices have been changed substantially beginning in 2007 with promulgation of guidelines by the Federal Reserve Board and state mortgage regulators and by the subsequent implementation of more conservative underwriting standards by originators.  Unless otherwise specified in the related prospectus supplement, mortgage loan characteristics and debt-to-income ratios set forth in the prospectus supplement will reflect the scheduled mortgage loan payments due or being made as of the “cut-off date,” and will not reflect the mortgage loan payment resets that will occur during the life of the mortgage loan.

            In recent years, mortgage interest rates have been at historically low levels.  Although short-term interest rates have increased from their lowest levels, long-term interest rates have remained low.  If mortgage interest rates rise, borrowers will experience increased monthly payments on their adjustable rate mortgage loans.  As the fixed interest rates on hybrid mortgage loans expire and convert to adjustable rates, borrowers may find that the new minimum monthly payments are considerably higher and they may not be able to make those payments.
 
In addition, without regard to changes in interest rates, the monthly payments on mortgage loans with interest-only or negative amortization features will increase substantially when the principal must be repaid.
 
Any of these factors, or a combination of these factors, could cause adjustable rate mortgage loan defaults to increase substantially.
 
Borrowers who intend to avoid increased monthly payments by refinancing their mortgage loans may find that lenders may not in the future be willing or able to offer these adjustable rate mortgage loan products, or to offer these products at relatively low interest rates.  A further decline in housing prices generally or in certain regions of the United States could also leave borrowers with insufficient equity in their homes to permit them to refinance.  In addition, borrowers who intend to sell their properties on or before the expiration of the fixed rate periods or interest-only periods on their mortgage loans may find that they cannot sell their properties for an amount equal to or greater than the unpaid principal balance of their loans, especially in the case of negative amortization mortgage loans.  These events could cause borrowers to default on their mortgage loans.
 
Rising unemployment and slow wage growth in certain regions of the United States or generally could also impact the ability of many borrowers with adjustable rate mortgage loans to make the higher monthly payments resulting from the expiration of fixed rate periods or interest-only periods, or from increases in interest rates.  If borrowers become unemployed in a slowing economy, or if they find that expected increases in personal income have not occurred, they may be unable to make the higher monthly mortgage payments.
 
Any of the factors described above, alone or in combination, could adversely affect the yield on your securities.  Depending upon the type of security purchased and the price paid, the adverse yield effect could be substantial.
 
See “— Risks Related to Mortgage Loans with Interest-Only Payments” and “— Risks Related to Mortgage Loans that Provide for Negative Amortization” for further discussion of adjustable rate mortgage loans with interest-only or negative amortization features, respectively.
 

 
3

 


Risks Related to Mortgage Loans with Interest-Only Payments
 
If specified in the related prospectus supplement, some of the mortgage loans to be included in the trust may provide for payment of interest at the related mortgage interest rate, but no payment of principal, for the period following origination specified in the related prospectus supplement.  Following the applicable interest-only period, the monthly payment with respect to each of these mortgage loans will be increased to an amount sufficient to amortize the principal balance of the mortgage loan over the remaining term and to pay interest at the applicable mortgage interest rate.
 
If applicable, the presence of these mortgage loans in the issuing entity may, absent other considerations, result in longer weighted average lives of the related securities than would have been the case had these loans not been included in the issuing entity.  In addition, borrowers may view the absence of any obligation to make a payment of principal during the interest-only period following origination specified in the related prospectus supplement as a disincentive to prepayment.  Conversely, however, borrowers may be more likely to refinance their mortgage loans when the related interest-only period expires, resulting in increased prepayments.
 
After a borrower’s monthly payment has been increased to include principal amortization, and assuming the borrower does not refinance the related mortgage loan, delinquency or default may be more likely.

            See also “— Risks Related to Adjustable Rate Mortgage Loans” for a discussion of risks related to interest-only mortgage loans and economic conditions.
 
Risks Related to Mortgage Loans that Provide for Negative Amortization
 
If specified in the related prospectus supplement, the issuing entity may include mortgage loans that provide for so-called “negative amortization.” Negative amortization mortgage loans generally provide the borrower with a low initial introductory interest rate.  Thereafter, the mortgage interest rate is calculated at the index specified in the related mortgage note plus the applicable margin.  However, the borrower is only required to make (or may elect to make) for the period specified in the related mortgage note a minimum monthly payment on the mortgage loan that may be sufficient to amortize the principal balance of the mortgage loan over the remaining term but not to pay all accrued interest, or may be insufficient to pay accrued interest and not amortize the principal balance at all.
 
At the end of this initial period, and periodically thereafter, the borrower’s minimum monthly payment is adjusted to reflect the prevailing interest rate, consisting of the current applicable index plus the applicable margin, plus a principal amount sufficient to amortize the mortgage loan over the remaining applicable term.  Typically, the borrower’s monthly payment will not be increased or decreased by more than a periodic cap and is subject to a maximum interest rate, as specified in the related mortgage note.  Nevertheless, although each recalculated monthly payment will be based on the prevailing rate of the applicable index at the time of the payment adjustment date, this index may continue to adjust up or down throughout the course of the period in which the monthly payments do not adjust.
 
During a period of rising interest rates, as well as before the annual adjustment to the minimum monthly payment made by the borrower, the amount of interest accruing on the principal balance of the related mortgage loan may exceed the amount of the scheduled monthly payment.  As a result, a portion of the accrued interest on the related mortgage loan may become deferred interest that will be added to its principal balance and will also bear interest at the applicable interest rate.
 
In addition, the amount by which a monthly payment may be adjusted on a payment adjustment date is generally limited and may not be sufficient to amortize fully the unpaid principal balance of a negative amortization mortgage loan over its remaining term to maturity.
 

 
4

 


Generally, under the circumstances and at the intervals provided in the related mortgage note, the monthly payment due on a negative amortization mortgage loan will be “recast” without regard to the related payment cap in order to provide for payment of the outstanding balance of the mortgage loan over its remaining term.
 
In summary, then, as interest rates increase (or, in some cases, even if market interest rates remain stable), the principal balance of a negative amortization mortgage loan will increase over time, thereby increasing the monthly payments to be paid by the borrower when principal must be repaid, making refinancing more difficult and increasing the potential adverse effect of macroeconomic trends.  See “— Risks Related to Adjustable Rate Mortgage Loans” above.
 
In addition, any deferral of interest on negative amortization mortgage loans will result in a reduction of the amount of interest available to be distributed as interest to the securities.  If specified in the related prospectus supplement, the reduction in interest collections may be offset, in part, by applying certain prepayments received on the mortgage loans to interest payments on the securities.  In that case, the excess of any deferred interest on the mortgage loans over the prepayments received on the mortgage loans, or net deferred interest, will be allocated among the classes of securities in an amount equal to the excess of the interest accrued on each such class at its applicable interest rate over the amount of interest that would have accrued if the applicable interest rate for each class had been equal to a rate adjusted for net deferred interest on the related mortgage loans, as described in the related prospectus supplement.  Any such allocation of net deferred interest could, as a result, affect the weighted average maturity of the affected class of securities.

Special Default Risk of Second Lien Mortgage Loans
 
If the related prospectus supplement specifies that the issuing entity includes mortgage loans that are secured by second liens on the related mortgaged properties, these second lien mortgage loans will be subordinate to the rights of the mortgagee under the related first mortgages.  Generally, the holder of a second lien mortgage loan will be subject to a loss of its mortgage if the holder of the first mortgage is successful in foreclosure of its mortgage, because no second liens or encumbrances survive such a foreclosure.  In addition, due to the priority of the first mortgage, the holder of the second lien mortgage may not be able to control the timing, method or procedure of any foreclosure action relating to the mortgaged property.  Furthermore, any liquidation, insurance or condemnation proceeds received on the second lien mortgage will be available to satisfy the outstanding balance of the mortgage loan only to the extent that the claim of the related first mortgage has been satisfied in full, including any foreclosure costs.  Accordingly, if liquidation proceeds are insufficient to satisfy the mortgage loan secured by the second lien and all prior liens in the aggregate, and if the credit enhancement provided by any excess interest and overcollateralization (if applicable) has been exhausted or is otherwise unavailable to cover the loss, securityholders will bear the risk of delay in payments while any deficiency judgment against the borrower is sought and the risk of loss if the deficiency judgment is not pursued, cannot be obtained or is not realized for any other reason.
 
Risks Relating to Declines in Property Values and Second Lien Mortgage Loans
 
An overall decline in residential real estate prices could adversely affect the values of the mortgaged properties and cause the outstanding principal balances of the second lien mortgage loans, together with the senior lien mortgage loans secured by the same mortgaged properties, to equal or exceed the value of the mortgaged properties.  This type of a decline would adversely affect the position of a second mortgagee before having the same effect on the related first mortgagee.  A rise in interest rates over a period of time and the general condition of a mortgaged property as well as other factors may have the effect of reducing the value of the mortgaged property from the appraised value at the time the second lien mortgage loan was originated.  If there is a reduction in the value of a mortgaged property, the ratio of the sum of the principal balances of the second lien mortgage loan and the related first lien mortgage loan to the value of the mortgaged property may increase, reducing the likelihood of liquidation or other proceeds being sufficient to satisfy the second lien mortgage loan after satisfaction of the senior lien.  In addition,  if the second lien mortgage loans provide for interest only payments for an initial period after origination,

 
5

 

there will be no principal amortization of the second lien mortgage loans and consequent reduction in the combined loan-to-value ratio during that period.
 
Risks Related to Simultaneous Second Liens and Other Borrower Debt
 
At the time of origination of any first lien mortgage loans in the issuing entity , the originators or other lenders may also have made second lien loans to the same borrowers that may or may not be included in the issuing entity.  In addition, other borrowers whose first lien loans are included in the issuing entity may have obtained secondary mortgage financing following origination of the first lien loans.  In addition, borrowers may increase their aggregate indebtedness substantially by assuming consumer debt of various types.  Consequently, investors should consider that borrowers who have less equity in their homes, or who have substantial mortgage and consumer indebtedness, may be more likely to default and may be more likely to submit to foreclosure proceedings.
 
In addition, the nature of any second lien may influence the prepayment characteristics of the first lien included in the issuing entity.  Borrowers may be more likely to refinance and prepay the first lien when any secondary mortgage financing becomes due in full, and consequently investors should be aware that the rate of prepayment of the first lien mortgage loans in the issuing entity may be affected by any associated second lien loans.
 
Balloon Loans
 
If specified in the related prospectus supplement, the mortgage loans to be included in the issuing entity may include balloon loans.  Balloon loans pose a special payment risk because the borrower must pay a large lump sum payment of principal at the end of the loan term.  If the borrower is unable to pay the lump sum or refinance such amount, you may suffer a loss if the collateral for the loan is insufficient and the other forms of credit enhancement are insufficient or unavailable to cover the loss.
 
Mortgage Loans with High Original Loan-to-Value Ratios May Present a Greater Risk of Loss
 
As specified in the related prospectus supplement, a certain number of mortgage loans included in the trust may have original loan-to-value ratios of greater than 80%.  Mortgage loans with high loan-to-value ratios, particularly those in excess of 100%, may be more likely to experience default and foreclosure than mortgage loans with low original loan-to-value ratios.

            Moreover, mortgage loans with high original loan-to-value ratios are more likely to be subject to a judicial reduction of the loan amount in bankruptcy or other proceedings than mortgage loans with lower original loan-to-value ratios.  If a court relieves a borrower’s obligation to repay amounts otherwise due on a mortgage loan, none of the servicers or the master servicer will be required to advance funds in respect of relieved amounts, and any related loss may reduce the amount available to be paid to securityholders.  In such event, holders of subordinate classes of securities may suffer losses.
 
Default Risk on High Balance Mortgage Loans
 
If specified in the related prospectus supplement, a certain percentage of the mortgage loans included in the issuing entity may have a principal balance as of the cut-off date in excess of $1,000,000.  You should consider the risk that the loss and delinquency experience on these high balance loans may have a disproportionate effect on the issuing entity as a whole.
 
Geographic Concentration of Mortgage Loans
 
The mortgage loans to be included in the issuing entity may be concentrated in one or more states, as specified in the related prospectus supplement.  The rate of delinquencies, defaults and losses on the mortgage loans may be higher than if fewer of the mortgage loans were concentrated in those states because the following conditions will have a disproportionate impact on the mortgage loans in general:
 

 
6

 
 
·
weak economic conditions in these locations or any other location (which may or may not affect real property values), may affect the ability of borrowers to repay their mortgage loans on time, particularly in the case of  “option ARMs”, interest-only loans and loans that provide for negative amortization;
 
·
properties in certain jurisdictions may be more susceptible than homes located in other parts of the country to certain types of uninsurable hazards, such as earthquakes, as well as floods, hurricanes, wildfires, mudslides and other natural disasters;
 
·
declines in the residential real estate market of a particular jurisdiction may reduce the values of properties located in that jurisdiction, which would result in an increase in the loan-to-value ratios or combined loan-to-value ratios, as the case may be, particularly in the case of “option ARMs”, interest-only loans and loans that provide for negative amortization; and
 
·
any increase in the market value of properties located in a particular jurisdiction would reduce the loan-to-value ratios or combined loan-to-value ratios, as the case may be, of the mortgage loans and could, therefore, make alternative sources of financing available to the borrowers at lower interest rates, which could result in an increased rate of prepayment of the mortgage loans.
 
Natural disasters, such as wildfires, severe storms and flooding affecting regions of the United States from time to time may result in prepayments of mortgage loans.
 
For additional information regarding the geographic concentration of the mortgage loans to be included in the issuing entity, see the geographic distribution table or tables in the related prospectus supplement.
 
Aspects of the Mortgage Loan Origination Process May Result in Higher Expected Delinquencies
 
Various factors in the process of originating the mortgage loans assigned or pledged to the trust may have the effect of increasing delinquencies and defaults on the mortgage loans.  These factors may include any or all of the following:
 
Appraisal Quality.  During the mortgage loan underwriting process, appraisals are generally obtained on each prospective mortgaged property.  The quality of these appraisals may vary widely in accuracy and consistency.  In some cases, the appraiser may feel pressure from the lender to provide an appraisal in the amount necessary to enable the originator to make the loan, whether or not the value of the property justifies such an appraised value.  In addition, in some cases, the lender may not require a full appraisal for the prospective mortgaged property or it may use an automated valuation model, which is a computer generated appraisal report created using formulas based on various factors, including sales trends, title records, neighborhood analysis, tax assessments and other available information regarding the prospective mortgaged property.  Inaccurate or inflated appraisals may result in an increase in the number and severity of losses on the mortgage loans.

Underwriting Guideline Exceptions. Although mortgage originators generally underwrite mortgage loans in accordance with their pre-determined loan underwriting guidelines, from time to time and in the ordinary course of business, originators will make exceptions to these guidelines.  Loans originated with exceptions may result in a higher number of delinquencies and loss severities than loans originated in strict compliance with the designated underwriting guidelines.
 
Non-owner Occupied Properties. Mortgage loans secured by properties acquired by investors for the purposes of rental income or capital appreciation, or properties acquired as second homes, tend to have higher frequency of default and/or higher loss severities than properties that are regularly occupied by the related borrowers.  In a default, real property investors who do not reside in the mortgaged property may be more likely to abandon the related mortgaged property, increasing the severity of the default.
 

 
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Fraud.  Fraud committed in the origination process may increase delinquencies and defaults on the mortgage loans.  For example, a borrower may present fraudulent documentation to a lender during the mortgage loan underwriting process, which may enable the borrower to obtain a mortgage loan in an amount or with terms for which the borrower would not otherwise qualify.  In addition, increasingly frequent incidences of identity theft involving borrowers, particularly in the case of mortgage loans originated under streamlined origination programs, may result in an increased number of fraudulent mortgage loans that are not secured by a mortgaged property.  You should consider the potential effect of fraud by borrowers and other third parties on the yield on your securities.
 
Self-employed Borrowers.  Self-employed borrowers may be more likely to default on their mortgage loans than salaried or commissioned borrowers and generally have less predictable income.  In addition, many self-employed borrowers are small business owners who may be personally liable for their business debt.  Consequently, you should consider that a higher number of self-employed borrowers may result in increased defaults on the mortgage loans in the issuing entity.
 
First-time Borrowers.  First-time homebuyers are often younger, have shorter credit histories, are more highly leveraged and have less experience with undertaking mortgage debt and maintaining a residential property than other borrowers.  The presence of loans to first time buyers in the mortgage pool may increase the number of defaults on the mortgage loans.
 
Although the aspects of the mortgage loan origination process described above may be indicative of the performance of the mortgage loans, information regarding these factors may not be available for the mortgage loans held by the issuing entity, unless specified in the prospectus supplement.
 
See “Loan Program — Underwriting Standards” in this prospectus and see the prospectus supplement for a description of the characteristics of the related mortgage loans and for a general description of the underwriting guidelines applied in originating the related mortgage loans.
 
Our Due Diligence of the Mortgage Loans Supporting Your Securities May Not Reveal Aspects of Such Mortgage Loans Which Could Lead to Losses
 
We undertake due diligence efforts with respect to various aspects of the mortgage loans that support your securities, including investigating the strengths and weaknesses of the originator and servicer of the loans and verifying certain aspects of the underlying loans themselves as well as other factors and characteristics that may be material to the performance of the loans.  In making the assessment and otherwise conducting due diligence, we rely on resources available to us and, in some cases, investigation by third parties.  There can be no assurance that any due diligence process that we conduct will uncover relevant facts that could be determinative of how the mortgage loans will perform.  Moreover, our ability to mitigate losses on mortgage loans transferred to an issuing entity is significantly limited by contractual and other constraints of the securitization structure in which such loans are held, including REMIC rules.

Early or Multiple Payment Defaults May Be Indicative of Higher Rates of Delinquencies and Losses in the Future
 
As specified in the related prospectus supplement, a certain number of mortgage loans included in the issuing entity may be delinquent as of the applicable cut-off date or may have been delinquent in payment in the last twelve months on one or more due dates.
 
Prior delinquencies and, in particular, first or early payment defaults, may be an indication of underwriting errors in assessing the financial means and/or credit history of the borrower or of an adverse change in the financial status of the borrower.  These mortgage loans are likely to experience rates of delinquency, foreclosure and bankruptcy that are higher, and that may be substantially higher, than those experienced by mortgage loans whose borrowers have more favorable payment histories
 
 
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Mortgage Loan Interest Rates May Limit Interest Rates on the Variable Rate Securities
 
The securities generally will have either fixed or variable interest rates.  However, as specified in the related prospectus supplement, the interest rates on your securities may be subject to certain limitations, generally based on the weighted average interest rates of the mortgage loans in the issuing entity or as otherwise described in the related prospectus supplement, net of certain allocable fees and expenses of the issuing entity and any payments owed on derivative instruments.  The mortgage loans to be included in the issuing entity will have interest rates that either are fixed or adjust based on a variable index, as described in the related prospectus supplement.
 
Any adjustable rate mortgage loans in the issuing entity may also have periodic maximum and minimum limitations on adjustments to their interest rates, and may have the first adjustment to their interest rates a number of years after their first payment dates.  In addition, adjustable rate mortgage loans generally have lifetime maximum interest rates.  As a result, your variable rate securities may accrue less interest than they would accrue if their interest rates were solely based on the specified index plus the specified margin.
 
A variety of factors could limit the interest rates and adversely affect the yields to maturity on the variable rate securities.  Some of these factors are described below.
 
The interest rates for your securities may adjust monthly based on the one-month LIBOR index or another index, while the interest rates on the mortgage loans to be included in the issuing entity may either adjust less frequently, adjust based on a different index or not adjust at all.  Consequently, the limits on the interest rates on these securities may prevent increases in the interest rates for extended periods in a rising interest rate environment.
 
The interest rates on adjustable rate mortgage loans may respond to economic and market factors that differ from those that affect the one-month LIBOR index or the index applicable to your variable rate securities.  It is possible that the interest rates on any adjustable rate mortgage loans may decline while the interest rates on the related securities are stable or rising.  It is also possible that the interest rates on any adjustable rate mortgage loans and the interest rates on the related securities may both decline or increase during the same period, but that the interest rates on your securities may decline or may increase more slowly or rapidly.
 
To the extent that fixed rate or adjustable rate mortgage loans are subject to default or prepayment, the interest rates on the related securities may be reduced as a result of the net funds cap limitations described in the related prospectus supplement.
 
See “Yield and Prepayment Considerations” in this prospectus and see the prospectus supplement for a description of the interest rates applicable to your securities and for a general description of the interest rates of the related mortgage loans.
 
Potential Inadequacy of Credit Enhancement
 
If specified in the related prospectus supplement, the features of subordination and loss allocation, excess interest, overcollateralization and limited cross-collateralization, together with any primary mortgage insurance and financial guaranty insurance policies, are intended to enhance the likelihood that holders of more senior classes of securities will receive regular payments of interest and principal, but are limited in nature and may be insufficient to cover all losses on the related mortgage loans.

 
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Subordination and Allocation of Losses.  If the applicable subordination is insufficient to absorb losses, then securityholders will likely incur losses and may never receive all of their principal payments.  You should consider that:
 
·
if you buy a subordinate security and losses on the related mortgage loans exceed the total principal amount of any securities subordinate to your securities (if any), plus, if applicable to the issuing entity and as specified in the related prospectus supplement, any excess interest and any overcollateralization that has been created, the principal amount of your securities will be reduced proportionately with the principal amounts of the other securities of your class by the amount of that excess; and
 
·
if specified in the related prospectus supplement, after the total principal amount of the subordinate securities has been reduced to zero, losses on the mortgage loans may reduce the principal amounts (or notional amounts) of the senior securities.
 
Losses on the related mortgage loans will reduce the loss protection provided by the subordinate securities to the senior securities and will increase the likelihood that the senior securities will not receive all of their expected principal payments.
 
If the securities have the benefit of overcollateralization and excess interest, and if overcollateralization is maintained at the required amount and the related mortgage loans generate interest in excess of the amount needed to pay interest and principal on your securities, the fees and expenses of the issuing entity and any payments owed to a derivatives counterparty, then excess interest may be used to pay you and the other securityholders of the related securities the amount of any reduction in the aggregate principal balance of the mortgage loans caused by application of losses.  These payments will generally be made in order of seniority.  We cannot assure you, however, that any excess interest will be generated and, in any event, unless otherwise specified in the related prospectus supplement, no interest will be paid to you on the amount by which the principal amount of your securities was reduced because of the application of losses.
 
Overcollateralization. If the securities have the benefit of excess interest and overcollateralization, as specified in the related prospectus supplement, then in order to create and maintain overcollateralization, it will be necessary that the mortgage loans generate more interest than is needed to pay interest on the related securities, as well as any fees and expenses of the issuing entity and any payments owed to a derivative counterparty.  If the securities have the benefit of excess interest and/or overcollateralization, we expect that the mortgage loans will generate more interest than is needed to pay those amounts, at least during certain periods, because the weighted average of the interest rates on the mortgage loans is expected to be higher than the weighted average of the interest rates on the related securities plus the weighted average aggregate expense rate.  Any remaining interest generated by the mortgage loans will be used to absorb losses on the mortgage loans and to maintain overcollateralization.  In addition, on the closing date, the total scheduled principal balance of the mortgage loans may exceed the total principal amount of the securities.  This excess is referred to as “overcollateralization“ and will be available to absorb losses.  We cannot assure you, however, that the mortgage loans will generate enough excess interest to maintain this overcollateralization level as set by the applicable rating agencies.  In addition, there may be no amounts available from any interest rate derivative agreement described in the related prospectus supplement to cover shortfalls.  The following factors will affect the amount of excess interest that the related mortgage loans will generate:
 
Every time a mortgage loan is prepaid in whole or in part, total excess interest after the date of prepayment will be reduced because that mortgage loan will no longer be outstanding and generating interest or, in the case of a partial prepayment, will be generating less interest.  The effect of this reduction on your securities will be influenced by the amount of prepaid loans and the characteristics of the prepaid loans.  Prepayment of a disproportionately high number of high interest rate mortgage loans would have a greater negative effect on future excess interest.
 
If the rates of delinquencies, defaults or losses on the mortgage loans turn out to be higher than expected, excess interest available for overcollateralization or to absorb losses will be reduced.  Every time a mortgage loan is liquidated or charged off, excess interest will be reduced because that mortgage loan will no longer be outstanding and generating interest.
 

 
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Limited Cross-Support.  The issuing entity may contain two or more separate mortgage pools, as specified in the related prospectus supplement.  Principal payments on the senior securities will depend, for the most part, on collections on the mortgage loans in the related pool.  However, as specified in the related prospectus supplement, the senior securities may have the benefit of credit enhancement in the form of subordination from one or more of the other pools.  That means that even if the rate of losses on mortgage loans in the pool related to your class of senior securities is low, losses in an unrelated pool may reduce the loss protection for your securities.

Interest Rate Derivative Agreements.  If specified in the related prospectus supplement, any amounts received under any interest rate cap or swap agreement will generally be applied as described in the related prospectus supplement to pay interest shortfalls and, if applicable, to maintain overcollateralization and cover losses.  However, we cannot assure you that any amounts will be received under that interest rate derivative agreement, or that any such amounts that are received will be sufficient to maintain any required overcollateralization or to cover interest shortfalls and losses on the mortgage loans.
 
Primary Mortgage Insurance.  If specified in the related prospectus supplement, some of the first lien mortgage loans which have original loan-to-value ratios greater than 80% may be covered by existing borrower- or lender- paid primary mortgage insurance policies.  The existing borrower- or lender- paid primary mortgage insurance policies will generally have the effect of reducing the original loan-to-value ratios of those covered mortgage loans to the percentage or percentages specified in the related prospectus supplement.
 
In addition, if specified in the related prospectus supplement, one or more loan-level primary mortgage insurance policies may be acquired on behalf of the issuing entity from primary mortgage insurance providers, providing the initial insurance coverage specified in the related prospectus supplement for those first lien mortgage loans with original loan-to-value ratios greater than 80%.
 
These loan-level primary mortgage insurance policies will generally have the effect of reducing the original loan-to-value ratios of those covered mortgage loans to the percentage specified in the related prospectus supplement.
 
However, these policies will only cover first lien mortgage loans and will be subject to various other limitations and exclusions.  In addition, borrower-paid primary mortgage insurance may be subject to cancellation by the related borrower.  As a result, coverage may be rescinded or denied on some mortgage loans.  Primary mortgage insurance providers will generally curtail the insured payments on a foreclosed mortgage loan if the related servicer does not foreclose that mortgage loan within a limited time period determined by the insurance provider.  In addition, because the amount of coverage under these policies depends on the loan-to-value ratio of the related mortgaged property at the inception of these policies, a decline in the value of the related mortgaged property will not result in increased coverage, and the issuing entity may still suffer a loss on a covered mortgage loan.  Accordingly, these primary mortgage insurance policies will provide only limited protection against losses on the mortgage loans.
 
Effect of Creditworthiness of Primary Mortgage Insurers on Ratings of Securities
 
If the related prospectus supplement specifies that one or more loan-level primary mortgage insurance policies have been acquired on behalf of the issuing entity from one or more primary mortgage insurance providers, then the ratings assigned to your securities by the applicable rating agencies will be based in part on the financial strength ratings assigned to the insurer or insurers providing the primary mortgage insurance coverage described above.  However, these financial strength ratings assigned to the insurer or insurers could be qualified, reduced or withdrawn at any time.  In addition, you should consider that a credit rating does not assure you that the insurer or insurers will not default on their obligations.
 
Any qualification, reduction or withdrawal of the financial strength ratings assigned to the insurer or insurers could result in reduction of the ratings assigned to your securities, which could in turn affect the liquidity and market value of your securities.
 

 
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Risks Related to Any Interest Rate Swap Agreement
 
If the related prospectus supplement specifies that the issuing entity or related supplemental interest issuing entity includes one or more interest rate swap agreements, then any net swap payment payable to the swap counterparty under the terms of those interest rate swap agreements will reduce amounts available for payment to securityholders, and may reduce payments of interest on the securities.  If the rate of prepayments on the mortgage loans is faster than anticipated, the scheduled notional amounts on which payments due under the interest rate swap agreements are calculated may exceed the total principal balance of the mortgage loans, thereby increasing the relative proportion of interest collections on the mortgage loans that must be applied to make swap payments to the swap counterparty and, under certain circumstances, requiring application of principal received on the mortgage loans to make net swap payments to the swap counterparty.  Therefore, a rapid rate of prepayments during periods in which the issuing entity makes net payments to a swap counterparty could adversely affect the yields on the securities.

Effect of Creditworthiness of Swap Counterparty on Ratings of Securities
 
If the related prospectus supplement specifies that the issuing entity includes one or more interest rate swap agreements, in the event that the issuing entity, after application of all interest and principal received on the related mortgage loans, cannot make the required swap payments to the swap counterparty, a swap termination payment as described in the related prospectus supplement may be owed to the swap counterparty.  Any termination payment payable to the swap counterparty in the event of early termination of any interest rate swap agreement will likely reduce amounts available for payment to securityholders.
 
If the related prospectus supplement specifies that the issuing entity includes one or more interest rate swap agreements, the ratings on your securities will be dependent in part upon the credit ratings of the swap counterparty or its credit support provider.  If a credit rating of the swap counterparty or its credit support provider is qualified, reduced or withdrawn, or if the swap counterparty or its credit support provider defaults on its obligations, and a substitute counterparty or credit support provider is not obtained in accordance with the terms of the interest rate swap agreement, the ratings of your securities may be qualified, reduced or withdrawn.  In such event, the value and marketability of those securities will be adversely affected.
 
Special Risks for Certain Classes of Securities
 
The related prospectus supplement may specify that certain classes of securities are interest-only or principal-only securities.  These securities will have yields to maturity (or early termination) — the yield you will receive if you hold a security until it has been paid in full — that are highly sensitive to prepayments on the related mortgage loans.
 
If you purchase any of these classes of securities, you should consider the risk that you may receive a lower than expected yield under the following circumstances:
 
·
in the case of any interest-only securities, a faster than expected rate of prepayments on the mortgage loans in the issuing entity ; and
 
·
in the case of any principal-only securities, a slower than expected rate of prepayments on the mortgage loans in the issuing entity .
 
Prepayments on the mortgage loans, including liquidations, purchases and insurance payments, could result in the failure of investors in any interest-only securities to fully recover their initial investments.  Prepayments on the mortgage loans may occur as a result of solicitations of the borrowers by mortgage loan providers, including the seller and its affiliates and any master servicer or servicer.
 
 
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Exercise by a party that has a right to purchase the mortgage loans, as described in the related prospectus supplement, will adversely affect the yields on any interest-only securities.
 
You Will Be Subject to the Risks Associated With Potential Inadequate or Untimely Services From Third-Party Service Providers, Which May Adversely Impact Your Yield; You will Also Be Dependent on Corporate Trustees to Act on Your Behalf in Enforcing Your Rights
 
The mortgage loans underlying your securities will be serviced by third-party service providers.  Should a servicer experience financial difficulties, it may not be able to perform these obligations.  Servicers who have sought bankruptcy protection may, due to application of provisions of bankruptcy law, not be required to make advance payments to you of amounts due from loan obligors.  Even if a servicer were able to advance amounts in respect of delinquent loans, its obligation to make the advances may be limited to the extent that it does not expect to recover the advances due to the deteriorating credit or other  characteristics of delinquent loans.  In addition, as with any externally provided service, there are risks associated with potential inadequate or untimely services for other reasons.  Servicers may not advance funds that would ordinarily be due because of errors, miscalculations, or other reasons.  Many borrowers require notices and reminders to keep their loans current and to prevent delinquencies and foreclosures, which servicers may fail to provide.  In the current economic environment, many servicers are experiencing higher volumes of delinquent loans than they have in the past and, as a result, there is a risk that their operational infrastructures cannot properly process the increased volume.
 
            You will also be dependent on corporate trustees to act on behalf of you and other holders of securities in enforcing your rights.  Under the terms of most securities, you do not have the right to directly enforce remedies against the issuer of the security, but instead must rely on a trustee to act on behalf of you and other security holders.  Should a trustee not be required to take action under the terms of the securities, or fail to take action, you could experience losses.
 
Delay in Receipt of Liquidation Proceeds; Liquidation Proceeds May Be Less Than Mortgage Balance
 
Substantial delays could be encountered in connection with the liquidation of delinquent mortgage loans.  Further, reimbursement of advances made by a servicer and liquidation expenses such as legal fees, real estate taxes and maintenance and preservation expenses may reduce the portion of liquidation proceeds payable to securityholders.  If a mortgaged property fails to provide adequate security for the related mortgage loan, you could incur a loss on your investment if the applicable credit enhancement is insufficient to cover the loss.
 
There are Risks Relating to Alternatives to Foreclosure
 
Certain mortgage loans are or may become delinquent after the closing date.  A servicer may either foreclose on a delinquent mortgage loan or, under certain circumstances, work out an agreement with the related mortgagor, which may involve waiving or modifying any term of the mortgage loan or charging off a portion of the principal of the mortgage loan.  The servicer may also permit a “short sale” of the mortgaged property for less than the amount due on the mortgage loans or sell the mortgage loan for less than the amount due on the mortgage loan.  If a servicer extends the payment period or accepts a lesser amount than stated in the mortgage note in satisfaction of the mortgage note or charges off or sells the mortgage loan, your yield may be reduced.
 
Delinquencies Due to Servicing Transfers
 
Servicing of mortgage loans may be transferred in the future to other servicers in accordance with the provisions of the pooling and servicing agreement or sale and servicing agreement, as applicable, and the related servicing agreement as a result of, among other things, (1) the occurrence of unremedied events of default in servicer performance under a servicing agreement or (2) the exercise by the seller of its right to terminate a servicer without cause.
 

 
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All transfers of servicing involve some risk of disruption in collections due to data input errors, misapplied or misdirected payments, inadequate borrower notification, system incompatibilities and other reasons.  As a result, the affected mortgage loans may experience increased delinquencies and defaults, at least for a period of time, until all of the borrowers are informed of the transfer and the related servicing mortgage files and records and all the other relevant data has been obtained by the new servicer.  There can be no assurance as to the extent or duration of any disruptions associated with the transfer of servicing or as to the resulting effects on the yields on the securities.
 
Military Action and Terrorist Attacks
 
The effects that military action by U.S. forces in Iraq, Afghanistan or other regions, terrorist attacks in the United States or other incidents and related military action may have on the performance of the mortgage loans in the issuing entity or on the values of mortgaged properties cannot be determined at this time.  Investors should consider the possible effects on delinquency, default and prepayment experience of the related mortgage loans.  Federal agencies and non-government lenders may defer, reduce or forgive payments and delay foreclosure proceedings in respect of loans to borrowers affected in some way by possible future events.  In addition, the activation of additional U.S. military reservists or members of the National Guard may significantly increase the proportion of mortgage loans whose mortgage rates are reduced by application of the Servicemembers Civil Relief Act, as amended, or similar state or local laws.  The amount of interest available for payment to securityholders will be reduced by any reductions in the amount of interest collectible as a result of application of the Servicemembers Civil Relief Act, as amended, or similar state or local laws and no servicer, master servicer nor any other party will be required to fund any interest shortfall caused by any such reduction.
 
Unpredictability and Effect of Prepayments
 
The rate of prepayments on the mortgage loans will be sensitive to prevailing interest rates.  Generally, if prevailing interest rates decline, mortgage loan prepayments may increase due to the availability of refinancing at lower interest rates.  If prevailing interest rates rise, prepayments on the mortgage loans may decrease.
 
Borrowers may prepay their mortgage loans in whole or in part at any time; however, some or all of the mortgage loans to be included in the issuing entity may require the payment of a prepayment premium in connection with any voluntary prepayments in full, and certain voluntary prepayments in part, made during periods ranging from the periods specified in the related prospectus supplement.  These prepayment premiums may discourage borrowers from prepaying their mortgage loans during the applicable period.
 
Prepayments on the mortgage loans may occur as a result of solicitations of the borrowers by mortgage loan originators, including the seller and its affiliates, the servicer or servicers, as applicable, and any master servicer.  In addition, the availability of newer mortgage products with more flexible payment terms or that require lower monthly payments, such as “option ARMs,” may result in an increase in the number of borrowers who prepay their mortgage loans to take advantage of new products.
 
The timing of prepayments of principal may also be affected by liquidations of or insurance payments on the mortgage loans.  In addition, the sponsor, as the seller of the mortgage loans to the depositor, or such other seller as specified in the related prospectus supplement, may be required to purchase mortgage loans from the issuing entity in the event that certain breaches of representations and warranties made with respect to the mortgage loans are not cured.  These purchases will have the same effect on securityholders as prepayments of mortgage loans.
 
 
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A prepayment of a mortgage loan will usually result in a payment of principal on the securities:
 
·
If you purchase securities at a discount, especially any principal-only securities, and principal prepayments on the related mortgage loans are received at a rate slower than you anticipate, then your yield may be lower than you anticipate.
 
·
If you purchase securities at a premium, especially any interest-only securities, and principal prepayments on the related mortgage loans are received at a rate faster than you anticipate, then your yield may be lower than you anticipate.
 
The prepayment experience of the mortgage loans to be included in the issuing entity may differ significantly from that of other first and second lien residential mortgage loans.
 
See “Yield and Prepayment Considerations” in this prospectus and see the prospectus supplement for a description of factors that may influence the rate and timing of prepayments on the mortgage loans.
 
Violation of Various Federal, State and Local Laws May Result in Losses on the Mortgage Loans
 
Applicable state laws generally regulate interest rates and other charges, require certain disclosure, and require licensing of lenders.  In addition, other state laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing and collection of mortgage loans.
 
Mortgage loans are also subject to various federal laws, including:
 
·
the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to borrowers regarding the terms of their mortgage loans;
 
·
the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit; and

·
the Fair Credit Reporting Act, which regulates the use and reporting of information related to the borrower’s credit experience.
 
Violations of certain provisions of these federal laws may limit the ability of the servicers to collect all or part of the principal of or interest on the related mortgage loans and in addition could subject the issuing entity to damages and administrative enforcement.
 
The related seller of the mortgage loans will represent in the mortgage loan sale agreement described in the related prospectus supplement that each mortgage loan was originated in compliance with applicable federal, state and local laws and regulations.  In the event of a breach of this representation, that seller will be obligated to cure the breach or repurchase or replace the affected mortgage loan in the manner described in the related prospectus supplement and under “LOAN PROGRAM—Representations by Sellers; Repurchases” in this prospectus.
 
Predatory Lending Laws/High Cost Loans
 
Various federal, state and local laws have been enacted that are designed to discourage predatory lending practices.  The federal Home Ownership and Equity Protection Act of 1994, commonly known as HOEPA, prohibits inclusion of certain provisions in mortgage loans that have mortgage rates or origination costs in excess of prescribed levels, and requires that borrowers be given certain disclosures prior to the origination of mortgage loans.  Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than those in HOEPA.
 
In addition, under the anti-predatory lending laws of some states, the origination of certain mortgage loans (including loans that are not classified as “high cost” loans under applicable law) must

 
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satisfy a net tangible benefits test with respect to the related borrower.  This test may be highly subjective and open to interpretation.  As a result, a court may determine that a mortgage loan does not meet the test even if the related originator reasonably believed that the test was satisfied.
 
Failure to comply with these laws, to the extent applicable to any of the mortgage loans, could subject the issuing entity , as an assignee of the related mortgage loans, to monetary penalties and could result in the borrowers rescinding the affected mortgage loans.  Lawsuits have been brought in various states making claims against assignees of high cost loans for violations of state law.  Named defendants in these cases have included numerous participants within the secondary mortgage market, including some securitization trusts.
 
The seller will represent that the issuing entity does not include any mortgage loans that are subject to HOEPA or that would be classified as “high cost” loans under any similar state or local predatory or abusive lending law.  There may be mortgage loans in the issuing entity that are subject to the state or local requirement that the loan provide a net tangible benefit (however denominated) to the borrower; the seller or other party identified in the prospectus supplement will represent that these mortgage loans are in compliance with applicable requirements.  If it is determined that the issuing entity includes loans subject to HOEPA or otherwise classified as high cost loans, or which do not comply with applicable net tangible benefit requirements, the seller or other party will be required to repurchase the affected loans and to pay any liabilities incurred by the issuing entity due to any violations of these laws.  If the loans are found to have been originated in violation of predatory or abusive lending laws and the seller does not repurchase the affected loans and pay any related liabilities, securityholders could incur losses.
 
Bankruptcy or Insolvency Proceedings Could Delay or Reduce Payments on the Securities
 
Each transfer of a mortgage loan to the sponsor (or to such other seller specified in the related prospectus supplement), from the seller to the depositor and, in connection with the issuance of any asset-backed securities, from the depositor to the issuing entity , will be intended to be an absolute and unconditional sale of that mortgage loan and will be reflected as such in the applicable documents.  However, in the event of the bankruptcy or insolvency of a prior owner of a mortgage loan, a trustee in bankruptcy or a receiver or creditor of the insolvent party could attempt to recharacterize the sale of that mortgage loan by the insolvent party as a borrowing secured by a pledge of the mortgage loan.  Such an attempt, even if unsuccessful, could result in delays in payments on the securities.  If such an attempt were successful, it is possible that the affected mortgage loans could be sold in order to liquidate the assets of the insolvent entity.  In the case of the bankruptcy or insolvency of the applicable seller, there can be no assurance that the proceeds of such a liquidation would be sufficient to repay the securities in full.

Risks Related to Amounts in Pre-Funding Account(s) Being Applied to Pay Principal on the Securities
 
Amounts remaining in any pre-funding account at the end of the related funding period will be distributed as prepayment of principal to investors on the distribution date immediately following the end of the funding period in the manner specified in the related prospectus supplement.  Any such payment will reduce the weighted average life of the securities and may adversely affect the yield of the securities.  Securityholders will bear any reinvestment risk resulting from such prepayment, such risk being the inability to invest such early payment at a yield that is at least equal to the yield on the securities.
 
The Addition of Subsequent Mortgage Collateral to the Pre-Funding Account(s) During the Funding Period May Adversely Affect the Performance of the Securities
 
Although subsequent mortgage collateral must satisfy the characteristics described in the related prospectus supplement, subsequent mortgage collateral may have different characteristics, including, without limitation, a more recent origination date than the initial mortgage collateral.  As a result, the addition of subsequent mortgage collateral to the pre-funding account may adversely affect the performance of the related securities.
 

 
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Risks Related to Owning Book-Entry Securities
 
Limited Liquidity of Securities. Issuance of the securities in book-entry form may reduce their liquidity in the secondary trading market because investors may be unwilling to purchase securities for which they cannot obtain physical certificates.
 
Limited Ability to Transfer or Pledge Securities. Since transactions in the book-entry securities can be effected only through the Depository Trust Company (“DTC”), participating organizations, indirect participants and certain banks, your ability to transfer or pledge a book-entry security to persons or entities that do not participate in the DTC system or otherwise to take actions in respect of such securities, may be limited due to lack of a physical certificate.
 
Delays in Distributions.  You may experience some delay in the receipt of distributions on book-entry securities because the distributions will be forwarded by the trustee to DTC for DTC to credit the accounts of its participants which will thereafter credit them to your account either directly or indirectly through indirect participants, as applicable.
 
Limited Ability to Resell Securities
 
The underwriter will not be required to assist in resales of the securities, although it may do so.  A secondary market for any class of securities may not develop.  If a secondary market does develop, it might not continue or it might not be sufficiently liquid to allow you to resell any of your securities.
 
The Securities May Not Be Suitable Investments
 
The securities may not be a suitable investment if you require a regular or predictable schedule of payment, or payment on any specific date.  Because the mortgage loans in the issuing entity may include a substantial proportion of loans whose future performance is difficult to predict, such as adjustable rate mortgage loans interest-only loans, and for the other factors relating to the mortgage loans discussed above, the yields and the aggregate amount and timing of distributions on your securities may be subject to substantial variability from period to period and over the lives of the securities.  An investment in these types of securities involves significant risks and uncertainties and should only be considered by sophisticated investors who, either alone or with their financial, tax and legal advisors, have carefully analyzed the mortgage loans and the securities and understand the risks.  In addition, investors should not purchase classes of securities that are susceptible to special risks, such as subordinate securities, interest-only securities and principal-only securities, unless the investors have the financial ability to absorb a substantial loss on their investment.
 
Owners of Original Issue Discount Securities Should Consider Federal Income Tax Consequences
 
An investor owning a security issued with original issue discount will be required to include original issue discount in ordinary gross income for federal income tax purposes as it accrues, in advance of receipt of the cash attributable to such income.  Accrued but unpaid interest on accrual securities will be treated as original issue discount for this federal income tax purpose.  (See “MATERIAL FEDERAL INCOME TAX CONSEQUENCES—Taxation of Debt Securities Generally—Original Issue Discount.”)
 
THE SPONSOR
 
RWT Holdings, Inc. (“RWT Holdings“ or the “Sponsor“) is a Delaware corporation and wholly-owned subsidiary of Redwood Trust, Inc. and is headquartered in Mill Valley, California.  RWT Holdings has acquired residential mortgage loans, directly or indirectly, from the originators since it was organized in February 1998.  RWT Holdings has been a sponsor in the securitization market since 2002.  As a sponsor, RWT Holdings acquires residential mortgage loans in the secondary mortgage market and initiates the securitization of the loans it acquires by transferring the mortgage loans to the depositor, which loans will ultimately be transferred to the issuing entity for the related securitization.
 
 
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As of December 31, 2009, RWT Holdings has sponsored the securitization of approximately $25.8 billion of residential mortgage loans ($4,077,538,500 in 2002, $6,198,200,700 in 2003, $10,199,107,364 in 2004, $1,440,123,400 in 2005, $1,035,362,200 in 2006 and $2,833,909,600 in 2007).  RWT Holdings buys residential mortgage loans under several loan purchase agreements from mortgage loan originators or sellers nationwide that meet its seller/servicer eligibility requirements.  See “LOAN PROGRAM—Qualifications of Sellers” in this prospectus for a general description of the characteristics used to determine eligibility of collateral sellers.  Prior to acquiring the mortgage loans, RWT Holdings conducts a review of the related mortgage loan seller and of the mortgage loans.  RWT Holdings has developed a quality control program to monitor the quality of loan underwriting at the time of acquisition and on an ongoing basis.  All loans purchased will be subject to this quality control program.  RWT Holdings in certain cases submits a sample of mortgage loans to a third party nationally recognized underwriting review for a compliance check of underwriting and review of income, asset and appraisal information.
 
RWT Holdings acquires mortgage loans secured by first and second liens on one- to four-family residential properties.  As a sponsor, RWT Holdings acquires mortgage loans and initiates their securitization by transferring the mortgage loans to the depositor, which loans will ultimately be transferred to the issuing entity for the related securitization.  On the closing date for each series of securities, RWT Holdings, as seller, will sell all of its interest in the related mortgage loans to the depositor.  RWT Holdings works in coordination with the underwriters and rating agencies in structuring each securitization transaction.  RWT Holdings does not currently service mortgage loans but rather contracts with third-party servicers for servicing the mortgage loans that it acquires.  Third-party servicers are assessed based upon the servicing rating and credit quality of the servicing institution, as well as for their systems and reporting capabilities, review of collection procedures and confirmation of servicers’ ability to provide detailed reporting on the performance of the securitization pool.
 
THE DEPOSITORS
 
The prospectus supplement will identify whether the depositor is Sequoia Mortgage Funding Corporation or Sequoia Residential Funding, Inc. Sequoia Mortgage Funding Corporation is a Delaware corporation organized on January 31, 1997 and Sequoia Residential Funding, Inc., is a Delaware corporation organized on September 1, 1999, in each case for the limited purpose of acquiring, owning and transferring trust assets and selling interests therein or bonds secured thereby.  Sequoia Mortgage Funding Corporation is a qualified REIT subsidiary of Redwood Trust, Inc.  Sequoia Residential Funding, Inc. is a subsidiary of RWT Holdings, Inc.  RWT Holdings, Inc. is a taxable REIT subsidiary of Redwood Trust, Inc.  Redwood Trust, Inc. is a publicly owned real estate investment trust and is listed on the New York Stock Exchange under the symbol “RWT.” Each depositor maintains its principal office at One Belvedere Place, Mill Valley, California 94941.  The telephone number is (415) 389-7373.
 
Each depositor is generally engaged in the business of serving as depositor of one or more trusts that may authorize, issue, sell and deliver bonds or other evidences of indebtedness or certificates of interest that are secured by a pledge or other assignment of, or represent an interest in, mortgage loans.  Each depositor is also generally engaged in the business of acquiring, owning, holding, transferring, assigning, pledging and otherwise dealing with mortgage loans.  Each depositor generally acquires mortgage loans from the sponsor, or if specified in the prospectus supplement, from another seller of mortgage loans, in each case in privately negotiated transactions.
 
The certificate of incorporation of each depositor provides that the depositor may not conduct any activities other than those related to the issue and sale of one or more series and to serve as depositor of one or more trusts that may issue and sell bonds or securities.  After the issuance of the securities, the related depositor may be required (to the extent specified in the related agreements) to perform certain actions on a continual basis, including but not limited to:
 
·
upon the discovery of the breach of any representation or warranty made by the seller or other party named in the prospectus supplement in respect of a mortgage loan that
 
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materially and adversely affects the value of that mortgage loan, to cause the seller or such other party to repurchase the mortgage loan from the trustee, or deliver a substitute mortgage loan as described herein;
 
·
to make all initial filings establishing or creating a security interest over the mortgage loans and make all filings necessary to maintain the effectiveness of any original filings necessary under the relevant UCC to perfect the trustee’s security interest in or lien on the mortgage loans;
 
·
to arrange for replacement interest rate cap contracts, interest rate swap agreements and yield supplement agreements in the event the applicable derivative instrument is terminated early;
 
·
to appoint a successor trustee or securities administrator, as applicable, in the event either the trustee or the securities administrator resigns, is removed or become ineligible to continue servicing in such capacity under the related agreement;
 
·
to prepare and file, or cause the preparation and filing of, any reports required under the Exchange Act;
 
·
to notify the rating agencies and any other relevant parties of the occurrence of any event of default or other event specified in the related agreements;
 
·
to exercise any approval or consent rights retained under the servicing agreements; and
 
·
to provide the trustee, the securities administrator and the master servicer with any information it may reasonably require to comply with the terms of the agreements.
 
THE ISSUING ENTITIES AND THE ISSUING ENTITY ASSETS
 
General
 
Either Sequoia Mortgage Funding Corporation or Sequoia Residential Funding, Inc., the depositor, will establish a trust as the issuing entity for each series of asset-backed securities and convey to the related trustee certain assets, as specified in the prospectus supplement.  Each issuing entity will be created as of the first day of the month in which the securities are issued or another date which will be specified in the prospectus supplement (the “cut-off date”).  All references in this prospectus to “pool,” “certificates,” “notes,” “bonds,” “securities,” “depositor” or “securityholders” should be deemed to apply to one specific series, issuing entity and prospectus supplement, unless otherwise noted.
 
The certificates of a series (“certificates”) will represent interests in the assets of the issuing entity related to that series and the notes or bonds of a series (“notes” or “bonds”) will be secured by the pledge of the issuing entity assets related to that series.  The issuing entity assets for each series will be held by the trustee for the benefit of the related securityholders.  The securities will be entitled to payment from the assets of the issuing entity or other assets pledged for the benefit of the securityholders, as specified in the prospectus supplement, and will not be entitled to payments in respect of the assets of any other issuing entity established by the depositor.
 
The issuing entity assets will be acquired by the depositor, either directly or through affiliates, from one or more sellers which may be affiliates of the depositor, and conveyed without recourse (except as herein described) by the depositor to the issuing entity .  Each seller will have originated or acquired the loans as described in the prospectus supplement.  Loans acquired by the depositor will have been originated in accordance with the underwriting criteria described under “LOAN PROGRAM—Underwriting Standards” or as otherwise described in the prospectus supplement.
 

 
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The depositor will cause the issuing entity assets to be assigned or pledged to the trustee named in the prospectus supplement for the benefit of the holders of the securities (“certificateholders,” “noteholders,” or “bondholders,” as the case may be).  For a fee, one or more servicers named in the prospectus supplement will service the issuing entity assets, either directly or through other servicing institutions, or subservicers, pursuant to servicing agreements assigned to the trustee.  With respect to loans serviced by a servicer through a subservicer, such servicer will remain liable for its servicing obligations under the related agreement as if the servicer were servicing such loans. To the extent described in the prospectus supplement, a master servicer may be named to monitor the servicers.

            With respect to each issuing entity, prior to the initial offering of the securities, the issuing entity will have no assets or liabilities.  No issuing entity is expected to engage in any activities other than acquiring, managing and holding the trust assets and other assets specified in the prospectus supplement and the proceeds thereof, issuing securities and making payments and distributions thereon and certain related activities.  No issuing entity is expected to have any source of capital other than its assets and any related credit enhancement.
 
If specified in the applicable prospectus supplement, the issuing entity for a series will be a special purpose statutory trust organized under the laws of the State of Delaware or such other state as is specified.
 
The property of the issuing entity for each series of securities will generally consist of (including any combination of):
 
·
mortgage loans secured by properties of the types described in this prospectus;
 
·
agency and/or private mortgage-backed securities of the types described in this prospectus;
 
·
amounts held from time to time in the collection account, distribution account or other account established for a series of securities;
 
·
mortgaged properties that secured a mortgage loan and that are acquired on behalf of the securityholders by foreclosure, deed in lieu of foreclosure or repossession;
 
·
any reserve fund established pursuant to the agreements for a series of securities, if specified in the prospectus supplement.
 
·
any security insurance policy, pool insurance policy, special hazard insurance policy, bankruptcy bond, interest rate cap agreement, interest rate swap agreement, currency swap agreement or other form of credit enhancement described in this prospectus and specified in the prospectus supplement;
 
·
any servicing agreements relating to mortgage loans in the issuing entity, to the extent that these agreements are assigned to the trustee;
 
·
any primary mortgage insurance policies or limited purpose surety bonds relating to mortgage loans in the issuing entity; and
 
·
investments held in any fund or account or any guaranteed investment contract and income from the reinvestment of these funds, if specified in the prospectus supplement.
 
The prospectus supplement may specify that a certain amount or percentage of a mortgage loan will not be sold by the depositor or by the seller of the mortgage loan, but will be retained by that party (the “retained interest).
 

 
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Therefore, amounts received with respect to retained interest in a mortgage loan included in the issuing entity for a series will not be included in the issuing entity but will be payable to the seller of the respective asset, or to the master servicer if any), servicer, depositor or another party, free and clear of the interest of securityholders under the agreements.
 
If so specified in the applicable prospectus supplement, the depositor, an affiliate of the depositor or an unaffiliated loan seller will have the right or obligation to purchase, or to substitute a replacement mortgage loan that satisfies the substitution criteria specified in the related prospectus supplement for, mortgage loans due to breaches of representations and warranties, defaults or such other reason as is specified in the prospectus supplement.  If so specified in the applicable prospectus supplement, the depositor, an affiliate of the depositor, as servicer or the master servicer will have the right to purchase a specified amount or percentage of the mortgage loans, or specified mortgage loans, under the circumstances described in the prospectus supplement.

The Loans
 
General.  The loans included in an issuing entity will be mortgage loans secured by one-to-four-family residential properties.  The loans may be either first or junior lien loans and may be either closed-end loans or revolving credit line loans.  As described in the prospectus supplement, the loans may be underwritten to “A” quality standards or to standards below “A” quality (e.g., Alt-A, A minus or subprime).
 
The loans will have monthly payments due on the first day of each month or on such other day of the month specified in the prospectus supplement.  The payment terms of the loans to be included in an issuing entity will be described in the prospectus supplement and may include any of the following features (or combination thereof):
 
·
Interest may be payable at a fixed rate, a rate adjustable from time to time in relation to an index, 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, a rate that is convertible from an adjustable rate to a fixed rate, or a rate that is convertible from one index to another, in each case as specified in the prospectus supplement.  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 prospectus supplement.
 
·
Principal may be payable on a level debt service basis to fully amortize the loan over its term, may be calculated on the basis of an assumed amortization schedule that is significantly longer than the original term to maturity or on an interest rate that is different from the loan rate or may not be amortized during all or a portion of the original term.  Certain loans may provide for monthly payments of interest but no payments of principal for either the first five or ten years or any other period specified after origination.  Certain loans may require payment of all or a substantial portion of the principal upon maturity, commonly referred to as a “balloon payment.”  Principal may include interest that has been deferred and added to the principal balance of the loan.
 
·
Monthly payments of principal and interest may be fixed for the life of the loan, may increase over a specified period of time or may change from period to period.
 
·
Loans may include limits on periodic increases or decreases in the amount of monthly payments and may include maximum or minimum amounts of monthly payments.
 
·
Prepayments of principal may be subject to a prepayment fee, which may be fixed for the life of the loan or may change over time.  Certain loans may permit prepayments after expiration of certain periods, commonly referred to as “lockout periods.”  Other loans may permit prepayments without payment of a fee unless the prepayment occurs during specified time periods.  The loans may include “due on sale“ clauses which permit the mortgagee to demand
 
 
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payment of the entire loan in connection with the sale or certain transfers of the related property.  Other loans may be assumable by persons meeting the then applicable standards set forth in the underlying loan documents.
 
Types of adjustable rate mortgage loans with the above features that may be included in an issuing entity include the following:
 
·
“standard adjustable rate mortgage loans whose interest rate adjusts on the basis of a variable index plus a margin, with the initial adjustment typically occurring one year or less after origination of the related mortgage loan and adjustments occurring periodically thereafter;
 
·
“hybrid mortgage loans, whose interest rate is fixed for the initial period specified in the related mortgage note (typically for a period of a year or more after origination), and thereafter adjusts periodically based on the related index;
 
·
“interest-only mortgage loans, which provide for payment of interest at the related mortgage interest rate, but no payment of principal, for the period specified in the related mortgage note; thereafter, the monthly payment is increased to an amount sufficient to amortize the principal balance of the mortgage loan over the remaining term and to pay interest at the applicable interest rate borne by such mortgage loan;
 
·
“negative amortization” mortgage loans, which may have a low introductory interest rate, and thereafter have a mortgage interest rate which adjusts periodically based on the related Index; however, the borrower is only required to make a minimum or specified monthly payment which may not be sufficient to pay the monthly interest accrued, resulting in an increase to the principal balance of the mortgage loan by the amount of unpaid interest; and
 
·
“option ARMs,” which combine several of the features described above and permit the borrower to elect whether to make a monthly payment sufficient to pay accrued interest and amortize the principal balance, make an interest-only payment or make a minimum payment that may be insufficient to pay accrued interest (with the unpaid interest added to the principal balance of the mortgage loan).
 
An issuing entity may contain buydown loans.  A buydown loan includes provisions whereby a third party partially subsidizes the monthly payments of the borrower on the related loan during the early years of repayment under the loan, the partial subsidy being made from a buydown fund contributed by the third party at the time of origination of the 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 a buydown plan is that the income of the borrower will increase during the buydown period as a result of normal increases in compensation and inflation, so that the borrower will be able personally to make the full loan payments at the end of the buydown period without the continued assistance of the partial subsidy.  To the extent that this assumption as to increased income is not fulfilled, the possibility of default on a buydown loan is increased.  The prospectus supplement will contain information with respect to any buydown loan concerning limitations on the interest rate paid by the borrower initially, on annual increases in the interest rate and on the length of the buydown period.
 
If provided for in the applicable prospectus supplement, an issuing entity may contain mortgage loans under which the monthly payments by the borrower during the early years following origination are less than the amount of interest that would otherwise be payable (“GPM loans”).  GPM loans generally provide for a schedule of fixed, gradually increasing monthly payments over time.  If stated in the related prospectus supplement, the resulting difference in payment on the early payments due under a GPM loan will be compensated for from amounts on deposit in a segregated fund (“GPM fund”).  In lieu of cash deposit, the depositor may deliver to the trustee a letter of credit guaranteed investment contract or another instrument acceptable to the related rating agency to fund the GPM fund.
 

 
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If specified in the related prospectus supplement, an issuing entity may contain re-performing loans, which are generally previously delinquent loans that have been brought current, mortgage loans that are subject to a repayment plan or bankruptcy plan and that had arrearages of at least three monthly payments when the repayment plan or bankruptcy plan was entered into, and mortgage loans that have been modified.  These mortgage loans may be acquired from a wide variety of sources through bulk or periodic sales.  The rate of default on re-performing mortgage loans may be higher than the rate of default on mortgage loans that have not previously been in arrears.  An issuing entity will not contain any non-performing loans as of the related cut-off date.
 
If specified in the applicable prospectus supplement, the mortgage loans may include “step-down” mortgage loans, which permit the servicer to reduce the interest rate on the mortgage loan if the borrower has been current in its monthly payments of principal and interest.  The amount by which the mortgage rate may be reduced and the period during which the mortgage loan must have been current will be specified in the mortgage note.
 
The interest rate of an adjustable rate mortgage loan in an issuing entity may adjust in accordance with one or more of the following indices as specified in the applicable prospectus supplement:
 
·
U.S. Dollar LIBOR (“LIBOR”), which is the average of the London Interbank Offer Rate, a rate at which banks in London, England, lend U.S. dollars to other banks in the U.S. dollar wholesale or interbank money markets for a specified duration.
 
·
London Interbank Offer Swap Rate (“LIBORSWAP”), a rate which is the difference between the negotiated and fixed rate of a swap, with the spread determined by characteristics of market supply and creditor worthiness.
  
·
Constant Maturity Treasury (“CMT”) Indices, which is the weekly or monthly average yield on United States Treasury securities adjusted to a specified constant maturity, as by the Federal Reserve Board.
 
·
Treasury Bill (“T-Bill”) Indices, which is a rate based on the results of auctions that the U.S. Department of Treasury holds for its Treasury bills, notes or bonds or is derived from its daily yield curve.
 
·
Federal Funds Rate, which is the interest rate that banks charge each other on overnight loans made between them, as determined by the Federal Reserve Bank.
 
·
Prime Rate (“Prime Rate”) Index, which is an index based on the interest rate that banks charge to their most credit-worthy customers for short-term loans.  The Prime Rate may differ among financial institutions.
 
·
Monthly Treasury Average (“MTA”, which is a per annum rate equal to the 12-month average yields on United States Treasury securities adjusted to a constant maturity of one year, as published by the Federal Reserve Board.
 
·
Cost of Funds Index (“COFI”), which is the monthly weighted average cost of funds for savings institutions that are member institutions of various federal banking districts, most commonly the 11th District members of the Federal Home Loan Bank of San Francisco.
 
The Indices described above which are applicable to the mortgage loans for a particular issuing entity will be disclosed in the related prospectus supplement.
 
If stated in the applicable prospectus supplement, an issuing entity may include mortgage loans that provide for payments at monthly intervals or at bi-weekly, semi-monthly, quarterly, semi-annual,
 

 
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annual or other intervals, or that provide for payments of interest only for a period of time; and that have terms to more than 40 years; or that have such other characteristics as are specified in the applicable prospectus supplement.
 
The real property that secures repayment of the loans is referred to in this prospectus as the mortgaged properties.  In the case of home equity loans, such liens generally will be subordinated to one or more senior liens on the related mortgaged properties as described in the prospectus supplement.  Loans will be secured by mortgages or deeds of trust or other similar security instruments creating a lien on a mortgaged property.  Some liens will be subordinated to one or more senior liens on the related mortgaged properties as described in the prospectus supplement.  The properties relating to loans will consist of detached or semi-detached one-to four-family dwelling units, townhouses, rowhouses, individual condominium units, manufactured homes, individual units in planned unit developments, and certain other dwelling units.  Such properties may include vacation and second homes, investment properties and dwellings situated on leasehold estates.  The loans may include cooperative apartment loans secured by security interests in shares issued by private, nonprofit, cooperative housing corporations and in the related proprietary lease or occupancy agreements granting exclusive rights to occupy specific dwelling units in the cooperatives’ building.  In the case of leasehold interests, the term of the leasehold will exceed the scheduled maturity of the loan by at least five years, unless otherwise specified in the prospectus supplement.
 
The properties may be located in any one of the fifty states, the District of Columbia, Guam, Puerto Rico or any other territory of the United States.
 
Loans with certain loan-to-value ratios and/or certain principal balances may be covered wholly or partially by primary mortgage guaranty insurance policies.  The existence, extent and duration of any such coverage will be described in the prospectus supplement.
 
Certain loans, in addition to being secured by real property, may be secured by a security interest in a limited amount of additional collateral owned by the borrower or a third-party guarantor.  Such additional collateral may no longer be required when the principal balance of such additional collateral mortgage loan is reduced to a predetermined amount set forth in the related pledge agreement or guaranty agreement, as applicable, or when the loan-to-value ratio for such additional collateral mortgage loan is reduced to the applicable loan-to-value ratio for such additional collateral mortgage loan by virtue of an increase in the appraised value of the mortgaged property as determined by the related servicer.
 
Each prospectus supplement will contain information to the extent then specifically known to the depositor, with respect to the loans contained in the pool, generally including:
 
 
·
the original principal balance of the mortgage loans;
 
 
·
the total principal balance of the mortgage loans as of the applicable cut-off date (and if there is more than one servicer, the balance by servicer);
 
 
·
the types and percentages of mortgaged properties securing the mortgage loans;
 
 
·
the range of original terms to maturity of the mortgage loans;
 
 
·
the range of remaining terms to maturity of the mortgage loans;
  
 
·
the range of ages of the mortgage loans;
 
 
·
mortgage loan purpose (e.g., whether a purchase or refinance);
 
 
·
the range of original and remaining amortization period for the mortgage loans;
 
 
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·
the range of principal balances and average principal balance of the mortgage loans;
 
 
·
the earliest origination date and latest maturity date of the mortgage loans;
 
 
·
the loan-to-value and debt service coverage ratios, as applicable;
 
 
·
mortgage loans having loan-to-value ratios at origination exceeding 80%;
 
 
·
the number of fixed rate mortgage loans and the number of adjustable rate mortgage loans;
 
 
·
the interest rate or range of interest rates borne by the mortgage loans;
 
 
·
the weighted average of interest rate borne by the mortgage loans;
 
 
 
·
the geographical distribution of the mortgage loans;
 
 
·
the total principal balance of buydown loans or GPM loans, if applicable;
 
 
·
the total principal balance of mortgage loans that are subject to negative amortization, if applicable;
 
 
·
the delinquency status of the mortgage loans as of the cut-off date;
 
 
·
with respect to adjustable rate mortgage loans, the adjustment dates, the relevant indices, the highest, lowest and weighted average margin, the limitations on the adjustment of the interest rates on any adjustment date and over the life of the loans; and
 
 
·
whether the mortgage loan provides for an interest-only period and whether the principal balance of that mortgage loan is fully amortizing or is amortized on the basis of a period of time that extends beyond the maturity date of the mortgage loan.
 
The total principal balance of the mortgage loans in an issuing entity as stated in the related prospectus supplement is subject to a permitted variance of plus or minus five percent.
 
The “loan-to-value ratio” of a loan at any given time is the fraction, expressed as a percentage, the numerator of which is the principal balance of the loan and the denominator of which is the collateral value of the property.  The “combined loan-to-value ratio” of a loan at any given time is the ratio, expressed as a percentage, of (i) the sum of (a) the principal balance of the loan and (b) the outstanding principal balance of any senior mortgage loan(s) to (ii) the collateral value of the property.  The “effective loan-to-value ratio” of a loan at any given time is the fraction, expressed as a percentage, the numerator of which is the principal balance of the loan, less the amount secured by additional collateral, if any, and the denominator of which is the collateral value of the property.

The “collateral value” of a property, other than with respect to certain loans the proceeds of which were used to refinance an existing mortgage loan (each, a “refinance loan”), is the lesser of (a) the appraised value determined in an appraisal obtained at origination of such loan and (b) the sales price for the property if the proceeds of the loan are used to purchase the related property.  In the case of a refinance loan, the collateral value of the related property is the appraised value of the property as determined by an appraisal obtained at the time of refinancing.
 
No assurance can be given that collateral values of the properties have remained or will remain at the levels at which they are originally calculated.  If the residential real estate market should experience an overall decline in property values such that the sum of the outstanding principal balances of the loans and any primary or secondary financing on the properties, as applicable, in a particular pool become equal to or

 
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greater than the value of the properties, the actual rates of delinquencies, foreclosures and losses experienced with respect to that pool could be higher than 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 values) may affect the timely payment by borrowers of scheduled payments of principal and interest on the loans and, accordingly, the actual rates of delinquencies, foreclosures and losses with respect to any pool.  To the extent that such losses are not covered by subordination provisions or alternative arrangements, such losses will be borne by the securityholders of the affected series to the extent that the credit enhancement provisions relating to the series do not protect the securityholders from such losses.
 
Home Equity Revolving Credit Loans.  The home equity revolving credit loans will be originated under credit line agreements subject to a maximum amount or credit limit.  In most instances, interest on each home equity revolving credit loan will be calculated based on the average daily balance outstanding during the billing cycle.  The billing cycle in most cases will be the calendar month preceding a due date.  Each home equity revolving credit loan will have a loan rate that is subject to adjustment on the day specified in the related mortgage note, which may be daily or monthly, equal to the sum of the index on the day specified in the accompanying prospectus supplement, and the gross margin specified in the related mortgage note, subject to the maximum rate specified in the mortgage note and the maximum rate permitted by applicable law.  Some home equity revolving credit loans may be teaser loans with an introductory rate that is lower than the rate that would be in effect if the applicable index and gross margin were used to determine the loan rate.  As a result of the introductory rate, interest collections on the loans may initially be lower than expected.  Commencing on their first adjustment date, the loan rates on the teaser loans will be based on the applicable index and gross margin.
 
The borrower for each home equity revolving credit loan may draw money (a “draw”), in most cases with either checks or credit cards, on such home equity revolving credit loan at any time during the period specified in the related credit line agreement, which period we refer to in this prospectus as the “draw period.” If the draw period is less than the full term of the home equity revolving credit loan, the borrower will not be permitted to make any draw during the repayment period.  Prior to the repayment period, or prior to the date of maturity for loans without repayment periods, the borrower for each home equity revolving credit loan will be obligated to make monthly payments on the home equity revolving credit loan in a minimum amount as specified in the related mortgage note, which usually will be the finance charge for each billing cycle as described in the second following paragraph.  In addition, if a home equity revolving credit loan has a repayment period, during this period, the borrower is required to make monthly payments consisting of principal installments that would substantially amortize the principal balance by the maturity date, and to pay any current finance charges and additional charges.
 
The borrower for each home equity revolving credit loan will be obligated to pay off the remaining account balance on the related maturity date, which may be a substantial principal amount.  The maximum amount of any draw for any home equity revolving credit loan is equal to the excess, if any, of the credit limit over the principal balance outstanding under the mortgage note at the time of the draw.  Draws will be funded by the servicer or other entity specified in the accompanying prospectus supplement.
 
For each home equity revolving credit loan:
 
 
·
the finance charge for any billing cycle, in most cases, will be an amount equal to the aggregate of, as calculated for each day in the billing cycle, the then-applicable loan rate divided by 365 multiplied by that day’s principal balance;
 
 
·
the account balance on any day in most cases will be the aggregate of the unpaid principal of the home equity revolving credit loan outstanding at the beginning of the day, plus all related draws funded on that day and outstanding at the beginning of that day, plus the sum of any unpaid finance charges and any unpaid fees, insurance premiums and other charges, collectively known as “additional charges,” that are due on the home equity revolving credit loan minus the aggregate of all payments and credits that are applied to the repayment of any draws on that day; and
 
 
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·
the principal balance on any day usually will be the related account balance minus the sum of any unpaid finance charges and additional charges that are due on the home equity revolving credit loan.
 
Payments made by or on behalf of the borrower for each home equity revolving credit loan, in most cases, will be applied, first, to any unpaid finance charges that are due on the home equity revolving credit loan, second, to any unpaid additional charges that are due thereon, and third, to any related draws outstanding.
 
The mortgaged property securing each home equity revolving credit loan will be subject to the lien created by the related loan in the amount of the outstanding principal balance of each related draw or portion of draw, if any, that is not included in the related pool, whether made on or before the related cut-off date or after that cut-off date.  The lien will be the same rank as the lien created by the mortgage relating to the home equity revolving credit loan, and monthly payments, collections and other recoveries under the credit line agreement related to the home equity revolving credit loan will be allocated as described in the related prospectus supplement among the home equity revolving credit loan and the outstanding principal balance of each draw or portion of draw excluded from the pool.  The depositor, an affiliate of the depositor or an unaffiliated third party may have an interest in any draw or portion of draw excluded from the pool.  If any entity with an interest in a draw or portion of draw excluded from the pool or any other excluded balance were to become a debtor under the Bankruptcy Code or the subject of a receivership or conservatorship and regardless of whether the transfer of the related home equity revolving credit loan constitutes an absolute assignment, a party in interest (including such entity itself) could assert that such entity retains rights in the related home equity revolving credit loan and attempt to force the sale of such home equity revolving credit loan over the objection of the issuing entity and the securityholders.  If that occurs, delays and reductions in payments to the issuing entity and the securityholders could result.
 
In most cases, each home equity revolving credit loan may be prepaid in full or in part at any time and without penalty, and the related borrower will have the right during the related draw period to make a draw in the amount of any prepayment made for the home equity revolving credit loan.
 
The mortgage note or mortgage related to each home equity revolving credit loan will usually contain a customary “due-on-sale” clause.
 
As to each home equity revolving credit loan, the borrower’s rights to receive draws during the draw period may be suspended, or the credit limit may be reduced, for cause under a limited number of circumstances, including, but not limited to:
 
 
·
a materially adverse change in the borrower’s financial circumstances;
 
 
·
a decline in the value of the mortgaged property below its appraised value at origination; or
 
 
·
a payment default by the borrower.
 
However, as to each home equity revolving credit loan, a suspension or reduction usually will not affect the payment terms for previously drawn balances.  The servicer will have no obligation to investigate as to whether any of those circumstances have occurred or may have no knowledge of their occurrence.  Therefore, there can be no assurance that any borrower’s ability to receive draws will be suspended or reduced if the foregoing circumstances occur.  In the event of default under a home equity revolving credit loan, at the discretion of the servicer, the home equity revolving credit loan may be terminated and declared immediately due and payable in full.  For this purpose, a default includes but is not limited to:
 
 
·
the borrower’s failure to make any payment as required;
 
 
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·
any action or inaction by the borrower that materially and adversely affects the mortgaged property or the rights in the mortgaged property; or
 
 
·
any fraud or material misrepresentation by a borrower in connection with the loan.
 
The servicer will have the option to allow an increase in the credit limit applicable to any home equity revolving credit loan in certain limited circumstances.
 
The proceeds of the home equity revolving credit loans may be used by the borrower to improve the related mortgaged properties, may be retained by the related borrowers or may be used for purposes unrelated to the mortgaged properties.
 
Pre-Funding
 
If stated in the related prospectus supplement, a portion of the issuance proceeds of the securities of a particular series will be deposited in a pre-funding account to be established with the trustee, which will be used to acquire additional mortgage loans from time to time during the time period specified in the related prospectus supplement.  Prior to the application of amounts on deposit in the related pre-funding account to purchase additional mortgage loans, those amounts may be invested in one or more investments permitted under the applicable agreements.  See “THE AGREEMENTS—Servicing Provisions—Investment of Funds” for a description of the types of eligible investments that may be permitted under the applicable agreements.
 
Additional mortgage loans that are purchased with amounts on deposit in a pre-funding account will be required to satisfy certain eligibility criteria set forth in the related prospectus supplement.  The eligibility criteria for additional mortgage loans will be consistent with the eligibility criteria of the mortgage loans included in the related issuing entity as of the closing date subject to the exceptions stated in the related prospectus supplement.
 
Although the specific parameters of a pre-funding account with respect to any issuance of securities will be specified in the related prospectus supplement, it is anticipated that:
 
 
·
the period during which additional mortgage loans may be purchased from amounts on deposit in the related pre-funding account will not exceed 90 days from the related closing date, unless otherwise specified; and
 
 
·
the additional mortgage loans to be acquired by the related issuing entity will be subject to the same representations and warranties as the mortgage loans included in the related issuing entity on the closing date, although additional criteria may also be required to be satisfied, as described in the related prospectus supplement.
 
In no event will the period during which additional mortgage loans may be purchased exceed one year.  In addition, no more than 50% of the proceeds of the offering of a particular series may be used to fund the pre-funding account.
 
Revolving Period
 
If provided in the related prospectus supplement for a series, the trustee may establish and maintain an account (the “Revolving Account”) for the purpose of acquiring additional mortgage loans.  On each distribution date, the trustee will deposit certain amounts in respect of principal and/or excess interest received from the mortgage loans in the issuing entity in the percentages specified in the related prospectus supplement that would otherwise be distributed to securityholders.  The depositor will subsequently convey to the issuing entity additional mortgage loans or additional advances in respect of mortgage loans that comprise existing mortgage loans (“Revolving Mortgage Loans”) following the date on which the securities are issued (a “Revolving Period Arrangement”).  The Revolving Period Arrangement will require

 
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that any Revolving Mortgage Loans included in the issuing entity conform to the requirements and conditions provided in the related Agreements.  The issuing entity will acquire Revolving Mortgage Loans in exchange for the release of money from the Revolving Account.  The Revolving Period Arrangement will be limited to a specified period specified in the related prospectus supplement, not to exceed three years, during which time any transfers of Revolving Mortgage Loans must occur.

            If any of the funds deposited in the Revolving Account are not used by the end of any specified period, then any remaining amount will be applied as a mandatory prepayment of a class or classes of securities, or as otherwise specified in the prospectus supplement.  Although we expect that substantially all of the funds in the Revolving Account will be used to acquire Revolving Mortgage Loans, so that there will be no material principal distributions from amounts remaining on deposit in the Revolving Account, we cannot assure you that such a distribution will not occur on the distribution date following the end of the Revolving Period Arrangement.
 
Amounts on deposit in the Revolving Account will be invested as provided in the related Agreements in investments permitted by the rating agencies.  See “THE AGREEMENTS—Servicing Provisions—Investment of Funds” for a description of the types of eligible investments in which amounts on deposit in a Revolving Account may be invested.
 
Agency Securities
 
Ginnie Mae. Ginnie Mae, formerly the Government National Mortgage Association, is a wholly-owned corporate instrumentality of the United States within the Department of Housing and Urban Development.  Section 306(g) of Title II of the National Housing Act of 1934, as amended, authorizes Ginnie Mae to guarantee the timely payment of the principal of and interest on certificates which represent an interest in a pool of FHA loans, which are mortgage loans insured by the FHA under the National Housing Act or under Title V of the Housing Act of 1949, or VA loans, which are mortgage loans partially guaranteed by the VA under the Servicemen’s Readjustment Act of 1944, as amended, or Chapter 37 of Title 38 of the United States Code.
 
Section 306(g) of the National Housing Act provides that “the full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under any guaranty under this subsection.” In order to meet its obligations under any such guarantee, Ginnie Mae may, under Section 306(d) of the National Housing Act, borrow from the United States Treasury in an unlimited amount which is at any time sufficient to enable Ginnie Mae to perform its obligations under its guarantee.
 
Ginnie Mae Certificates. Each Ginnie Mae certificate held in an issuing entity will be a “fully modified pass-through” mortgage-backed certificate issued and serviced by a Ginnie Mae issuer that is a mortgage banking company or other financial concern approved by Ginnie Mae or approved by Fannie Mae as a seller/servicer of FHA loans and/or VA loans.  The Ginnie Mae certificates may be either Ginnie Mae I certificates issued under the Ginnie Mae I program or Ginnie Mae II certificates issued under the Ginnie Mae II program.  The mortgage loans underlying the Ginnie Mae certificates will consist of FHA loans and/or VA loans.  Each such mortgage is secured by a one- to four-family or multifamily residential property.  Ginnie Mae will approve the issuance of each Ginnie Mae certificate in accordance with a guaranty agreement between Ginnie Mae and the Ginnie Mae issuer.  Pursuant to its guaranty agreement, a Ginnie Mae issuer will be required to advance its own funds in order to make timely payments of all amounts due on each Ginnie Mae certificate, even if the payments received by the Ginnie Mae issuer on the underlying FHA loans or VA loans are less than the amounts due on the related Ginnie Mae certificate.
 
The full and timely payment of principal of and interest on each Ginnie Mae certificate will be guaranteed by Ginnie Mae, which obligation is backed by the full faith and credit of the United States.  Each Ginnie Mae certificate will have an original maturity of not more than 30 years, but may have original maturities of substantially less than 30 years.  Each Ginnie Mae certificate will be based on and backed by a pool of FHA loans or VA loans secured by one- to four-family residential properties and will provide for the payment by or on behalf of the Ginnie Mae issuer to the registered holder of the Ginnie Mae certificate scheduled monthly payments of principal and interest equal to the registered holder’s
 

 
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proportionate interest in the aggregate amount of the monthly principal and interest payment on each FHA loan or VA loan underlying the Ginnie Mae certificate, less the applicable servicing and guarantee fee which together equal the difference between the interest on the FHA loan or VA loan and the pass-through rate on the Ginnie Mae certificate.  In addition, each payment will include proportionate pass-through payments of any prepayments of principal on the FHA loans or VA loans underlying the Ginnie Mae certificate and liquidation proceeds in the event of a foreclosure or other disposition of any such FHA loans or VA loans.
 
If a Ginnie Mae issuer is unable to make the payments on a Ginnie Mae certificate as they become due, it must promptly notify Ginnie Mae and request Ginnie Mae to make the payments.  Upon notification and request, Ginnie Mae will make payments directly to the registered holder of the Ginnie Mae certificate.  In the event no payment is made by a Ginnie Mae issuer and the Ginnie Mae issuer fails to notify and request Ginnie Mae to make the payment, the holder of the Ginnie Mae certificate will have recourse only against Ginnie Mae to obtain payment.  The trustee or its nominee, as registered holder of the Ginnie Mae certificates held in an issuing entity, will have the right to proceed directly against Ginnie Mae under the terms of the guaranty agreements relating to those Ginnie Mae certificates for any amounts that are not paid when due.
 
All mortgage loans underlying a particular Ginnie Mae I certificate must have the same interest rate (except for pools of mortgage loans secured by manufactured homes) over the term of the loan.  The interest rate on a Ginnie Mae I certificate will equal the interest rate on the mortgage loans included in the pool of mortgage loans underlying the Ginnie Mae I certificate, less one-half percentage point per annum of the unpaid principal balance of the mortgage loans.
 
Mortgage loans underlying a particular Ginnie Mae II certificate may have per annum interest rates that vary from one another by up to one percentage point.  The interest rate on each Ginnie Mae II certificate will be between one-half percentage point and one and one-half percentage points lower than the highest interest rate on the mortgage loans included in the pool of mortgage loans underlying the Ginnie Mae II certificate (except for pools of mortgage loans secured by manufactured homes).
 
Regular monthly installment payments on each Ginnie Mae certificate held in an issuing entity will be comprised of interest due as specified on the Ginnie Mae certificate plus the scheduled principal payments on the FHA loans or VA loans underlying the Ginnie Mae certificate due on the first day of the month in which the scheduled monthly installments on the Ginnie Mae certificate are due.  Regular monthly installments on each Ginnie Mae certificate are required to be paid to the trustee as registered holder by the 15th day of each month in the case of a Ginnie Mae I certificate, and are required to be mailed to the trustee by the 20th day of each month in the case of a Ginnie Mae II certificate.  Any principal prepayments on any FHA loans or VA loans underlying a Ginnie Mae certificate held in an issuing entity or any other early recovery of principal on such loan will be passed through to the trustee as the registered holder of the Ginnie Mae certificate.
 
Ginnie Mae certificates may be backed by graduated payment mortgage loans or by “buydown” mortgage loans for which funds will have been provided (and deposited into escrow accounts) for application to the payment of a portion of the borrowers’ monthly payments during the early years of such mortgage loans.  Payments due the registered holders of Ginnie Mae certificates backed by pools containing “buydown” mortgage loans will be computed in the same manner as payments derived from other Ginnie Mae certificates and will include amounts to be collected from both the borrower and the regulated escrow account.  The graduated payment mortgage loans will provide for graduated interest payments that, during the early years of such mortgage loans, will be less than the amount of stated interest on such mortgage loans.  The interest not so paid will be added to the principal of the graduated payment mortgage loans and, together with interest thereon, will be paid in subsequent years.  The obligations of Ginnie Mae and of a Ginnie Mae issuer will be the same irrespective of whether the Ginnie Mae certificates are backed by graduated payment mortgage loans or “buydown” mortgage loans.  No statistics comparable to the FHA’s prepayment experience on level payment, non-”buydown” mortgage loans are available in
 

 
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respect of graduated payment or “buydown” mortgages.  Ginnie Mae certificates related to a series of certificates may be held in book-entry form.
 
If specified in a prospectus supplement, Ginnie Mae certificates may be backed by multifamily mortgage loans having the characteristics specified in the prospectus supplement.
 
Freddie Mac.  Freddie Mac, formerly the Federal Home Loan Mortgage Corporation, was created by Congress pursuant to Title III of the Emergency Home Finance Act of 1970, as amended.  Freddie Mac was established primarily for the purpose of increasing the availability of mortgage credit for the financing of urgently needed housing.  It seeks to provide an enhanced degree of liquidity for residential mortgage investments primarily by assisting in the development of secondary markets for conventional mortgages.  The principal activity of Freddie Mac currently consists of the purchase of first lien conventional mortgage loans, or participation interests in the mortgage loans, and the sale of the mortgage loans or participations so purchased in the form of mortgage securities, primarily Freddie Mac certificates.  Freddie Mac is confined to purchasing, so far as practicable, mortgage loans that it deems to be of such quality, type and class as to meet generally the purchase standards imposed by private institutional mortgage investors.
 
Division A of The Housing and Economic Recovery Act of 2008 signed in to law on July 30, 2008, or the Federal Housing Finance Regulatory Reform Act of 2008 (the “Regulatory Reform Act”), established a new regulator for Freddie Mac, the Federal Housing Finance Agency or FHFA.  HUD remains regulator with respect to fair lending matters.  On September 6, 2008 and pursuant to the Regulatory Reform Act, Freddie Mac was placed under the conservatorship of FHFA.  The conservatorship has no specified termination date.  As conservator (the “Freddie Mac Conservator”), FHFA succeeded to all rights, titles, powers and privileges of Freddie Mac, and of any shareholder, officer or director of Freddie Mac with respect to Freddie Mac and its assets.  FHFA has since delegated specified authorities to the Freddie Mac Board of Directors and has delegated to management the authority to conduct day-to-day operations.
 
The U.S. Department of the Treasury (“Treasury”) has announced additional actions that affect Freddie Mac in connection with the conservatorship and the economic and housing crisis. On September 7, 2008, Treasury entered into a senior preferred stock purchase agreement (the “Freddie Mac Purchase Agreement”) with Freddie Mac pursuant to which Treasury provided Freddie Mac with its commitment to provide up to $100 billion in funding under specified conditions. The agreement was amended and restated to increase the commitment to $200 billion.  The agreement was further amended and restated to allow the cap on Treasury's funding commitment to increase as necessary to accommodate any cumulative reduction in net worth through 2012.  The Freddie Mac Purchase Agreement requires Treasury, upon the Freddie Mac Conservator’s request, to provide funds to Freddie Mac after any quarter in which they have a negative net worth and also provides for Treasury to provide funds to Freddie Mac if the Freddie Mac Conservator determines, at any time, that it will be mandated by law to appoint a receiver for Freddie Mac unless Freddie Mac receives funds from Treasury under its commitment.
 
Freddie Mac is dependent upon the continued support of Treasury and FHFA in order to continue operating our business. Its ability to access funds from Treasury under the Freddie Mac Purchase Agreement is critical to keeping it solvent and avoiding appointment of a receiver by FHFA under the statutorily mandated receivership provisions of the Regulatory Reform Act.
 
Freddie Mac Certificates.  Each Freddie Mac certificate represents an undivided interest in a pool of mortgage loans that may consist of first lien conventional loans, FHA loans or VA loans.  Freddie Mac certificates are sold under the terms of a mortgage participation certificate agreement.  A Freddie Mac certificate may be issued under either Freddie Mac’s Cash Program or its Guarantor Program.
 
Mortgage loans underlying the Freddie Mac certificates held by an issuing entity will consist of mortgage loans with original terms to maturity of from 10 to 40 years.  Each such mortgage loan must meet the applicable standards set forth in the legislation that established Freddie Mac.  The pool of loans backing
 

 
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a Freddie Mac certificate may include whole loans, participation interests in whole loans and undivided interests in whole loans and/or participations comprising another Freddie Mac pool.  Under the Guarantor Program, however, the pool of loans backing a Freddie Mac certificate may include only whole loans or participation interests in whole loans.
 
Freddie Mac guarantees to each registered holder of a Freddie Mac certificate the timely payment of interest on the underlying mortgage loans to the extent of the applicable certificate rate on the registered holder’s pro rata share of the unpaid principal balance outstanding on the underlying mortgage loans represented by that Freddie Mac certificate, whether or not received.  Freddie Mac also guarantees to each registered holder of a Freddie Mac certificate that the holder will collect all principal on the underlying mortgage loans, without any offset or deduction, to the extent of such holder’s pro rata share thereof, but does not, except if and to the extent specified in the related prospectus supplement for a series of certificates, guarantee the timely payment of scheduled principal.  Under Freddie Mac’s Gold PC Program, Freddie Mac guarantees the timely payment of principal based on the difference between the pool factor, published in the month preceding the month of distribution, and the pool factor published in such month of distribution.  Pursuant to its guarantees, Freddie Mac indemnifies holders of Freddie Mac certificates against any diminution in principal by reason of charges for property repairs, maintenance and foreclosure.  Freddie Mac may remit the amount due on account of its guaranty of collection of principal at any time after default on an underlying mortgage loan, but not later than (i) 30 days following foreclosure sale, (ii) 30 days following payment of the claim by any mortgage insurer or (iii) 30 days following the expiration of any right of redemption, whichever occurs later, but in any event no later than one year after demand has been made upon the mortgagor for accelerated payment of principal.  In taking actions regarding the collection of principal after default on the mortgage loans underlying Freddie Mac certificates, including the timing of demand for acceleration, Freddie Mac reserves the right to exercise its judgment with respect to the mortgage loans in the same manner as for mortgage loans which it has purchased but not sold.  The length of time necessary for Freddie Mac to determine that a mortgage loan should be accelerated varies with the particular circumstances of each mortgagor, and Freddie Mac has not adopted standards which require that the demand be made within any specified period.

            Freddie Mac certificates are not guaranteed by the United States or by any Federal Home Loan Bank and do not constitute debts or obligations of the United States or any federal agency or instrumentality other than Freddie Mac.  The obligations of Freddie Mac under its guarantee are obligations solely of Freddie Mac and are not backed by, or entitled to, the full faith and credit of the United States.  If Freddie Mac were unable to satisfy such obligations or in the event FHFA were to repudiate Freddie Mac’s guarantee obligation, distributions to holders of Freddie Mac certificates would consist solely of payments and other recoveries on the underlying mortgage loans and, accordingly, monthly distributions to holders of Freddie Mac certificates would be affected by delinquent payments and defaults on such mortgage loans.  The ability to enforce the guarantee obligation would be limited to actual direct compensatory damages.  The rights of holders to bring proceedings against FHFA or the Treasury are limited.
 
Registered holders of Freddie Mac certificates are entitled to receive their monthly pro rata share of all principal payments on the underlying mortgage loans received by Freddie Mac, including any scheduled principal payments, full and partial repayments of principal and principal received by Freddie Mac by virtue of condemnation, insurance, liquidation or foreclosure, and repurchases of the mortgage loans by Freddie Mac or the seller thereof.  Freddie Mac is required to remit each registered Freddie Mac certificateholder’s pro rata share of principal payments on the underlying mortgage loans, interest at the Freddie Mac pass-through rate and any other sums such as prepayment fees, within 60 days of the date on which those payments are deemed to have been received by Freddie Mac.
 
Under Freddie Mac’s Cash Program, there is no limitation on the amount by which interest rates on the mortgage loans underlying a Freddie Mac certificate may exceed the pass-through rate on the Freddie Mac certificate.
 
Under this program, Freddie Mac purchases groups of whole mortgage loans from sellers at specified percentages of their unpaid principal balances, adjusted for accrued or prepaid interest, which, when applied to the interest rate of the mortgage loans and participations purchased, results in the yield

 
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(expressed as a percentage) required by Freddie Mac.  The required yield, which includes a minimum servicing fee retained by the servicer, is calculated using the outstanding principal balance.  The range of interest rates on the mortgage loans and participations in a particular Freddie Mac pool under the Cash Program will vary since mortgage loans and participations are purchased and assigned to a Freddie Mac pool based upon their yield to Freddie Mac rather than on the interest rate on the underlying mortgage loans.  Under Freddie Mac’s Guarantor Program, the pass-through rate on a Freddie Mac certificate is established based upon the lowest interest rate on the underlying mortgage loans, minus a minimum servicing fee and the amount of Freddie Mac’s management and guaranty income as agreed upon between the related seller and Freddie Mac.
 
Freddie Mac certificates duly presented for registration of ownership on or before the last business day of a month are registered effective as of the first day of the month.  The first remittance to a registered holder of a Freddie Mac certificate will be distributed so as to be received normally by the 15th day of the second month following the month in which the purchaser becomes a registered holder of Freddie Mac certificates.
 
Thereafter, such remittance will be distributed monthly to the registered holder so as to be received normally by the 15th day of each month.  The Federal Reserve Bank of New York maintains book-entry accounts with respect to Freddie Mac certificates sold by Freddie Mac, and makes payments of principal and interest each month to the registered Freddie Mac certificateholders in accordance with the holders’ instructions.
 
Fannie Mae. Fannie Mae, formerly the Federal National Mortgage Association, was created by Congress pursuant to the Federal National Mortgage Association Charter Act, as amended.  Fannie Mae was originally established in 1938 as a United States government agency to provide supplemental liquidity to the mortgage market and was transformed into a stockholder-owned and privately-managed corporation by legislation enacted in 1968.  Fannie Mae provides funds to the mortgage market primarily by purchasing mortgage loans from lenders, thereby replenishing their funds for additional lending.  Fannie Mae acquires funds to purchase mortgage loans from many capital market investors that may not ordinarily invest in mortgages, thereby expanding the total amount of funds available for housing.  Operating nationwide Fannie Mae helps to redistribute mortgage funds from capital-surplus to capital-short areas.

The Regulatory Reform Act established a new regulator for Fannie Mae, the Federal Housing Finance Agency or FHFA.  HUD remains regulator with respect to fair lending matters.  On September 6, 2008 and pursuant to the Regulatory Reform Act, Fannie Mae was placed under the conservatorship of FHFA.  The conservatorship has no specified termination date.  As conservator (the “Fannie Mae Conservator”), FHFA succeeded to all rights, titles, powers and privileges of Fannie Mae, and of any shareholder, officer or director of Fannie Mae with respect to Fannie Mae and its assets.  FHFA has since delegated specified authorities to the Fannie Mae Board of Directors and has delegated to management the authority to conduct day-to-day operations.
 
Treasury has announced additional actions that affect Fannie Mae in connection with the conservatorship and the economic and housing crisis. On September 7, 2008, Treasury entered into a senior preferred stock purchase agreement (the “Fannie Mae Purchase Agreement”) with Fannie Mae pursuant to which Treasury provided Fannie Mae with its commitment to provide up to $100 billion in funding under specified conditions. The agreement was amended and restated to increase the commitment to $200 billion.  The agreement was further amended and restated to allow the cap on Treasury's funding commitment to increase as necessary to accommodate any cumulative reduction in net worth through 2012.  The Fannie Mae Purchase Agreement requires Treasury, upon the Fannie Mae Conservator’s request, to provide funds to Fannie Mae after any quarter in which they have a negative net worth and also provides for Treasury to provide funds to Fannie Mae if the Fannie Mae Conservator determines, at any time, that it will be mandated by law to appoint a receiver for Fannie Mae unless Fannie Mae receives funds from Treasury under its commitment.

 

 
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Fannie Mae is dependent upon the continued support of Treasury and FHFA in order to continue operating our business. Its ability to access funds from Treasury under the Fannie Mae Purchase Agreement is critical to keeping it solvent and avoiding appointment of a receiver by FHFA under the statutorily mandated receivership provisions of the Regulatory Reform Act.
 
Fannie Mae Certificates. Fannie Mae certificates are Guaranteed Mortgage Pass-Through Certificates representing fractional undivided interests in a pool of mortgage loans formed by Fannie Mae.  Each mortgage loan must meet the applicable standards of the Fannie Mae purchase program.  Mortgage loans comprising a pool are either provided by Fannie Mae from its own portfolio or purchased pursuant to the criteria of the Fannie Mae purchase program.
 
Mortgage loans underlying Fannie Mae certificates held by an issuing entity will consist of conventional mortgage loans, FHA loans or VA loans.  Original maturities of substantially all of the conventional, level payment mortgage loans underlying a Fannie Mae certificate are expected to be from 8 to 15 years or from 20 to 40 years.  The original maturities of substantially all of the fixed rate level payment FHA loans or VA loans are expected to be 30 years.
 
Mortgage loans underlying a Fannie Mae certificate may have annual interest rates that vary by as much as two percentage points from one another.  The rate of interest payable on a Fannie Mae certificate is equal to the lowest interest rate of any mortgage loan in the related pool, less a specified minimum annual percentage representing servicing compensation and Fannie Mae’s guaranty fee.  Under a regular servicing option pursuant to which the mortgagee or each other servicer assumes the entire risk of foreclosure losses, the annual interest rates on the mortgage loans underlying a Fannie Mae certificate will be between 25 basis points and 250 basis points greater than is its annual pass-through rate.  Under a special servicing option pursuant to which Fannie Mae assumes the entire risk for foreclosure losses, the annual interest rates on the mortgage loans underlying a Fannie Mae certificate will generally be between 30 basis points and 255 basis points greater than the annual Fannie Mae certificate pass-through rate.  If specified in the related prospectus supplement, Fannie Mae certificates may be backed by adjustable rate mortgages.
 
Fannie Mae guarantees to each registered holder of a Fannie Mae certificate that it will distribute amounts representing the holder’s proportionate share of scheduled principal and interest payments at the applicable pass-through rate provided for by the Fannie Mae certificate on the underlying mortgage loans, whether or not received, and the holder’s proportionate share of the full principal amount of any foreclosed or other finally liquidated mortgage loan, whether or not such principal amount is actually recovered.  The obligations of Fannie Mae under its guarantees are obligations solely of Fannie Mae and are not backed by, or entitled to, the full faith and credit of the United States are not debt obligations of any federal agency other than Fannie Mae at any time.  Neither the United States nor any of its agencies or instrumentalities is obligated to finance Fannie Mae’s operations or to assist Fannie Mae in any other manner.  If Fannie Mae were unable to satisfy its obligations, distributions to holders of Fannie Mae certificates would consist solely of payments and other recoveries on the underlying mortgage loans and, accordingly, monthly distributions to holders of Fannie Mae certificates would be affected by delinquent payments and defaults on such mortgage loans.  The holders’ ability to enforce a Fannie Mae guarantee will be limited to actual direct compensatory damages.  The rights of holders to bring proceedings against FHFA or the Treasury are limited.

Fannie Mae certificates evidencing interests in pools of mortgage loans formed on or after May 1, 1985 (other than Fannie Mae certificates backed by pools containing graduated payment mortgage loans or mortgage loans secured by multifamily projects) are available in book-entry form only.  Distributions of principal and interest on each Fannie Mae certificate will be made by Fannie Mae on the 25th day of each month to the persons in whose name the Fannie Mae certificate is entered in the books of the Federal Reserve Banks (or registered on the Fannie Mae certificate register in the case of fully registered Fannie Mae certificates) as of the close of business on the last day of the preceding month.  With respect to Fannie Mae certificates issued in book-entry form, distributions will be made by wire and, with respect to fully registered Fannie Mae certificates, distributions will be made by check.

 
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Stripped Mortgage-Backed Securities.  Agency securities may consist of one or more stripped mortgage-backed securities as described in this prospectus and in the related prospectus supplement.  Each agency security of this type will represent an undivided interest in all or part 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 on certain Freddie Mac, Fannie Mae or Ginnie Mae certificates.  The underlying securities will be held under a trust agreement by Freddie Mac, Fannie Mae or Ginnie Mae, each as trustee, or by another trustee named in the related prospectus supplement.  Freddie Mac, Fannie Mae or Ginnie Mae will guaranty each stripped agency security to the same extent as such entity guarantees the underlying securities backing the stripped agency security, unless otherwise specified in the related prospectus supplement.
 
Other Agency Securities.  If specified in the related prospectus supplement, an issuing entity may include other mortgage pass-through certificates issued or guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae.  The characteristics of any such mortgage pass-through certificates will be described in the related prospectus supplement.  If specified in the related prospectus supplement, a combination of different types of agency securities may be held in an issuing entity.
 
Private Mortgage-Backed Securities
 
General.  Private mortgage-backed securities may consist of:
 
 
·
pass-through certificates or participation certificates evidencing an undivided interest in a pool of single family loans, home equity loans, multifamily loans, manufactured housing contracts or home improvement contracts;
 
 
·
collateralized mortgage obligations secured by single family loans, home equity loans, multifamily loans, manufactured housing contracts or home improvement contracts; or
 
 
·
other private mortgage-backed securities.
 
Private mortgage-backed securities may include stripped mortgage-backed securities representing an undivided interest in all or a part 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 on certain mortgage loans.  The private mortgage-backed securities will have been issued pursuant to a pooling and servicing agreement, an indenture or similar agreement.  Unless otherwise specified in the related prospectus supplement, the seller/servicer of the underlying loans will have entered into a private mortgage-backed securities agreement with a trustee under that agreement.  The trustee or its agent, or a custodian, will possess the mortgage loans underlying the private mortgage-backed securities.  The loans underlying the private mortgage-backed securities will be serviced by a servicer directly or by one or more subservicers which may be subject to the supervision of the servicer.  Unless otherwise specified in the related prospectus supplement, the private mortgage-backed securities servicer will be a Fannie Mae- or Freddie Mac-approved servicer and, if FHA loans underlie the private mortgage-backed securities, approved by HUD as an FHA mortgagee.

The private mortgage-backed securities 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 trusts and selling beneficial interests in trusts.  If specified in the related prospectus supplement, the issuer may be an affiliate of the depositor.  The obligations of the issuer will generally be limited to certain representations and warranties with respect to the assets it conveys to the related trust.  Unless otherwise specified in the related prospectus supplement, the 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 governing agreement.  Additionally, although the loans underlying the private mortgage-backed securities may be guaranteed by an agency or instrumentality of the United States, the private mortgage-backed securities themselves will not be so guaranteed, unless the related prospectus supplement specifies otherwise.
 

 
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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 trustee or the servicer.  The issuer or the servicer may have the right to repurchase assets underlying the private mortgage-backed securities after a particular date or under other circumstances specified in the related prospectus supplement.
 
Underlying Loans. The loans underlying the private mortgage-backed securities may consist of fixed rate, level payment, fully amortizing loans or graduated payment mortgage loans, buydown loans, adjustable rate mortgage loans, or loans having balloon or other special payment features.  The loans may be secured by one- to four-family residential property, small mixed-use property, five- to eight-family residential property, multifamily property, manufactured homes 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 the cooperative.
 
Credit Support Relating to Private Mortgage-Backed Securities.  Credit support in the form of reserve funds, subordination of other private mortgage-backed securities issued under the governing securities agreement, letters of credit, surety bonds, or insurance policies may be provided with respect to the loans underlying the private mortgage-backed securities or with respect to the private mortgage-backed securities themselves.
 
Additional Information.  If the issuing entity for a series securities includes private mortgage-backed securities, the related prospectus supplement will generally specify:
 
 
·
the aggregate approximate principal amount and type of private mortgage-backed securities to be included in the issuing entity;
 
 
·
the maximum original term-to-stated maturity of the private mortgage-backed securities;
 
 
·
the weighted average term-to-stated maturity of the private mortgage-backed securities;
 
 
·
the pass-through or certificate rate of the private mortgage-backed securities;
 
 
·
the weighted average pass-through of interest rate of the private mortgage-backed securities;
 
 
·
the issuer, the servicer (if other than the issuer) and the trustee;
 
 
·
certain characteristics of any credit support such as reserve funds, insurance policies, surety bonds, letters of credit or guaranties relating to the loans underlying the private mortgage-backed securities themselves;
 
 
·
the terms on which the loans underlying the 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
 
 
·
the terms on which mortgage loans may be substituted for those originally underlying the private mortgage-backed securities.
 
In addition, the related prospectus supplement will provide information about the loans which comprise the underlying assets of the private mortgage-backed securities, generally including:
 
 
·
the payment features of the mortgage loans;

 
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·
the approximate aggregate principal balance, if known, of underlying loans insured or guaranteed by a governmental entity;
 
 
·
the servicing fee or range of servicing fees with respect to the loans; and
 
 
·
the minimum and maximum stated maturities of the underlying loans at origination.
 
SEC Rule 190
 
Offerings backed by agency securities or private mortgage-backed securities will be subject to the SEC’s Rule 190, which addresses registration of the underlying securities in asset-backed transactions.  Under Rule 190, each underlying security included in an asset pool is deemed to be offered through the offering of the asset-backed securities backed by that asset pool.  Accordingly, unless the underlying securities are themselves exempt from registration under Section 3 of the Securities Act of 1933, as amended (the “Securities Act”) or satisfy the conditions described in the following paragraph, the offering of such underlying securities must be registered as a primary offering of such securities pursuant to the provisions of Rule 190.
 
Under Rule 190, the offering of underlying securities would not be required to be registered as a primary offering if all of the following are true:
 
 
·
Neither the issuer of the underlying securities nor any of its affiliates has a direct or indirect agreement, arrangement, relationship or understanding, written or otherwise, relating to the underlying securities and the asset-backed transaction;
 
 
·
Neither the issuer of the underlying securities nor any of its affiliates is an affiliate of the sponsor, depositor, issuing entity or underwriter of the asset-backed securities transaction; and
 
 
·
The depositor would be free to publicly resell the underlying securities without registration under the Securities Act.
 
With respect to any securities offered hereby that are backed by agency securities or private mortgage-backed securities, each underlying security will either be exempt from registration under Section 3 of the Securities Act or will satisfy the conditions set forth in the preceding paragraph or the offering of such underlying security will be registered as a primary offering in accordance with the provisions of Rule 190.
 
USE OF PROCEEDS
 
The net proceeds to be received from the sale of the securities will be applied by the depositor to the purchase of issuing entity assets and payment of related expenses or will be used by the depositor for general corporate purposes.  Each depositor expects to sell securities in series from time to time, but the timing and amount of offerings of securities will depend on a number of factors, including the volume of issuing entity assets acquired by the depositor, prevailing interest rates, availability of funds and general market conditions.
 
LOAN PROGRAM
 
The loans will have been purchased by the depositor, either directly or through affiliates, from sellers.  Unless otherwise specified in the prospectus supplement, the loans acquired by the depositor will have been originated in accordance with the underwriting criteria described below.
 
 


 
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Underwriting Standards
 
Each seller or other party named in the related prospectus supplement will represent and warrant that all loans originated and/or sold by it to the depositor will have been underwritten in accordance with standards described in the prospectus supplement.

Underwriting standards are applied by or on behalf of a lender to evaluate the borrower’s credit standing and repayment ability, and the value and adequacy of the related property as collateral.  In general, a prospective borrower applying for a mortgage loan is required to fill out a detailed application designed to provide to the underwriting officer pertinent credit information.  As part of the description of the borrower’s financial condition, the borrower generally is required to provide a current list of assets and liabilities and a statement of income and expenses, as well as an authorization to apply for a credit report which summarizes the borrower’s credit history with local merchants and lenders and any record of bankruptcy or other significant public records.  In most cases, an employment verification is obtained from an independent source (typically the borrower’s employer), which verification 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.  If a prospective borrower is self-employed, the borrower may be required to submit copies of 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.
 
In determining the adequacy of the property as collateral, an appraisal will generally be made of each property considered for financing.  The appraiser is required to inspect the property and verify that it is in good repair and that construction, if new, has been completed.  The appraisal is based on the market value of comparable homes, the estimated rental income (if considered applicable by the appraiser) and the cost of replacing the home.
 
Once all applicable employment, credit and property information is received, a determination generally is made as to whether the prospective borrower has sufficient monthly income available:
 
 
·
to meet the borrower’s monthly obligations on the proposed mortgage loan (generally determined on the basis of the monthly payments due in the year of origination) and other expenses related to the property (such as property taxes and hazard insurance), and
 
 
·
to meet monthly housing expenses and other financial obligations and monthly living expenses.
 
The underwriting standards applied by a seller, particularly with respect to the level of loan documentation and the borrower’s income and credit history, may be varied in appropriate cases where factors such as low combined loan-to-value ratios or other favorable credit aspects exist.
 
If specified in the prospectus supplement, a portion of the loans in the pool may have been originated under a limited documentation program.  Under a limited documentation program, more emphasis is placed on the value and adequacy of the property as collateral and other assets of the borrower than on credit underwriting.  Under a limited documentation program, certain credit underwriting documentation concerning income or income verification and/or employment verification is waived.  The prospectus supplement will indicate the types of limited documentation programs pursuant to which the loans were originated and the underwriting standards applicable to such limited documentation programs.
 
In the case of a loan secured by a leasehold interest in real property, the title to which is held by a third party lessor, the seller will represent and warrant, among other things, that the remaining term of the lease and any sublease is at least five years longer than the remaining term on the related mortgage note.
 
Certain of the types of loans that may be included in an issuing entity may involve additional uncertainties not present in traditional types of loans.  For example, certain of such loans may provide for escalating or variable payments by the borrower.  These types of loans are underwritten on the basis of a

 
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judgment that the borrowers have the ability to make the monthly payments required initially.  In some instances, however, a borrower’s income may not be sufficient to permit continued loan payments as such payments increase.  These types of loans may also be underwritten primarily upon the basis of combined loan-to-value ratios or other favorable credit factors.

From time to time and in the ordinary course of business, lenders may approve loans that do not comply with all of the applicable underwriting standards (“exception loans”), provided sufficient compensating factors are present.  For example, lenders may permit debt-to-income ratios to exceed guidelines if one or more compensating factors are present such as low loan-to-value, borrower high liquid net worth or documented excess funds in reserves, or strong borrower credit history and credit scores.  There are no limitations on the specific underwriting standards that may be waived by the lenders and there are no requirements of specific compensating factors that must be present.  Lenders exercise a significant amount of discretion as to when an exception loan should still be approved.  There are no limitations on the amount of exception loans that may be included in the assets of the issuing entity backing securities offered hereby.  The prospectus supplement will set forth the number and aggregate principal amount of exception loans and will include a narrative summary disclosure of the characteristics of the exception loans.
 
Qualifications of Sellers
 
Except as otherwise set forth herein or in the prospectus supplement, each seller must be an institution experienced in originating and servicing loans of the type contained in the pool in accordance with accepted practices and prudent guidelines, and must maintain satisfactory facilities to originate and service those loans; each seller must be a seller/servicer approved by either Fannie Mae or Freddie Mac; and each seller must be a mortgagee approved by the FHA or an institution the deposit accounts of which are insured by the Federal Deposit Insurance Corporation.

Quality Control
 
A quality control program has been developed to monitor the quality of loan underwriting at the time of acquisition and on an ongoing basis.  All loans purchased will be subject to this quality control program.  A legal document review of each loan acquired will be conducted to verify the accuracy and completeness of the information contained in the mortgage notes, security instruments and other pertinent documents in the file.  A sample of loans to be acquired, selected by focusing on those loans with higher risk characteristics, will normally be submitted to a third-party nationally recognized underwriting review firm for a compliance check of underwriting and review of income, asset and appraisal information.
 
Representations and Warranties; Repurchases
 
In the mortgage loan purchase and sale agreement or similar agreement, pursuant to which the depositor will purchase the mortgage loans from the seller, the seller will make or assign certain representations and warranties to the depositor concerning the mortgage loans.  If so indicated in the applicable prospectus supplement, the seller may, rather than itself making representations and warranties, cause the representations and warranties made by an originator to the seller in connection with the purchase of mortgage loans by the seller to be assigned to the depositor.  In these cases, these representations and warranties may have been made as of a date prior to the date of execution of the mortgage loan purchase and sale agreement.  The trustee will be assigned all right, title and interest in the mortgage loan purchase and sale agreement or similar agreement insofar as they relate to such representations and warranties made or assigned by the seller.  The seller or other party named in the prospectus supplement will be obligated to repurchase (or, within the period provided in the Agreement, to substitute a replacement mortgage loan for) any mortgage loan as to which there exists an uncured breach of certain of its representations and warranties, which breach materially and adversely affects the value of, or interest of the securityholders in, the mortgage loan.
 
 
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These representations and warranties will include the following as to each mortgage loan, among others, unless otherwise specified in the prospectus supplement:
 
 
·
The information set forth in the mortgage loan schedule is true and correct in all material respects;
 
 
·
Immediately prior to the sale of the mortgage loan pursuant to the mortgage loan purchase and sale agreement, the seller was a sole owner and holder of the mortgage loan.  The mortgage loan is not assigned or pledged, and the seller has good and marketable title thereto, and has full right to transfer and sell the mortgage loan to the depositor free and clear of any encumbrance, equity, lien, pledge, charge, claim or security interest not specifically set forth in the related mortgage loan schedule and has full right and authority subject to no interest or participation of, or agreement with, any other party, to sell and assign the mortgage loan pursuant to the terms of the mortgage loan purchase and sale agreement;
 
 
·
The mortgage is a valid, subsisting, enforceable and perfected first lien on the mortgaged property, including all improvements on the mortgaged property, subject only to (i) the lien of non-delinquent current real property taxes and assessments not yet due and payable; (ii) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording which are acceptable to mortgage lending institutions generally and either (A) which are referred to or otherwise considered in the appraisal made for the originator of the mortgage loan or (B) which do not adversely affect the appraised value (as evidenced by an appraisal referred to in such definition) of the mortgaged property; and (iii) other matters to which like properties are commonly subject that do not materially interfere with the benefits of the security intended to be provided by the mortgage or the use, enjoyment, value or marketability of the related mortgaged property;
 
 
·
As of the closing date, there is no default, breach, violation or event of acceleration existing under the mortgage or the mortgage note and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event permitting acceleration, and the seller and its affiliates have not waived any default, breach, violation or event permitting acceleration;
 
 
·
No fraud, error, omission, misrepresentation, gross negligence or similar occurrence with respect to the mortgage loan has taken place on the part of the seller or any originator or servicer or the mortgagor or on the part of any other party involved in the origination of the mortgage loan;
 
 
·
Each mortgage loan secured by a first priority mortgage, other than any mortgage loan secured by a mortgaged property located in any jurisdiction as to which an opinion of counsel in lieu of title insurance is instead received, is covered by an ALTA lender’s title insurance policy or other form of policy or insurance generally acceptable to Fannie Mae or Freddie Mac, issued by a title insurer acceptable to Fannie Mae or Freddie Mac and qualified to do business in the jurisdiction where the mortgaged property is located;
 
 
·
All payments due on each mortgage loan have been made and no mortgage loan was more than 30 days past due more than once in the preceding 12 months and any such delinquency did not exceed one payment;
 
 
·
There are no delinquent assessments or taxes outstanding against any mortgaged property;
 
 
·
There is no offset, defense, counterclaim to any mortgage note, except as stated in the mortgage loan purchase and sale agreement;
 
 
·
Each mortgaged property is free of material damage and in good repair;
 
 
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·
Each mortgage loan at the time of origination complied in all material respects with applicable state and federal laws including truth in lending, real estate settlement procedures, consumer credit protection, equal credit opportunity and disclosure laws applicable to the mortgage loan;
 
 
·
Each mortgage loan with a loan-to-loan value ratio at origination in excess of 80% is and will be subject to a primary mortgage insurance policy issued by a qualified insurer, which provides coverage in an amount at least equal to that which would be required by Fannie Mae.  All provisions of such mortgage insurance policy have been and are being complied with, such policy is in full force and effect, and all premiums due thereunder have been paid;
 
 
·
All hazard insurance or other insurance required under the mortgage loan sale agreement has been validly issued and remains in full force and effect;
 
 
·
The mortgage note and the related mortgage are genuine and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws;
 
 
·
Each mortgage loan is a “qualified mortgage” within Section 860G(a)(3) of the Code;
 
 
·
The seller has not used selection procedures that identified the mortgage loans as being less desirable or valuable other than comparable mortgage loans in the seller’s portfolio at the cut-off date;
 
 
·
None of the mortgage loans are high-cost as defined by the applicable local, state and federal predatory and abusive lending laws; and
 
 
·
Each mortgage loan at the time it was made complied in all material respects with applicable local, state and federal predatory and abusive lending laws.
 
The seller may also repurchase a mortgage loan as to which there exists an uncured breach of certain representations and warranties made by the party from which the seller acquired the mortgage loan.
 
The servicer or the trustee will promptly notify the relevant seller of any breach of any representation or warranty made or assigned by it in respect of a loan which materially and adversely affects the interests of the securityholders in such loan.  Unless otherwise specified in the prospectus supplement, if such seller cannot cause such breach to be cured within the time period specified in the prospectus supplement following notice from the servicer or the trustee, as the case may be, then such seller or other party named in the prospectus supplement will be obligated to repurchase such loan from the issuing entity at a purchase price equal to 100% of the unpaid principal balance thereof as of the date of the repurchase plus accrued interest thereon to the first day of the month following the month of repurchase at the loan rate (less any advances or amount payable as related servicing compensation if the seller is the servicer) and may elect to substitute for such loan a replacement loan that satisfies the criteria specified in the prospectus supplement.  This repurchase or substitution obligation will constitute the sole remedy available to holders of securities or the trustee for a breach of representation made or assigned by a seller.

If an election is being made to treat the issuing entity as a “real estate mortgage investment conduit” or “REMIC,” the servicer, the trustee or a holder of the related residual certificate generally will be obligated to pay any prohibited transaction tax which may arise in connection with any such repurchase or substitution and the trustee may require delivery of a satisfactory opinion of counsel that any such substitution will not cause the issuing entity to lose its status as a REMIC or otherwise subject the issuing entity to a prohibited transaction tax.
 

 
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Neither the depositor nor the servicer will be obligated to purchase or substitute a loan if a seller or other party named in the prospectus supplement defaults on its obligation to do so, and no assurance can be given that sellers or such other parties will carry out their respective repurchase or substitution obligations with respect to loans.
 
Status of the Mortgage Loans and Related Assets in the Event of Insolvency of the Seller
 
Each transfer of a mortgage loan to the applicable seller, from the seller to the depositor and from the depositor to the issuing entity, will have been intended to be an absolute and unconditional sale of such mortgage loan.  However, in the event of bankruptcy or insolvency of a prior owner of a mortgage loan, a trustee in bankruptcy or a receiver or creditor of the insolvent party could attempt to recharacterize the sale of that mortgage loan by such insolvent party as a borrowing secured by a pledge of the mortgage loan.  Such an attempt, even if unsuccessful, could result in delays in payments on the securities of the related series.  If such an attempt were successful, it is possible that the affected mortgage loans could be sold in order to liquidate the assets of the insolvent entity.  In the case of the bankruptcy or insolvency of the seller, there can be no assurance that the proceeds of such liquidation would be sufficient to repay the securities in full.
 
DESCRIPTION OF THE SECURITIES
 
Each series of securities issued in the form of certificates will be issued pursuant to a pooling and servicing agreement among the depositor, a master servicer and the trustee or pursuant to agreements containing comparable provisions, as described in the prospectus supplement.  The loans will be serviced pursuant to one or more servicing agreements assigned to the trustee.  A form of pooling and servicing agreement and servicing agreement have been filed as exhibits to the registration statement of which this prospectus forms a part.  Each series of securities issued in the form of notes or bonds will be issued pursuant to an indenture between the related issuing entity (formed by a trust agreement) and the entity named in the prospectus supplement as trustee or pursuant to agreements containing comparable provisions, as described in the prospectus supplement, and the related loans will be serviced by the servicer pursuant to a servicing agreement or a sale and servicing agreement.  A form of indenture, trust agreement, servicing agreement and sale and servicing agreement have been filed as exhibits to the registration statement of which this prospectus forms a part.
 
As used in this prospectus, “Agreement” means, with respect to a series consisting of certificates, the pooling and servicing agreement and related servicing agreements, and, with respect to a series consisting of notes or bonds, the trust agreement, the indenture and the related servicing agreements or sale and servicing agreements, or, in either case, such other agreements containing comparable provisions as set forth in the prospectus supplement as the context requires.
 
The trustee under the pooling and servicing agreement for a series, or, if applicable, the indenture trustee under the indenture and the owner trustee under the trust agreement for a series, will be identified in the applicable prospectus supplement.  References in this prospectus to “trustee” are intended to refer as to any particular series of securities to the pooling and servicing agreement trustee, indenture trustee or owner trustee, as applicable, unless the context requires otherwise.
 
A series of securities may consist of both notes or bonds and certificates.  The provisions of each Agreement will vary depending upon the nature of the securities to be issued thereunder and the nature of the issuing entity.  The following are descriptions of the material provisions which may appear in each Agreement.  The descriptions are subject to, and are qualified in their entirety by reference to, all of the provisions of the specific Agreements applicable to series of securities.  The sponsor will provide a copy of the Agreements (without exhibits) relating to any series without charge upon written request of a holder of record of a security of such series addressed to the sponsor, One Belvedere Place, Suite 310, Mill Valley, California 94941, Attention: Secretary.
 
 
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General
 
Unless otherwise described in the prospectus supplement the securities of each series:
 
 
·
will be issued in book-entry or fully registered form, in the authorized denominations specified in the prospectus supplement;
 
 
·
will, in the case of certificates, evidence specified beneficial ownership interests in the assets of the issuing entity;
 
 
·
will, in the case of notes or bonds, be secured by the assets of the issuing entity; and
 
 
·
will not be entitled to payments in respect of the assets included in any other issuing entity established by the depositor.
 
Unless otherwise specified in the prospectus supplement, the securities will not represent obligations of the depositor or any affiliate of the depositor.  Certain of the loans may be guaranteed or insured as set forth in the prospectus supplement.  Each issuing entity will consist of, to the extent provided in the related Agreement:
 
 
·
mortgage loans secured by properties of the types described in this prospectus;
 
 
·
agency and/or private mortgage-backed securities of the types described in this prospectus supplement;
 
 
·
amounts held from time to time in the collection account, distribution account or other account established for a series of securities;
 
 
·
mortgaged properties that secured a mortgage loan and that are acquired on behalf of the securityholders by foreclosure, deed in lieu of foreclosure or repossession;
 
 
·
any reserve fund established pursuant to the agreements for a series of securities, if specified in the prospectus supplement;
 
 
·
any security insurance policy, pool insurance policy, special hazard insurance policy, bankruptcy bond, interest rate cap agreement, interest rate swap agreement, currency swap agreement or other form of credit enhancement described in this prospectus and specified in the prospectus supplement;
 
 
 
·
any servicing agreements relating to mortgage loans in the issuing entity, to the extent that these agreements are assigned to the trustee;
 
 
·
any primary mortgage insurance policies or limited purpose surety bonds relating to mortgage loans in the issuing entity;
 
 
·
investments held in any fund or account or any guaranteed investment contract and income from the reinvestment of these funds, if specified in the prospectus supplement; and
 
 
·
any other asset, instrument or agreement relating to the issuing entity described in this prospectus and specified in the prospectus supplement.
 
Each series of securities 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, and each class of notes of a series will be secured by, the related issuing entity assets.  A series of securities may include one or more classes that are senior in right to payment to one or more other classes

 
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of securities of such series.  Certain series or classes of securities may be covered by insurance policies, surety bonds or other forms of credit enhancement, in each case as described in the prospectus supplement.  One or more classes of securities 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 securities may be made prior to one or more other classes, after the occurrence of specified events, in accordance with a schedule or formula or on the basis of collections from designated portions of the related issuing entity assets, in each case as specified in the prospectus supplement.  The timing and amounts of such distributions may vary among classes or over time as specified in the prospectus supplement.

Distributions of principal and interest (or, where applicable, of principal only or interest only) on the related securities will be made by the trustee or the payment agent on each payment date in proportion to the percentages described in the prospectus supplement.  Payment dates will occur either monthly, quarterly, semi-annually or at other specified intervals and will occur on the dates as are described in the prospectus supplement.  Distributions will be made to the persons in whose names the securities are registered at the close of business on the record date relating to payment date.  Distributions will be made in the manner described in the prospectus supplement to the persons entitled thereto at the address appearing in the register maintained for securityholders; provided, however, that, unless otherwise provided in the prospectus supplement, the final distribution in retirement of the securities will be made only upon presentation and surrender of the securities at the office or agency of the trustee or other person specified in the notice to securityholders of such final distribution.
 
The securities will be freely transferable and exchangeable at the corporate trust office of the trustee specified in the prospectus supplement.  No service charge will be made for any registration of exchange or transfer of securities of any series, but the trustee may require payment of a sum sufficient to cover any related tax or other governmental charge.
 
The sale or transfer of certain classes of securities to employee benefit plans and retirement arrangements that are subject to the provisions of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”), may be restricted.  The prospectus supplement for each series of securities will describe any such restrictions.
 
As to each series, an election may be made to treat the related issuing entity or designated portions thereof as one or more REMICs as defined in the Code.  The prospectus supplement will specify whether a REMIC election is to be made.  Alternatively, the Agreement for a series of securities may provide that a REMIC election may be made at the discretion of the depositor or the servicer and may only be made if certain conditions are satisfied.  As to any such series, the terms and provisions applicable to the making of a REMIC election will be set forth in the prospectus supplement.  If such an election is made with respect to a series of securities, one of the classes will be designated as evidencing the sole class of residual interests in the REMIC.  All other classes of securities in such a series will constitute regular interests in the REMIC.  As to each series of securities with respect to which a REMIC election is to be made; the servicer, the trustee and/or a holder of the residual certificate will be obligated to take all actions required in order to comply with applicable laws and regulations.
 
Distributions on Securities
 
General.  In general, the method of determining the amount of distributions on a particular series of securities will depend on the type of credit support, if any, that is used with respect to such series.  Set forth below are descriptions of various methods that may be used to determine the amount of distributions on the securities of a particular series.  The prospectus supplement for each series of securities will describe the method to be used in determining the amount of distributions on the securities of that series.
 
Distributions allocable to principal and interest on the securities will be made by the trustee out of, and only to the extent of, funds in the related collection account, including any funds transferred from any reserve account.  As between securities of different classes and as between distributions of principal (and, if applicable, between distributions of principal prepayments and scheduled payments of principal) and

 
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interest, distributions made on any payment date will be applied as specified in the prospectus supplement.  The prospectus supplement will also describe the method for allocating distributions among securities of a particular class.
 
Available Funds.  All distributions on the securities of each series on each payment date will be made from the available funds described below, in accordance with the terms described in the prospectus supplement and specified in the Agreement.  Available funds for each payment date will generally equal the amount on deposit in the related Collection Account on such payment date (net of related fees and expenses payable by the related issuing entity) other than amounts to be held therein for distribution on future payment dates.

Distributions of Interest. Interest will accrue on the aggregate principal balance of the securities (or, in the case of securities entitled only to distributions allocable to interest, the aggregate notional amount) of each class of securities (the “class security balance”) entitled to interest from the date, at the pass-through rate or interest rate, as applicable, and for the periods specified in the related prospectus supplement.  The pass-through rate or interest rate applicable to each class of securities will be specified in the related prospectus supplement as either a fixed rate or adjustable rate.  Any interest rate will be a conventional rate of interest on debt and will not be calculated with reference to a commodities or securities index.  Other than with respect to a class of securities that provides for interest that accrues but is not currently payable (“accrual securities”), to the extent funds are available for the payment of interest on a class of securities, interest accrued during each specified period on that class of securities entitled to interest will be distributable on the payment dates specified in the prospectus supplement until the aggregate class security balance of those securities has been distributed in full or, in the case of securities entitled only to distributions allocable to interest, until the aggregate notional amount of those securities is reduced to zero or for the period of time designated in the prospectus supplement.  Except in the case of the accrual securities, the original class security balance of each security will equal the aggregate distributions allocable to principal to which such security is entitled.  Distributions allocable to interest on each security that is not entitled to distributions allocable to principal will be calculated based on the notional amount of such security.  The notional amount of a security 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.
 
Interest payable on the securities of a series on a payment date will include all interest accrued during the period specified in the prospectus supplement.  In the event interest accrues over a period ending two or more days prior to a payment date, the effective yield to securityholders will be reduced from the yield that would otherwise be obtainable if interest payable on the security were to accrue through the day immediately preceding such payment date, and the effective yield (at par) to securityholders will be less than the indicated coupon rate.
 
With respect to any class of accrual securities, as specified in the prospectus supplement, any interest that has accrued but is not paid on a given payment date may be added to the aggregate class security balance of such class of securities on that payment date and thereafter may itself accrue interest as part of the aggregate class security balance.  Distributions of interest on any class of accrual securities will commence only after the occurrence of the events specified in such prospectus supplement.  Prior to the occurrence of those specified events, the beneficial ownership interest in the issuing entity or the principal balance, as applicable, of such class of accrual securities, as reflected in the aggregate class security balance of such class of accrual securities, will increase on each payment date by the amount of interest that accrued on that class of accrual securities during the preceding interest accrual period.
 
Distributions of Principal.  The prospectus supplement will specify the method by which the amount of principal to be distributed on the securities on each payment date will be calculated and the manner in which such amount will be allocated among the classes of securities entitled to distributions of principal.  The aggregate class security balance of any class of securities entitled to distributions of principal generally will equal the aggregate original class security balance specified in the related prospectus supplement for that class, reduced by all distributions allocable to principal previously made to the holders of that class of securities and by any allocations of realized losses to that class, and, in the case

 
45

 

of accrual securities, increased by all interest accrued but not then distributable on such accrual securities, as specified in the prospectus supplement.  The aggregate class security balance for adjustable rate securities may also be subject to the effects of negative amortization.
 
If so provided in the prospectus supplement, one or more classes of securities will be entitled to receive all or a disproportionate percentage of the principal payments or prepayments made with respect to a payment date in the percentages and under the circumstances or for the periods specified in that prospectus supplement.  This allocation of principal payments or prepayments to that class or those classes of securities will have the effect of accelerating the amortization of those securities while increasing the interests evidenced by one or more other classes of securities issued by the related trust.  Increasing the interests of the other classes of securities relative to that of certain securities is intended to preserve the availability of the subordination provided by those other classes of securities.

            Unscheduled Distributions.  If specified in the prospectus supplement, the securities will be subject to receipt of distributions before the next scheduled payment date under the circumstances and in the manner described below and in such prospectus supplement.  If applicable, the trustee will be required to make these unscheduled distributions on the day and in the amount specified in the prospectus supplement if, due to substantial payments of principal (including principal prepayments, redemptions of securities or termination of the issuing entity) on the issuing entity assets, the trustee or the servicer determines that the funds available or anticipated to be available from the collection account and, if applicable, any reserve account, on the next scheduled payment date may be insufficient to make required distributions on the securities on that payment date.  Unless otherwise specified in the 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 securities on the next payment date.  Unless otherwise specified in the prospectus supplement, the unscheduled distributions will include interest at the applicable pass-through rate, if any, or interest rate, if any, on the portion of the unscheduled distribution that is allocable to principal for the period and to the date specified in the prospectus supplement.
 
Categories of Classes of Securities
 
The securities of any series may be comprised of one or more classes.  These classes generally fall into different categories.  The following chart identifies and generally defines certain of the more typical categories of security classes.  The prospectus supplement for a series of securities may identify the classes which comprise that series by reference to the following categories.
 
Categories of Classes
 
Definition
     
   
PRINCIPAL TYPES
     
Accretion Directed
 
A class that receives principal payments that are funded from collections that would have otherwise funded interest payments on the accreted interest from specified accrual classes.  An accretion directed class also may receive principal payments from principal paid on the issuing entity assets.
     
Component Securities
 
A class consisting of “components.” The components of a class of component securities may have different principal and/or interest payment characteristics but together constitute a single class.  Each component of a class of component securities may be identified as falling into one or more of the categories in this chart.
     
Notional Amount Securities
 
A class having no principal balance and bearing interest on the related notional amount.  The notional amount is used for

 
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purposes of the determination of interest distributions.
     
Planned Principal Class or PACs
 
A class that is designed to receive principal payments using a predetermined principal balance schedule derived by assuming two constant prepayment rates for the issuing entity assets.  These two rates are the endpoints for the “structuring range” for the planned principal class.  The planned principal classes in any series of securities may be subdivided into different categories (e.g., primary planned principal classes, secondary planned principal classes and so forth) having different effective structuring ranges and different principal payment priorities.  The structuring range for the secondary planned principal class of a series of securities will be narrower than that for the primary planned principal class of such series.
     
Scheduled Principal Class
 
A class that is designated to receive principal payments using a predetermined principal balance schedule but is not designated as a planned principal class or targeted principal class.  In many cases, the schedule is derived by assuming two constant prepayment rates for the issuing entity assets.  Theses two rates are the endpoints for the “structuring range” for the scheduled principal class.
 
 Sequential Pay
 
Classes that receive principal payments in a prescribed sequence, that do not have predetermined principal balance schedules and that receive payments of principal, when amounts are available to make payments of principal, continuously from the first payment date on which they receive principal until they are retired.  A single class that receives principal payments before or after all other classes in the same series of securities may be identified as a sequential pay class.
     
Strip
 
A class that receives a constant proportion, or “strip,” of the principal payments on the issuing entity assets.  The constant proportion of such principal payments may or may not vary for each asset included in the issuing entity and will be calculated in the manner described in the prospectus supplement.  These classes may also receive payments of interest.
     
Support Class (or companion class)
 
A class that receives principal payments on any payment date only if scheduled payments have been made on specified planned principal classes, targeted principal classes and/or scheduled principal classes.
     
Targeted Principal Class
 
A class that is designated to receive principal payments using a predetermined principal balance schedule derived by assuming a single constant prepayment rate for the issuing entity assets.
     
   
INTEREST TYPES
     
Accrual
 
A class that adds accrued interest otherwise distributable on the class to the principal balance of the class on each

 
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applicable payment date.  The accretion may continue until some specified event has occurred or until the class is retired.
     
Fixed Rate
 
A class with a pass-through rate or interest rate that is fixed throughout the life of the class.
     
Floating Rate
 
A class with an interest rate that resets periodically based upon a designated index and that varies directly with changes in that index.
     
Inverse Floating Rate
 
A class with an interest rate that resets periodically based upon a designated index and that varies inversely with changes in such index.
     
Interest Only or IO
 
A class that receives some or all of the interest payments made on the issuing entity assets and little or no principal.  Interest only certificates have either a nominal principal balance or a notional amount.  A nominal principal balance represents actual principal that will be paid on the class.  It is referred to as nominal since it is extremely small compared to other classes.  A notional amount is an amount used as a reference to calculate the amount of interest due on an interest only security but is never actually paid out as principal on the class.
     
Partial Accrual
 
A class that adds a portion of the amount of accrued interest thereon to the principal balance of the class on each applicable payment date, with the remainder of the accrued interest to be distributed currently as interest on the class on each applicable payment date.  The accretion of designated amounts of the interest may continue until a specified event has occurred or until the class is retired.
 
Principal Only or PO
 
A class that does not bear interest and is entitled to receive only distributions in respect of principal.
     
Variable Rate
 
A class with a pass-through rate of interest rate that resets periodically and is calculated by reference to the rate or rates of interest applicable to specified assets or instruments (e.g., the loan rates borne by the loans in the issuing entity).
 
Subordinate Securities.  A series of securities may include one or more classes of subordinate securities that provide some or all of the credit enhancement for the senior securities in the series.  The rights of holders of some classes of securities (the “subordinate securities”) to receive distributions will be subordinate in right and priority to the rights of holders of senior securities of the series (the “senior securities”) but only to the extent described in the prospectus supplement.  If the mortgage loans are divided into separate asset groups, evidenced by separate classes, credit enhancement may be provided by a cross-support feature.  This feature requires in general that distributions be made to senior securities prior to making distributions on subordinate securities backed by assets in another asset group within the issuing entity.  Unless rated in one of the four highest rating categories by at least one nationally recognized statistical rating organization (each a “rating agency”), subordinate securities will not be offered by this prospectus or the prospectus supplement.  See “CREDIT ENHANCEMENT — Subordination” in this prospectus.
 
Home Equity Loan Securities.  For any series of securities backed by home equity revolving credit loans, the related issuing entity may hold either (i) the entire principal balance of each home equity

 
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revolving credit loan outstanding at any time, including balances attributable to draws made after the related cut-off date, or (ii) a specified portion of the total principal balance of each home equity revolving credit loan outstanding at any time, which will consist of all or a portion of the principal balance as of the cut-off date minus the portion of all payments and losses after the cut-off date that are allocated to such balance, and may not include some portion of the principal balance attributable to draws made after the cut-off date.  The principal balance or portion of the principal balance of each home equity revolving credit loan outstanding at any time and held by the issuing entity is referred to as the “issuing entity balance.”
 
The accompanying prospectus supplement will describe the specific provisions by which payments and losses on any home equity revolving credit loan will be allocated as between the issuing entity balance and any portion of the principal balance of a home equity revolving credit loan, if any, not included in the issuing entity balance at any time, which may include balances attributable to draws after the cut-off date and may include a portion of the principal balance outstanding as of the cut-off date.  The portion of the principal balance of each home equity revolving credit loan outstanding at any time and not held by the issuing entity is referred to as the “excluded balance.” Typically, the provisions (i) may provide that principal payments made by the borrower will be allocated as between the issuing entity balance and any excluded balance either on a pro rata basis, or first to the issuing entity balance until reduced to zero, then to the excluded balance, or according to other priorities specified in the accompanying prospectus supplement, and (ii) may provide that interest payments, as well as liquidation proceeds or similar proceeds following a default and any realized losses, will be allocated between the issuing entity balance and any excluded balance on a pro rata basis or according to other priorities specified in the accompanying prospectus supplement.
 
Even if an issuing entity initially holds the entire principal balance of the home equity revolving credit loans, the related agreement may provide that after a specified date or on the occurrence of specified events, the issuing entity will not acquire balances attributable to additional draws made thereafter.  The accompanying prospectus supplement will describe these provisions as well as the related allocation provisions that would be applicable.
 
Compensating Interest
 
Payments may be received on loans in the issuing entity which represent either a principal prepayment in full or a principal payment which is in excess of the scheduled monthly payment and which is not intended to cure a delinquency.  If specified in the prospectus supplement, the servicer will be required to remit to the trustee with respect to each of these types of payments during any due period an amount equal to either (1) the excess, if any, of (a) 30 days’ interest on the principal balance of the related loan at the loan rate net of the per annum rate at which the servicer’s servicing fee accrues, over (b) the amount of interest actually received on the loan during the related due period, net of the servicer’s servicing fee or (2) such other amount as described in the prospectus supplement.  This amount remitted to the trustee by the servicer will be limited to amounts otherwise payable to the servicer as servicing compensation.

 Reports to Securityholders
 
Prior to or concurrently with each distribution on a payment date, the servicer or the trustee will furnish to each securityholder of record of the related series a statement setting forth, to the extent applicable to such series of securities, among other things:
 
 
·
any applicable record dates, accrual dates, determination dates for calculating distributions and actual distribution dates for the distribution period;
 
 
·
the amount of cashflows received and the sources thereof for distributions, fees and expenses;
 
 
·
the amount of fees and expenses accrued and paid, the purpose of such fees and expenses and the identification of each payee, including the amount of fees paid to the trustee, the custodian, the master servicer, the securities administrator, the servicers and subservicers
 
 
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for such distribution date;

 
·
the amount of payments accrued and paid with respect to credit enhancement or other support for the related transaction, including, insurance premiums and payments to swap or cap providers, the purpose of such payments and the identification of each payee;
 
 
·
the amount of the distribution with respect to each class of securities;
 
 
·
the amount of such distributions allocable to principal, separately identifying the aggregate amount of any prepayments or other unscheduled recoveries of principal included in such amount;
 
 
·
the amount of such distributions allocable to interest;
 
 
·
the class principal balance of each class of securities (other than interest-only securities) as of such distribution date together with the principal balance of the securities of the related class (based on a security in the original principal balance of $1,000), after giving effect to any payment of principal on such distribution date;
 
 
·
the class notional balance of each class of interest only securities as of such distribution date together with the principal balance of the securities of the related class (based on a security in the original principal balance of $1,000), after giving effect to any payment of principal on such distribution date;
 
 
·
if applicable, a statement that interest payable on one or more classes of securities on such distribution date represents interest accrued on those classes at a rate equal to the applicable available funds cap, net weighted average cap or other limitation;
 
 
·
the amount, terms and general purpose of any Advances for such distribution date, including the general use of funds advanced and the general source of funds for reimbursements, and the amount of any outstanding Advances remaining after such distribution date;
 
 
·
the purchase price deposited into the collection account with respect to any mortgage loan;
 
 
·
the total number of mortgage loans and the aggregate principal balances thereof, together with the number and aggregate principal balances of mortgage loans (a) 30-59 days delinquent, (b) 60-89 days delinquent and (c) 90 or more days delinquent;
 
 
·
the number and aggregate principal balance of mortgage loans in foreclosure proceedings (and whether any such mortgage loans are also included in any of the statistics described in the preceding clause);
 
 
·
the pool balance as of such distribution;
 
 
·
any applied loss amount for any class of securities;
 
 
·
the amount of any basis risk shortfall with respect to any class of securities;
 
 
·
the amount of excess cash flow or excess spread and the disposition of such excess cash flow or excess spread;
 
 
·
the overcollateralization amount for such distribution date;
 

 
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·
the amount of any shortfalls in distributions of interest with respect to each class of securities on such distribution date and the cumulative amount of any unreimbursed shortfalls in distributions of interest from prior distribution dates;
 
 
·
any amounts drawn on any credit enhancement or other support, as applicable, and the amount of coverage remaining under any such enhancement, if known and applicable;
 
 
·
delinquency and loss information for the distribution period with respect to the mortgage loans in the pool;
 
 
 
·
the number of properties and the unpaid principal balance with respect to each property relating to defaulted mortgage loans in the issuing entity;
 
 
 
·
the beginning and ending balances of the distribution account, reserve account or other transaction account and any material account activity during the related period;
 
 
 
·
any material modifications, extensions or waivers to pool asset terms, fees, penalties or payments during the distribution period or that have cumulatively become material over time;
 
 
·
information with respect to material breaches of pool asset representations or warranties or transaction covenants;
 
 
 
·
information on ratio, coverage or other tests used for determining any early amortization, liquidation or other performance trigger and whether the trigger was met;
 
 
 
·
information regarding any changes to the mortgage loans in the pool, including any additions or removals in connection with a pre-funding or revolving period, repurchases or substitutions;
 
 
 
·
the amounts on deposit in any pre-funding account;
 
 
 
·
information regarding any material changes in the solicitation, credit granting, underwriting, origination, acquisition or pool selection criteria or procedures, as applicable, used to originate, acquire or select additional mortgage loans acquired during a pre-funding or revolving period or in connection with a substitution; and
 
 
·
such other information as is required under the applicable Agreement.
 
In addition, within a reasonable period of time after the end of each calendar year, the trustee will furnish a report to each person that was a holder of record of any class of securities at any time during such calendar year.  This report will include information as to the aggregate of amounts reported pursuant to the first three clauses above for such calendar year or, in the event such person was a holder of record of a class of securities during a portion of such calendar year, for the applicable portion of such year.
 
The trustee may, at its option, distribute or cause to be distributed monthly statements to securityholders by first class mail or by making such statement available via an internet website.  In the event that an internet website is used, securityholders will be entitled to receive paper copies of monthly statements by mail if they so request.

Optional Termination
 
If specified in the prospectus supplement for a series of securities, the depositor, the servicer or master servicer, or any other designated entity may, at its option, purchase or direct the sale of a portion of the mortgage loans of the issuing entity, or cause an early termination of the issuing entity by purchasing all of the mortgage loans from the issuing entity or directing the sale of the mortgage loans.  This termination

 
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may occur on a date on or after the date on which either (1) the total principal balance of the mortgage loans is less than a specified percentage of the initial total principal balance, or (2) the total principal balance of the securities (or of certain classes in a series) is less than a specified percentage of their initial total principal balance, or on or after another date, as described in the prospectus supplement.  If specified in the prospectus supplement, the trustee or other specified party will, either upon direction of a specified party or parties or upon the occurrence of a specified date or event, solicit bids for purchase of the assets of the issuing entity.  This bid process may be subject to a minimum bid price.
 
The optional termination described in this section will be in addition to terminations that may result from other events, such as events of default and rapid amortization events described elsewhere herein.
 
Optional Purchase of Securities
 
The prospectus supplement for a series of securities may provide that one or more classes of the series may be purchased, in whole or in part, at the option of the depositor, the servicer or master servicer, or another designated entity (including holders of another class of securities), at specified times and purchase prices, and under particular circumstances.  Notice of any purchase must be given by the trustee or other specified party prior to the optional purchase date, as specified in the prospectus supplement.
 
Other Purchases or Redemption
 
If specified in the prospectus supplement for a series, any class of securities in the series may be subject to redemption, in whole or in part, at the option of the issuing entity, or to mandatory purchase by the depositor, the servicer or master servicer, or another designated entity at specified times, and under particular circumstances, set forth in the prospectus supplement (but in no event at the request or discretion of the holders of that class).  The redemption price will be equal to the outstanding principal of the securities together with accrued interest thereon.  The other terms and conditions of any redemption or mandatory purchase with respect to a class of securities will be described in the prospectus supplement.
 
The depositor may also have the option to obtain for any series of securities one or more guarantees from a company or companies acceptable to the rating agencies.  As specified in the prospectus supplement, these guarantees may provide for one or more of the following for any series of securities:
 
 
·
call protection for any class of securities of a series;
 
 
·
a guarantee of a certain prepayment rate of some or all of the mortgage loans underlying the series; or
 
 
·
certain other guarantees described in the prospectus supplement.
 
Book-Entry Registration of Securities
 
As described in the prospectus supplement, if not issued in fully registered form, each class of securities will be registered as book-entry securities.  Persons acquiring beneficial ownership interests in the securities, or “beneficial owners,” will hold their securities through DTC in the United States, or Clearstream Banking, societe anonyme (formerly Cedelbank), commonly known as Clearstream, Luxembourg, or the Euroclear system, in Europe.  Clearstream, Luxembourg and Euroclear will hold omnibus positions for Clearstream, Luxembourg participants and Euroclear participants, respectively, through customers’ securities accounts in Clearstream, Luxembourg’s and Euroclear’s names on the books of their respective depositaries.  The depositaries will hold these positions in customers’ collection accounts in the depositaries names on DTC’s books.  The prospectus supplement will state if the securities will be in physical rather than book-entry form.

DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a clearing corporation within the meaning of the Uniform

 
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Commercial Code and a clearing agency registered under Section l7A of the Securities Exchange Act.  DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes in their accounts, eliminating the need for physical movement of certificates.  DTC’s participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include other organizations.  Indirect access to the DTC system also is available to indirect participants such as brokers, dealers, banks and trust companies that clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly.
 
Transfers between DTC participants will occur according to DTC rules.  Transfers between Clearstream, Luxembourg participants and Euroclear participants will occur according to their applicable rules and operating procedures.
 
Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream, Luxembourg participants or Euroclear participants, on the other, will be effected in DTC according to DTC rules on behalf of the relevant European international clearing system by its depositary; however, those cross-market transactions will require the counterparty to deliver instructions to the relevant European international clearing system according to the counterparty rules and procedures and within its established deadlines (European time).  The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its depositary to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment according to normal procedures for same-day funds settlement applicable to DTC, Clearstream, Luxembourg participants and Euroclear participants may not deliver instructions directly to the depositaries.
 
Because of time-zone differences, credits of securities in Clearstream, Luxembourg or Euroclear resulting from a transaction with a DTC participant will be made during the subsequent securities settlement processing, dated the business day following the DTC settlement date, and the credits or any transactions in the securities settled during the processing will be reported to the relevant Clearstream, Luxembourg participant or Euroclear participant on that business day.  Cash received in Clearstream, Luxembourg or Euroclear resulting from sales or securities by or through a Clearstream, Luxembourg participant or a Euroclear participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream, Luxembourg or Euroclear cash account only as of the business day following settlement in DTC.
 
Clearstream, Luxembourg was incorporated in 1970 as Cedel S.A., a company with limited liability under Luxembourg law (a societe anonyme).  Cedel S.A. subsequently changed its name to Cedelbank.  On January 10, 2000, Cedelbank’s parent company, Cedel International, societe anonyme, merged its clearing, settlement and custody business with that of Deutsche Borse Clearing AG.
 
Clearstream, Luxembourg holds securities for its customers and facilitates the clearance and settlement of securities transactions between Clearstream, Luxembourg customers through electronic book-entry changes in accounts of Clearstream, Luxembourg customers, thereby eliminating the need for physical movement of certificates.  Transactions may be settled by Clearstream, Luxembourg in any of 36 currencies, including U.S. dollars. Clearstream, Luxembourg provides, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing.  Clearstream, Luxembourg also deals with domestic securities markets in over 30 countries through established depository and custodial relationships.  Clearstream, Luxembourg is registered as a bank in Luxembourg, and as such is subject to regulation by the Commission de Surveillance du Secteur Financier which supervises Luxembourg banks.  Clearstream, Luxembourg’s customers are world-wide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations.  Clearstream, Luxembourg’s U.S. customers are limited to securities brokers and dealers, and banks.  Currently, Clearstream, Luxembourg has approximately 2,000 customers located in over 80 countries, including all major European countries, Canada, and the United States.  Indirect access to Clearstream, Luxembourg is available to other institutions that clear through or maintain a custodial relationship with an account holder of Clearstream, Luxembourg.  Clearstream,

 
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Luxembourg has established an electronic bridge with Morgan Guaranty Trust Company of New York as the operator of the Euroclear System in Brussels to facilitate settlement of trades between Clearstream, Luxembourg and Euroclear.

Euroclear was created in 1968 to hold securities for participants of Euroclear and to clear and settle transactions between Euroclear participants through simultaneous electronic book-entry delivery against payment, thereby eliminating both the need for physical movement of securities and any risk from lack of simultaneous transfers of securities and cash.  Transactions may now be sealed in any of 37 currencies, including United States dollars.  Euroclear includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above.  Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New York, under contract with Euroclear Clearance Systems S.C., a Belgian cooperative corporation.  All operations are conducted by the Euroclear operator, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear operator, not Euroclear Clearance.  Euroclear Clearance establishes policy for Euroclear on behalf of Euroclear participants.  Euroclear participants include banks (including central banks), securities brokers and dealers, and other professional financial intermediaries.  Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly.
 
The Euroclear operator is the Belgian branch of a New York banking corporation which is a member bank of the Federal Reserve System.  As such, it is regulated and examined by the Board of Governors of the Federal Reserve System and the New York State Banking Department, as well as the Belgian Banking Commission.
 
Securities clearance accounts and cash accounts with the Euroclear operator are governed by the Terms and Conditions Governing Use of Euroclear and the related operating procedures of the Euroclear system and applicable Belgian law.  The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear.  All securities in Euroclear are held on a fungible basis without attribution of specific securities to specific securities clearance accounts.  The Euroclear operator acts under the Terms and Conditions only on behalf of Euroclear participants, and has no record of or relationship with persons holding through Euroclear participants.
 
Under a book-entry format, securityholders that are not DTC participants or indirect participants but desire to purchase, sell or otherwise transfer ownership of securities registered in the name of Cede, as nominee of DTC, may do so only through participants and indirect participants.  In addition, these securityholders will receive all distributions of principal of and interest on the securities from the trustee through DTC and its participants.  Securityholders may receive payments after the payment date because DTC will forward these payments to its participants, which thereafter will be required to forward these payments to indirect participants or securityholders.  Unless and until physical securities are issued, it is anticipated that the only securityholder will be Cede, as nominee of DTC, and that the beneficial holders of securities will not be recognized by the trustee as securityholders under the Agreements.  Securityholders which are not DTC participants will only be permitted to exercise their rights under the Agreements through DTC or through its participants.
 
Under the rules, regulations and procedures creating and affecting DTC and its operations, DTC is required to make book-entry transfers among its participants and is required to receive and transmit payments of principal of and interest on the securities.  DTC’s participants and indirect participants are required to make book-entry transfers and receive and transmit payments on behalf of their respective securityholders.  Accordingly, although securityholders will not possess physical securities, the rules provide a mechanism by which securityholders will receive distributions and will be able to transfer their interests.
 
Unless and until physical securities are issued, securityholders who are not DTC participants may transfer ownership of securities only through DTC participants by instructing those participants to transfer

 
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securities, through DTC for the account of the purchasers of the securities, which account is maintained with their respective participants.  Under DTC’s rules and in accordance with DTC’s normal procedures, transfers of ownership of securities will be executed through DTC and the accounts of the respective participants at DTC will be debited and credited.  Similarly, the respective participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing securityholders.
 
Because DTC can only act on behalf of its participants, who in turn act on behalf of indirect participants and some banks, the ability of a securityholder to pledge securities to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of the securities may be limited due to the lack of a physical certificate for the securities.
 
DTC advises that it will take any action permitted to be taken by a securityholder under the Agreements only at the direction of one or more of its participants to whose account the securities are credited.  Additionally, DTC advises that it will take actions only at the direction of and on behalf of its participants whose holdings include current principal amounts of outstanding securities that satisfy the minimum percentage established in the Agreements.  DTC may take conflicting actions if directed by its participants.
 
Any securities initially registered in the name of Cede, as nominee of DTC, will be issued in fully registered, certificated form to securityholders or their nominees, rather than to DTC or its nominee only under the events specified in the Agreements and described in the prospectus supplement.  Upon the occurrence of any of the events specified in this prospectus or in the Agreements and the prospectus supplement, DTC will be required to notify its participants of the availability through DTC of physical certificates.  Upon surrender by DTC of the securities and receipt of instruction for re- registration, the trustee will issue the securities in the form of physical certificates, and thereafter the trustee will recognize the holders of the physical certificates as securityholders.  Thereafter, payments of principal of and interest on the securities will be made by the trustee directly to securityholders in accordance with the procedures set forth in the Agreements.  The final distribution of any security whether physical certificates or securities registered in the name of Cede, however, will be made only upon presentation and surrender of the securities on the final payment date at the office or agency specified in the notice of final payment to securityholders.
 
None of the depositor, the servicer, any finance subsidiary, or the trustee will have any liability for any actions taken by DTC or its nominee or Cedel or Euroclear, including, without limitation, actions for any aspect of the records relating to or payments made on account of the securities held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any records relating to the securities.
 
CREDIT ENHANCEMENT
 
General
 
Credit enhancement may be provided with respect to one or more classes of a series of securities or with respect to the related issuing entity assets and will be described in the prospectus supplement for such series of securities.  Credit enhancement may be in the form of:
 
 
·
the subordination of one or more classes of the securities of such series;
 
 
·
a limited financial guaranty policy issued by an entity named in the prospectus supplement;
 
 
·
the establishment of one or more reserve accounts;
 
 
·
the use of a cross-collateralization feature;
 
 
·
use of a mortgage pool insurance policy;
 
 
·
excess spread,

 
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 ·
overcollateralization;
 
 
 
 ·
letter of credit or demand note;
 
 
 
 ·
guaranteed investment contract;
 
 
 
 ·
primary mortgage insurance,
 
 
 
 ·
other pledged assets,
 
 
 
 ·
corporate guarantees,
 
 
 ·
surety bond;
 
 
 ·
special hazard insurance policy;
 
 
 
 ·
bankruptcy bond;
 
  
 
 ·
derivatives; and
 
 
 ·
any combination of the foregoing.
 
Unless otherwise specified in the prospectus supplement, credit enhancement will not provide protection against all risks of loss and will not guarantee repayment of the entire principal balance of the securities and interest on the securities.  If losses occur which exceed the amount covered by credit enhancement or which are not covered by the credit enhancement, securityholders will bear their allocable share of any deficiencies.
 
If specified in the prospectus supplement, the coverage provided by one or more of the forms of credit enhancement described in this prospectus may apply concurrently to two or more separate issuing entities.  If applicable, the prospectus supplement will identify the issuing entities to which such credit enhancement relates and the manner of determining the amount of coverage provided to those issuing entities by the credit enhancement and of the application of that coverage to the related issuing entities.
 
Subordination
 
If specified in the prospectus supplement, protection afforded to holders of one or more classes of securities of a series may be made by means of a subordination feature.  This protection may be accomplished by providing a preferential right to holders of senior securities in a 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 subordinate securities in that series, under the circumstances and to the extent specified in the prospectus supplement.  Subordination protection may also be afforded to the holders of senior securities by reducing the ownership interest (if applicable) of the related subordinate securities, which protection may or may not be in conjunction with the protection described in the immediately preceding sentence.  Finally, protection may be afforded to the holders of senior securities by application of a subordination feature in another manner as described in the prospectus supplement.
 
If a subordination feature is present with respect to a given series, delays in receipt of scheduled payments on the loans and losses on defaulted loans may be borne first by the various classes of subordinate securities and only thereafter by the various classes of senior securities, in each case under the circumstances and subject to the limitations specified in the prospectus supplement.  The aggregate distributions in respect of delinquent payments on the loans over the lives of the securities or at any time, the aggregate losses in respect of defaulted loans which must be borne by the subordinate securities by

 
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virtue of subordination and the amount of the distributions otherwise distributable to the subordinate securityholders that will be distributable to senior securityholders on any payment date all may be limited as specified in the prospectus supplement.  If aggregate distributions in respect of delinquent payments on the loans or aggregate losses in respect of the related loans were to exceed the amount specified in the prospectus supplement, then holders of senior securities would experience losses.
 
As specified in the prospectus supplement, all or any portion of distributions otherwise payable to holders of subordinate securities on any payment date may instead be deposited into one or more reserve accounts established with the trustee or distributed to holders of senior securities.  The prospectus supplement will describe whether deposits are made into a reserve account on each payment date, only during specified periods, only until the balance in the related reserve account has reached a specified amount, only to replenish amounts in the related reserve account following payments from the reserve account to holders of senior securities or otherwise.  Amounts on deposit in a reserve account may be released to the holders of certain classes of securities at the times and under the circumstances specified in the prospectus supplement.
 
If specified in the prospectus supplement, various classes of senior securities and subordinate securities may themselves be subordinate in their right to receive certain distributions to other classes of senior and subordinate securities, respectively, through a cross-collateralization mechanism or otherwise.  As between classes of senior securities and as between classes of subordinate securities, distributions may be allocated among the classes:
 
 
·
in the order of their scheduled final payment dates;
 
 
·
in accordance with a schedule or formula;
 
 
·
in relation to the occurrence of events; or
 
 
·
otherwise, as specified in the prospectus supplement.
 
As between classes of subordinate securities, payments to holders of senior securities on account of delinquencies or losses and payments to any reserve account will be allocated as specified in the prospectus supplement.
 
Derivative Instruments
 
The issuing entity may include one or more derivative instruments for credit enhancement purposes, as described in this section.  Derivative instruments included in any issuing entity will be used only in a manner that reduces or alters risk resulting from the mortgage loans or other assets in the pool, and only in a manner such that the return on the offered securities will be based primarily on the performance of the mortgage loans or other assets in the pool.  Derivative instruments may include (1) interest rate swaps (or caps, floors or collars) or yield supplement agreements, (2) currency swaps or currency options and (3) market value swaps.
 
For a further description of these derivative instruments, see “Derivatives” below.
 
Insurance Policies, Surety Bonds and Guaranties
 
If provided in the prospectus supplement, deficiencies in amounts otherwise payable on the securities or certain classes of securities will be covered by insurance policies and/or surety bonds provided by one or more insurance companies or sureties.  These instruments may cover, with respect to one or more classes of securities, timely distributions of interest and/or full distributions of principal on the basis of a schedule of principal distributions set forth in or determined in the manner specified in the prospectus supplement.  In addition, if specified in the prospectus supplement, an issuing entity may also include a bankruptcy bond, a special hazard insurance policy or other insurance or guaranties for the purpose of:
 

 
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·
maintaining timely payments or providing additional protection against losses on the assets included in such issuing entity;
 
 
·
paying administrative expenses; or
 
 
·
establishing a minimum reinvestment rate on the payments made in respect of those assets or principal payment rate on those assets.
 
These arrangements may include agreements under which securityholders are entitled to receive amounts deposited in various accounts held by the trustee upon the terms specified in the prospectus supplement.
 
Special Hazard Insurance Policies
 
If so specified in the applicable prospectus supplement, a separate special hazard insurance policy will be obtained for the related issuing entity from the insurer named in the prospectus supplement.  The special hazard insurance policy, subject to the limitations described in the applicable prospectus supplement, will protect against loss by reason of damage to mortgaged properties caused by certain hazards not insured against under the standard form of hazard insurance policy for the respective states in which the mortgaged properties are located.  The amount and principal terms of any such coverage will be set forth in the prospectus supplement.
 
Cross Support
 
If specified in the prospectus supplement, separate groups of assets included in an issuing entity may be evidenced by or secure only specified classes of the related series of securities.  If this is the case, credit support may be provided by a cross support feature.  This cross support feature would require that cashflow received with respect to a particular group of assets first be distributed as payments on the class of securities specifically related to those assets, but after the necessary payments with respect to that class were made, remaining cashflow from those assets would be available to make payments on one or more other classes issued by the same issuing entity.  The prospectus supplement for a series of securities which includes a cross support feature will describe the manner and conditions for applying this cross support feature.

Reserve Accounts
 
If specified in the prospectus supplement, credit support with respect to a series of securities will be provided by the establishment and maintenance with the related trustee, in trust, of one or more reserve accounts for the series.  The prospectus supplement will specify whether or not any reserve accounts so established will be included in the issuing entity for such series.
 
Amounts to be deposited in the reserve account for a series will be specified in the prospectus supplement and will be funded by:
 
 
·
the retention by the servicer of certain payments on the mortgage loans;
 
 
·
the deposit with the trustee, in escrow, by the depositor of a pool of mortgage loans or other assets with the total principal balance, as of the related cut-off date, set forth in the related prospectus supplement;
 
 
·
an initial deposit;
 
 
·
any combination of the foregoing; or
 
 
·
some other manner as specified in the related prospectus supplement.

 
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Any amounts on deposit in the reserve account and the proceeds of any other instrument deposited therein upon maturity will be held in cash or will be invested in investments consisting of United States government securities and other high-quality investments acceptable to the related rating agencies as being consistent with the ratings of the securities.  See THE AGREEMENTS—Servicing Provisions—Investment of Funds.” Any instrument deposited in a reserve account will name the trustee, in its capacity as trustee for securityholders, or such other entity as is specified in the prospectus supplement, as beneficiary and will be issued by an entity acceptable to each rating agency that rates the securities.  Additional information with respect to instruments deposited in the reserve accounts will be set forth in the prospectus supplement.
 
Any amounts on deposit in the reserve accounts and payments on instruments deposited therein will be available for withdrawal from the reserve account for distribution to the holders of securities of the related series for the purposes, in the manner and at the times specified in the prospectus supplement.
 
Pool Insurance Policies
 
If specified in the prospectus supplement, a separate pool insurance policy will be obtained for the pool and issued by the credit enhancer named in the prospectus supplement.  Each pool insurance policy will, subject to the limitations described below, cover loss by reason of default in payment on loans in the pool in an amount equal to a percentage specified in the prospectus supplement of the aggregate principal balance of those loans on the cut-off date.  As more fully described below, the servicer will present claims under the pool insurance policy to the credit enhancer on behalf of itself, the trustee and the holders of the securities of the related series.  The pool insurance policies, however, are not blanket policies against loss, since claims thereunder may only be made respecting particular defaulted loans and only upon satisfaction of certain conditions precedent described below.  The pool insurance policies generally will not cover losses due to a failure to pay or denial of a claim under a primary mortgage insurance policy.
 
The pool insurance policies generally will provide that no claims may be validly presented unless:
 
 
·
any required primary mortgage insurance policy is in effect for the defaulted loan and a claim thereunder has been submitted and settled;
 
 
·
hazard insurance on the related property has been kept in force and real estate taxes and other protection and preservation expenses have been paid;
 
 
·
if there has been physical loss or damage to the property, it has been restored to its physical condition (reasonable wear and tear excepted) at the time of issuance of the policy; and
 
 
·
the insured has acquired good and merchantable title to the property free and clear of liens except certain permitted encumbrances.
 
Upon satisfaction of these conditions, the credit enhancer will have the option either:
 
 
·
to purchase the property securing the defaulted loan at a price equal to the principal balance thereof plus accrued and unpaid interest at the loan rate to the date of such purchase and certain expenses incurred by the servicer on behalf of the trustee and securityholders, net of certain amounts paid or assumed to have been paid under the related primary mortgage insurance policy; or
 
 
·
to pay the amount by which the sum of the principal balance of the defaulted loan plus accrued and unpaid interest at the loan rate to the date of payment of the claim and the aforementioned expenses exceeds the proceeds received from an approved sale of the property, net of certain amounts paid or assumed to have been paid under the related primary mortgage insurance policy.
 
If any property securing a defaulted loan 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

 
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property to a condition sufficient to permit recovery under the pool insurance policy, the servicer will not be required to expend its own funds to restore the damaged property unless it determines that (a) such a restoration will increase the proceeds to securityholders on liquidation of the loan after reimbursement of the servicer for its expenses and (b) those expenses it incurs will be recoverable by it through proceeds of the sale of the property or proceeds of the related pool insurance policy or any related primary mortgage insurance policy.
 
Like many primary insurance policies, the pool insurance policies may not insure against loss sustained by reason of default arising from, among other things:
 
 
·
fraud or negligence in the origination or servicing of a loan, including misrepresentation by the borrower, the originator or persons involved in the origination of the loan;
 
 
·
failure to construct a property in accordance with plans and specifications; or
 
 
·
losses arising from special hazards, such as earthquakes, floods, mudslides or vandalism.
 
A failure of coverage attributable to one of these events might result in a breach of the related seller’s representations regarding the loan and might give rise to an obligation on the part of the seller to repurchase the defaulted loan if it is unable to cure the breach.  Many primary mortgage policies do not cover, and no pool insurance policy will cover, a claim in respect of a defaulted loan if the servicer of the loan was not approved by the applicable insurer either at the time of default or thereafter.
 
The amount of coverage available under each pool insurance policy generally will be reduced over the life of the related securities by the positive difference, if any, between the aggregate dollar amount of claims paid under the pool insurance policy minus the aggregate of the net amounts realized by the credit enhancer upon disposition of the related foreclosed properties.  The amount of claims paid will include certain expenses incurred by the servicer as well as accrued interest on delinquent loans to the date of payment of the claim or another date set forth in the prospectus supplement.  Accordingly, if aggregate net claims paid under any pool insurance policy reach the original policy limit, coverage under that pool insurance policy will be exhausted and any further losses will be borne by the related securityholders.
 
Bankruptcy Bonds
 
In the event of a personal bankruptcy of a borrower, a bankruptcy court may establish the value of the related mortgaged property or cooperative dwelling at an amount less than the then outstanding principal balance of the related mortgage loan.  The amount of the secured debt could be reduced to that lesser value, and the holder of the mortgage loan thus would become an unsecured creditor to the extent the outstanding principal balance of that mortgage loan exceeds the value so assigned to the related mortgaged property or cooperative dwelling by the bankruptcy court.  In addition, certain other modifications of the terms of a mortgage loan can result from a bankruptcy proceeding.  If stated in the related prospectus supplement, losses resulting from a bankruptcy proceeding affecting the mortgage loans in a pool will be covered under a borrower bankruptcy bond, or any other instrument that will not result in a downgrading of the rating of the securities of a series by the related rating agencies.  Any borrower bankruptcy bond will provide for coverage in an amount acceptable to the related rating agency, which will be set forth in the related prospectus supplement.  Subject to the terms of the bankruptcy bond, the issuer thereof may have the right to purchase any mortgage loan with respect to which a payment or drawing has been made or may be made for an amount equal to the outstanding principal balance of that mortgage loan plus accrued and unpaid interest thereon.  The coverage of the bankruptcy bond with respect to a series of securities may be reduced as long as any reduction will not result in a reduction of the outstanding rating of the securities of that series by the related rating agency.

 Overcollateralization
 
Overcollateralization exists when the principal balance of the loans supporting a class or classes of securities exceeds the principal balance of the class or classes of securities themselves.  If provided for in

 
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the prospectus supplement, a portion of the interest payment received on the loans during a due period may be paid to the securityholders on the related payment date as an additional distribution of principal on a certain class or classes of securities.  This payment of interest as principal would accelerate the rate of payment of principal on the class or classes of securities relative to the principal balance of the loans in the related issuing entity and thereby create or increase overcollateralization.
 
Letter of Credit or Demand Note
 
If so specified in the prospectus supplement, a letter of credit or demand note may be obtained as credit enhancement for the offered securities.  Letters of credit differ from demand notes primarily in form only.  A letter of credit is generally in the form of a letter from a financial institution addressed to the issuing entity setting forth the terms on which draws may be made thereunder.  A demand note generally is in the form of a promissory note issued by a financial institution in favor of the issuing entity which contains the terms under which draws may be made thereunder.
 
The letter of credit or demand note, if any, with respect to a series of securities will be issued by the bank or financial institution specified in the prospectus supplement.  Under the letter of credit or demand note, the issuing bank will be obligated to honor drawings thereunder in an aggregate fixed dollar amount, net of unreimbursed payments thereunder, equal to the percentage specified in the prospectus supplement of the aggregate principal balance of the loans on the related cut-off date or of one or more classes of securities.  If specified in the prospectus supplement, the letter of credit or demand note may permit drawings in the event of losses not covered by insurance policies or other credit support, such as losses arising from damage not covered by standard hazard insurance policies, losses resulting from the bankruptcy of a borrower and the application of certain provisions of the federal Bankruptcy Code, or losses resulting from denial of insurance coverage due to misrepresentations in connection with the origination of a loan.  The amount available under the letter of credit or demand note will, in all cases, be reduced to the extent of the unreimbursed payments thereunder.  The obligations of the issuing bank under the letter of credit or demand note for each series of securities will expire at the earlier of the date specified in the prospectus supplement or the termination of the issuing entity.
 
Prospective purchasers of securities of a series with respect to which credit enhancement is provided by a letter of credit or demand note must look to the credit of the issuing bank or financial institution, to the extent of its obligations under the letter of credit or demand note, in the event of default by obligors on the assets in the issuing entity.  If the amount available under the letter of credit or demand note is exhausted, or the issuing bank or financial institution becomes insolvent, and amounts in the reserve fund, if any, with respect to that series are insufficient to pay the entire amount of the loss and still be maintained at the level specified in the related prospectus supplement, the securityholders, in the priority specified in the related prospectus supplement, will thereafter bear all risks of loss resulting from default by obligors, including losses not covered by insurance or other credit enhancement, and must look primarily to the value of the properties securing defaulted mortgage loans for recovery of the outstanding principal and unpaid interest.
 
DERIVATIVES
 
If specified in the related prospectus supplement, the issuing entity may include one or more derivative instruments for credit enhancement purposes, as described in this section.  Derivative instruments included in any issuing entity will be used only in a manner that reduces or alters risk resulting from the mortgage loans or other assets in the pool, and only in a manner such that the return on the offered securities will be based primarily on the performance of the mortgage loans or other assets in the pool.  Derivative instruments may include (1) interest rate swaps (or caps, floors or collars) or yield supplement agreements, (2) currency swaps or currency options, and (3) market value swaps that are referenced to the value of one or more of the mortgage loans or other assets included in the issuing entity or to a class of offered securities, as described below.
 
An interest rate swap is an agreement between two parties to exchange one stream of interest payments on an agreed hypothetical or “notional” principal amount for another.  No principal amount is

 
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exchanged between the counterparties to an interest rate swap.  In the typical swap, one party agrees to pay a fixed rate on a notional principal amount, while the counterparty pays a floating rate based on one or more reference interest rates, including LIBOR, a specified bank’s prime rate or U.S. Treasury Bill rates.  Interest rate swaps also permit counterparties to exchange a floating rate obligation based on one reference interest rate (such as LIBOR) for a floating rate obligation based on another referenced interest rate (such as U.S. Treasury Bill rates).  An interest rate cap, collar or floor is an agreement pursuant to which the counterparty agrees to make payments representing interest on a notional principal amount when a specified reference interest rate is above a strike rate, outside of a range of strike rates, or below a strike rate, as specified in the agreement, generally in exchange for a fixed amount paid to the counterparty at the time the agreement is entered into.  A yield supplement agreement is a type of cap agreement, and is substantially similar to a cap agreement as described above.  The counterparty under a floor agreement may be an affiliate of the depositor.
 
The trustee on behalf of an issuing entity may enter into interest rate swaps, caps, floors and collars, or yield supplement agreements, to minimize the risk to securityholders from adverse changes in interest rates, or to provide supplemental credit support.  Cap agreements and yield supplement agreements may be entered into in order to supplement the sources available to make interest payments on one or more classes of securities of any series.
 
A market value swap might be used in a structure in which the pooled assets are mortgage loans that provide for a fixed rate period and then convert by their terms to adjustable rate loans.  Such a structure might provide that at a specified date near the end of the fixed rate period, the investors must tender their securities to the trustee who will then transfer the securities to other investors in a mandatory auction procedure.  The market value swap would ensure that the original investors would receive at least par at the time of tender, by covering any shortfall between par and the then current market value of the securities.  Any market value swaps used will be limited to use in connection with auctions and will be consistent with the requirements of the SEC’s Regulation AB.
 
In the event of the withdrawal of the credit rating of a derivative counterparty or the downgrade of such credit rating below levels specified in the derivative contract (where the derivative contract is relevant to the ratings of the offered securities, such levels generally are set by the rating agencies rating the offered securities), the derivative counterparty may be required to post collateral for the performance of its obligations under the derivative contract, or take certain other measures intended to assure performance of those obligations.
 
Derivative contracts will generally be documented based upon the standard forms provided by ISDA.  These forms generally consist of an ISDA master agreement, a schedule to the master agreement and a confirmation, although in some cases the schedule and the confirmation will be combined in a single document and the standard ISDA master agreement will be incorporated therein by reference.  The terms of any derivatives and information regarding the counterparties will be set forth in the prospectus supplement.
 
There can be no assurance that the issuing entity will be able to enter into derivatives at any specific time or at prices or on other terms that are advantageous.  In addition, although the terms of the derivatives may provide for termination under various circumstances, there can be no assurance that the issuing entity will be able to terminate a derivative when it would be economically advantageous to the issuing entity to do so.
 
YIELD AND PREPAYMENT CONSIDERATIONS
 
Yield
 
The yield to maturity of a security will depend on the price paid by the holder of the security, the interest rate if the security is entitled to payments of interest, the rate and timing of principal, payments on the related mortgage loans, including prepayments, liquidations and repurchases, and the allocation of principal payments to reduce the principal balance or notional balance of the security, among other factors.
 

 
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In general, if a security is purchased at a premium over its face amount and payments of principal on the related loan occur at a rate faster than anticipated at the time of purchase, the purchaser’s actual yield to maturity will be lower than that assumed at the time of purchase.  This is particularly true for interest-only securities.  In addition, if a class of securities is purchased at a discount from its face amount and payments of principal on the related loan occur at a rate slower than anticipated at the time of purchase, the purchaser’s actual yield to maturity will be lower than assumed.  This is particularly true for principal-only securities.  The effect of principal prepayments, liquidations and purchases of mortgage loans on yield will be particularly significant in the case of a class of securities entitled to payments of interest only or disproportionate payments of interest.  In addition, the total return to investors of securities evidencing a right to distributions of interest at a rate that is based on the weighted average net loan rate of the loans from time to time will be adversely affected by principal prepayments on loans with loan rates higher than the weighted average loan rate on the loans.  In general, loans with higher loan rates prepay at a faster rate than loans with lower loan rates.  In some circumstances rapid prepayments may result in the failure of the holders to recoup their original investment.  In addition, the yield to maturity on other types of classes of securities, including accrual securities, securities with a interest rate that fluctuates inversely with or at a multiple of an index or other classes in a series including more than one class of securities, may be relatively more sensitive to the rate of prepayment on the related loans than other classes of securities.
 
A class of securities may be entitled to payments of interest at a fixed, variable or adjustable interest rate, or any combination of interest rates, each as specified in the accompanying prospectus supplement, or may not be entitled to payments of interest at all.  A variable interest rate may be calculated based on the weighted average of the net loan rates, net of servicing fees and any excess spread, of the related loans for the month preceding the distribution date.  An adjustable interest rate may be calculated by reference to an index or otherwise.
 
The total payments of interest on a class of securities, and the yield to maturity on that security, will be affected by the rate of payment of principal on the securities, or the rate of reduction in the notional balance of securities entitled to payments of interest only, and, in the case of securities evidencing interests in adjustable-rate mortgage loans, by changes in the net loan rates on the adjustable-rate mortgage loans.  The yields on the securities will also be affected by liquidations of loans following borrower defaults and by purchases of mortgage loans in the event of breaches of representations made for the loans by the seller and others, or conversions of adjustable-rate mortgage loans to a fixed interest rate.
 
In general, defaults on mortgage loans are expected to occur with greater frequency in their early years.  The rate of default on cash out refinance, limited documentation or no documentation mortgage loans, and on loans with high loan-to-value ratios or combined loan-to-value ratios, as applicable, may be higher than for other types of loans.  Likewise, the rate of default on loans that have been originated under lower than traditional underwriting standards may be higher than those originated under traditional standards.  An issuing entity may include mortgage loans that are one month or more delinquent at the time of offering of the related series of securities or which have recently been several months delinquent.  The rate of default on delinquent mortgage loans or mortgage loans with a recent history of delinquency, including re-performing loans, is likely to be higher than the rate of default on loans that have a current payment status.
 
The rate of defaults and the severity of losses on mortgage loans with document deficiencies may be higher than for mortgage loans with no documentation deficiencies.  To the extent that any document relating to a loan is not in the possession of the trustee, the deficiency may make it difficult or impossible to realize on the mortgaged property in the event of foreclosure, which will affect the timing and the amount of liquidation proceeds received by the trustee.
 
The risk of loss may also be greater on mortgage loans with loan-to-value ratios or combined loan-to-value ratios greater than 80% and no primary insurance policies.  The yield on any class of securities and the timing of principal payments on that class may also be affected by modifications or actions that may be taken or approved by the master servicer, the servicer or any of their affiliates as described in this prospectus under “THE AGREEMENTS,” in connection with a mortgage loan that is in default, or if a default is reasonably foreseeable.

 
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In addition, the rate and timing of prepayments, defaults and liquidations on the mortgage loans will be affected by the general economic condition of the region of the country or the locality in which the related mortgaged properties are located.  The risk of delinquencies and loss is greater and prepayments are less likely in regions where a weak or deteriorating economy exists, as may be evidenced by, among other factors, increasing unemployment or falling property values.
 
For some loans, including adjustable-rate mortgage loans, the loan rate at origination may be below the rate that would result if the index and margin relating to those loans were applied at origination.  Under the applicable underwriting standards, the borrower under each of the loans may be qualified on the basis of the loan rate in effect at origination which reflects a rate significantly lower than the maximum rate.  The repayment of any loan may thus be dependent on the ability of the borrower to make larger monthly payments following the adjustment of the loan rate.  In addition, the periodic increase in the amount paid by the borrower of a buydown loan during or at the end of the applicable buydown period may create a greater financial burden for the borrower, who might not have otherwise qualified for a mortgage under the applicable underwriting guidelines, and may accordingly increase the risk of default for the related loan.
 
For any loan secured by a junior lien on the related mortgaged property, the inability of the borrower to pay off the balance thereof may be affected by the ability of the borrower to obtain refinancing of any related senior loan, thereby preventing a potential improvement in the borrower’s circumstances.
 
The holder of a loan secured by a junior lien on the related mortgaged property will be subject to a loss of its mortgage if the holder of a senior mortgage is successful in foreclosure of its mortgage and its claim, including any related foreclosure costs, is not paid in full, since no junior liens or encumbrances survive such a foreclosure.  Also, due to the priority of the senior mortgage, the holder of a loan secured by a junior lien on the related mortgaged property may not be able to control the timing, method or procedure of any foreclosure action relating to the mortgaged property.  Investors should be aware that any liquidation, insurance or condemnation proceeds received relating to any loans secured by junior liens on the related mortgaged property will be available to satisfy the outstanding balance of such loans only to the extent that the claims of the holders of the senior mortgages have been satisfied in full, including any related foreclosure costs.  For loans secured by junior liens that have low balances relative to the amount secured by more senior mortgages, foreclosure costs may be substantial relative to the outstanding balance of the loan, and the amount of any liquidation proceeds available to securityholders may be smaller as a percentage of the outstanding balance of the loan than would be the case for a first lien residential loan.  In addition, the holder of a loan secured by a junior lien on the related mortgaged property may only foreclose on the property securing the related loan subject to any senior mortgages, in which case the holder must either pay the entire amount due on the senior mortgages to the senior mortgagees at or prior to the foreclosure sale or undertake the obligation to make payments on the senior mortgages.
 
Similarly, a borrower of a balloon loan will be required to pay the balloon amount at maturity.  Those loans pose a greater risk of default than fully amortizing loans, because the borrower’s ability to make such a substantial payment at maturity will in most cases depend on the borrower’s ability to obtain refinancing or to sell the mortgaged property prior to the maturity of the loan.  The ability to obtain refinancing will depend on a number of factors prevailing at the time refinancing or sale is required, including, without limitation, the borrower’s personal economic circumstances, the borrower’s equity in the related mortgaged property, real estate values, prevailing market interest rates, tax laws and national and regional economic conditions.  None of the depositor, any seller or any of their affiliates will be obligated to refinance or repurchase any loan or to sell any mortgaged property, unless that obligation is specified in the accompanying prospectus supplement.
 
The loans rates on adjustable-rate mortgage loans that are subject to negative amortization typically adjust monthly and their amortization schedules adjust less frequently.  Because initial loan rates are typically lower than the sum of the indices applicable at origination and the related margins, during a period of rising interest rates as well as immediately after origination, the amount of interest accruing on

 
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the principal balance of those loans may exceed the amount of the scheduled monthly payment.  As a result, a portion of the accrued interest on negatively amortizing loans may become deferred interest that will be added to their principal balance and will bear interest at the applicable loan rate.
 
If stated in the accompanying prospectus supplement, an issuing entity may contain GPM loans or buydown loans that have monthly payments that increase during the first few years following origination.  Borrowers may be qualified for those loans on the basis of the initial monthly payment.  To the extent that the related borrower’s income does not increase at the same rate as the monthly payment, such a loan may be more likely to default than a mortgage loan with level monthly payments.
 
If credit enhancement for a series of securities is provided by a letter of credit, demand note, insurance policy or bond that is issued or guaranteed by an entity that suffers financial difficulty, that credit enhancement may not provide the level of support that was anticipated at the time an investor purchased its security.  In the event of a default under the terms of a letter of credit, demand note, insurance policy or bond, any realized losses on the loans not covered by the credit enhancement will be applied to a series of securities in the manner described in the accompanying prospectus supplement and may reduce an investor’s anticipated yield to maturity.
 
The accompanying prospectus supplement may describe other factors concerning the mortgage loans underlying a series of securities or the structure of that series that will affect the yield on the securities.
 
No assurance can be given that the value of the mortgaged property securing a loan has remained or will remain at the level existing on the date of origination.  If the residential real estate market should experience an overall decline in property values such that the outstanding balances of the loans and any secondary financing on the mortgaged properties in a particular 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 generally experienced in the mortgage lending industry.
 
Generally, when a full prepayment is made on a mortgage loan, the borrower under the mortgage loan is charged interest for the number of days actually elapsed from the due date of the preceding monthly payment up to the date of such prepayment, at a daily interest rate determined by dividing the mortgage rate by 365.  Full prepayments will reduce the amount of interest paid by the related borrower or borrower because interest on the principal balance of any mortgage loan so prepaid will be paid only to the date of prepayment instead of for a full month; however, unless otherwise provided in the applicable prospectus supplement, the related servicer will be required to pay from its own funds the portion of any interest at the related mortgage rate, in each case less the servicing fee rate, that is not so received, up to a maximum amount equal to the servicer’s servicing fee.  Partial prepayments generally are applied on the first day of the month following receipt, with no resulting reduction in interest payable for the period in which the partial prepayment is made.  To the extent not covered by the servicer, prepayments will reduce the yield to maturity of the securities.  See “— Maturity and Prepayment” below.
 
Maturity and Prepayment
 
The original terms to maturity of the loans in a given issuing entity will vary depending on the types of loans included in that issuing entity.  The prospectus supplement for a series of securities will contain information regarding the types and maturities of the loans in the related issuing entity.  The prepayment experience, the timing and rate of repurchases and the timing and amount of liquidations for the related loans will affect the weighted average life of and yield on the related series of securities.
 
Prepayments on loans are commonly measured relative to a prepayment standard or model.  The prospectus supplement for each series of securities may describe one or more prepayment standards or models and may contain tables setting forth the projected yields to maturity on each class of securities or the weighted average life of each class of securities and the percentage of the original principal balance of each class of securities of that series that would be outstanding on the specified distribution dates for the

 
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series based on the assumptions stated in the accompanying prospectus supplement, including assumptions that prepayments on the loans are made at rates corresponding to various percentages of the prepayment standard or model.  There is no assurance that prepayment of the loans underlying a series of securities will conform to any level of the prepayment standard or model specified in the accompanying prospectus supplement.
 
The following is a list of some of the factors that may affect prepayment experience:
 
 
·
homeowner mobility;
 
 
·
economic conditions;
 
 
·
changes in borrowers’ housing needs;
 
 
 
·
job transfers;
 
 
 
·
unemployment;
 
 
 
·
borrowers’ equity in the properties securing the mortgages;
 
 
 
·
servicing decisions;
 
 
 
·
enforceability of due-on-sale clauses;
 
 
 
·
mortgage market interest rates;
 
 
 
·
mortgage recording taxes;
 
 
 
·
solicitations and the availability of mortgage funds; and
 
 
 
·
the obtaining of secondary financing by the borrower.
 
All statistics known to the depositor that have been compiled for prepayment experience on loans indicate that while some loans may remain outstanding until their stated maturities, a substantial number will be paid significantly earlier than their respective stated maturities.  The rate of prepayment for conventional fixed-rate loans has fluctuated significantly in recent years.  In general, however, if prevailing interest rates fall significantly below the loan rates on the loans underlying a series of securities, the prepayment rate of those loans is likely to be significantly higher than if prevailing rates remain at or above the rates borne by those loans.  Conversely, when prevailing interest rates increase, borrowers are less likely to prepay their loans.
 
Some mortgage loans may only be prepaid by the borrowers during specified periods upon the payment of a prepayment fee or penalty.  The requirement to pay a prepayment fee or penalty may, to the extent that the prepayment penalty is enforceable under applicable law, discourage some borrowers from prepaying their mortgage loans.  The servicer will be entitled to all prepayment charges and late payment charges received on the loans and those amounts will not be available for payment on the securities, except to the extent specified in the related prospectus supplement.  However, some states’ laws restrict the imposition of prepayment charges even when the mortgage loans expressly provide for the collection of those charges.  As a result, it is possible that prepayment charges may not be collected even on mortgage loans that provide for the payment of these charges.
 
The inclusion in an issuing entity of mortgage loans with a negative amortization feature may affect the yields on the securities of the related series, because the amount of the borrower’s monthly payment may be limited (subject in some cases to periodic adjustment) which may have the effect of reducing the amount of interest collections for any particular distribution date.  The negative amortization

 
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feature could result in periodic increases in the principal balances of the related mortgage loans.  Those mortgage loans may experience a higher rate of delinquency and default and a greater severity of loss than mortgage loans without this feature.
 
The addition of any deferred interest to the principal balance of any related class of securities may lengthen the weighted average life of that class of securities and may adversely affect yield to holders of those securities.
 
Mortgage loans with fixed interest rates generally contain due-on-sale clauses permitting the mortgagee or obligee to accelerate the maturity thereof upon conveyance of the mortgaged property.  In most cases, the servicer may permit proposed assumptions of mortgage loans where the proposed buyer meets the underwriting standards applicable to that mortgage loan.  This assumption would have the effect of extending the average life of the mortgage loan.
 
An adjustable-rate mortgage loan is assumable, in some circumstances, if the proposed transferee of the related mortgaged property establishes its ability to repay the loan and, in the reasonable judgment of the servicer, the security for the adjustable-rate mortgage loan would not be impaired by the assumption.  The extent to which adjustable-rate mortgage loans are assumed by purchasers of the mortgaged properties rather than prepaid by the related borrowers in connection with the sales of the mortgaged properties will affect the weighted average life of the related series of securities.
 
The terms of the agreements for a specific series generally will require the related servicer or special servicer, if applicable, to enforce any due-on-sale clause to the extent it has knowledge of the conveyance or the proposed conveyance of the underlying mortgaged property or cooperative dwelling; provided, however, that any enforcement action that would impair or threaten to impair any recovery under any related insurance policy will not be required or permitted.  See “THE AGREEMENTS—Servicing Provisions—Due on Sale Clauses; Assumptions” and “CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS” in this prospectus for a description of certain provisions of the agreements and certain legal developments that may affect the prepayment experience on the related mortgage loans.
 
At the request of the related borrowers, the servicer may refinance the mortgage loans in any pool by accepting prepayments on those mortgage loans and making new loans secured by a mortgage on the same property.  Upon any refinancing, the new loans will not be included in the related pool and a prepayment of the affected mortgage loan will occur.  A borrower may be legally entitled to require the servicer to allow a refinancing.  Any such repurchase of a refinanced mortgage loan will have the same effect as a prepayment in full of the related mortgage loan.

For any index used in determining the rate of interest applicable to any series of securities or loan rates of the underlying mortgage loans, there are a number of factors that affect the performance of that index and may cause that index to move in a manner different from other indices.  If an index applicable to a series responds to changes in the general level of interest rates less quickly than other indices, in a period of rising interest rates, increases in the yield to securityholders due to those rising interest rates may occur later than that which would be produced by other indices, and in a period of declining rates, that index may remain higher than other market interest rates which may result in a higher level of prepayments of the loans, which adjust in accordance with that index, than of mortgage loans which adjust in accordance with other indices.
 
If stated in the prospectus supplement relating to a specific series, the depositor or other specified entity will have the option to repurchase the assets included in the related issuing entity under the conditions stated in the related prospectus supplement.  For any series of securities for which the depositor has elected to treat the issuing entity as a REMIC (as defined herein), any optional repurchase of assets will be effected in compliance with the requirements of Section 860F(a)(4) of the Code (as defined herein) so as to constitute a “qualifying liquidation” thereunder.  In addition, the depositor will be obligated, under certain circumstances, to repurchase certain assets of the related issuing entity.  The sellers will also have certain repurchase obligations or options, as more fully described in this prospectus.
 

 
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THE AGREEMENTS
 
Set forth below is a description of the material provisions of the Agreements which are not described elsewhere in this prospectus.  The description is subject to, and qualified in its entirety by reference to, the provisions of each Agreement.  Where particular provisions or terms used in the Agreements are referred to, such provisions or terms are as specified in the Agreements.  As specified in the related prospectus supplement, certain of the rights of securityholders described below may be exercised by the credit enhancer for the related series of securities without the consent of the securityholders and certain rights of securityholders may not be exercised without the written consent of the credit enhancer.
 
Assignment of the Issuing Entity Assets
 
Assignment of the Loans.  At the time of issuance of the securities, the applicable seller or sellers will convey the mortgage loans to the depositor and the depositor will cause the loans to be assigned or pledged to the trustee for the benefit of the securityholders, without recourse, together with all principal and interest received by or on behalf of the depositor on or with respect to such loans after the cut-off date, other than principal and interest due on or before the cut-off date and other than any amounts specified in the prospectus supplement.  Concurrently with this sale, the trustee will deliver the securities to the depositor in exchange for the loans.  Each 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 loan after application of payments due on or before the cut-off date, as well as information regarding the loan rate or annual percentage rate, the maturity of the loan, the loan-to-value ratios, combined loan-to-value ratios or effective loan-to-value ratios, as applicable, at origination and certain other information.
 
Unless otherwise specified in the prospectus supplement, the related Agreement will require that, within the time period specified therein, the depositor will also deliver or cause to be delivered to the trustee or, if so indicated in the prospectus supplement, a separate custodian appointed by the trustee pursuant to a custodial agreement, as to each mortgage loan or home equity loan, among other things:
 
 
·
the mortgage note or credit line agreement endorsed without recourse in blank or to the order of the trustee;
 
 
·
the mortgage, deed of trust or similar instrument with evidence of recording indicated thereon, except that in the case of any mortgage not returned form the public recording office, the depositor will deliver or cause to be delivered a copy of such mortgage together with a certificate that the original of the mortgage was delivered to such recording office;
 
 
·
an assignment of the mortgage to the trustee, which assignment will be in recordable form in the case of a mortgage assignment; and
 
 
·
all other security documents, including those relating to any senior interests in the property, that are specified in the prospectus supplement or the related Agreement.
 
Unless otherwise specified in the applicable prospectus supplement, the depositor will cause to be delivered to the trustee, its agent or custodian, with respect to any cooperative loan, the related original security agreement, the proprietary lease or occupancy agreement, the recognition agreement, an executed financing statement and the relevant stock certificate and related blank stock powers.  A financing statement will be filed in the appropriate office evidencing the trustee’s security interest in each cooperative loan.
 
If specified in the prospectus supplement, the depositor will promptly cause the assignments of the loans to be recorded in the appropriate public office for real property records.  If specified in the prospectus supplement, some or all of the loan documents may not be delivered to the trustee until after the occurrence of certain events specified in the prospectus supplement.

 
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In lieu of delivering the mortgage or deed of trust and an assignment of the mortgage to the trustee, for any loans registered on the MERS System the depositor will cause the trustee to be recorded as the beneficial owner of the loans pursuant to the MERS rules for electronically tracking changes in ownership rights.
 
The trustee or the appointed custodian will review the loan documents within the time period specified in the prospectus supplement after receipt thereof to ascertain that all required documents have been properly executed and received, and the trustee will hold the loan documents in trust for the benefit of the related securityholders.  Unless otherwise specified in the prospectus supplement, if any loan document is found to be missing or defective in any material respect, the trustee or the custodian, as appropriate, will notify the servicer and the depositor, and the servicer will notify the related seller.  If the related seller or other specified party cannot cure the omission or defect within the time period specified in the prospectus supplement after receipt of notice from the servicer and, if specified in the prospectus supplement, such defect also constitutes a breach of a representation and warranty, the seller or other party will be obligated to either purchase the related loan from the issuing entity at the purchase price or, if so specified in the prospectus supplement, remove such loan from the issuing entity and substitute in its place one or more other loans that meets certain requirements as set forth in the prospectus supplement.  There can be no assurance that a seller will fulfill this purchase or substitution obligation.  Unless otherwise specified in the prospectus supplement, this obligation to cure, purchase or substitute constitutes the sole remedy available to the securityholders or the trustee for omission of, or a material defect in, a loan document.
 
Notwithstanding the foregoing provisions, with respect to an issuing entity for which a REMIC election is to be made, no purchase or substitution of a loan will be made if the purchase or substitution would result in a prohibited transaction tax under the Code.
 
No Recourse to Sellers; Depositor or Servicer.  As described above under “—Assignment of the Loans,” the depositor will cause the loans comprising the issuing entity to be assigned or pledged to the trustee, without recourse.  However, each seller or other party named in the related prospectus supplement will be obligated to repurchase or substitute for any loan as to which certain representations and warranties are breached or for failure to deliver certain documents relating to the loans as described in this prospectus under “Assignment of the Loans” and “LOAN PROGRAM—Representations by Sellers; Repurchases.” These obligations to purchase or substitute constitute the sole remedy available to the securityholders or the trustee for a breach of any such representation or warranty or failure to deliver a constituent document.
 
Assignment of Agency Securities and Private Mortgage-Backed Securities.  To the extent the assets backing a series of securities includes agency securities or private mortgage-backed securities, such assets will be assigned or pledged to the trustee in accordance with applicable federal or state regulations governing the transfer of record title to such assets.
 
Servicing Provisions
 
The Master Servicer. A master servicer may be named in the related prospectus supplement to act under any Agreement. The entity acting as master servicer under any Agreement may be an affiliate of the depositor, the trustee, the servicer and any of their respective affiliates. If the related prospectus supplement does not name a master servicer, references in this prospectus to master servicer may relate to obligations that will be required to be performed by the servicer or the trustee.
 
Payments on Loans; Deposits to Collection Account. The servicer will establish and maintain or cause to be established and maintained with respect to the each issuing entity a separate account or accounts for the collection of payments on the assets in the issuing entity (the “collection account").  The prospectus supplement may provide for other requirements for the collection account, but if it does not, then the collection account must be either:
 
 
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·
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 such holding company) are rated in one of the two highest short-term rating categories by the rating agency that rated one or more classes of the related series of securities
 
 
·
an account or accounts the deposits in which are fully insured by the FDIC;
 
 
·
an account or accounts the deposits in which are insured by the FDIC to the limits established by the FDIC and the uninsured deposits in which are otherwise secured such that, as evidenced by an opinion of counsel, securityholders have a claim with respect to the funds in such account or accounts, or a perfected first-priority security interest against any collateral securing those funds, that is superior to the claims of any other depositors or general creditors of the depository institution with which such account or accounts are maintained; or
 
 
·
an account or accounts otherwise acceptable to the rating agency.
 
The collateral eligible to secure amounts in the collection account is limited to eligible investments.  See “—Investment of Funds” below.  A collection account may be maintained as an interest bearing account or the funds held therein may be invested pending each succeeding payment date in eligible investments.  The servicer, the trustee or any other entity described in the prospectus supplement may be entitled to receive interest or other income earned on funds in the collection account as additional compensation and will be obligated to deposit in the collection account the amount of any loss when realized.  The collection account may be maintained with the servicer or with a depository institution that is an affiliate of the servicer, provided it meets the standards set forth above.
 
The servicer or trustee will deposit or cause to be deposited in the collection account for each issuing entity, to the extent applicable and unless otherwise specified in the prospectus supplement and provided in the related Agreement, the following payments and collections received or advances made by or on behalf of it subsequent to the cut-off date (other than certain payments due on or before the cut-off date and any excluded amounts):
 
 
·
all payments on account of principal and interest (which may be net of the applicable servicing compensation), including principal prepayments and, if specified in the prospectus supplement, any applicable prepayment penalties, on the loans;
 
 
·
all net insurance proceeds, less any incurred and unreimbursed advances made by the servicer, of the hazard insurance policies and any primary mortgage insurance policies, to the extent such proceeds are not applied to the restoration of the property or released to the mortgagor in accordance with the services normal servicing procedures;
 
 
·
all proceeds received in connection with the liquidation of defaulted loans, less any expenses of liquidation and any unreimbursed advances made by the servicer with respect to the liquidated loans;
 
 
·
any net proceeds received on a monthly basis with respect to any properties acquired on behalf of the securityholders by foreclosure or deed in lieu of foreclosure;
 
 
·
all advances as described in this prospectus under “DESCRIPTION OF THE SECURITIES—Advances”;
 
 
·
all proceeds of any loan or property in respect thereof repurchased by any seller as described under “LOAN PROGRAM—Representations by Sellers; Repurchases” or “—Assignment of Issuing Entity Assets” above and all proceeds of any loan repurchased in connection with termination of the issuing entity;

 
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·
all payments required to be deposited in the collection account with respect to any deductible clause in any blanket insurance policy described under “—Hazard Insurance” below;
 
 
·
any amount required to be deposited by the servicer in connection with losses realized on investments for the benefit of the servicer of funds held in the collection account and, to the extent specified in the prospectus supplement, any payments required to be made by the servicer in connection with prepayment interest shortfalls; and
 
 
·
all other amounts required to be deposited in the collection account pursuant to the related agreement.
 
The servicer or the depositor, as applicable, may from time to time direct the institution that maintains the collection account to withdraw funds from the collection account for the following purposes:

 
·
to transfer funds to an account created by the trustee for distribution of payments due on the securities and other purposes set forth in the prospectus supplement (the “distribution account”);
 
 
·
to pay to the servicer the purchase price of any additional balances transferred to the trustee resulting from draws under revolving lines of credit as set forth in the prospectus supplement;
 
 
·
to pay to the servicer the servicing fees described in the prospectus supplement and, as additional servicing compensation, earnings on or investment income with respect to funds in the collection account credited thereto;
 
 
·
to reimburse the servicer for advances made with respect to a loan, but only from amounts received that represent late payments of principal on, late payments of interest on, insurance proceeds received with respect to or liquidation proceeds received with respect to the same loan;
 
 
·
to reimburse the servicer for any advances previously made which the servicer has determined to be nonrecoverable;
 
 
·
to reimburse the servicer from insurance proceeds for expenses incurred by the servicer and covered by insurance policies;
 
 
·
to reimburse the servicer for unpaid servicing fees and unreimbursed out-of-pocket costs and expenses incurred by the servicer in the performance of its servicing obligations, such right of reimbursement being limited to amounts received representing late recoveries of the payments for which the original advances were made;
 
 
·
to pay to the servicer, with respect to each loan or property acquired in respect thereof that has been purchased by the servicer pursuant to the Agreement, all amounts received thereon and not taken into account in determining the principal balance of that repurchased loan,
 
 
·
to reimburse the servicer or the depositor for expenses incurred and reimbursable pursuant to the Agreement;
 
 
·
to pay or reimburse the trustee or any other party as provided in the prospectus supplement;
 
 
·
to withdraw any amount deposited in the collection account that was not required to be deposited therein; and

 
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·
to clear and terminate the collection account upon termination of the Agreement.
 
In addition, unless otherwise specified in the prospectus supplement, on or prior to the business day immediately preceding each payment date, the servicer shall withdraw from the collection account the amount of available funds, to the extent on deposit, for deposit in the distribution account maintained by the trustee.
 
The applicable Agreement may require the servicer to establish and maintain one or more escrow accounts into which mortgagors deposit amounts sufficient to pay taxes, assessments, hazard insurance premiums or comparable items.  Withdrawals from the escrow accounts maintained for mortgagors may be made to effect timely payment of taxes, assessments and hazard insurance premiums or comparable items, to reimburse the servicer out of related assessments for maintaining hazard insurance, to refund to mortgagors amounts determined to be overages, to remit to mortgagors, if required, interest earned, if any, on balances in any of the escrow accounts, to repair or otherwise protect the property and to clear and terminate any of the escrow accounts.  The servicer will be solely responsible for administration of the escrow accounts and will be expected to make advances to such accounts when a deficiency exists therein.
 
Investment of Funds. Funds on deposit in the collection account and the distribution account, and any other accounts for a series that may be invested by the trustee or by the master servicer (or by the servicer, if any), may be invested only in “eligible investments” acceptable to each rating agency, which may include, without limitation:
 
 
·
direct obligations of, and obligations fully guaranteed as to timely payment of principal and interest by, the United States of America, Freddie Mac, Fannie Mae or any agency or instrumentality of the United States of America, the obligations of which are backed by the full faith and credit of the United States of America;
 
 
·
demand and time deposits, certificates of deposit or banker’s acceptances;
 
 
·
repurchase obligations pursuant to a written agreement with respect to any security described in the first clause above;
 
 
·
securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any state;
 
 
·
commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof);
 
 
·
a guaranteed investment contract issued by an entity having a credit rating acceptable to each rating agency; and
 
 
·
any other demand, money market or time deposit or obligation, security or investment as would not adversely affect the then current rating by the rating agencies.
 
Eligible investments with respect to a series will include only obligations or securities that mature on or before the date on which the amounts in the collection account are required to be remitted to the trustee or the securities administrator, as applicable, and amounts in the distribution account for the related series are required or may be anticipated to be required to be applied for the benefit of securityholders of the series.
 
 
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If so provided in the prospectus supplement, the reinvestment income from a collection account, the distribution account or other account may be property of the master servicer, a servicer, the trustee or another party and not available for distributions to securityholders.
 
Subservicing by Sellers. The servicer may enter into subservicing agreements with any servicing entity which will act as the subservicer for the loans, which subservicing agreements will not contain any terms inconsistent with the related Agreement.  While each subservicing agreement will be a contract solely between the servicer and the subservicer, the Agreement pursuant to which a series of securities is issued may provide that, if for any reason the servicer for that series of securities is no longer the servicer of the loans, the trustee or any successor servicer must recognize the subservicer’s rights and obligations under the related subservicing agreement.  Notwithstanding any subservicing arrangement, unless otherwise provided in the prospectus supplement, the servicer will remain liable for its servicing duties and obligations under the servicing agreement as if the servicer alone were servicing the loans.
 
Collection Procedures. The servicer, directly or through one or more subservicers, will make reasonable efforts to collect all payments called for under the loans and will, consistent with each Agreement and any pool insurance policy, primary mortgage insurance policy, bankruptcy bond or alternative arrangements, follow those collection procedures that are customary with respect to loans that are comparable to the loans.  Consistent with the above, unless otherwise specified in the prospectus supplement, the servicer generally may, in its discretion:
 
 
·
waive any prepayment charge, assumption fee, late payment or other charge in connection with a loan; and
 
 
·
to the extent not inconsistent with the rules applicable to REMIC, and with the coverage of an individual loan by a pool insurance policy, primary mortgage insurance policy, bankruptcy bond or alternative arrangements, if applicable, waive, modify or vary any term of any mortgage loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to the related mortgagor if in the servicer’s reasonable and prudent determination such waiver, modification, postponement or indulgence is in the interests of the trustee on behalf of securityholders; provided, however, that if specified in the prospectus supplement, the servicer may not permit any modification with respect to any mortgage loan that would vary the mortgage interest rate, defer or forgive the payment of interest or of any principal, reduce the outstanding principal amount (other than as a result of its actual receipt of payment of principal on), extend the final maturity date of such mortgage loan, or accept substitute or additional collateral or release any collateral for a mortgage loan, unless it has obtained the consent of the depositor.
 
Unless otherwise specified in the prospectus supplement, the servicer’s obligation, if any, to make or cause to be made advances on a loan will remain during any period of this type of arrangement.
 
Due on Sale Clauses; Assumptions. Unless otherwise specified in the applicable prospectus supplement, the servicing agreements will provide that, when any mortgaged property has been conveyed by the borrower, the servicer will, to the extent it has knowledge of the reconveyance, exercise its rights on behalf of the trustee to accelerate the maturity of the mortgage loan under any “due-on-sale” clause applicable thereto, if any, unless (1) it reasonably believes that such enforcement is not exercisable under applicable law or regulations, or that the borrower generally is likely to bring a legal action to challenge such acceleration, or (2) in certain cases, the servicer determines that such enforcement would adversely affect collectability of the mortgage loans or would not be in the best economic interest of the securityholders.  In either such case, where the due-on-sale clause will not be exercised, a servicer is authorized to take or enter into an assumption and modification agreement from or with the person to whom such mortgaged property has been or is about to be conveyed, pursuant to which that person becomes liable under the mortgage note and, unless prohibited by applicable state law, the borrower remains liable thereon, provided that the mortgage loan will continue to be covered by any related primary mortgage insurance policy.  In the case of an FHA mortgage loan, such an assumption can occur only with
 

 
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HUD approval of the substitute borrower.  Each servicer will also be authorized, with the prior approval of the insurer under any required insurance policies, to enter into a substitution of liability agreement with such person, pursuant to which the original borrower is released from liability and such person is substituted as borrower and becomes liable under the mortgage note.  See “CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS—Due-on-Sale Clauses.”
 
Prepayment Interest Shortfalls.  When a borrower prepays a mortgage loan in full or in part between due dates, the borrower generally is required to pay interest on the amount prepaid only from the last scheduled due date to the date of prepayment, with a resulting reduction in interest payable for the month during which the prepayment is made.  To the extent specified in the applicable prospectus supplement, if, on any distribution date, as a result of principal prepayments in full, but not in part, on the mortgage loans during the applicable prepayment period, the amount of interest due on the affected mortgage loans is less than a full month’s interest, the applicable servicer (or other party under contract with the trustee or the master servicer), will be required to remit the amount of such insufficiency.  Unless otherwise provided in the applicable prospectus supplement, this obligation will be limited to the amount of the applicable servicer’s servicing fee for the related period or to some lesser amount.  Generally, neither the servicers nor the master servicer will be obligated to remit the amount of any such insufficiency due to a prepayment in part.
 
Advances.  Unless otherwise provided in the applicable prospectus supplement, prior to each distribution date, each servicer (or other party under contract with the trustee or the master servicer) will be required to make advances (out of its own funds or funds held in its servicing account for future distribution or withdrawal) with respect to any monthly payments (net of the related servicing fees) that were due on the mortgage loans it services during the immediately preceding due period and delinquent at the close of business on the related determination date (each, a “delinquency advance”); provided, however, that with respect to delinquent balloon payments a servicer’s obligation to make a delinquency advance will be limited to an amount equal to the assumed monthly payment that would have been due on the related due date based on the original principal amortization schedule for the related balloon mortgage loan.  References in this prospectus to delinquency advances do not include amounts advanced by a servicer in respect of a full recourse mortgage loan, as described below.
 
Delinquency advances will be required to be made only to the extent they are deemed by a servicer to be recoverable from related late collections, insurance proceeds or liquidation proceeds.  The purpose of making delinquency advances is to maintain a regular cash flow to the securityholders, rather than to guarantee or insure against losses.  The servicers will not be required to make any advances with respect to reductions in the amount of the monthly payments on the mortgage loans due to debt service reductions or the application of the Relief Act or similar legislation or regulations.
 
The servicers generally will also be obligated to make advances in respect of certain taxes, insurance premiums and, if applicable, property protection expenses not paid by borrowers on a timely basis and, to the extent deemed recoverable, foreclosure costs, including reasonable attorney’s fees (collectively, “servicing advances”).  Property protection expenses are certain costs and expenses incurred in connection with defaulted mortgage loans, acquiring title or management of REO property or the sale of defaulted mortgage loans or REO properties.
 
We refer to delinquency advances and servicing advances collectively as “Advances.” If a servicer fails to make an Advance as required under the applicable servicing agreement, unless otherwise specified in the applicable prospectus supplement, the master servicer, if it becomes successor servicer, will be obligated to make any such Advance, subject to the master servicer’s determination of recoverability and otherwise in accordance with the terms of the pooling and servicing agreement.
 
All Advances will be reimbursable to the servicers and master servicer on a first priority basis from either late collections, insurance proceeds or liquidation proceeds from the mortgage loan as to which the unreimbursed Advance was made.  In addition, any Advances previously made that are deemed by the servicers or the master servicer to be nonrecoverable from related late collections, insurance proceeds or
 

 
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liquidation proceeds may be reimbursed to the servicers out of any funds in the collection account prior to remittance to the trustee or master servicer and reimbursed to the master servicer out of any funds in the distribution or collection account prior to distribution on the securities.
 
To the extent provided in the prospectus supplement, the servicer will be required to advance all funds required for draws by borrowers under revolving lines of credit.
 
Hazard Insurance. Except as otherwise specified in the prospectus supplement, the servicer will require the mortgagor or obligor on each loan to maintain a hazard insurance policy providing coverage against loss by fire and other hazards which are covered under the standard extended coverage endorsement customary for the type of property in the state in which such property is located.  This hazard insurance coverage will be in an amount that is at least equal to the lesser of:
 
 
·
the maximum insurable value of the improvements securing the loan from time to time; and
 
 
·
either the combined principal balance owing on the loan and any mortgage loan senior to such loan or an amount such that the proceeds of the policy shall be sufficient to prevent the mortgagor or obligor and/or the lender from becoming a co-insurer, whichever is greater.
 
All amounts collected by the servicer under any hazard policy (except for amounts to be applied to the restoration or repair of the property or released to the mortgagor or obligor in accordance with the servicer’s normal servicing procedures) will be deposited in the related collection account.  In the event that the servicer maintains a blanket policy insuring against hazard losses on all the loans comprising part of an issuing entity, it will conclusively be deemed to have satisfied its obligation relating to the maintenance of hazard insurance.  If the blanket policy relating to an issuing entity contains a deductible clause, the servicer will be required to deposit from its own funds into the collection account an amount equal to the amount which would have been deposited therein but for the deductible clause.
 
In general, the standard form of fire and extended coverage policy covers physical damage to or destruction of the improvements securing a loan by fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil commotion, subject to the conditions and exclusions listed in each policy.  Although the policies relating to the 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 of these types of policies are dictated by respective state laws, and most hazard policies typically do not cover (among other things) 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; or
 
 
·
theft and, in certain cases, vandalism.

 
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The foregoing list is merely indicative of certain kinds of uninsured risks and is not intended to be all inclusive.
 
If, however, any mortgaged property at the time of origination of the related loan is located in an area identified by the Flood Emergency Management Agency as having special flood hazards and flood insurance has been made available, the servicer will cause to be maintained with a generally acceptable insurance carrier a flood insurance policy in accordance with mortgage servicing industry practice.  Any flood insurance policy so maintained will provide coverage in an amount at least equal to the lesser of the principal balance of the loan and the minimum amount required under the terms of coverage to compensate for any damage or loss on a replacement cost basis.  The amount of coverage provided will not be greater than the maximum amount of flood insurance available for the related mortgaged property under either the regular or emergency programs of the National Flood Insurance Program.
 
The hazard insurance policies covering properties securing the loans 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 insured 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 (a) the replacement costs of the improvements less physical depreciation and (b) such proportion of the loss as the amount of insurance carried bears to the specified percentage of the full replacement cost of the improvements.  Since the amount of hazard insurance the servicer may cause to be maintained on the improvements securing a loan declines as the principal balances owing on the loan itself decrease, and since improved real estate generally has appreciated in value over time in the past, the effect of this requirement in the event of partial loss may be that hazard insurance proceeds will be insufficient to restore fully the damaged property.
 
Primary Mortgage Insurance.  The servicer will maintain or cause to be maintained, as the case may be and as permitted by law, in full force and effect, to the extent specified in the prospectus supplement, a primary mortgage insurance policy with regard to each loan for which that coverage is required.  Unless required by law, the servicer will not cancel or refuse to renew any primary mortgage insurance policy in effect at the time of the initial issuance of a series of securities that is required to be kept in force under the applicable Agreement unless the replacement primary mortgage insurance policy for the cancelled or nonrenewed policy is maintained with an insurer whose claims-paying ability is sufficient to maintain the current rating of the classes of securities of that series that 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 loan and accrued and unpaid interest on the loan and reimbursement of certain expenses, less:
 
 
·
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 property;
 
 
·
hazard insurance proceeds in excess of the amount required to restore the property and which have not been applied to the payment of the loan;
 
 
·
amounts expended but not approved by the insurer of the related primary mortgage insurance policy;
 
 
·
claim payments previously made by the insurer; and
 
 
·
unpaid premiums.
 
Primary mortgage insurance policies reimburse certain losses sustained by reason of default in payments by borrowers.  Primary mortgage insurance policies will not insure against, and exclude from coverage, losses sustained by reason of a default arising from or involving certain matters, including:
 

 
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·
fraud or negligence in origination or servicing of the loans, including misrepresentation by the originator, mortgagor (or obligor) or other persons involved in the origination of the loan;

 
·
failure to construct the property subject to the loan in accordance with specified plans;
 
 
·
physical damage to the property; and
 
 
·
the related subservicer not being approved as a servicer by the insurer.
 
Evidence of each primary mortgage insurance policy will be provided to the trustee simultaneously with the transfer to the trustee of the loan.  The servicer, on behalf of itself, the trustee and the securityholders, is required to present claims to the insurer under any primary mortgage insurance policy and to take reasonable steps that are necessary to permit recovery thereunder with respect to defaulted loans.  Amounts collected by the servicer on behalf of the servicer, the trustee and the securityholders shall be deposited in the related collection account for distribution as set forth above.
 
Claims Under Insurance Policies and Other Realization Upon Defaulted Loans.  The servicer or subservicers, on behalf of the trustee and securityholders, will present claims to the insurer under any applicable insurance policies.  If the property securing a defaulted loan is damaged and proceeds, if any, from the related hazard insurance policy are insufficient to restore the damaged property, the servicer is not required to expend its own funds to restore the damaged property unless it determines (a) that such restoration will increase the proceeds to securityholders on liquidation of the loan after reimbursement of the servicer for its expenses and (b) that the expenditure will be recoverable by it from related insurance proceeds or liquidation proceeds.
 
If recovery on a defaulted loan under any insurance policy is not available, or if the defaulted loan is not covered by an insurance policy, the servicer will be obligated to follow or cause to be followed those normal practices and procedures that it deems necessary or advisable to realize upon the defaulted loan.  If the net proceeds after reimbursable expenses of any liquidation of the property securing the defaulted loan are less than the principal balance of the loan plus interest accrued thereon that is payable to securityholders, the issuing entity will realize a loss in the amount of that difference plus the aggregate of expenses incurred by the servicer in connection with the liquidation proceedings and which are reimbursable under the Agreement.
 
The proceeds from any liquidation of a loan will be applied in the following order of priority:
 
 
·
first, to reimburse the servicer for any unreimbursed expenses incurred by it to restore the related property and any unreimbursed servicing compensation payable to the servicer with respect to the loan;
 
 
·
second, to reimburse the servicer for any unreimbursed advances with respect to the loan;
 
 
·
third, to accrued and unpaid interest (to the extent no advance has been made for that amount) on the loan; and
 
 
·
fourth, as a recovery of principal of the loan.
 
The master servicer will be required, and the servicers will generally be required, to obtain and thereafter maintain in effect a bond, a corporate guaranty or similar form of insurance coverage (which may provide blanket coverage); or any combination thereof, insuring against loss occasioned by the errors and omissions of their respective officers and employees.
 
Servicing and Other Compensation and Payment of Expenses.  The servicer’s primary compensation for its activities as servicer will come from the payment to it, with respect to each interest payment on a loan, of the amount specified in the prospectus supplement.  As principal payments are made on the loans, the portion of each monthly payment which represents interest will decline, and thus servicing

 
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compensation to the servicer will decrease as the loans amortize.  Prepayments and liquidations of loans prior to maturity will also cause servicing compensation to the servicer to decrease.  Subservicers, if any, will be entitled to a monthly servicing fee as described in the prospectus supplement in compensation for their servicing duties.  In addition, the servicer or subservicer will retain all prepayment charges, assumption fees and late payment charges, to the extent collected from borrowers, and any benefit that may accrue as a result of the investment of funds in the applicable collection account (unless otherwise specified in the prospectus supplement).

The servicer will pay or cause to be paid certain ongoing expenses associated with each issuing entity and incurred by it in connection with its responsibilities under the related Agreement, including, without limitation, and only if specified in the prospectus supplement, payment of any fee or other amount payable in respect of any credit enhancement arrangements, 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 subservicers and sellers.  The servicer will be entitled to reimbursement of expenses incurred in enforcing the obligations of subservicers and sellers under certain limited circumstances.
 
Evidence as to Compliance.  The applicable agreement will require the trustee, the securities administrator, the master servicer, each custodian, each servicer, each subservicer and any other party that is participating in the servicing function with respect to at least five percent of the mortgage loans or any pool of mortgage loans to provide to the depositor and any other party specified in the applicable agreement, on an annual basis on or before the date specified in the applicable agreement, a report on assessment of compliance with servicing criteria for asset-backed securities together with a copy of an attestation report from a registered public accounting firm regarding such party’s assessment of compliance.  In addition, the applicable agreement will require each of the master servicer, each servicer and each subservicer to provide to the depositor and any other party specified in the applicable agreement, on an annual basis on or before the date specified in the applicable agreement a statement of compliance, signed by an authorized officer, to the effect that (a) a review of the party’s activities during the reporting period and of its performance under the applicable agreement has been made under such officer’s supervision and (b) to the best of such officer’s knowledge, based on such review, such party has fulfilled all of its obligations under the agreement in all material respects throughout the reporting period or, if there has been a failure to fulfill any such obligation in any material respect, specifying each such failure known to such officer and the nature and status thereof.
 
Errors and Omissions Coverage. The master servicer will be required, and the servicers will generally be required, to obtain and thereafter maintain in effect a bond, corporate guaranty or similar form of insurance coverage (which may provide blanket coverage), or any combination thereof, insuring against loss occasioned by the errors and omissions of their respective officers and employees.
 
Certain Matters Regarding the Servicer, the Master Servicer and the Depositor.  The servicer under each pooling and servicing agreement or servicing agreement, as applicable, will be named in the prospectus supplement.  The entity serving as servicer may have normal business relationships with the depositor or the depositor’s affiliates.
 
Each Agreement will provide that neither the master servicer nor the servicer may resign from its obligations and duties under the Agreement except upon (a) appointment of a successor entity and receipt by the trustee of a letter from the applicable rating agency or rating agencies that the resignation and the successor entity’s appointment will not result in a downgrade of the securities or (b) a determination that its performance of its duties thereunder is no longer permissible under applicable law.  The master servicer or servicer may, however, be removed from its obligations and duties as set forth in the Agreement.  No resignation by the master servicer or the servicer will become effective until the trustee or a successor servicer has assumed the servicer’s obligations and duties under the Agreement.
 
Each Agreement generally will further provide that neither the servicer, the master servicer, the depositor, nor any director, officer, employee, or agent of the servicer, the master servicer or the depositor (each, an “indemnified party”) will be under any liability to the related issuing entity or securityholders for taking any action or for refraining from taking any action in good faith pursuant to the Agreement, or for

 
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errors in judgment; provided, however, that neither the servicer, the depositor nor any such person will be protected against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties thereunder or by reason of reckless disregard of obligations and duties thereunder.  Each Agreement generally will further provide that each indemnified party will be entitled to indemnification by the related issuing entity and will be held harmless against any loss, liability or expense incurred in connection with any legal action relating to the Agreement or the securities for the related series, other than any loss, liability or expense related to any specific loan or loans (except any loss, liability or expense otherwise reimbursable pursuant to the Agreement) and any loss, liability or expense incurred by reason of willful misfeasance, bad faith or gross negligence in the performance of that indemnified party’s duties thereunder or by reason of reckless disregard by that indemnified party of obligations and duties thereunder.  In addition, each Agreement generally will provide that neither the servicer, the master servicer nor the depositor will be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its respective responsibilities under the Agreement and which in its opinion may involve it in any expense or liability.  The servicer, the master servicer or the depositor may, however, in its discretion undertake any action which it may deem necessary or desirable with respect to the Agreement and the rights and duties of the parties thereto and the interests of the securityholders thereunder.  In that event, the legal expenses and costs of the action and any liability resulting therefrom will be expenses, costs and liabilities of the issuing entity, and the servicer, the master servicer or the depositor, as the case may be, will be entitled to be reimbursed for those costs and liabilities out of funds which would otherwise be distributed to securityholders.
 
Except as otherwise specified in the prospectus supplement, any person into which the servicer or master servicer may be merged or consolidated, or any person resulting from any merger or consolidation to which the servicer is a party, or any person succeeding to the business of the servicer or master servicer , will be the successor of the servicer or master servicer under each Agreement, provided that that person is qualified to sell mortgage loans to, and service mortgage loans on behalf of, Fannie Mae or Freddie Mac.  Furthermore, the merger, consolidation or succession may not adversely affect the then current rating or ratings of the class or classes of securities of the related series that have been rated.
 
Events of Default; Rights Upon Event of Default
 
Servicer Default.  Servicer events of default under each Agreement will be specified in the prospectus supplement and may include:
 
 
·
any failure by the servicer to make an Advance which continues unremedied for one business day;
 
 
·
any failure by the servicer to make or cause to be made any other required payment pursuant to the Agreement which continues unremedied for one business day after written notice of such failure to the servicer in the manner specified in the Agreement;
 
 
·
any failure by the servicer duly to observe or perform in any material respect any of its other covenants or agreements in the Agreement which continues unremedied for sixty days after written notice of the failure to the servicer in the manner specified in the Agreement; and
 
 
·
certain events of insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings and certain actions by or on behalf of the servicer indicating its insolvency, reorganization or inability to pay its obligations.
 
Unless otherwise provided in the prospectus supplement, so long as a servicer event of default under an Agreement remains unremedied, the master servicer shall terminate all of the rights and obligations of the servicer under the Agreement relating to such issuing entity and in and to the related issuing entity assets, whereupon the master servicer will succeed to all of the responsibilities, duties and liabilities of the servicer under the Agreement, including, if specified in the prospectus supplement, the obligation to make advances, and will be entitled to similar compensation arrangements.  In the event that

 
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the master servicer is unwilling or unable to act as successor to the servicer, it may appoint, or petition a court of competent jurisdiction for the appointment of, a housing and home finance institution which is a Fannie Mae or Freddie Mac approved servicer with a net worth of a least $15,000,000 to act as successor to the servicer under the Agreement.  Pending the appointment of a successor servicer, the master servicer is obligated to act in such capacity.  The master servicer and any such successor may agree upon the servicing compensation to be paid, which in no event may be greater than the compensation payable to the servicer under the Agreement.
 
Master Servicer Default. A “master servicer event of default” under the Agreement will consist of:  (1) any failure by the master servicer to make a timely required deposit to the collection account, or to timely deposit any amounts required to be deposited in the distribution account; (2) after receipt of notice from the trustee, any failure of the master servicer to make any monthly advances when such monthly advances are due, which failure continues unremedied for a period of one business day; (3) any failure by the master servicer to furnish the issuing entity administrator the mortgage loan data sufficient to prepare the monthly statements to securityholders which failure continues unremedied for a period of one business day after the giving of written notice thereof as provided in the Agreement; (4) any failure by the master servicer to duly observe or perform in any material respect any other of its covenants or agreements in the Agreement or a failure to comply with accepted master servicing practices, which failure materially and adversely effects the rights of securityholders and which continues for 30 days after receipt of notice thereof as provided in the Agreement; (5) any impermissible dissolution, disposition of all or substantially all assets, or consolidation or merger on the part of the master servicer that does not meet the criteria specified in the Agreement; (6) any breach of a representation or warranty set forth in the Agreement that materially and adversely affects the interests of the securityholders, which breach continues 30 days after the giving of written notice thereof as provided in the Agreement; (7) any sale, pledge or assignment of the rights, or any delegation of the duties of, the master servicer under the Agreement, in any manner not permitted thereunder and without the prior written consent of parties as provided in the Agreement; (8) certain events of insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings regarding the master servicer indicating its insolvency, reorganization or inability to pay its obligations, and (9) any failure by the master servicer to deliver a report expressly required by the Agreement, and the continuation of such failure for a period of three business days after the date upon which written notice of such failure has been given to the master servicer by the seller, the depositor, or the trustee.

Rights Upon Master Servicer Event of Default. So long as any master servicer event of default remains unremedied, the trustee may, and at the direction of securityholders evidencing more than 50% of the voting rights, the trustee must, by written notification to the master servicer and to the depositor, terminate all of the rights and obligations of the master servicer under the Agreement (other than any rights of the master servicer as securityholder) and in and to the mortgage loans and the proceeds thereof (other than amounts owed to the master servicer prior to such termination), whereupon the trustee, unless a successor master service is appointed as provided below, shall succeed to all the responsibilities, duties and liabilities of the master servicer under the Agreement and will be entitled to similar compensation arrangements.  In the event that the trustee would be obligated to succeed the master servicer but is unwilling or unable so to act, it may appoint, or petition to a court of competent jurisdiction for the appointment of, a servicer satisfying the requirements of the Agreement to act as successor to the master servicer.  Pending such appointment, the trustee (unless prohibited by law from so acting) will be obligated to act in such capacity.  The trustee and such successor master servicer may agree upon the servicing compensation to be paid to such successor, provided that the master servicing compensation applicable to the successor master servicer will not exceed any applicable limitation set forth in the Agreement.
 
During the continuance of a master servicer event of default under the pooling and servicing agreement, the trustee will have the right to take action to enforce its rights and remedies and to protect and enforce the rights and remedies of the securityholders, and securityholders evidencing more than 50% of the class principal amount (or percentage interest) of each class of securities affected thereby may direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred upon the trustee.  However, the trustee will not be under any obligation to pursue any remedy or to exercise any of the trusts or powers unless the securityholders have offered the

 
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trustee reasonable security or indemnity against the cost, expenses and liabilities that may be incurred by the trustee.  Also, the trustee may decline to follow the direction if the trustee determines that the action or proceeding so directed may not lawfully be taken or would involve it in personal liability or be unjustly prejudicial to the non-assenting securityholders.
 
No securityholder, solely by virtue of that holder’s status as a securityholder, will have any right under the pooling and servicing agreement to institute any proceeding with respect to the pooling and servicing agreement, unless that securityholder previously has given to the trustee written notice of default and unless the holders of securities evidencing not less than 25% of the class principal amount (or percentage interest) of each class of securities affected thereby have made a written request upon the trustee to institute a proceeding in its own name as trustee thereunder, and have offered to the trustee reasonable indemnity, and the trustee for the number of days specified in the pooling and servicing agreement has neglected or refused to institute such a proceeding.
 
The Pooling and Servicing Agreement
 
Amendment. In general, subject to the provisions of the particular agreement, the pooling and servicing agreement may be amended by the parties to that agreement, without the consent of the securityholders, (i) to cure any ambiguity, (ii) to correct or supplement any provision in the pooling and servicing agreement that may be inconsistent with any other provision of that agreement or with this prospectus or the applicable prospectus supplement or to correct any error, (iii) to obtain or maintain a rating for a class of securities from a nationally recognized statistical rating organization, (iv) to change the timing and/or nature of deposits in the collection account or any distribution account or to change the name in which an account is maintained (except that (x) deposits into the distribution account most be made no later than the related distribution date, and (y) either (1) such change may not adversely affect in any material respect the interests of any securityholder, as evidenced by an opinion of counsel or (2) such change may not adversely affect the then-current rating of any rated classes of securities, as evidenced by letters from the rating agencies), (v) to modify, eliminate or add to any of its provisions (x) to the extent necessary to avoid or minimize the risk of imposition of any tax on the issuing entity, provided that the trustee has received an opinion of counsel to the effect that (1) such action is necessary or desirable to avoid or minimize such risk and (2) such action will not adversely affect in any material respect the interests of any securityholder or (y) to restrict the transfer of any residual interest certificate, provided that the depositor has determined that such change would not adversely affect the applicable ratings of any rated classes of securities, as evidenced by letters from the rating agencies and (vi) to make any other provisions with respect to matters or questions arising under the pooling and servicing agreement, provided that such action will not adversely affect in any material respect the interests of any securityholder as evidenced by either an opinion of counsel or by letters from the rating agencies to the effect that such change will not adversely affect the then current ratings of any rated class of securities.

            The pooling and servicing agreement may also be amended by the parties and, if applicable the credit enhancer, with the consent of the holders of securities of each class affected by the amendment, in each case evidencing not less than 66 2/3% of the aggregate percentage interests constituting such class, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the pooling and servicing agreement or of modifying in any manner the rights of the securityholders; provided, however, that no such amendment may (i) reduce in any manner the amount of or delay the timing of, collections of payments on the mortgage loans or distributions that are required to be made on a security of any class without the consent of the holder of such security or (ii) reduce the percentage of securities of any class the holders of which are required to consent to any such amendment unless the holders of all securities of such class have consented to the change in such percentage.  If a REMIC election is made with respect to an issuing entity, the trustee will not be entitled to consent to an amendment to the related pooling and servicing agreement without having first received an opinion of counsel to the effect that the proposed amendment will not cause such issuing entity to fail to qualify as a REMIC.

 

 
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Optional Purchase or Substitution of Assets; Termination.  To the extent specified in the applicable prospectus supplement, the pooling and servicing agreement will provide that the master servicer, the holder of the residual interest in the issuing entity and/or another specified party will have the right to purchase all of the property of the issuing entity on a specified date, or upon the occurrence of a certain event such as the reduction of the total principal balance of the mortgage loans or securities to a specified level.  The purchase price will be specified in the applicable prospectus supplement.  In addition, to the extent specified in the applicable prospectus supplement, the pooling and servicing agreement will provide that upon the direction of a specified proportion of securityholders (or of certain securityholders) or another specified party, or upon the occurrence of a certain event, the trustee or its agent will solicit bids for sale of the property of the issuing entity to the highest bidder.  This auction may or may not be subject to a minimum bid price.
 
To the extent specified in the applicable prospectus supplement, the pooling and servicing agreement will also provide that the depositor, an affiliate of the depositor or another party will have the right to purchase certain mortgage loans or a specified proportion of mortgage loans, or to substitute new loans for certain mortgage loans, on the conditions and in accordance with the procedures set forth in the pooling and servicing agreement.
 
Voting Rights; Limitations on Exercise of Rights.  Voting rights under the pooling and servicing agreement will be allocated among securityholders as provided in the applicable prospectus supplement.  If specified in the applicable prospectus supplement, voting rights of some or all securityholders will be exercised by an insurer or other party identified in the prospectus supplement.
 
Limitations on Rights of Securityholders.  Unless otherwise specified in the applicable prospectus supplement, no securityholder will have any right under the pooling and servicing agreement to institute any proceeding with respect to the pooling and servicing agreement unless (1) securityholders having not less than 51% of the voting rights under the pooling and servicing agreement have made written request to the trustee to institute proceedings in respect of a master servicer event of default in its own name as trustee; (2) the trustee, for 30 days after its receipt of such notice, request and offer of indemnity, has failed to institute any such proceeding; and (3) no direction inconsistent with such written request has been given to the trustee during such 30-day period by securityholders having not less than 51% of the voting rights.  However, the trustee will be under no obligation to exercise any of the trusts or powers vested in it by the pooling and servicing agreement or to institute, conduct or defend any litigation thereunder or in relation thereto at the request, order or direction of any of the securityholders covered by the pooling and servicing agreement, unless such securityholders have offered to the trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred thereby.
 
Certain Risks.  If the master servicer or servicer were to become a debtor in a bankruptcy or insolvency proceeding, it could seek to reject its obligations under the pooling and servicing agreement pursuant to Section 365 of the Bankruptcy Code or the applicable provisions of the applicable insolvency law, thus forcing the trustee to appoint a successor servicer.
 
If the master servicer or servicer resigns or is in default and the cost of servicing the mortgage loans has increased, the trustee may not be able to find a successor master servicer or servicer willing to service the loans for the master servicing fee or servicing fee specified in the applicable pooling and servicing agreement.  These circumstances might cause the trustee either to amend the servicing agreement or seek authority from securityholders to increase the applicable fee to an amount necessary to provide acceptable compensation to the then current master servicer or servicer or any replacement master servicer or servicer.  If such approval were not granted by securityholders, under the law generally applicable to trusts the trustee could seek approval for such an increase from a court if such increase were necessary for the preservation or continued administration of the issuing entity.  Any increase in the master servicing fee or servicing fee would reduce amounts available for distribution to securityholders, particularly holders of subordinate securities,
 


 
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The Pooling and Servicing Agreement and Trustee
 
In the case of certificates issued pursuant to a pooling and servicing agreement and unless otherwise specified in the related prospectus supplement, the following will be applicable to a trustee in connection with a pooling and servicing agreement.
 
Duties of the Trustee.  The trustee will be required to perform only those duties specifically required of it under the pooling and servicing agreement unless a master servicer event of default has occurred, in which case the trustee may take such additional actions as described above under “—Rights Upon Master Servicer Event of Default.” Upon receipt of the various certificates, statements, reports or other instruments required to be furnished to it, the trustee will be required to examine them to determine whether they are in the form required by the pooling and servicing agreement; however, the trustee will not be responsible for the accuracy or content of any documents furnished to the trustee by the securities or issuing entity administrator, the master servicer or any other party.
 
The trustee will not have any liability arising out of or in connection with the pooling and servicing agreement, except that the trustee may be held liable for its own negligent action or failure to act, or for its own willful misconduct; provided, however, that the trustee will not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the certificateholders in a master servicer event of default, and the trustee will not be deemed to have notice of any master servicer event of default unless an officer of the trustee has actual knowledge of the master servicer event of default or written notice of a master servicer event of default is received by the trustee at its corporate trust office.  See “—Master Servicer Default” above.  The trustee is not required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under the pooling and servicing agreement, or in the exercise of any of its rights or powers, if it has reasonable grounds for believing that repayment of those funds or adequate indemnity against risk or liability is not reasonably assured to it.
 
The trustee will have no duties under the pooling and servicing agreement with respect to any claim or notice it may receive or which may be alleged to have been delivered to or served upon it by the parties as a consequence of the assignment of any mortgage loan under the pooling and servicing agreement; however, the trustee will remit to the master servicer any claim or notice it may receive which is delivered to the trustee’s corporate trust office and which contains information sufficient to permit the trustee to make a determination that the real property to which such document relates is a mortgaged property.  None of the provisions in the pooling and servicing agreement shall in any event require the trustee to perform, or be responsible for the manner of performance of, any of the obligations of the master servicer.  The trustee will not be responsible for any act or omission of the master servicer, any securities or issuing entity administrator, the depositor or any other party.
 
The trustee will not be responsible for (a) any recording or filing of any agreement or of any financing statement or continuation statement evidencing a security interest, or to see to the maintenance of any such recording or filing which may have been made, or the validity, priority, perfection or sufficiency of the security for the certificates, (b) the payment of any insurance related to the certificates or the mortgage loans or (c) the payment or discharge of any tax, assessment, or other governmental charge or any lien or encumbrance of any kind owing with respect to, assessed or levied against, any part of the issuing entity, other than from funds available in any issuing entity account.  The trustee is not responsible for the validity of the pooling and servicing agreement or the certificates or the validity, priority, perfection or sufficiency of the security for the certificates.
 
Expenses and Indemnities of the Trustee.  Unless otherwise specified in the related prospectus supplement, the trustee will be entitled to reimbursement of all reasonable expenses, disbursements and advances incurred or made by the trustee in accordance with the pooling and servicing agreement, except for expenses, disbursements and advances incurred by the trustee in the routine administration of its duties under the pooling and servicing agreement and other transaction documents and except for any expenses arising from its negligence, bad faith or willful misconduct.  The trustee will also be entitled to indemnification from the issuing entity for any loss, liability or expense incurred, arising out of, or in

 
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connection with, the acceptance or administration of the trusts created under the pooling and servicing agreement or in connection with the performance of its duties under the pooling and servicing agreement, the mortgage loan purchase agreement or any custodial agreement, including the costs and expenses of defending itself against any claim in connection with the exercise or performance of any of its powers or duties under the pooling and servicing agreement, except for any expenses arising from the trustee's negligence, bad faith or willful misconduct.
 
The trustee will be entitled to reimbursement for its expenses and indemnification amounts as described above from collections, prior to distribution of any amounts to certificateholders.
 
Resignation of Trustee.  The trustee may, upon written notice to the depositor, the master servicer and any securities or issuing entity administrator, resign at any time, in which event the depositor will appoint a successor trustee.  If no successor trustee has been appointed and has accepted the appointment within 30 days after the trustee’s notice of resignation, the resigning trustee may petition any court of competent jurisdiction for appointment of a successor trustee.
 
The trustee may be removed at any time by the depositor if (a) the trustee ceases to be eligible to continue to act as trustee under the pooling and servicing agreement, (b) the trustee becomes incapable of acting, or is adjudged bankrupt or insolvent, or a receiver of the trustee is appointed, (c) a tax is imposed or threatened with respect to the issuing entity by any state in which the trustee or the trust fund held by the trustee is located or (d) the continued use of the trustee would result in a downgrading of the rating by any rating agency of any class of certificates.  In addition, the trustee may be removed at any time by holders of more than 50% of the class principal amount (or percentage interest) of each class of certificates upon 30 days’ written notice to the trustee.
 
Any resignation or removal of the trustee and appointment of a successor trustee will not become effective until acceptance of the appointment by the successor trustee, whereupon the predecessor trustee will mail notice of the succession of the successor trustee to all certificateholders; the expenses of the mailing are to be borne by the predecessor trustee.  The predecessor trustee will be required to assign to the successor trustee its interest under all mortgage loan files, and will be required to assign and pay over to the successor trustee the entire trust, together with all necessary instruments of transfer and assignment or other documents properly executed necessary to effect that transfer.  In addition, the master servicer and the predecessor trustee will be required to execute and deliver such other instruments and do such other things as may reasonably be required to vest in the successor trustee all such rights, powers, duties and obligations.
 
The Indenture
 
Modification of Indenture.  If an issuing entity has issued notes or bonds pursuant to an indenture, the issuing entity and the indenture trustee may, with the consent of holders of 66 2/3% (or such other percentage as is specified), by principal balance (or as is otherwise specified) of the outstanding notes or bonds of the related series (or of one or more specified classes of notes), execute a supplemental indenture to add provisions to, change in any manner or eliminate any provisions of, the indenture, or modify (except as provided below) in any manner the rights of the securityholders or bondholders, as the case may be.
 
Without the consent of securityholders, the issuing entity and the trustee may enter into supplemental indentures for the purposes of, among other things, conform any provision of the indenture to the provisions of the applicable prospectus supplement and this prospectus, or to effect the qualification of the indenture under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).  However, without the consent of each noteholder affected by the provisions of a supplemental indenture, no supplemental indenture will:
 
 
·
change the amount of, or delay the timing of, payments on any note or bond;
 
 
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·
alter the obligation of the master servicer or indenture trustee to make Advances or alter the servicing standards set forth in the sale and servicing agreement or the applicable Agreement;
 
 
·
reduce the proportion of notes or bonds required to consent to a supplemental indenture; or
 
 
·
permit the creation of any lien on any collateral prior to r on parity with the lien of the indenture.
 
In addition, the trustee will not enter into any supplemental indenture unless the trustee has first received an opinion of counsel as to certain tax matters as provided in the indenture.
 
Events of Default Under the Indenture.  Except as otherwise specified in the prospectus supplement, events of default or rapid amortization events under the indenture for each series of notes or bonds include:
 
 
·
a default in the payment of any principal of or interest on any note or bond as specified in the prospectus supplement;
 
 
·
failure to perform in any material respect any other covenant of the depositor or the issuing entity in the indenture which continues for a period of thirty (30) days after notice thereof is given in accordance with the procedures described in the prospectus supplement;
 
 
·
certain events of bankruptcy, insolvency, receivership or liquidation of the depositor or the issuing entity; or
 
 
·
any other event of default provided with respect to notes or bonds of that series including, but not limited to, certain defaults on the part of the issuing entity under any credit enhancement instrument supporting such notes or bonds.
 
If an event of default with respect to the notes or bonds of any series at the time outstanding occurs and is continuing, either the trustee or the holders of a majority of the then aggregate outstanding amount of the notes or bonds of that series or the credit enhancer of that series, if any, may declare the principal amount (or, if the notes or bonds have an interest rate of 0%, that portion of the principal amount as may be specified in the terms of that series, as provided in the prospectus supplement) of all the notes or bonds of that series to be due and payable immediately.  This declaration may, under certain circumstances, be rescinded and annulled by the holders of more than 50% of the aggregate voting rights of the bonds of the related series.  Rapid amortization events will trigger an accelerated rate of payment of principal on the notes or bonds, as described in the related prospectus supplement.
 
If, following an event of default with respect to any series of notes or bonds, the notes or bonds of that series have been declared to be due and payable and the prospectus supplement and applicable Agreement so provide, the trustee may, in its discretion, notwithstanding the acceleration of the notes or bonds, elect to maintain possession of the collateral securing the notes or bonds of that series and to continue to apply distributions on the collateral as if there had been no declaration of acceleration if the collateral continues to provide sufficient funds for the payment of principal of and interest on the notes or bonds of that series as they would have become due if there had not been such a declaration.  In addition, unless otherwise specified in the prospectus supplement, the trustee may not sell or otherwise liquidate the collateral securing the notes or bonds of a series following an event of default or a rapid amortization event, unless:
 
 
·
the holders of 100% of the outstanding notes or bonds of such series consent to the sale;

 
·
the proceeds of the sale or liquidation are sufficient to pay in full the principal of and accrued interest, due and unpaid, on the outstanding notes or bonds of the series at the date of the sale; or

 
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·
the trustee determines that the collateral would not be sufficient on an ongoing basis to make all payments on the notes or bonds as those payments would have become due if the notes or bonds had not been declared due and payable, and the trustee obtains the consent of the holders of 66 2/3% of the aggregate voting rights of the notes or bonds of that series.
 
In the event that the trustee liquidates the collateral in connection with an event of default or a rapid amortization event, the indenture provides that the trustee will have a prior lien on the proceeds of that liquidation for unpaid fees and expenses.  As a result, upon the occurrence of an event of default or rapid amortization event, the amount available for distribution to the noteholders or bondholders could be less than would otherwise be the case.  However, the trustee may not institute a proceeding for the enforcement of its lien except in connection with a proceeding for the enforcement of the lien of the indenture for the benefit of the noteholders or bondholders after the occurrence of an event of default or rapid amortization event.
 
Except as otherwise specified in the prospectus supplement, in the event the principal of the notes or bonds of a series is declared due and payable, as described above, the holders of any of the notes or bonds issued at a discount from par may be entitled to receive no more than an amount equal to the unpaid principal amount thereof less the amount of the discount which is unamortized.
 
Subject to the provisions of the indenture relating to the duties of the trustee, in case an event of default or a rapid amortization event shall occur and be continuing with respect to a series of notes or bonds, the trustee shall be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any of the holders of notes or bonds of the series, unless those holders offer to the trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in complying with their request or direction, Subject to these provisions for indemnification and certain limitations contained in the indenture, the holders of a majority of the then aggregate outstanding amount of the notes or bonds of a series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee with respect to the notes or bonds of the series, and the holders of a majority of the then aggregate outstanding amount of the notes or bonds of the series may, in certain cases, waive any default with respect thereto, except a default in the payment of principal or interest or a default in respect of a covenant or provision of the indenture that cannot be modified without the waiver or consent of all the holders of the outstanding notes or bonds of the series affected thereby.
 
Covenants.  Each indenture will provide generally that the related issuing entity will not, among other things:
 
 
·
so long as any notes or bonds are outstanding, dissolve or liquidate in whole or in part or merge or consolidate with any other entity;
 
 
·
except as expressly permitted by the indenture or other applicable Agreement, sell, transfer or otherwise dispose of the assets of the issuing entity, unless directed to do so by the trustee;
 
 
·
permit the validity or effectiveness of the related indenture to be impaired, or permit the indenture to be amended, or permit any person to be released from any covenants or obligations under the indenture, except as expressly provided by the indenture;
 
 
·
permit any lien or other encumbrance to be created on or otherwise burden the collateral (other than by operation of law as provided in the indenture); or
 
 
·
take any other action.  that may cause the issuing entity to be taxable as an association, a publicly traded partnership or a taxable mortgage pool pursuant to the Code.
 
In addition, the trustee and the securityholders, by accepting the securities, will covenant that they will not at any time institute against the issuing entity any bankruptcy, reorganization or other proceeding under any federal or state bankruptcy or similar law.
 

 
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            None of the indenture trustee, the owner trustee, the master servicer or any securities or issuing entity administrator in their respective individual capacities, or any holder of a certificate representing an ownership interest in the issuing entity or any of their respective owners, beneficiaries, agents, officers, directors, employees, affiliates, successors or assigns will, in the absence of an express agreement to the contrary, be personally liable for the payment of the principal of or interest on the notes or for the agreements of the issuing entity contained in any indenture.
 
Annual Compliance Statement.  Each issuing entity will be required to file annually with the related indenture trustee a written statement as to the fulfillment of its obligations under the applicable indenture.
 
Indenture Trustee’s Annual Report.  To the extent required under the Trust Indenture Act, the indenture trustee for each applicable issuing entity will be required to send to all related securityholders annually a brief report as to its eligibility and qualification to continue as indenture trustee under the related indenture; any amounts advanced by it under the indenture; the amount, interest rate and maturity date of specified indebtedness owing by the issuing entity to the applicable indenture trustee in its individual capacity; the property and funds physically held by the indenture trustee; and any action taken by the indenture trustee that materially affects the related notes or bonds and that has not been previously reported.
 
Satisfaction and Discharge of Indenture.  An indenture will be discharged with respect to the collateral securing the related notes or bonds upon the delivery to the indenture trustee for cancellation of all of those securities or, with specified limitations, upon deposit with the indenture trustee of funds sufficient for the payment of all of the securities.
 
Redemption..  The notes or bonds will be subject to redemption under the circumstances described in the related prospectus supplement.
 
The Indenture Trustee
 
In the case of notes or bonds issued pursuant to an indenture and unless otherwise specified in the related prospectus supplement, the following will be applicable to an indenture trustee in connection with an indenture.
 
Duties of the Indenture Trustee.  If no indenture default has occurred, the indenture trustee will be required to perform only those duties specifically required of it under the indenture and the sale and servicing agreement.  As described under “—The Trustees; Agents” below, a securities administrator may perform on behalf of the indenture trustee certain administrative functions required under the indenture and the sale and servicing agreement.
 
Upon receipt of the various certificates, statements and opinions required to be furnished to it, the indenture trustee will be required to examine them to determine whether they are in the form required by the indenture; however, the indenture trustee will not be responsible for the accuracy or content of any certificates, statements or opinions furnished to it by the issuer, the depositor, a securities administrator, if any, the master servicer or any other party and, in the absence of bad faith on its part, may conclusively rely on such certificates, statements and opinions.
 
The indenture trustee may be held liable for its own negligent action or failure to act, or for its own willful misconduct; provided, however, that the indenture trustee will not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the securityholders in an indenture default, and the indenture trustee will not be deemed to have notice of any indenture default unless an officer of the indenture trustee has actual knowledge of the indenture default or written notice of an indenture default is received by the indenture trustee at its corporate trust office.  The indenture trustee is not required to expend or risk its own funds or otherwise
 

 
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incur any financial liability in the performance of any of its duties under the Indenture, or in the exercise of any of its rights or powers, if it has reasonable grounds for believing that repayment of those funds or adequate indemnity against risk or liability is not reasonably assured to it,
 
Expenses and Indemnities of the Indenture Trustee.  The indenture trustee will be entitled to reimbursement of all reasonable expenses incurred by it and any disbursements or advances made by it in accordance with the indenture or the sale and servicing agreement, except for expenses incurred or any disbursements and advances made by it in the routine administration of its duties under the indenture and the sale and servicing agreement and except for any expenses arising from its negligence, bad faith or willful misconduct.  The indenture trustee will also be entitled to indemnification from the issuing entity for any claim, loss, liability or expense, including reasonable attorneys’ fees, incurred by it in connection with the administration of the issuing entity and the performance of its duties under the indenture the sale and servicing agreement or any other document or agreement to which the indenture trustee is a party.

The indenture trustee will be entitled to reimbursement for its expenses and indemnification amounts as described above from amounts allocable to interest and principal on the mortgage loans, prior to payment of any amounts to noteholders.
 
Resignation or Removal of Indenture Trustee.  The indenture trustee may, upon 90 days’ advance written notice to the depositor, the issuer, each noteholder and each rating agency, resign at any time, in which event the issuer will appoint a successor indenture trustee that satisfies the eligibility requirements provided in the indenture.  The indenture trustee may also be removed at any time by the issuer if (a) the indenture trustee ceases to be eligible to continue to act as indenture trustee under the indenture; (b) the indenture trustee is adjudged bankrupt or insolvent; (c) a receiver or other public officer takes charge of the indenture trustee or its property; or (d) the indenture trustee otherwise becomes incapable of acting.  If the indenture trustee is removed, the issuer will promptly appoint a successor indenture trustee.  If a successor indenture trustee does not take office within 30 days after the retiring indenture trustee resigns or is removed, the retiring indenture trustee, the issuer or the holders of more than 50% of the aggregate class principal amount of the outstanding notes may petition any court of competent jurisdiction for appointment of a successor indenture trustee.
 
Any resignation or removal of the indenture trustee and appointment of a successor indenture trustee will not become effective until acceptance of the appointment by the successor indenture trustee, whereupon the successor indenture trustee will mail notice of its succession to all noteholders.  The predecessor indenture trustee will be required to transfer all property held by it as indenture trustee to the successor indenture trustee.
 
Any fees and expenses owed to the retiring indenture trustee in connection with such resignation or removal will be paid as described in the related prospectus supplement.
 
The Trust Agreement
 
Each issuing entity that is an obligor on notes issued under an indenture will be organized pursuant to a deposit trust agreement (the “trust agreement”) as a statutory trust or a common law trust, as specified in the applicable prospectus supplement, for the limited purposes of, generally:
 
 
·
issuing notes or bonds pursuant to an indenture and to conducting an offering of the notes or bonds;
 
 
·
issuing certificates pursuant to a trust agreement and conducting an offering or a private placement of the certificates;
 
 
·
acquiring mortgage loans and other property from the depositor and, pursuant to an indenture, pledging the mortgage loans to the indenture trustee as security for the issuing entity’s obligations under the notes or bonds;
 
 
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·
entering into and performing its obligations under the sale and servicing agreement or other applicable agreement, the trust agreement, the indenture, the servicing agreements, the custodial agreement, the administration agreement and any other applicable agreements;
 
 
·
entering into any applicable interest rate cap or swap agreements;
 
 
·
such other purposes as are described in the applicable prospectus supplement;
 
 
·
engaging in those activities that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith; and
 
 
·
engaging in such other activities as may be appropriate in connection with conservation of the trust estate and the making of payments to securityholders.
 
Under the terms of the related trust agreement, each issuing entity will be prohibited from, among other things, incurring any debt other than as contemplated by the indenture, the sale and servicing agreement and related documents.
 
Duties of the Owner Trustee.  The owner trustee will be required to discharge (or cause to be discharged) all of its responsibilities pursuant to the terms of the trust agreement and any other document or agreement to which the issuer or the owner trustee is a party and will administer the trust in the interest of the holder of the ownership certificate issued pursuant to the trust agreement, in accordance with the provisions of the trust agreement.  As described in the related prospectus supplement, the securities or issuing entity administrator, the indenture trustee and the depositor will perform on behalf of the owner trustee and the issuing entity certain administrative functions required under the trust agreement, the indenture and the sale and servicing agreement.
 
The owner trustee, in its individual capacity, may be held liable for its own willful misconduct, gross negligence or bad faith in performing its duties as owner trustee; provided, however, that the owner trustee, in its individual capacity, will not be liable for any error of judgment made in good faith by an officer of the owner trustee or with respect to any action taken or omitted to be taken by the owner trustee in accordance with the instructions of the holder of the ownership certificate.   The owner trustee is not required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of the owner trustee’s duties under the trust agreement or any other document or agreement to which the issuer or the owner trustee is a party, or in the exercise of any of the owner trustee’s rights or powers, if the owner trustee has reasonable grounds for believing that repayment of those funds or adequate indemnity against risk or liability is not reasonably assured or provided to it.
 
Expenses and Indemnities of the Owner Trustee.  The owner trustee will be entitled to reimbursement of all reasonable expenses incurred by it in accordance with the trust agreement.  Such reimbursement will be paid from amounts allocable to interest and principal on the mortgage loans, prior to payment of any amounts to securityholders.  The owner trustee will also be entitled to indemnification from the issuing entity for any claim, loss, liability or expense incurred by it in connection with the administration of the trust and the performance of its duties under the trust agreement or any other document or agreement to which the issuer or the owner trustee is a party, except to the extent that any such claim, loss, liability or expense arises out of or results from the owner trustee’s own willful misconduct, fraud or gross negligence or results from any of the other circumstances that are specified in the trust agreement.  Unless otherwise provided in the prospectus supplement, any amounts payable in connection with such indemnification will be paid from the distribution account prior to payment of any amounts distributable to the ownership certificate under the sale and servicing agreement.
 
Resignation or Removal of Owner Trustee, The owner trustee may, upon 30 days’ advance written notice to the depositor, the holder of the ownership certificate and the indenture trustee, resign at any time, in which event the depositor will appoint a successor owner trustee that satisfies the eligibility requirements provided in the trust agreement.  The owner trustee may also be removed at any time by the depositor if (a) the owner trustee ceases to be eligible to continue to act as owner trustee under the trust agreement, (b) the

 
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owner trustee is legally unable to act or is adjudged bankrupt or insolvent or (c) a receiver or other public officer takes charge of the owner trustee or its property.  If the owner trustee is removed the depositor will promptly appoint a successor owner trustee.  If a successor owner trustee does not take office within 30 days after the retiring owner trustee resigns or is removed, the retiring owner trustee may petition any court of competent jurisdiction for appointment of a successor owner trustee.
 
Any resignation or removal of the owner trustee and appointment of a successor owner trustee will not become effective until acceptance of the appointment by the successor owner trustee, whereupon the securities or issuing entity administrator will provide notice of such resignation and appointment to the holder of the ownership certificate, the indenture trustee, the securityholders and the rating agencies.
 
Any fees and expenses owed to the retiring owner trustee in connection with such resignation or removal will be paid as described in the related prospectus supplement.

The Custodial Agreement
 
Unless otherwise specified in the related prospectus supplement, in connection with the sale of the mortgage loans by the depositor to the issuing entity on the related closing date, the depositor will be required to deliver a loan file to the custodian with respect to each mortgage loan consisting of, as to each mortgage loan:
 
 
·
the original mortgage note endorsed to the order of the trustee or in blank, or a lost note affidavit in lieu thereof, with all prior and intervening endorsements;
 
 
·
the original recorded mortgage, or if the original mortgage has been submitted for recordation but has not been returned by the applicable public recording office, a certified copy thereof;
 
 
·
for any mortgage loan not recorded with MERS(R) System, the original assignment of the mortgage to the trustee or in blank, in recordable form (except as described in the related prospectus supplement);
 
 
·
each original recorded intervening assignment of the mortgage as may be necessary to show a complete chain of title to the trustee, or if any assignment has been submitted for recordation but has not been returned from the applicable public recording office or is otherwise not available, a certified copy thereof;
 
 
·
the original of the policy or certificate of primary mortgage guaranty insurance, to the extent available, or a copy of such policy certified as true and correct by the insurer;
 
 
·
the original title insurance policy, note of title insurance or written commitment, or a copy of such policy certified as true and correct by the insurer; and
 
 
·
the original or certified copies of each assumption agreement, modification agreement, written assurance or substitution agreement, if any.
 
The custodian will hold the related mortgage loan documents on behalf of the trustee pursuant to the custodial agreement.  The mortgage loan documents related to a mortgage loan will be held separate from other mortgage loan files held by the custodian, The custodian will maintain the mortgage loan documents in a fireproof facility intended for the safekeeping of mortgage loan files.
 
The Trustees; Agents
 
The trustee under the pooling and servicing agreement for a series, or, if applicable, the indenture trustee under the indenture and the owner trustee under the trust agreement for a series, will be identified in the applicable prospectus supplement.  References in this prospectus to “trustee” are intended to refer as to

 
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any particular series of securities to the pooling and servicing agreement trustee, indenture trustee or owner trustee, as applicable, unless the context requires otherwise.
 
Each trustee’s liability in connection with the issuance and sale of securities of a series and its administration of the issuing entity will be limited as provided in the applicable agreements, and each trustee will be indemnified by the related issuing entity for losses and expenses it may incur, to the extent provided in the applicable agreements.  Unless otherwise provided in the applicable agreements a trustee may resign at any time, in which event the depositor, master servicer or other party so designated will be obligated to appoint a successor trustee.  A trustee may be removed by the depositor or the master servicer or by a majority or supermajority of securityholders, to the extent provided in the applicable agreements.
 
To the extent specified in the applicable prospectus supplement, a securities administrator, paying agent or other party may be appointed to perform certain functions that would otherwise be performed by the trustee.  Such a party will be entitled to compensation as described in the prospectus supplement.  In addition, the pooling and servicing agreement or indenture will provide that the trustee may appoint agents to perform certain functions from time to time.
 
Loss Mitigation Advisor; Investment Manager; Other Parties
 
The agreements or other documents for a series may provide for the appointment of (1) a loss mitigation advisor that will perform the functions described in the applicable prospectus supplement, which may include analysis of mortgage loan performance data and advising the servicer regarding servicing of defaulted loans, (2) an investment manager, for the limited purposes described in the prospectus supplement, or (3) such other parties performing such other functions as are described in the prospectus supplement.  Such parties will be entitled to compensation as described in the prospectus supplement.  An affiliate of the depositor may be designated for any such positions.
 
CERTAIN LEGAL ASPECTS OF THE LOANS
 
The following discussion contains summaries, which are general in nature, of certain legal matters relating to the loans.  Because these legal aspects are governed primarily by applicable state law and because the applicable state laws may differ substantially from state to state, the descriptions do not, except as expressly provided below, reflect the laws of any particular state, nor do they encompass the laws of all states in which the security for the loans is situated.  The descriptions are qualified in their entirety by reference to the applicable federal laws and the appropriate laws of the states in which loans may be originated.
 
General
 
Security Instruments.  The loans for a series may 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, and these security instruments are generally recorded in a state or county office.  Typically, the borrower, who is also the owner of the real property, delivers to the lender or the lender’s agent or trustee a note or bond and the applicable security instrument.  Priority among the holders of interests secured by the real property depends on the terms of the security instruments and, generally, on the order of recordation of the security instruments with a state or county office.  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 or, sometimes, lender’s agent or trustee.  Although a deed of trust is similar to a mortgage, a deed of trust formally has three parties, the borrower-property owner called the trustor (similar to a mortgagor), a lender or lender’s agent or trustee (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 for the benefit of the beneficiary, to secure payment of the obligation evidenced by the note or bond.  In California, deeds of trust are used almost exclusively instead of mortgages.  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, who is the borrower and owner of the property, conveys

 
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title to, as opposed to merely creating a lien upon, the subject property to the grantee, who is the lender or lender’s agent or trustee, 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.  Generally, any security interest in real property is subordinate to liens for real estate taxes or assessments, including if such liens for real estate taxes or assessments are recorded after recordation of the security instrument.
 
Cooperative Loans.  Some of the loans may be cooperative loans.  A cooperative is owned by tenant-stockholders, who, through ownership of stock, shares or membership certificates in the corporation, receive proprietary leases or occupancy agreements which confer exclusive rights to occupy specific cooperative units.  The cooperative owns the real property and the specific units and is responsible for management of the property.  An ownership interest in a cooperative and the accompanying rights are financed through a cooperative share loan evidenced by a promissory note and secured by a security interest in the cooperative shares or occupancy agreement or proprietary lease.
 
Foreclosure/Repossession
 
Commencing Foreclosure.

Deed of Trust.  Foreclosure of a deed of trust is generally accomplished by a non-judicial 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, foreclosure of a deed of trust also may be accomplished by judicial action in the manner provided for foreclosures of mortgages.  In addition to any notice requirements contained in a deed of trust, in some states, including California, the trustee must record a notice of default and send a copy to certain parties, including, without limitation, the borrower-trustor, any person who has recorded a request for a copy of any notice of default and notice of sale, any successor in interest to the borrower-trustor, and the beneficiary of any junior deed of trust.  In some states, including California, the borrower, or any other person having a subordinate encumbrance on the real estate, may, during a statutorily prescribed reinstatement period, cure monetary defaults under the loan by paying the entire amount in arrears plus other designated costs and expenses incurred by or on behalf of lender in enforcing the borrower’s obligation, which designated costs and expenses are generally set forth in state law.  If the borrower or a junior lienholder cures such defaults during the reinstatement period, the loan is “reinstated” and the foreclosure process is terminated.  If the reinstatement period expires without the defaults having been cured, the borrower or junior lienholder may not thereafter reinstate the loan except by paying the loan in full.  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, including California, published for a specific period of time in one or more newspapers.  Furthermore, some state laws require that a copy of the notice of sale be posted on the property encumbered by the deed of trust and sent to all parties having an interest of record in the property.  In California, the entire process from recording a notice of default to a non-judicial sale usually takes four to five months.
 
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 encumbered by the mortgage.  Delays in completion of the foreclosure may result from difficulties in locating necessary parties.  Judicial foreclosure proceedings may be contested by any of the parties to the foreclosure proceeding.  When the mortgagee’s right to foreclosure is contested, the legal proceedings necessary to resolve the issue can be time consuming.  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 some states, mortgages may also be foreclosed non-judicially, pursuant to a power of sale provided in the mortgage.
 
Foreclosure Sales.  Although foreclosure sales – whether pursuant to non-judicial sale rights or by judicial action – are typically public sales, frequently no third-party purchaser bids in excess of the amount of the lender’s lien because of the difficulty of determining the exact status of title to the property, the possible deterioration of the property during foreclosure proceedings and a requirement that the purchaser

 
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pay for the property in cash or by cashier’s check.  As a result, the foreclosing lender often purchases the property from the trustee or referee.  The foreclosing lender may purchase the property for an amount equal to the principal amount outstanding under the loan, accrued and unpaid interest and the expenses of foreclosure, in which event the mortgagor’s debt will be extinguished, or, in states where deficiency judgments are available, the lender may decide to purchase for a lesser amount in order to preserve its right against a borrower to seek a deficiency judgment.  Subject to the right of the borrower in some states to remain in possession of the property during a redemption period, upon purchasing the property at a foreclosure sale the lender will assume the burden of ownership, including obtaining hazard insurance and making repairs at its own expense as are necessary to render the property suitable for sale to a third party.  The lender will commonly obtain the services of a real estate broker and pay the broker’s commission in connection with the sale of the property to a third party.  Depending upon market conditions, the ultimate proceeds of the sale of the property may not equal the lender’s investment in the property.
 
Foreclosure is an equitable remedy with respect to which the courts have broad discretion, exercised generally to mitigate the legal consequences to the borrower of the borrower’s defaults under the loan documents.  Examples of such judicial remedies include 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 eliminated the right of a lender to realize upon its security if the default under the security agreement is not monetary, such as the borrower’s failure to maintain the property adequately or the borrower’s execution of secondary financing affecting the property.  Finally, 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.
 
When the holder of a subordinate security instrument cures the borrower’s defaults, causing the loan to be reinstated, or repays the full amount of the senior security instrument, thereby redeeming the borrower’s right to the real property, the amount paid by the junior lienholder to cure the borrower’s defaults or redeem the borrower’s right to the real property becomes a part of the indebtedness secured by the junior security instrument.
 
Foreclosing Cooperative Loans.  The cooperative shares owned by the tenant-stockholder and pledged to the lender or lender’s agent or trustee are, in almost all cases, subject to restrictions on transfer as set forth in the cooperative’s certificate of incorporation and bylaws, as well as the tenant-stockholder’s proprietary lease or occupancy agreement, and may be cancelled by the cooperative for failure by the tenant-stockholder to pay rent or other obligations or charges owed by such tenant-stockholder, including mechanics’ liens against the cooperative’s property incurred by such tenant-stockholder.  A proprietary lease or occupancy agreement generally permits the cooperative to terminate such lease or agreement in the event a tenant-stockholder fails to make payments or defaults in the performance of covenants required thereunder.  Furthermore, a default by the tenant-stockholder under the proprietary lease or occupancy agreement will usually constitute a default under the security agreement between the lender and the tenant-stockholder.
 
Typically, the lender and the cooperative enter into a recognition agreement which establishes the rights and obligations of both parties in the event of a default by the tenant-stockholder with respect to its obligations under the proprietary lease or occupancy agreement and/or the security agreement.  The recognition agreement generally provides that, in the event that the tenant-stockholder has defaulted under the proprietary lease or occupancy agreement, the cooperative will take no action to terminate such lease or agreement until the lender has been provided with an opportunity to cure the defaults.  The recognition agreement typically provides that if the proprietary lease or occupancy agreement is terminated, the cooperative will recognize the lender’s lien in respect of the proprietary lease or occupancy agreement, and will deliver to lender proceeds from the sale of the cooperative apartment unit to a third party up to the amount to which lender is entitled by reason of its lien, subject to the cooperative’s right to sums due under such proprietary lease or occupancy agreement.  The total amount owed to the cooperative by the tenant-

 
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stockholder, which the lender generally cannot restrict and does not monitor, may reduce the proceeds available to lender to an amount below the outstanding principal balance of the cooperative loan and accrued and unpaid interest thereon.
 
Recognition agreements typically also provide that in the event of a foreclosure on a cooperative loan, the lender must obtain the approval or consent of the cooperative as required by the proprietary lease or occupancy agreement before transferring the cooperative shares or assigning the proprietary lease to a third party.  Generally, the lender is not limited in any rights it may have to dispossess the tenant-stockholders.
 
In some states, foreclosure on the cooperative shares is accomplished by a sale in accordance with the provisions of Article 9 of the Uniform Commercial Code and the security instrument relating to those shares.  Article 9 requires that a sale be conducted in a “commercially reasonable” manner.  Whether a foreclosure sale has been conducted in a “commercially reasonable” manner will depend on the facts in each case and state law.  In determining commercial reasonableness, a court typically will look to the notice given the borrower and third parties (generally including a publication requirement) and the method, manner, time, place and terms of the foreclosure.
 
As described above, any provision in the recognition agreement regarding the right of the cooperative to receive sums due under the proprietary lease or occupancy agreement prior to lender’s reimbursement supplements any requirement under Article 9 that the proceeds of the sale will be applied first to pay the costs and expenses of the sale and then to satisfy the indebtedness secured by the lender’s security interest.  If there are proceeds remaining after application to costs and expenses of the sale, amounts due under the proprietary lease or occupancy agreement, and satisfaction of the indebtedness, the lender must account to the tenant-stockholder for such surplus.  Conversely, if a portion of the indebtedness remains unpaid, the tenant-stockholder is generally responsible for the deficiency.  Please refer to the discussion under the heading “—Anti-Deficiency Legislation; Tax Liens” below.
 
In the case of foreclosure on a cooperative which was converted from a rental building to a cooperative under a non-eviction plan, some states require that a purchaser at a foreclosure sale take the property subject to rent control and rent stabilization laws which apply to certain tenants who elected to remain in the building but who did not purchase shares in the cooperative when the building was so converted.
 
Recent Actions to Reduce, Suspend or Delay Foreclosure.  Recently, the federal government has commenced implementation of programs designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures.  In addition, certain mortgage lenders and servicers have voluntarily, or as part of settlements with law enforcement authorities, established loan modification programs relating to the residential mortgages they hold or service.  These programs may involve, among other things, the modification of mortgage loans to reduce the principal amount of the loans or the rate of interest payable on the loans, or to extend the payment terms of the loans.  In addition, members of the U.S. Congress have indicated support for additional legislative relief for homeowners, including a proposed amendment of the bankruptcy laws to permit the modification of mortgage loans in bankruptcy proceedings.  These loan modification programs, as well as future law enforcement and legislative or regulatory actions, may adversely affect the performance and market value of your securities.
 
Numerous laws, regulations and rules related to the servicing of mortgage loans, including efforts to delay or suspend foreclosure actions for a specified period have been proposed recently by federal, state and local governmental authorities.  A number of these laws have been enacted, including in California.  These laws, regulations and rules will result in delays in the foreclosure process, and may lead to reduced payments by borrowers and/or increased reimbursable servicing expenses.
 
Environmental Risks
 
Real property pledged as security to a lender may be subject to environmental risks.  Such risks, among other things, could substantially impair a borrower’s ability to repay a loan, result in substantial

 
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diminution in the value of the property pledged as collateral to secure the loan and/or give rise to liability which could exceed the value of such property or the principal balance of the related loan.
 
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 this type of lien has priority over the lien of an existing mortgage against the related property.  In addition, under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), the United States Environmental Protection Agency (“EPA”) may impose a lien on property where the EPA has incurred clean-up costs.  However, a CERCLA lien is subordinate to pre-existing, perfected security interests.
 
Under the laws of some states, and under CERCLA, it is conceivable that a secured lender may be held liable as an owner or operator for the costs of addressing releases or threatened releases of hazardous substances at a mortgaged property and related costs, even though the environmental damage or threat was caused by a prior or current owner or operator or another third party.  CERCLA imposes liability for these costs on any and all responsible parties, including owners or operators.  However, CERCLA excludes from the definition of “owner or operator” a secured creditor who, without participating in the management of a facility or property, holds indicia of ownership primarily to protect its security interest (the “secured creditor exclusion”).  Thus, if a lender’s activities begin to encroach on the actual management of a contaminated facility or property, the lender may incur liability as an owner or operator under CERCLA.  Similarly, if a lender forecloses and takes title to a contaminated facility or property, the lender may incur CERCLA liability in various circumstances, including, but not limited to, when it holds the facility or property as an investment (including leasing the facility or property to a third party), or fails to market the property in a timely fashion.
 
If a lender is or becomes liable, it may be entitled to bring an action for contribution against any other responsible parties, including a previous owner or operator, who created the environmental hazard, but those persons or entities may be bankrupt or otherwise judgment-proof.  The costs associated with environmental cleanup and the diminution in value of contaminated property and related liabilities or losses may be substantial.  It is conceivable that the costs arising from the circumstances set forth above would result in a loss to securityholders.
 
CERCLA does not apply to petroleum products, and the secured creditor exclusion does not govern liability for cleanup costs under federal laws other than CERCLA, in particular Subtitle 1 of the federal Resource Conservation and Recovery Act (“RCRA”), which regulates underground petroleum storage tanks (except heating oil tanks).  The EPA has adopted a lender liability rule for underground storage tanks under Subtitle I of RCRA.  Under that rule, a holder of a security interest in an underground storage tank or real property containing an underground storage tank is not considered an operator of the underground storage tank as long as the holder does not exercise decision-making control over the borrower’s enterprise, participate in the management or control of decision-making relating to the operation of a tank, as long as petroleum is not added to, stored in or dispensed from the tank, or as long as holder does not deviate from certain other requirements specified in the rule.  In addition, under the Asset Conservation, Lender Liability and Deposit Insurance Protection Act of 1996, similar protections to those accorded to lenders under CERCLA are also accorded to holders of security interests in underground tanks.  It should be noted, however, that liability for cleanup of contamination may be governed by state law, which may not provide for any specific protection for secured creditors.
 
Whether actions taken by a lender would constitute participation in the management of a mortgaged property, or the business of a borrower, so as to render the secured creditor exemption unavailable to a lender has been a matter of judicial interpretation of the statutory language, and court decisions have been inconsistent.  In 1990, the Court of Appeals for the Eleventh Circuit suggested that the mere capacity of the lender to influence a borrower’s decisions regarding disposal of hazardous substances was sufficient participation in the management of the borrower’s business to deny the protection of the secured creditor exemption to the lender, regardless of whether lender actually exercised such influence.
 
            This ambiguity appears to have been resolved by the enactment of the Asset Conservation, Lender Liability and Deposit Insurance Protection Act of 1996.  The legislation provides that in order to be deemed

 
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to have participated in the management of a mortgaged property, a lender must actually participate in the operational affairs of the property or the borrower.  The legislation also provides that participation in the management of the property does not include “merely having the capacity to influence, or unexercised right to control” operations.  Rather, a lender will lose the protection of the secured creditor exclusion only if it exercises decision-making control over the borrower’s environmental compliance and hazardous substance handling and disposal practices, or assumes day-to-day management of all operational functions of the secured property.  As noted above, the secured creditor exclusion does not govern liability for cleanup costs except under the federal laws discussed above.  In addition, certain other environmental conditions may be required to be addressed under other federal, state or local laws or in order to improve the marketability of a property.  Therefore, under certain circumstances, including but not limited to after foreclosure, a lender may incur costs under applicable laws or in order to improve the marketability of a property in connection with environmental conditions associated with that property, such as the presence or release of regulated materials in underground storage tanks, asbestos-containing material, lead paint or radon gas.  If a lender is or becomes liable, it can bring an action for contribution against any other “responsible parties” including a previous owner or operator, who created the environmental hazard, but those persons or entities may be bankrupt or otherwise judgment-proof.  It is conceivable that, the costs arising from such circumstances would result in a loss to securityholders.
 
Except as otherwise specified in the prospectus supplement, at the time the loans were originated, no environmental assessments or very limited environmental assessments of the properties were conducted.
 
Rights of Redemption
 
In some states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the borrower and foreclosed junior lienors are given a statutory period in which to redeem the property from the foreclosure sale.  In certain other states, including California, this right of redemption applies only to sales following judicial foreclosure, and not to sales pursuant to a non-judicial 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 other states, redemption may be authorized if the former borrower pays only a portion of the sums due.  The effect of a statutory right of redemption is to diminish the ability of the lender to sell the foreclosed property.  The exercise of a right of redemption would defeat the title of any purchaser from the lender subsequent to 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.  In some states, there is no right to redeem property after a trustee’s sale under a deed of trust.
 
Anti-Deficiency Legislation; Tax Liens
 
Certain states have imposed statutory and judicial restrictions that limit the remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.  In some states, including California, statutes and case law limit the right of the beneficiary or mortgagee to obtain a deficiency judgment against borrowers financing the purchase of their residence or following sale under a deed of trust or certain other foreclosure proceedings.  A deficiency judgment is a personal judgment against the borrower equal in most cases to the difference between the amount due to the lender and the fair market value of the real property at the time of the foreclosure sale, As a result of these prohibitions, it is anticipated that in most instances the servicer will utilize the non- judicial foreclosure remedy and will not seek deficiency judgments against defaulting borrowers.
 
Some state statutes require the beneficiary or mortgagee to exhaust the security afforded under a deed of trust or mortgage by foreclosure in an attempt to satisfy the full debt before bringing a personal action against the borrower.  In certain other states, the lender has the option of bringing a personal action against the borrower on the debt without first exhausting that security; however, in some of these states, the lender, following judgment on such personal action, may be deemed to have elected a remedy and may be precluded from exercising remedies with respect to the security.  Consequently, the practical effect of the election requirement, when applicable, is that lenders will usually proceed first against the security rather than bringing a personal action against the borrower.  In some states, exceptions to the anti-deficiency

 
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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.  Finally, other statutory provisions limit any deficiency judgment against the former borrower following a foreclosure sale to the excess of the outstanding debt over the fair market value of the property at the time of the public sale.  The purpose of these statutes is generally to prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment against the former borrower as a result of low or no bids at the foreclosure sale.
 
With respect to “additional collateral loans,” realization upon the additional collateral may be governed by the UCC in effect under the law of the state applicable thereto.  The UCC prohibits or limits a deficiency award in some circumstances, including those in which the disposition of the additional collateral was not conducted in a commercially reasonable manner.  In some states, the UCC does not apply to liens upon additional collateral consisting of some types of personal property (including, for example, bank accounts and, to a certain extent, insurance policies and annuities).  Realization upon such additional collateral will be governed by state laws other than the UCC, and the availability of deficiency awards under such state laws may be limited.  Whether realization upon any additional collateral is governed by the UCC or by other state laws, the ability of secured parties to realize upon the additional collateral may be limited by statutory prohibitions that limit remedies in respect of the related mortgage loans.  Such limitations may affect secured parties either independently or in conjunction with statutory requirements that secured parties proceed against the related mortgaged properties first or against both such mortgaged properties and the additional collateral concurrently.
 
The federal tax laws provide priority to certain tax liens over the lien of a mortgage or secured party.  Moreover, the laws of certain states also give priority to certain tax and mechanics liens over the lien of a mortgage.
 
Bankruptcy Laws
 
In addition to anti-deficiency and related legislation, numerous other federal and state statutory provisions, including the United States Bankruptcy Code, 11 U.S.C. Sections 101 et seq. (the “Bankruptcy Code”), and state laws affording relief to debtors (together with the Bankruptcy Code, the “Bankruptcy Laws”) may interfere with or affect the ability of a secured mortgage lender to obtain payment of a mortgage loan, to realize upon collateral and/or enforce a deficiency judgment.  For example, under the Bankruptcy Code, virtually all actions (including foreclosure actions and deficiency judgment proceedings) are automatically stayed upon the filing of a bankruptcy petition, and interest or principal payments may not be made during the course of the bankruptcy case.  Foreclosure of an interest in real property of a debtor in a case under the Bankruptcy Code can typically occur only if the bankruptcy court vacates the stay, an action the court may be reluctant to take, particularly if the debtor has the prospect of restructuring his or her debts and the mortgage collateral is not deteriorating in value.  The delay and the consequences of the delay caused by an automatic stay can be significant.  Also, under the Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a junior lienor (a subordinate lender secured by a mortgage on the property) may stay a senior lender from taking action to foreclose.
 
A homeowner may file for relief under the Bankruptcy Code under any of four different chapters of the Bankruptcy Code.  Under Chapter 7, the assets of the debtor are liquidated and a lender secured by a lien may “credit bid” (i.e., bid up to the amount of the debt) at the sale of the asset.  See “—Foreclosure/Repossession.”  A homeowner may also file for relief under Chapter 11 of the Bankruptcy Code and reorganize his or her debts through his or her reorganization plan.  Alternatively, a homeowner may file for relief under Chapter 13 of the Bankruptcy Code and address his or her debts in a rehabilitation plan.  Certain individuals are eligible to file under Chapter 12.
 
The Bankruptcy Code permits a mortgage loan that is secured by property that does not consist solely of the debtor’s principal residence to be modified without the consent of the lender provided certain substantive and procedural safeguards are met.  In such cases, the lender’s security interest may be reduced to the then-current value of the property as determined by the court if the value is less than the amount due on the loan, thereby leaving the lender as a general unsecured creditor for the difference between the value  of the collateral and the outstanding balance of the mortgage loan.  A borrower’s unsecured

 
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indebtedness will typically be discharged in full upon payment of a substantially reduced amount.  Other modifications to a mortgage loan may include a reduction in the amount of each scheduled payment, which reduction may result from a reduction in the rate of interest, an alteration of the repayment schedule, an extension of the final maturity date, and/or a reduction in the outstanding balance of the secured portion of the loan.  In certain circumstances, subject to the court’s approval, a debtor in a case under Chapter 11 of the Bankruptcy Code may have the power to grant liens senior to the lien of a mortgage.

A reorganization plan under Chapter 11 and a rehabilitation plan under Chapter 13 of the Bankruptcy Code may each allow a debtor to cure a default relating to a mortgage loan on its residence by paying arrearages over a period of time and to deaccelerate and reinstate the original mortgage loan payment schedule, even though the lender accelerated the loan and a final judgment of foreclosure has been entered in state court (provided no sale of the property had yet occurred) prior to the filing of the debtor’s petition under the Bankruptcy Code.  Under a Chapter 13 plan, curing of defaults must be accomplished within the five-year maximum term permitted for repayment plans, the term commencing when repayment plan becomes effective, while defaults may be cured over a longer period of time under a Chapter 11 plan of reorganization.
 
Generally, a repayment plan in a case under Chapter 13 and a plan of reorganization under Chapter 11 may not modify the claim of a mortgage lender if the borrower elects to retain the property, the property is the borrower’s principal residence and the property is the lender’s only collateral.  However, there have been recent proposals in Congress that would extend the ability of bankruptcy judges to modify the terms of mortgage loans in those situations where modification is not currently permitted.  Modifications are permissible when the mortgage loan is secured both by the debtor’s principal residence and by other collateral, such as appliances or furniture.
 
The general protection for mortgages secured only by the debtor’s principal residence is not applicable in a case under Chapter 13 if the last payment on the original payment schedule is due before the final date for payment under the debtor’s Chapter 13 plan (which date could be up to five years after the debtor emerges from bankruptcy).  
 
State statutes and general principles of equity may also provide a mortgagor with means to halt a foreclosure proceeding or sale and to force a restructuring of a mortgage loan on terms a lender would not otherwise accept.
 
In a bankruptcy or similar proceeding of a mortgagor, actions may be taken seeking the recovery, as a preferential transfer or on other grounds, of any payments made by the mortgagor under the related mortgage loan prior to the bankruptcy or similar proceeding.  Payments may be protected from recovery as preferences in bankruptcy cases if they are payments in the ordinary course of business made on debts incurred in the ordinary course of business or if the value of the collateral exceeds the debt at the time of payment.  Whether any particular payment would be protected depends upon the facts specific to a particular transaction.
 
A trustee in bankruptcy, in some cases, may be entitled to collect its costs and expenses in preserving or selling the mortgaged property ahead of a payment to the lender.  Under the Bankruptcy Code, if the court finds that actions of the mortgagee have been unreasonable and inequitable, the lien of the related mortgage may be subordinated to the claims of unsecured creditors.
 
A “deficient valuation” with respect to any mortgage loan is, generally, the excess of (a)(1) the then outstanding principal balance of the mortgage loan, plus (2) accrued and unpaid interest and expenses reimbursable under the terms of the related note to the date of the bankruptcy petition (collectively, the “outstanding balance”), over (b) a valuation by a court of competent jurisdiction of the mortgaged property which reduces the principal balance on such mortgage loan to an amount less than the outstanding balance of the mortgage loan, which valuation results from a proceeding initiated under the Bankruptcy Code.  As used in this prospectus, “deficient valuation” means, with respect to any mortgage loan, the deficient valuation described in the preceding sentence, without giving effect to clause (a)(2) thereof.  If the terms of a court order in respect of any retroactive deficient valuation provide for a reduction in the indebtedness of

 
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a mortgage loan, and the earlier maturity thereof, the term deficient valuation includes an additional amount equal to the excess, if any, of (a) the amount of principal that would have been due on such mortgage loan, for each month retroactively affected, based on the original payment terms and amortization schedule of such mortgage loan over (b) the amount of principal due on such mortgage loan, for each such retroactive month (assuming the effect of such retroactive application according to such mortgage loan’s revised amortization schedule).  A “debt service reduction” with respect to any mortgage loan, is, generally, a reduction in the scheduled monthly payment for such mortgage loan, by a court of competent jurisdiction in a proceeding under the Bankruptcy Code, except such a reduction resulting from a deficient valuation.

Due-on-Sale Clauses
 
Each conventional loan generally will contain a due-on-sale clause which will generally provide that if the mortgagor or obligor sells, transfers or conveys the property, the loan or contract may be accelerated by the mortgagee or secured party.  Court decisions and legislative actions have placed substantial restrictions on the right of lenders to enforce these 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 a result, due-on-sale clauses are generally enforceable except in those states whose legislatures exercised their authority to regulate the enforceability of the clauses with respect to mortgage loans that were (a) 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 (b) originated by lenders other than national banks, federal savings institutions and federal credit unions.  Freddie Mac 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.
 
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, The inability to enforce a due-on-sale clause may result in transfer of the related property to an uncreditworthy person, which could increase the likelihood of default or may result in a mortgage bearing an interest rate below the current market rate being assumed by a new home buyer, which may affect the average life of the loans and the number of loans which may extend to maturity.
 
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.
 
Prepayment Charges and Prepayments
 
Applicable regulations prohibit the imposition of a prepayment charge or equivalent fee for or in connection with the acceleration of a mortgage loan by exercise of a due-on-sale clause.  A mortgagee to whom a prepayment in full has been tendered will be compelled to give either a release of the mortgage or an instrument assigning the existing mortgage to a refinancing lender.
 
Some state laws restrict the imposition of prepayment charges even when the mortgage loans expressly provide for the collection of those charges.  The Alternative Mortgage Transaction Parity Act of 1982 (the “Parity Act”) permits the collection of prepayment charges in connection with some types of mortgage loans subject to the Parity Act, or Parity Act loans, preempting any contrary state law prohibitions.  However, some states may not recognize the preemptive authority of the Parity Act or have opted out of the Parity Act.   Moreover, the OTS, the agency that administers the application of the Parity
 

 
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Act to some types of mortgage lenders that are not chartered under federal law, withdrew its favorable regulations and opinions that previously authorized those lenders, notwithstanding contrary state law, to charge prepayment charges and late fees with respect to Parity Act loans originated on or after July 1, 2003.  Accordingly, it is possible that prepayment charges may not be collected on some mortgage loans that provide for the payment of these charges.  Any prepayment charges collected on mortgage loans may be available for distribution only to a specific class of securities or may not be available for distribution to any class of securities.  If so specified in the accompanying prospectus supplement, prepayment charges may be retained by the servicer or by sub-servicers as additional servicing compensation.
 
Applicability of Usury Laws
 
Title V of the Depository Institutions Deregulation and Monetary Control Act of 1980, enacted in March 1980 (“Title V”) provides that state usury limitations shall not apply to certain types of residential first mortgage loans originated by certain lenders after March 31, 1980.  The Office of Thrift Supervision, as successor to the Federal Home Loan Bank Board, is authorized to issue rules and regulations and to publish interpretations governing implementation of Title V.  Title V authorized the states to reimpose interest rate limits by adopting, before April 1, 1983, a law or constitution provision which expressly rejects application of the federal law.  Fifteen states adopted such a law prior to the April 1, 1983 deadline.  In addition, even where Title V was not so rejected, any state is authorized by the law to adopt a provision limiting discount points or other charges on mortgage loans covered by Title V.
 
Certain states have taken action to reimpose interest rate limits and/or to limit discount points or other charges.
 
Alternative Mortgage Instruments
 
ARM Loans and home equity revolving credit loans originated by non-federally chartered lenders have historically been subject to a variety of restrictions.  These restrictions differed from state to state, resulting in difficulties in determining whether a particular alternative mortgage instrument originated by a state-chartered lender complied with applicable law.  These difficulties were simplified substantially as a result of the enactment of Title VIII of the Garn-St. Germain Act.  Title VIII provides that, notwithstanding any state law to the contrary:
 
 
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state-chartered banks may originate alternative mortgage instruments, including ARM Loans, in accordance with regulations promulgated by the Comptroller of the Currency with respect to origination of alternative mortgage instruments by national banks, and state-chartered credit unions may originate alternative mortgage instruments in accordance with regulations promulgated by the National Credit Union Administration with respect to origination of alternative mortgage instruments by federal credit unions; and
 
 
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all other non-federally chartered housing creditors, including, without limitation, state-chartered savings and loan associations, savings banks and mutual savings banks and mortgage banking companies, may originate alternative mortgage instruments in accordance with the regulations promulgated by the Federal Home Loan Bank Board, predecessor to the Office of Thrift Supervision, with respect to origination of alternative mortgage instruments by federal savings and loan associations.
 
Title VIII further provides that any state may reject applicability of the provisions of Title VIII by adopting prior to October 15, 1985 a law or constitutional provision expressly rejecting the applicability of these provisions.  Several states have taken this type of action.
 
All of the ARM Loans and home equity revolving credit loans held by a trust that were originated by a state-chartered lender after the enactment of a state law or constitutional provision rejecting the applicability of Title VIII will have complied with applicable state law.  All of the ARM Loans and home equity revolving credit loans held by a trust that were originated by federally-chartered lenders or that were
 

 
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originated by state-chartered lenders prior to enactment of a state law or constitutional provision rejecting the applicability of Title VIII will have been originated in compliance with all applicable federal regulations.
 
Servicemembers Civil Relief Act
 
Generally, under the terms of the Servicemembers Civil Relief Act formerly known as the Soldiers’ and Sailors’ Relief Act of 1940, (the “Relief Act”), a borrower who enters military service after the origination of his or her 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 loan and is later called to active duty) may not be charged interest above an annual rate of 6% during the period of his or her active duty status, unless a court orders otherwise upon application of the lender.  It is possible that this interest rate limitation could have an effect, for an indeterminate period of time, on the ability of the servicer to collect full amounts of interest on certain of the loans.  Unless otherwise provided in the prospectus supplement, any shortfall in interest collections resulting from the application of the Relief Act could result in losses to securityholders.  The Relief Act also imposes limitations which would impair the ability of the servicer to foreclose on an affected loan during the borrower’s period of active duty status.  Moreover, the Relief Act permits the extension of a loan’s maturity and the re-adjustment of its payment schedule beyond the completion of military service.  Thus, in the event that a loan that is affected by the Relief Act goes into default, there may be delays and losses occasioned by the inability to realize upon the property in a timely fashion.

Junior Mortgages; Rights of Senior Mortgagees
 
To the extent that the loans comprising the issuing entity for a series are secured by mortgages which are junior to other mortgages held by other lenders or institutional investors, the rights of the issuing entity (and therefore the securityholders), as mortgagee under any such junior mortgage, are subordinate to those of any mortgagee under any senior mortgage.  The senior mortgagee has the right to receive hazard insurance and condemnation proceeds and to cause the property securing the 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 a default and bring the senior loan current, in either event adding the amounts expended to the balance due on the junior loan.  In most states, absent a provision in the mortgage or deed of trust, no notice of default is required to be given to a junior mortgagee.
 
The standard form of the mortgage used by most institutional lenders confers on the mortgagee the right both to receive all proceeds collected under any hazard insurance policy and all awards made in connection with condemnation proceedings, and to apply those proceeds and awards to any indebtedness secured by the mortgage, in whatever order the mortgagee 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 a senior mortgage 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 senior mortgage.  Proceeds in excess of the amount of senior mortgage indebtedness, in most cases, may be applied to the indebtedness of a junior mortgage.
 
Another provision sometimes found in the form of the mortgage or deed of trust used by institutional lenders obligates the mortgagor to pay before delinquency all taxes and assessments on the property and, when due, all encumbrances, charges and liens on the property which appear prior to the 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, and to appear in and defend any action or proceeding purporting to affect the property or the rights of the mortgagee under the mortgage.  Upon a failure of the mortgagor to perform any of these obligations, the mortgagee is given the right under certain mortgages to perform the obligation itself, at its election, with the mortgagor reimbursing the mortgagee for any sums expended by the mortgagee on behalf of the mortgagor.  All sums so expended by the mortgagee become part of the indebtedness secured by the mortgage.
 

 
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The form of credit line trust deed or mortgage generally used by most institutional lenders which make revolving credit line loans typically contains a future advance clause, which provides, in essence, that additional amounts advanced to or on behalf of the borrower by the beneficiary or lender are to be secured by the deed of trust or mortgage.  Any amounts so advanced after the cut-off date with respect to any mortgage may be included in the issuing entity.  The priority of the lien securing any advance made under a future advance clause may depend in most states on whether the deed of trust or mortgage is called and recorded as a credit line deed of trust or mortgage.  If the beneficiary or lender advances additional amounts, the advance is entitled to receive the same priority as amounts initially advanced under the trust deed or mortgage, notwithstanding the fact that there may be junior trust deeds or mortgages and other liens which intervene between the date of recording of the trust deed or mortgage and the date of the future advance, and notwithstanding that the beneficiary or lender had actual knowledge of the intervening junior trust deeds or mortgages and other liens at the time of the advance.  In most states, the trust deed or mortgage lien securing mortgage loans of the type which includes home equity credit lines applies retroactively to the date of the original recording of the trust deed or mortgage, provided that the total amount of advances under the home equity credit line does not exceed the maximum specified principal amount of the recorded trust deed or mortgage, except as to advances made after receipt by the lender of a written notice of lien from a judgment lien creditor of the trustor.
 
Consumer Protection Laws
 
The Reigle Community Development and Regulatory Improvement Act of 1994 (the “Reigle Act”) incorporates the Home Ownership and Equity Protection Act of 1994, which adds certain additional provisions to Regulation Z, the implementing regulation of the Truth-in-Lending Act (“TILA”).  These provisions impose additional disclosure and other requirements on creditors with respect to high cost loans.  In general, mortgage loans within the purview of the Reigle Act have annual percentage rates over 8% greater than the yield on United States Treasury securities of comparable maturity and/or fees and points which exceed the greater of 8% of the total loan amount or $455.  The provisions of the Reigle Act apply on a mandatory basis to all mortgage loans originated on or after October 1, 1995.  These provisions can impose specific statutory liabilities upon creditors who fail to comply with their provisions and may affect the enforceability of the related loans.  In addition, any assignee of a creditor, including the trust and the trustee, would generally be subject to all claims and defenses that the consumer could assert against the creditor, including, without limitation, the right to rescind the mortgage loan.
 
Mortgage loans are also subject to various other federal laws, including (1) the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit; (2) the Americans with Disabilities Act, which, among other things, prohibits discrimination on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation; and (3) the Fair Credit Reporting Act, which regulates the use and reporting of information related to borrowers’ credit experience.  Violations of certain provisions of these federal laws may limit the ability of the servicer to collect all or part of the principal of or interest on the mortgage loans and in addition could subject the issuing entity to damages.
 
State laws applicable to mortgage loans generally regulate interest rates and other charges and require certain disclosures to borrowers.  In addition, other state laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing and collection of mortgage loans.  Depending upon the provisions of the applicable law and the specific facts and circumstances involved, violations of these laws, policies and principles may limit the ability of the servicer to collect all or part of the principal of or interest on the mortgage loans, may entitle borrowers to a refund of amounts previously paid and could subject the issuing entity to damages.
 
 
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Forfeitures in Drug and RICO Proceedings
 
Federal law provides that property owned by persons convicted of drug-related crimes or of criminal violations of the Racketeer Influenced and Corrupt Organizations statute (“RICO”) may be seized by the government if the property was used in or purchased with the proceeds of these crimes.  Under procedures contained in the Comprehensive Crime Control Act of 1984, the government may seize the property even before conviction.  The government must publish notice of the forfeiture proceeding and may give notice to all parties “known to have an alleged interest in the property,” including the holders of mortgage loans.
 
A lender may avoid forfeiture of its interest in the property if it establishes that:  (1) its mortgage was executed and recorded before commission of the crime upon which the forfeiture is based or (2) the lender was at the time of execution of the mortgage “reasonably without cause to believe” that the property was used in or purchased with the proceeds of illegal drug or RICO activities.
 
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
 
General

The following is a discussion of the material federal income tax consequences of the purchase, ownership and disposition of the securities. The following discussion is based on the advice of Chapman and Cutler LLP  as to the anticipated material federal income tax consequences of the purchase, ownership and disposition of the securities offered hereunder. This discussion is directed solely to securityholders that hold the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code and does not purport to discuss all federal income tax consequences that may be applicable to particular individual circumstances, including those of banks, insurance companies, foreign investors, tax-exempt organizations, dealers in securities or currencies, mutual funds, real estate investment trusts, S corporations, estates and trusts, securityholders that hold the securities as part of a hedge, straddle, integrated or conversion transaction, or securityholders whose functional currency is not the United States dollar. Also, it does not address alternative minimum tax consequences or the indirect effects on the holders of equity interests in a securityholder.

For purposes of this tax discussion, references to a “securityholder” or a “holder” are to the beneficial owner of a security.

The following discussion is based in part upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations (including regulations promulgated under sections 860A through 860G of the Code, the “REMIC Regulations,” and those promulgated under sections 1271 through 1275 of the Code,   the “OID Regulations”), rulings and decisions all as in effect as of the date of this prospectus. The OID Regulations, which are effective with respect to debt instruments issued on or after April 4, 1994, do not adequately address some issues relevant to, and in some instances provide that they are not applicable to, securities similar to the securities.

In addition, the authorities on which this discussion, and the opinions referred to below, are based are subject to change or differing interpretations, which could apply retroactively. An opinion of counsel is not binding on the Internal Revenue Service (“IRS”) or the courts,  and no rulings have been or will be sought from the IRS with respect to any of the federal income tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. Taxpayers and preparers of tax returns, including those filed by any REMIC or other issuer, should be aware that under applicable Treasury regulations a provider of advice on specific issues of law is not considered an income tax return preparer unless the advice
 
 
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is given with respect to events that have occurred at the time the advice is rendered and is not given with respect to the consequences of contemplated actions, and

 
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is directly relevant to the determination of an entry on a tax return.
 
 
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This summary and the opinions contained herein may not be able to be relied upon to avoid any income tax penalties that may be imposed with respect to the securities. Accordingly, taxpayers are encouraged to consult their tax advisors and tax return preparers regarding the preparation of any item on a tax return and the application of United States federal income tax laws, as well as the laws of any state, local or foreign taxing jurisdictions, to their particular situations, even where the anticipated tax treatment has been discussed in this prospectus or in a prospectus supplement. See “State and Other Tax Consequences” in this prospectus.
 
Types of Securities
 
This discussion addresses the following types of securities:
 
 
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REMIC securities (“REMIC Securities”)
 
 
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securities issued by issuing entities for which a REMIC election is not made and which are treated as indebtedness of the issuer for federal income tax purposes (“Non-REMIC Debt Securities“)
 
The prospectus supplement for each series of securities will indicate the applicable tax characterization for each security issued pursuant to that supplement.  Set forth below is a general description of each type of security and the anticipated material federal income tax consequences of investing in such security.  The discussions under “—Special Tax Attributes,” “— Withholding With Respect to Certain Foreign Investors,” —Backup Withholding” and “—Tax Return Disclosure Requirements” below relate to all types of securities discussed herein.
 
Taxation of Debt Securities Generally
 
When we refer to a “Debt Security” or “Debt Securities” in the discussion that follows, we mean (1) REMIC securities that are “regular interest securities,” as defined below and (2) Non-REMIC Debt Securities.  This discussion is based in part on the rules governing original issue discount as set forth in Code sections 1271 through 1273, 1275 and 1281 through 1283, the regulations issued thereunder (the “OID Regulations“) and in part on the provisions of the Tax Reform Act of 1986 (the “1986 Act”).  Prospective investors should be aware, however, that the OID Regulations do not adequately address certain issues relevant to prepayable securities, such as the Debt Securities.  To the extent that those issues are not addressed in the OID Regulations, the trustee intends to apply the methodology described in the Conference Committee Report to the 1986 Act.  No assurance can be provided that the Internal Revenue Service (“IRS”) will not take a different position as to those matters not currently addressed by the OID Regulations.  Moreover, the OID Regulations include an anti-abuse rule allowing the IRS to apply or depart from the OID Regulations where necessary or appropriate to ensure a reasonable tax result because of the applicable statutory provisions.  A tax result will not be considered unreasonable under the anti-abuse rule in the absence of a substantial effect on the present value of a taxpayer’s tax liability.  Prospective investors are encouraged to consult their own tax advisors as to the discussion therein and the appropriate method for reporting interest and original issue discount (“OID”) with respect to Debt Securities.
 
Original Issue Discount.  Some classes of Debt Securities offered in a series may be issued with OID.  Holders of any class of Debt Securities having OID must generally include OID in ordinary gross income for federal income tax purposes as it accrues, in accordance with the constant yield method, in advance of receipt of the cash attributable to such income.  When required by the Code and/or applicable regulations, the Issuer will indicate on the face of each Debt Security issued by it information concerning the application of the OID rules to such Debt Security and certain other information that may be required.  The Issuer will report annually to the IRS and to holders of record of such Debt Securities information with respect to the OID accruing on such Debt Securities during the reporting period.
 
In general, each Debt Security will be treated as a single installment obligation for purposes of determining the OID includible in a holder’s income.  The amount of OID on such a Debt Security is the

 
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excess of the stated redemption price at maturity of the Debt Security over its issue price.  The issue price of a Debt Security is the initial offering price to the public at which a substantial amount of the securities of that class are first sold to the public (excluding bond houses, brokers, underwriters or wholesalers), generally as set forth on the cover page of the prospectus supplement for a series of securities.  If less than a substantial amount of a particular class of Debt Securities is sold for cash on or prior to the date of their initial issuance, the issue price for such class will likely be treated as equal to its fair market value on the closing date.  The portion of the initial offering price which consists of payment for interest accrued on the Debt Securities prior to the closing date generally may, at the option of the initial holders, be subtracted from the issue price of the securities and treated as an offset to interest received on the first payment date.

The stated redemption price at maturity of a Debt Security is equal to the total of all payments to be made on the Debt Security other than “qualified stated interest payments.” “Qualified stated interest payments” are payments on the Debt Securities which are paid at least annually and are based on either a fixed rate or a “qualified variable rate.” Under the OID Regulations, interest is treated as payable at a “qualified variable rate” and not as contingent interest if, generally, (i) such interest is unconditionally payable at least annually, the issue price of the Debt Security does not exceed the total noncontingent principal payments and (ii) interest is based on a “qualified floating rate,” an “objective rate,” or a combination of “qualified floating rates” that do not operate in a manner that significantly accelerates or defers interest payments on such security.  Generally, the stated redemption price at maturity of a Debt Security (other than an “accrual security,” as described below) is its stated principal amount; the stated redemption price at maturity of an accrual security is the sum of all payments (regardless of how denominated) scheduled to be received on such accrual security under the Tax Prepayment Assumption (as defined below).  Any payment denominated as interest that does not constitute a qualified stated interest payment is generally referred to as a “contingent interest payment.” The related prospectus supplement will discuss whether the payments on a Debt Security denominated as interest are qualified stated interest payments and the treatment for federal income tax purposes of any contingent interest payments.
 
Notwithstanding the general definition of OID above, any OID with respect to a Debt Security will be considered to be zero if such discount is less than 0.25% of the stated redemption price at maturity of the Debt Security multiplied by its weighted average life (a “de minimis” amount).  The weighted average life of a Debt Security for this purpose is the sum of the following amounts (computed for each payment included in the stated redemption price at maturity of the Debt Security): (i) the number of complete years (rounded down for partial years) from the closing date until the date on which each such payment is scheduled to be made under the Tax Prepayment Assumption, multiplied by (ii) a fraction, the numerator of which is the amount of the payment, and the denominator of which is the Debt Security’s stated redemption price at maturity.  Holders of Debt Securities generally must report de minimis OID pro rata as principal payments are received, and such income will be capital gain if the Debt Security is held as a capital asset.  However, accrual method holders may elect to accrue all interest on a Debt Security, including de minimis OID and market discount and as adjusted by any premium, under a constant yield method.
 
The Code requires that the amount and rate of accrual of OID be calculated based on a reasonable assumed prepayment rate for the mortgage loans, the mortgage loans underlying any mortgaged-backed securities and/or other mortgage collateral securing the Debt Securities (the “Tax Prepayment Assumption”) and prescribes a method for adjusting the amount and rate of accrual of such discount if actual prepayment rates exceed the Tax Prepayment Assumption.  However, if such mortgage loans prepay at a rate slower than the Tax Prepayment Assumption, no deduction for OID previously accrued, based on the Tax Prepayment Assumption, is allowed.  The Tax Prepayment Assumption is required to be determined in the manner prescribed by regulations that have not yet been issued.  It is anticipated that the regulations will require that the Tax Prepayment Assumption be the prepayment assumption that is used in determining the initial offering price of such securities.  The related prospectus supplement for each series of securities will specify the Tax Prepayment Assumption determined by the Issuer for the purposes of determining the amount and rate of accrual of OID.  No representation is made that the mortgage collateral will prepay at the Tax Prepayment Assumption or at any other rate.
 

 
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Generally, a holder of a Debt Security must include in gross income the sum of the “daily portions,” as determined below, of the OID that accrues on a Debt Security for each day the holder owns the Debt Security, including the purchase date but excluding the disposition date.  In the case of an original holder of a Debt Security, a calculation will be made of the portion of the OID that accrues during each successive period (or shorter period from date of original issue) (an “accrual period”) that ends on the day in the calendar year corresponding to each of the payment dates on the Debt Securities (or the date prior to each such date).  This will be done, in the case of each full accrual period, by:
 
 
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adding (A) the present value at the end of the accrual period of all remaining payments to be received on the Debt Securities, computed taking into account (i) the yield to maturity of the Debt Security at the issue date, (ii) events (including actual prepayments) that have occurred prior to the end of the accrual period, and (iii) the Tax Prepayment Assumption, and (B) any payments received during such accrual period, other than payments of qualified stated interest: and
 
 
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subtracting from that total the “adjusted issue price” of the Debt Securities at the beginning of such accrual period.  The adjusted issue price of a Debt Security at the beginning of the initial accrual period is its issue price; the adjusted issue price of a Debt Security at the beginning of a subsequent accrual period is the adjusted issue price at the beginning of the immediately preceding accrual period plus the amount of OID allocable to such accrual period and reduced by the amount of any payment other than a payment of qualified stated interest made at the end of or during such accrual period.  The OID accrued during such accrual period will then be divided by the number of days in the period to determine the daily portion of OID for each day in the period.  With respect to an initial accrual period shorter than a full accrual period, the daily portions of OID must be determined according to any reasonable method, provided that such method is consistent with the method used to determine yield on the Debt Securities.
 
With respect to any Debt Security that is a variable rate debt instrument, the sum of the daily portions of OID that is includible in the holder’s gross income is determined under the same principles described above, with the following modifications: the yield to maturity on the Debt Securities should be calculated as if the interest index remained at its value as of the issue date of such Debt Securities.  Because the proper method of adjusting accruals of OID on a variable rate debt instrument as a result of prepayments is uncertain, holders of such instruments should consult their own tax advisors regarding the appropriate treatment of such Debt Securities for federal income tax purposes.
 
A subsequent purchaser of a Debt Security issued with OID who purchases the Debt Security at a cost less than the remaining stated redemption price at maturity, will also be required to include in gross income for all days during his or her taxable year on which such Debt Security is held, the sum of the daily portions of OID on the Debt Security.  In computing the daily portions of OID with respect to a Debt Security for such a subsequent purchaser, however, the daily portion for any day shall be reduced by the amount that would be the daily portion for such day (computed in accordance with the rules set forth above) multiplied by a fraction, the numerator of which is the amount, if any, by which the price paid by such holder for the Debt Security exceeds its adjusted issue price (the “acquisition premium”), and the denominator of which is the amount by which the remaining stated redemption price at maturity exceeds the adjusted issue price.
 
Amortizable Bond Premium.  A holder who purchases a Debt Security for an amount (net of accrued interest) greater than its stated redemption price at maturity generally will be considered to have purchased the Debt Security at a premium, which it may, under section 171 of the Code, elect to amortize as an offset to interest income on such Debt Security (and not as a separate deduction item) on a constant yield method.  Although no regulations addressing the computation of premium accrual on securities similar to the Debt Securities have been issued, the relevant legislative history under section 171 of the Code indicates that premium is to be accrued in the same manner as market discount.  Accordingly, it appears that the accrual of premium on a class of Debt Securities of a series will be calculated using the prepayment assumption used in pricing such class.  If a holder makes an election under section 171 of the

 
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Code to amortize premium on a Debt Security, such election will apply to all taxable debt instruments (including pass-through certificates representing ownership interests in a trust holding debt obligations) held by the holder at the beginning of the taxable year in which the election is made, and to all taxable debt instruments acquired thereafter by such holder, and will be irrevocable without the consent of the IRS.  Purchasers who pay a premium for the Debt Securities should consult their tax advisors regarding the election to amortize premium and the method to be employed.
 
Market Discount. The Debt Securities are subject to the market discount provisions of Code sections 1276 through 1278.  These rules provide that if a subsequent holder of a Debt Security purchases it at a market discount, some or all of any principal payment or of any gain recognized upon the disposition of the Debt Security will be taxable as ordinary interest income.  Market discount on a Debt Security means the excess, if any, of (1) the sum of its issue price and the aggregate amount of OID includible in the gross income of all holders of the Debt Security prior to the acquisition by the subsequent holder (presumably adjusted to reflect prior principal payments), over (2) the price paid by the holder for the Debt Security.  Market discount on a Debt Security will be considered to be zero if such discount is less than .25% of the stated redemption price at maturity of such Debt Security multiplied by its weighted average life, which presumably would be calculated in a manner similar to weighted average life (described above), taking into account distributions (including prepayments) prior to the date of acquisition of such Debt Security by the subsequent purchaser.  If market discount on a Debt Security is treated as zero under this rule, the actual amount of such discount must be allocated to the remaining principal distributions on such Debt Security and when each such distribution is made, gain equal to the discount allocated to such distribution will be recognized.
 
Any principal payment (whether a scheduled payment or a prepayment) or any gain on the disposition of a market discount Debt Security is to be treated as ordinary income to the extent that it does not exceed the accrued market discount at the time of such payment or disposition.  The amount of accrued market discount for purposes of determining the tax treatment of subsequent principal payments or dispositions of the Debt Securities is to be reduced by the amount so treated as ordinary income.

The 1986 Act grants authority to the U.S. Treasury to issue regulations providing for the computation of accrued market discount on debt instruments, the principal of which is payable in more than one installment.  Until such time as regulations are issued by the U.S. Treasury, certain rules described in the Conference Committee Report to the 1986 Act will apply.  Under those rules, the holder of a market discount Debt Security may elect to accrue market discount either on the basis of a constant interest rate or using one of the following methods.  For Debt Securities issued with OID, the amount of market discount that accrues during a period is equal to the product of (i) the total remaining market discount, multiplied by (ii) a fraction, the numerator of which is the OID accruing during the period and the denominator of which is the total remaining OID at the beginning of the period.  For Debt Securities issued without OID, the amount of market discount that accrues during a period is equal to the product of (i) the total remaining market discount, multiplied by (ii) a fraction, the numerator of which is the amount of stated interest paid during the accrual period and the denominator of which is the total amount of stated interest remaining to be paid at the beginning of the period.  For purposes of calculating market discount under any of the above methods in the case of instruments (such as the Debt Securities) that provide for payments that may be accelerated by reason of prepayments of other obligations securing such instruments, the same prepayment assumption applicable to calculating the accrual of OID shall apply.  Regulations are to provide similar rules for computing the accrual of amortizable bond premium on instruments payable in more than one principal installment.  As an alternative to the inclusion of market discount in income on the foregoing basis, the holder may elect to include such market discount in income currently as it accrues on all market discount instruments acquired by such holder in that taxable year or thereafter.  In addition, accrual method holders may elect to accrue all interest on a Debt Security, including de minimis OID and market discount and as adjusted by any premium, under a constant yield method.
 
A subsequent holder of a Debt Security who acquired the Debt Security at a market discount also may be required to defer, until the maturity date of the Debt Security or the earlier disposition of the Debt Security in a taxable transaction, the deduction of a portion of the amount of interest that the holder paid or accrued during the taxable year on indebtedness incurred or maintained to purchase or carry the Debt

 
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Security in excess of the aggregate amount of interest (including OID) includible in his or her gross income for the taxable year with respect to such Debt Security.  The amount of such net interest expense deferred in a taxable year may not exceed the amount of market discount accrued on the Debt Security for the days during the taxable year on which the subsequent holder held the Debt Security, and the amount of such deferred deduction to be taken into account in the taxable year in which the Debt Security is disposed of in a transaction in which gain or loss is not recognized in whole or in part is limited to the amount of gain recognized on the disposition.  This deferral rule does not apply to a holder that elects to include market discount in income currently as it accrues on all market discount instruments acquired by such holder in that taxable year or thereafter.
 
Because the regulations described above with respect to market discounts and bond premiums have not been issued, it is impossible to predict what effect those regulations might have on the tax treatment of a Debt Security purchased at a discount or premium in the secondary market.
 
Election to Treat All Interest as Original Issue Discount.  The OID Regulations permit a holder of a Debt Security to elect to accrue all interest, discount (including de minimis market discount or OID) and bond premium in income as interest, based on a constant yield method for Debt Securities acquired on or after April 4, 1994.  If such an election were to be made with respect to a Debt Security with market discount, the holder of the Debt Security would be deemed to have made an election to include in income currently market discount with respect to all other debt instruments having market discount that such holder of the Debt Securities acquires during the year of the election or thereafter.  Similarly, a holder of a Debt Security that makes this election for a Debt Security that is acquired at a premium will be deemed to have made an election to amortize bond premium with respect to all debt instruments having amortizable bond premium that such holder owns or acquires.  The election to accrue interest or discount and the election to amortize bond premium on a constant yield method with respect to a security are each irrevocable without IRS consent.
 
Effects of Defaults and Delinquencies.  Certain series of Debt Securities may contain one or more classes of subordinated Debt Securities, and in the event there are defaults or delinquencies on the mortgage assets, amounts that would otherwise be distributed on the subordinated Debt Securities may instead be distributed on the senior Debt Securities.  Holders of subordinated Debt Securities nevertheless will be required to report income with respect to such subordinated Debt Securities under an accrual method without giving effect to delays and reductions in distributions on such subordinated Debt Securities attributable to defaults and delinquencies on the mortgage assets, except to the extent that it can be established that such amounts are uncollectible.  As a result, the amount of income reported by a subordinated holder of a Debt Security in any period could significantly exceed the amount of cash distributed to such holder in that period.  The holder will eventually be allowed a loss (or will be allowed to report a lesser amount of income) to the extent that the aggregate amount of distributions on the subordinated Debt Security is reduced as a result of defaults and delinquencies on the mortgage assets.

Treatment of Losses.  Holders of Debt Securities using the accrual method of accounting, will be required to report income with respect to such Debt Securities on the accrual method without giving effect to delays and reductions in distributions attributable to defaults or delinquencies on any of the issuing entity’s assets, except possibly, in the case of income that under the Code constitutes “qualified stated interest,” to the extent that it can be established that such amounts are uncollectible.  In addition, potential investors are cautioned that while they may generally cease to accrue interest income if it reasonably appears that the interest will be uncollectible, the IRS may take the position that OID must continue to be accrued in spite of its uncollectibility until the security is disposed of in a taxable transaction or becomes worthless in accordance with the rules under section 166 of the Code.  As a result, the amount of income required to be reported by a holder in any period could exceed the amount of cash distributed to such holder in that period.
 
Although not entirely clear, it appears that (i) holders of Debt Securities that are corporations should in general be allowed to deduct as an ordinary loss any loss sustained during the taxable year on account of any such Debt Securities becoming wholly or partially worthless and (ii) holders of Debt Securities that are not corporations generally should be allowed to deduct as a short-term capital loss any
 

 
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loss sustained during the taxable year on account of any such Debt Securities becoming wholly worthless.  Although the matter is not entirely clear, non-corporate holders of Debt Securities may be allowed a bad debt deduction at such time that the principal balance of any such Debt Security is reduced to reflect realized losses resulting from any liquidated mortgage assets.  The IRS, however, could take the position that non-corporate holders will be allowed a bad debt deduction to reflect realized losses only after all mortgage assets remaining in the related issuing entity have been liquidated or the Debt Securities of the related series have been otherwise retired.  Potential investors and holders of the Debt Securities are urged to consult their own tax advisors regarding the appropriate timing, amount and character of any loss sustained with respect to such Debt Securities, including any loss resulting from the failure to recover previously accrued interest or discount income.  Special loss rules are applicable to banks and thrift institutions, including rules regarding reserves for bad debts.  Such taxpayers are advised to consult their tax advisors regarding the treatment of losses on Debt Securities.
 
REMIC Securities
 
With respect to each series of REMIC securities, Chapman and Cutler LLP will deliver an opinion generally to the effect that, under existing law, assuming timely filing of a REMIC election and ongoing compliance with all provisions of the related Agreements, all or a portion of the trust estate securing such series of securities will qualify as one or more “real estate mortgage investment conduits” (“REMIC”) within the meaning of section 860D of the Code.
 
The securities in such series will be designated either as one or more “regular interests” in a REMIC, which generally are treated as debt for federal income tax purposes, or the sole class of “residual interest” in a REMIC, which generally is not treated as debt for such purposes but rather as representing rights and responsibilities with respect to the taxable income or loss of the related REMIC.  The prospectus supplement for such series will indicate which classes of securities are being designated as regular interests (“regular interest securities”) and which class is being designated as the residual interest (“residual interest securities”).
 
For certain series of securities, multiple separate elections may be made to treat designated portions of the related trust estate as REMICs (referred to as the “Upper Tier REMIC” and the “Lower Tier REMIC(s),” respectively) for federal income tax purposes.  Upon the issuance of any such series of securities, Chapman and Cutler LLP will deliver its opinion generally to the effect that, under existing law, assuming timely filing of applicable REMIC elections and ongoing compliance with all provisions of the related Agreements, the Upper Tier REMIC and each Lower Tier REMIC will each qualify as a REMIC for federal income tax purposes.  In certain cases, a single residual interest security may represent the residual interest in both the Upper Tier REMIC and each Lower Tier REMIC.  In such case, the discussion of residual interest securities set forth below should be interpreted as applying to each residual interest separately.
 
Taxation of Regular Interest Securities
 
Treatment of REMIC Regular Interests Generally.  Except as otherwise stated in this discussion, regular interest securities will be treated for federal income tax purposes as debt instruments issued by the REMIC and not as ownership interests in the REMIC or its assets.  Holders of regular interest securities that otherwise report income under a cash method of accounting will be required to report income with respect to regular interest securities under an accrual method.
 
To the extent provided in the applicable prospectus supplement, a regular interest security may represent not only the ownership of a REMIC regular interest but also an interest in a notional principal contract.  This can occur, for instance, if the applicable pooling and servicing agreement provides that the rate of interest payable by the REMIC on the regular interest is subject to a cap based on the weighted average of the net interest rates payable on the qualified mortgages held by the REMIC.  In these instances, the pooling and servicing agreement may provide for a reserve fund that will be held as part of the issuing entity but not as an asset of any REMIC created pursuant to the pooling and servicing agreement (an
 

 
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“outside reserve fund”).  The outside reserve fund typically would be funded from monthly excess cashflow.  If the interest payments on a regular interest were limited due to the above-described cap, payments of any interest shortfall due to application of that cap would be made to the regular interest holder to the extent of funds on deposit in the outside reserve fund.  For federal income tax purposes, payments from the outside reserve fund will be treated as payments under a notional principal contract written by the owner of the outside reserve fund in favor of the regular interest holders.
 
Interest Income.  Although unclear at present, the depositor intends to treat interest on a regular interest security that is a weighted average of the net interest rates on mortgage loans as qualified stated interest.  In such case, the weighted average rate used to compute the initial pass-through rate on the regular interest securities will be deemed to be the index in effect through the life of the regular interest securities.  It is possible, however, that the IRS may treat some or all of the interest on regular interest securities with a weighted average rate as taxable under the rules relating to obligations providing for contingent payments.  Such treatment may affect the timing of income accruals on such regular interest securities.
 
Original Issue Discount.  Certain classes of regular interest securities may be issued with OID.  The rules governing OID with respect to a regular interest security are described above under “Taxation of Debt Securities Generally —Original Issue Discount.” In view of the complexities and current uncertainties as to the manner of inclusion in income of OID on regular interest securities, each investor should consult his own tax advisor to determine the appropriate amount and method of inclusion in income of OID on such regular interest security for federal income tax purposes.
 
Amortizable Bond Premium. The rules governing “premium” apply equally to regular interest securities (see above “Taxation of Debt Securities Generally—Amortizable Bond Premium”).
 
Market Discount.  A subsequent purchaser of a regular interest security may also be subject to the market discount provisions of Code sections 1276 through 1278.  These rules are described above under “Taxation of Debt Securities Generally—Market Discount.”
 
Sale or Exchange.  If a regular interest security is sold, exchanged, redeemed or retired, the holder will recognize gain or loss equal to the difference, if any, between the amount realized on such disposition and the adjusted basis in the regular interest security.  Similarly, a holder who receives a payment denominated as principal with respect to a regular interest security will recognize gain equal to the excess, if any, of the amount of such payment over his adjusted basis in the regular interest security.  A holder that receives a final payment that is less than the holder’s adjusted basis in a regular interest security will generally recognize a loss.  The adjusted basis of a regular interest security generally will equal the cost of the regular interest security to the holder, increased by any OID or market discount previously included in the holder’s gross income with respect to the regular interest security, and reduced by payments (other than payments of qualified stated interest) previously received by the holder on the regular interest security and by any amortized premium.
 
Except as noted above with respect to market discount and except as noted below, any such gain or loss on a regular interest security generally will be capital gain or loss.  Such gain or loss will be long-term gain or loss if the regular interest security is held as a capital asset for more than one year.  Long-term capital gains of non-corporate taxpayers are subject to reduced maximum rates while short-term capital gains are taxable at ordinary rates.  The use of capital losses is subject to limitations.
 
If the holder of a regular interest security is a bank, a mutual savings bank, a thrift institution, or a similar institution described in section 582 of the Code, any gain or loss on the sale or exchange of the regular interest security will be treated as ordinary income or loss.
 
In the case of other types of holders, gain from the disposition of a regular interest security that otherwise would be capital gain will be treated as ordinary income to the extent that the amount actually includible in income with respect to the regular interest security by the holder during his holding period is
 

 
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less than the amount that would have been includible in income if the yield on that regular interest security during the holding period had been 110% of a specified U.S. Treasury borrowing rate as of the date that the holder acquired the regular interest security.  
 
Taxation of Holders of Residual Interest Securities
 
The REMIC will not be subject to federal income tax except with respect to income from prohibited transactions and certain other transactions.  See “—Prohibited Transactions and Contributions Tax” below.  Instead, the original holder of a security representing a residual interest (a “residual interest security”) will report on its federal income tax return, as ordinary income, the “daily portion” of the taxable income or net loss of the REMIC for each day during the taxable year on which such holder held the residual interest security.  The daily portion is determined by allocating to each day in any calendar quarter its ratable portion of the taxable income or net loss of the REMIC for such quarter, and by allocating that amount among the holders (on such day) of the residual interest securities in proportion to their respective holdings on such day.
 
The taxable income of the REMIC will be determined under an accrual method and will be taxable to the holders of residual interest securities without regard to the timing or amounts of cash distributions by the REMIC.  Ordinary income derived from residual interest securities will be “portfolio income” for purposes of the taxation of taxpayers subject to the limitations on the deductibility of “passive losses.” As residual interests, the residual interest securities will be subject to tax rules, described below, that differ from those that would apply if the residual interest securities were treated for federal income tax purposes as direct ownership interests in the mortgage assets or as debt instruments issued by the REMIC.
 
The holder of a residual interest security may be required to include taxable income from the residual interest security in excess of the cash distributed.  The reporting of taxable income without corresponding distributions could occur, for example, in certain REMIC issues in which the loans held by the REMIC were issued or acquired at a discount, since mortgage prepayments cause recognition of discount income, while the corresponding portion of the prepayment could be used in whole or in part to make principal payments on REMIC Regular Interests issued without any discount or at an insubstantial discount (if this occurs, it is likely that cash distributions will exceed taxable income in later years).  Taxable income may also be greater in earlier years of certain REMIC issues as a result of the fact that interest expense deductions, as a percentage of outstanding principal on REMIC regular interest securities, will typically increase over time as lower yielding securities are paid, whereas interest income with respect to loans will generally remain constant over time as a percentage of loan principal.
 
In any event, because the holder of a residual interest security is taxed on the net income of the REMIC, the taxable income derived from a residual interest security in a given taxable year will not be equal to the taxable income associated with investment in a corporate security or stripped instrument having similar cash flow characteristics and pretax yield.  Therefore, the after-tax yield on the residual interest security may be less than that of such a security or instrument.
 
A subsequent residual interest securityholder also will report on its federal income tax return amounts representing a daily share of the taxable income of the REMIC for each day that such residual interest securityholder owns such residual interest security.  Those daily amounts generally would equal the amounts that would have been reported for the same days by an original residual interest securityholder, as described above.  The legislative history to the Code provisions governing this matter indicates that certain adjustments may be appropriate to reduce (or increase) the income of a subsequent holder of a residual interest security that purchased such residual interest security at a price greater than (or less than) the adjusted basis such residual interest security would have in the hands of an original residual interest securityholder.  See “—Sale or Exchange” below.  It is not clear, however, whether such adjustments will in fact be permitted or required and, if so, how they would be made.  The REMIC Regulations do not provide for any such adjustments.
 
Limitation on Losses. The REMIC will have a net loss for any calendar quarter in which its deductions exceed its gross income.  The amount of the REMIC’s net loss that a holder may take into

 
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account currently is limited to the holder’s adjusted basis at the end of the calendar quarter in which such loss arises.  A holder’s basis in a residual interest security will initially equal such holder’s purchase price, and will subsequently be increased by the amount of the REMIC’s taxable income allocated to the holder, and decreased (but not below zero) by the amount of distributions made and the amount of the REMIC’s net loss allocated to the holder.  Any disallowed loss may be carried forward indefinitely, but may be used only to offset income of the REMIC generated by the same REMIC.  The ability of holders of residual interest securities to deduct net losses may be subject to additional limitations under the Code, as to which such holders should consult their tax advisors.
 
Distributions.  Distributions on a residual interest security (whether at their scheduled times or as a result of prepayments) will generally not result in any additional taxable income or loss to a holder of a residual interest security.  If the amount of such payment exceeds a holder’s adjusted basis in the residual interest security, however, the holder will recognize gain (treated as gain from the sale of the residual interest security) to the extent of such excess.
 
Excess Inclusions.  The excess inclusion portion of a REMIC’s income is generally equal to the excess, if any, of (a) REMIC taxable income for the quarterly period allocable to a residual interest security, over (b) the daily accruals for such quarterly period.  For this purpose, daily accruals are determined by allocating to each day in the calendar quarter its ratable portion of the “adjusted issue price” of the residual interest security at the beginning of such quarterly period and 120% of the long term applicable federal rate in effect on the date the residual interest security is issued.  The adjusted issue price of a residual interest at the beginning of each calendar quarter will equal its issue price (calculated in a manner analogous to the determination of the issue price of a regular interest security), increased by the aggregate of the daily accruals for prior calendar quarters, and decreased (but not below zero) by the amount of loss allocated to a holder and the amount of distributions made on the residual interest security before the beginning of the quarter.  The long-term federal rate, which is announced monthly by the U.S. Treasury, is an interest rate that is based on the average market yield of outstanding marketable obligations of the United States government having remaining maturities in excess of nine years.
 
The portion of the REMIC taxable income of a holder of a residual interest security consisting of “excess inclusion” income will be subject to federal income tax in all events and may not be offset by unrelated deductions or losses, including net operating losses, on such holder’s federal income tax return.  Further, if the holder of a residual interest security is an organization subject to the tax on unrelated business income imposed by Code section 511, such holder’s excess inclusion income will be treated as unrelated business taxable income of such holder.  If a residual interest security is owned by a foreign person, excess inclusion income is subject to U.S. withholding tax which may not be reduced by treaty, is not eligible for treatment as “portfolio interest” and is subject to certain additional limitations.  The Small Business Job Protection Act of 1996 (the “SBJPA of 1996”) has eliminated the special rule permitting section 593 institutions (“thrift institutions”) to use net operating losses and other allowable deductions to offset their excess inclusion income from REMIC residual securities that have “significant value” within the meaning of the REMIC Regulations, effective for taxable years beginning after December 31, 1995, except with respect to residual securities continuously held by a thrift institution since November 1, 1995.
 
In the case of any residual interest securities held by a REIT, the Code provides that under regulations to be issued the aggregate excess inclusions with respect to such residual interest securities, reduced (but not below zero) by the REIT taxable income (within the meaning of Code Section 857(b)(2), excluding any net capital gain), will be allocated among the shareholders of such trust in proportion to the dividends received by such shareholders from such trust, and any amount so allocated will be treated as an excess inclusion with respect to a residual interest security as if held directly by such shareholder.  Regulated investment companies, common trust funds and certain cooperatives are subject to similar rules.  No such regulations have been issued to date and it is unclear how this provision would be applied in practice.
 
In addition, the SBJPA of 1996 provides three rules for determining the effect of excess inclusions on the alternative minimum taxable income of a residual holder.  First, alternative minimum taxable income for such residual holder is determined without regard to the special rule that taxable income cannot be less

 
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than excess inclusions.  Second, a residual holder’s alternative minimum taxable income for a tax year cannot be less than excess inclusions for the year.  Third, the amount of any alternative minimum tax net operating loss deductions must be computed without regard to any excess inclusions.
 
Sale or Exchange. A holder of a residual interest security will recognize gain or loss on the sale or exchange of a residual interest security equal to the difference, if any, between the amount realized and such holder’s adjusted basis in the residual interest security at the time of such sale or exchange.  In general, any such gain or loss will be capital gain or loss provided the residual interest security is held as a capital asset.  However, residual interest securities will be “evidences of indebtedness” within the meaning of Code Section 582(c)(l), so that gain or loss recognized from sale of a residual interest security by a bank or thrift institution to which such section applies would be ordinary income or loss.  Any loss upon disposition of a residual interest security may be disallowed if, within six months before or after the disposition of the residual interest security, the selling holder acquires any residual interest in a REMIC or any interest in a “taxable mortgage pool” (as defined in Section 7701(i) of the Code) which is comparable to a residual interest in a REMIC.  In that event, any loss will increase such regular interest securityholder’s adjusted basis in the newly acquired interest.
 
Disqualified Organizations.  As a condition to qualification as a REMIC, reasonable arrangements must be made to prevent the ownership of a residual interest security by any “disqualified organization.” Disqualified organizations include the United States, any State or political subdivision thereof, any foreign government, any international organization, or any agency or instrumentality of any of the foregoing, a rural electric or telephone cooperative described in section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by sections 1 through 1399 of the Code, if such entity is not subject to tax on its unrelated business income.  Accordingly, the applicable pooling and servicing agreement will prohibit disqualified organizations from owning a residual interest security.  In addition, no transfer of a residual interest security will be permitted unless the proposed transferee shall have furnished to the trustee an affidavit representing and warranting that it is neither a disqualified organization nor an agent or nominee acting on behalf of a disqualified organization.
 
If a residual interest security is transferred to a disqualified organization (in violation of the restrictions set forth above), a substantial tax will be imposed on the transferor of such residual interest security at the time of the transfer.  In addition, if a disqualified organization holds an interest in a pass-through entity (including, among others, a partnership, trust, REIT, regulated investment company, or any person holding as nominee), that owns a residual interest security, the pass-through entity will be required to pay an annual tax on its allocable share of the excess inclusion income of the REMIC.  The pass-through entity otherwise liable for the tax, for any period during which the disqualified organization is the record holder of an interest in such entity, will be relieved of liability for the tax if such record holder furnishes to such entity an affidavit that such record holder is not a disqualified organization and, for such period, the pass-through entity does not have actual knowledge that the affidavit is false.  Except as may be provided in Treasury regulations not yet issued, any person holding an interest in a pass-through entity as a nominee for another will, with respect to such interest, be treated as a pass-through entity.  Under the Taxpayer Relief Act of 1997, large partnerships (generally with 250 or more partners) will be taxable on excess inclusion income as if all partners were disqualified organizations.
 
Transfers of Noneconomic Residual Interests.  Under the REMIC Regulations, if a residual interest security is a “noneconomic residual interest,” as described below, such transfer of a residual interest security to a United States person will be disregarded for all Federal tax purposes unless no significant purpose of the transfer was to impede the assessment or collection of tax.  A residual interest security is a “noneconomic residual interest” unless at the time of the transfer (i) the present value of the expected future distributions on the residual interest security at least equals the product of the present value of the anticipated excess inclusions and the highest rate of tax for the year in which the transfer occurs, and (ii) the transferor reasonably expects that the transferee will receive distributions from the REMIC at or after the time at which the taxes accrue on the anticipated excess inclusions in an amount sufficient to satisfy the accrued taxes.  A significant purpose to impede the assessment or collection of tax exists if the transferor, at the time of the transfer, either knew or should have known that the transferee would be unwilling or unable to pay taxes due on its share of the taxable income of the REMIC.  Under final

 
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regulations issued by the Treasury Department on July 19, 2002, a transferor is presumed not to have such knowledge if (i) the transferor conducted a reasonable investigation of the financial condition of the transferee, (ii) the transferee acknowledges to the transferor that the residual interest security may generate tax liabilities in excess of the cash flow and the transferee represents that it intends to pay such taxes associated with the residual interest security as they become due, (iii) the transferee represents that it will not cause income from the residual interest security to be attributable to a foreign permanent establishment or fixed base of the transferee or another U.S. taxpayer and (iv) the transfer satisfies either an “asset test” or “formula test.” The “asset test” requires that the transfer be to certain domestic taxable corporations with large amounts of gross and net assets where an agreement is made that all future transfers will be to taxable domestic corporations in transactions that qualify for the aforementioned “safe harbor.”  The asset test is not satisfied if the facts and circumstances known to the transferor reasonably indicate that the taxes associated with the residual interest security will not be paid.  Meanwhile, the “formula test” requires that the present value of the anticipated tax liabilities associated with holding the residual interest does not exceed the sum of (i) the present value of any consideration given to the transferee to acquire the interest, (ii) the present value of the expected future distributions on the interest, and (iii) the present value of any anticipated tax savings associated with holding the interest as the REMIC generates losses.  If a transfer of a “noneconomic residual security” is disregarded, the transferor would continue to be treated as the owner of the residual interest security and would continue to be subject to tax on its allocable portion of the net income of the REMIC.
 
Foreign Investors. The REMIC Regulations provide that the transfer of a residual interest security that has a “tax avoidance potential” to a “foreign person” will be disregarded for federal income tax purposes.  This rule appears to apply to a transferee who is not a U.S. Person unless such transferee’s income in respect of the residual interest security is effectively connected with the conduct of a United Sates trade or business.  A residual interest security is deemed to have a tax avoidance potential unless, at the time of transfer, the transferor reasonably expect that the REMIC will distribute to the transferee amounts that will equal at least 30 percent of each excess inclusion, and that such amounts will be distributed at or after the time the excess inclusion accrues and not later than the end of the calendar year following the year of accrual.  If the non-U.S. Person transfers the residual interest security to a U.S. Person, the transfer will be disregarded, and the foreign transferor will continue to be treated as the owner, if the transfer has the effect of allowing the transferor to avoid tax on accrued excess inclusions.  The Agreements will provide that no residual interest security may be transferred to a non-U.S. Person.  In addition, no transfer of a residual interest security will be permitted unless the proposed transferee shall have furnished to the trustee an affidavit representing and warranting that it is not a Non-U.S. Person.
 
The Agreements provide that any attempted transfer or pledge in violation of the transfer restrictions discussed above shall be absolutely null and void and shall vest no rights in any purported transferee.  Investors in residual interest securities are advised to consult their own tax advisors with respect to transfers of the residual interest securities and, in addition, pass-through entities are advised to consult their own tax advisors with respect to any tax which may be imposed on a pass-through entity.
 
Inducement Fees.   The REMIC Regulations (i) require transferees of noneconomic residual interests that receive payments made to induce the acquisition of such interests (“inducement fees”) to recognize such fees as income over the expected remaining life of the acquired REMIC in a manner that reasonably reflects the after-tax costs and benefits of holding the residual interests, and (ii) specify that inducement fees constitute income from sources within the United States.  These regulations will apply to any inducement fee received in connection with the acquisition of a residual interest security.
 
Mark-to-Market Rule.  Prospective purchasers of a residual interest security should be aware that such a security acquired after January 3, 1995 cannot be marked-to-market.
 
Taxation of the REMIC
 
Although a REMIC is a separate entity for federal income tax purposes, a REMIC is not generally subject to entity-level tax.  Rather, the taxable income or net loss of a REMIC is taken into account by the

 
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holders of residual interests.  As described above, regular interests issued by a REMIC are treated as debt of the REMIC.
 
Qualification as a REMIC.   The issuing entity’s trust estate or, alternatively, each of one or more designated pools of the assets of the trust estate, may elect to be treated under the Code as a REMIC.  The regular interest securities and residual interest securities will constitute the “regular interests” and “residual interests,” respectively, in a REMIC if an election is in effect and certain tests concerning (i) the composition of the REMIC’s assets and (ii) the nature of the holders’ interests in the REMIC are met on a continuing basis.  A loss of REMIC status could have a number of consequences for holders.  If, as the result of REMIC disqualification, the trust estate were treated as an association taxable as a corporation, distributions on the security could be recharacterized in part as dividends from a non-includible corporation and in part as returns of capital.  Alternatively, distributions on a regular interest security could continue to be treated as comprised of interest and principal notwithstanding REMIC disqualification, in which case a cash-basis holder might not be required to continue to recognize income with respect to the security on a accrual basis.  Under the first alternative, a loss of REMIC status would, and under the second alternative, a loss of REMIC status could cause the securities and the associated distributions not to be qualified assets and income for the various purposes of domestic building and loan associations and REITs described under “Special Tax Attributes—REMIC Securities” below.
 
Calculation of REMIC Income.  The taxable income or net loss of a REMIC is determined under an accrual method of accounting and in the same manner as in the case of an individual, with certain adjustments.  In general, the taxable income or net loss will be the difference between (i) the gross income produced by the REMIC’s assets, including stated interest and any OID or market discount on loans and other assets, and (ii) deductions, including stated interest and OID accrued on regular interest securities, amortization of any premium with respect to loans, and servicing fees and other expenses of the REMIC.  A holder of a residual interest security that is an individual or a “pass-through interest holder” (including certain pass-through entities, but not including REITs) will be unable to deduct servicing fees payable on the loans or other administrative expenses of the REMIC for a given taxable year, to the extent that such expenses, when aggregated with such holder’s other miscellaneous itemized deductions for that year, do not exceed two percent of such holder’s adjusted gross income.
 
For purposes of computing its taxable income or net loss, the REMIC should have an initial aggregate tax basis in its assets equal to the aggregate fair market value of the regular interests and the residual interests on the “startup day” (generally, the day that the interests are issued).  That aggregate basis will be allocated among the assets of the REMIC in proportion to their respective fair market values.
 
The OID provisions of the Code and the OID regulations apply to loans of individuals originated on or after March 2, 1984, and the market discount provisions apply to loans originated after July 18, 1984.  Subject to possible application of the de minimis rules, the method of accrual by the REMIC of OID income on such loans will be equivalent to the method under which securityholders accrue OID (i.e., under the constant yield method taking into account the Prepayment Assumption).  The REMIC will deduct OID on the regular interest securities in the same manner that the holders of the regular interest securities include such discount in income, but without regard to the de minimis rules.  See “Taxation of Debt Securities Generally” above.  However, a REMIC that acquires loans at a market discount must include such market discount in income currently, as it accrues, on a constant interest basis.
 
To the extent that the REMIC’s basis allocable to loans that it holds exceeds their principal amounts, the resulting premium, if attributable to mortgages originated after September 27, 1985, will be amortized over the life of the loans (taking into account the Prepayment Assumption) on a constant yield method.  Although the law is somewhat unclear regarding recovery of premium attributable to loans originated on or before such date, it is possible that such premium may be recovered in proportion to payments of loan principal.
 
Prohibited Transactions and Contributions Tax.  The REMIC will be subject to a 100% tax on any net income derived from a “prohibited transaction.” For this purpose, net income will be calculated without taking into account any losses from prohibited transactions or any deductions attributable to any prohibited

 
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transaction that resulted in a loss.  In general, prohibited transactions include: (i) subject to limited exceptions, the sale or other disposition of any qualified mortgage transferred to the REMIC; (ii) subject to limited exceptions, the sale or other disposition of a cash flow investment; (iii) the receipt of any income from assets not permitted to be held by the REMIC pursuant to the Code; or (iv) the receipt of any fees or other compensation for services rendered by the REMIC.  It is anticipated that a REMIC will not engage in any prohibited transactions in which it would recognize a material amount of net income.  In addition, subject to a number of exceptions, a tax is imposed at the rate of 100% on amounts contributed to a REMIC after the close of the three-month period beginning on the startup day.  The holders of residual interest securities will generally be responsible for the payment of any such taxes imposed on the REMIC.  To the extent not paid by such holders or otherwise, however, such taxes will be paid out of the trust fund and will be allocated pro rata to all outstanding classes of securities of such REMIC.
 
Modifications of mortgage loans entered into after they have been contributed to a REMIC and before the loan is classified as defaulted could cause a REMIC to incur prohibited transaction taxes or to violate certain requirements necessary to maintain its tax status as a REMIC.   Notwithstanding our stated intention to not have the REMIC enter into transactions that could give rise to prohibited transaction taxes, recent government initiated mortgage foreclosure prevention programs encourage mortgage servicers to modify certain categories of residential mortgage loans in advance of default in order to prevent widespread foreclosures.  These programs generally include safe harbors and exemptions from adverse tax consequences for investors in the modified residential mortgage loans and are currently set to expire on December 31, 2010.
 
Administrative Matters. The books of a REMIC must be maintained on a calendar year basis and the REMIC must file an annual federal income tax return.  A REMIC will also be subject to the procedural and administrative rules of the Code applicable to partnerships, including the determination of any adjustments to, among other things, items of REMIC income, gain, loss, deduction, or credit, by the IRS in a unified administrative proceeding.
 
Non-REMIC Debt Securities
 
If a REMIC election is not made on behalf of the issuing entity’s trust estate, Chapman and Cutler LLP will deliver its opinion generally to the effect that (i) although no regulations, published rulings or judicial decisions exist that specifically discuss the characterization for federal income tax purposes of securities with terms substantially the same as the non-REMIC debt securities, in its opinion such securities will be treated for federal income tax purposes as indebtedness and not as an ownership interest in the collateral or an equity interest in the issuer, and (ii) either (A) the issuer will not be a taxable mortgage pool or (B) the issuer may be a taxable mortgage pool but will not subject to federal income tax as a corporation so long as all of the securities classified as equity interests in the issuer for federal income tax purposes are held by an entity that qualifies as a REIT, or are held directly or indirectly through one or more wholly owned “qualified REIT subsidiaries,” each as defined under section 856 of the Code.
 
Interest on Non-REMIC Debt Securities.  Except as described with respect to OID, market discount or premium, interest paid or accrued on non-REMIC debt securities generally will be treated as ordinary income to the holder, and will be includible in income in accordance with such holder’s regular method of accounting.
 
Original Issue Discount.  Certain classes of non-REMIC debt securities may be issued with OID.  The rules governing OID with respect to a regular interest security are described above under “Taxation of Debt Securities Generally — Original Issue Discount” In view of the complexities and current uncertainties as to the manner of inclusion in income of OID on non-REMIC debt securities, each investor should consult his own tax advisor to determine the appropriate amount and method of inclusion in income of OID on such non-REMIC debt securities for federal income tax purposes.
 
Amortizable Bond Premium.  The rules governing “premium” apply equally to non-REMIC debt securities (see above “Taxation of Debt Securities Generally — Amortizable Bond Premium”).
 

 
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Market Discount. A subsequent purchaser of a non-REMIC debt security may also be subject to the market discount provisions of Code sections 1276 through 1278.  These rules are described above under “Taxation of Debt Securities Generally—Market Discount.”
 
Sale or Redemption.  If a security is sold, exchanged, redeemed or retired, the seller will recognize gain or loss equal to the difference between the amount realized on the sale and the seller’s adjusted basis in the security.  Such adjusted basis generally will equal the cost of the security to the seller, increased by any OID and market discount included in the seller’s gross income with respect to the security and reduced by payments, other than payments of qualified stated interest, previously received by the seller and by any amortized premium.  If a securityholder is a bank, thrift or similar institution described in section 582(c) of the Code, gain or loss realized on the sale or exchange of a security will be taxable as ordinary income or loss.  Any such gain or loss recognized by any other seller generally will be capital gain or loss provided that the security is held by the seller as a “capital asset” (generally, property held for investment) within the meaning of Code section 1221.  Such gain or loss will be long-term gain or loss if the security is held as a capital asset for more than one year.  Long-term capital gains of non-corporate taxpayers are subject to reduced maximum rates while short-term capital gains are taxable at ordinary rates.  The use of capital losses is subject to limitations.
 
Special Tax Attributes
 
Certain securities carry additional special tax attributes under particular sections of the Code, as discussed below.
 
REMIC Securities.  Except to the extent otherwise provided in the related prospectus supplement:  (i) REMIC securities held by a “domestic building and loan association” will constitute assets described in Code section 7701(a)(19)(C)(xi); and (ii) REMIC securities held by a REIT will constitute “real estate assets” within the meaning of Code section 856(c)(5)(B) and interest on such securities will be considered “interest on obligations secured by mortgages on real property” within the meaning of Code section 856(c)(3)(B), subject to the limitation as set forth below.  REMIC securities held by certain financial institutions will constitute “evidences of indebtedness” within the meaning of Code section 582(c)(1).
 
In the case of items (i) and (ii) above, if less than 95% of the REMIC’s assets are assets qualifying under any of the foregoing Code sections, the REMIC securities will be qualifying assets only to the extent that the REMIC’s assets are qualifying assets.  Additionally, in the case of a REIT, the same limitation described in the preceding sentence shall apply for the purpose of treating income on such REMIC securities as “interest on obligations secured by mortgages on real property.” If a series of securities employs a multi-tier REMIC structure, both the Upper Tier REMIC and the Lower Tier REMIC will be treated as a single REMIC for purposes of determining the extent to which the related REMIC securities and the income thereon will be treated as such assets and income.
 
Regular interest securities held by other REMICs generally also qualify as “qualified mortgages” within the meaning of section 860G(a)(3) of the Code, provided such securities are transferred to the other REMIC within the periods required by the Code.
 
The determination as to the percentage of the REMIC’s assets that constitute assets described in the foregoing sections of the Code will be made for each calendar quarter based on the average adjusted basis of each category of the assets held by the REMIC during that calendar quarter.  The REMIC will report those determinations in the manner and at the times required by applicable Treasury regulations.  The SBJPA of 1996 repealed the reserve method for bad debts of domestic building and loan associations and mutual savings banks, and thus has eliminated the asset category of “qualifying real property loans” in former section 593(d) of the Code for taxable years beginning after December 31, 1995.  The requirements in the SBJPA of 1996 that these institutions must “recapture” a portion of their existing bad debt reserves is suspended if a certain portion of their assets are maintained in “residential loans” under section 7701(a)(19)(C)(v) of the Code, but only if those loans were made to acquire, construct
 

 
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or improve the related real property and not for the purpose of refinancing.  However, no effort will be made to identify the portion of the mortgage loans of any series meeting this requirement, and no representation is made in this regard.
 
The assets of the REMIC will include, in addition to mortgage loans, payments on mortgage loans held pending distribution on the REMIC securities and property acquired by foreclosure held pending sale, and may include amounts in reserve accounts.  It is unclear whether property acquired by foreclosure held pending sale and amounts in reserve accounts would be considered to be part of the mortgage loans, or whether those assets (to the extent not invested in assets described in the foregoing sections) otherwise would receive the same treatment as the mortgage loans for purposes of all of the foregoing sections.  Under the regulations applicable to REITs, however, mortgage loan payments held by a REMIC pending distribution are real estate assets for purposes of section 856(c)(5)(B) of the Code.  Furthermore, foreclosure property generally will qualify as real estate assets under section 856(c)(5)(B) of the Code.
 
Non-REMIC Debt Securities.  Non-REMIC debt securities will be treated as indebtedness of the issuer for federal income tax purposes and as such, (i) securities held by a thrift institution taxed as a domestic building and loan association will not constitute “loans secured by an interest in real property” within the meaning of Code section 7701(a)(19)(C)(v), (ii) interest on non-REMIC debt securities held by a REIT will not be treated as “interest on obligations secured by mortgages on real property or on interests in real property” within the meaning of Code section 856(c)(3)(B), and non-REMIC debt securities will not constitute “real estate assets“ or “government securities” within the meaning of Code section 856(c)(4)(A), and (iii) non-REMIC debt securities held by a regulated investment company will not constitute “government securities” within the meaning of Code section 851(b)(4)(A)(i).
 
Withholding With Respect to Certain Foreign Investors
 
Interest (including OID) paid to or accrued by a beneficial owner of a security who is a not a U.S. Person (a “foreign person”) generally will be considered “portfolio interest” and generally will not be subject to U.S. federal income and withholding tax, provided the interest is not effectively connected with the conduct of a trade or business within the United States by the foreign person and the foreign person (i) is not actually or constructively a 10 percent shareholder of the depositor or its affiliates or a controlled foreign corporation with respect to which the depositor or its affiliates is a related person (all within the meaning of the Code) and (ii) provides the indenture trustee or other person who is otherwise required to withhold U.S. tax with respect to the securities (the “withholding agent”) with an appropriate statement on Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding), or an applicable successor form.  If a security is held through a securities clearing organization or certain other financial institutions, the organization or institution may provide the relevant signed statement to the withholding agent; in that case, however, the signed statement must be accompanied by a Form W-8BEN provided by the foreign person that owns the security.  If the information shown on Form W-8BEN changes, a new Form W-8BEN must be filed.  If interest on the securities is not portfolio interest, then interest (including OID) will be subject to United States federal income and withholding tax at a rate of 30 percent, unless reduced or eliminated pursuant to an applicable tax treaty.
 
Under Treasury regulations, a payment to a foreign partnership is treated, with some exceptions, as a payment directly to the partners, so that the partners are required to provide any required certifications.  Foreign persons that intend to hold a security through a partnership or other pass-through entity should consult their own tax advisors regarding the application of those Treasury regulations to an investment in a security.
 
Any capital gain realized on the sale, redemption, retirement or other taxable disposition of a security by a foreign person will be exempt from United States federal income and withholding tax, provided that (i) such gain is not effectively connected with the conduct of a trade or business in the United States by the foreign person and (ii) in the case of a foreign person who is an individual, the foreign person is not present in the United States for 183 days or more in the taxable year.
 

 
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For purposes of this discussion, the term “U.S. Person” means (i) a citizen or resident of the United States; (ii) a corporation (or entity treated as a corporation for tax purposes) created or organized in the United States or under the laws of the United States or of any state including the District of Columbia; (iii) a partnership (or entity treated as a partnership for tax purposes) organized in the United States or under the laws of the United States or of any state including the District of Columbia (unless provided otherwise by future Treasury regulations); (iv) an estate whose income is includible in gross income for United States income tax purposes regardless of its source; or (v) a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. Persons have authority to control all substantial decisions of the trust.  Notwithstanding the last clause of the preceding sentence, to the extent provided in Treasury regulations, certain trusts that were in existence on August 20, 1996, that were treated as U.S. Persons prior to such date and that elect to continue to be treated as U.S. Persons also will be U.S. Persons.
 
Backup Withholding
 
Under federal income tax law, a securityholder, beneficial owner, financial intermediary or other recipient of a payment on behalf of a beneficial owner may be subject to “backup withholding” under certain circumstances.  Backup withholding may apply to such person who is a United States person if such person, among other things, (i) fails to furnish his social security number or other taxpayer identification number, (ii) furnishes an incorrect taxpayer identification number, (iii) fails to report properly interest and dividends, or (iv) under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the taxpayer identification number provided is correct and that such person is not subject to backup withholding.  Backup withholding may apply, under certain circumstances, to a securityholder who is a Non-U.S. Person if the securityholder fails to provide securities broker with a Foreign Person Certification.  Backup withholding applies to “reportable payments,” which include interest payments and principal payments to the extent of accrued OID, as well as distributions of proceeds from the sale of regular interest securities or residual interest securities.  The backup withholding rate is generally the fourth lowest rate of income tax as in effect from time to time.  Backup withholding, however, does not apply to payments on a security made to certain exempt recipients, such as tax-exempt organizations, and to certain Non-U.S. Persons.  Securityholders should consult their tax advisors for additional information concerning the potential application of backup withholding to payments received by them with respect to a security.
 
Tax Return Disclosure Requirements
 
Recent legislation and Treasury Department pronouncements directed at abusive tax shelter activity appear to apply to transactions not conventionally regarded as tax shelters.  Taxpayers are required to report certain information on IRS Form 8886 if they participate in a “reportable transaction” (as defined under Treasury regulations promulgated under Section 6011 of the Code).  Pursuant to recent legislation, a penalty in the amount of $10,000 in the case of a natural person and $50,000 in any other case is imposed on any taxpayer that fails to file timely an information return with the IRS with respect to a “reportable transaction.” The rules defining “reportable transactions” are complex and include, among other categories of transactions, transactions that result in certain losses that exceed threshold amounts.  Holders of certificates are encouraged to consult their own tax advisors regarding any possible disclosure obligations in light of their particular circumstances.
 
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO SECURITYHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF THE SECURITIES.
 
STATE TAX CONSIDERATIONS
 
In addition to the federal income tax consequences described above, potential investors should consider the state income tax consequences of the acquisition, ownership, and disposition of the securities.  State income tax law may differ substantially from the corresponding federal law, and this

 
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discussion does not purport to describe any aspect of the income tax laws of any state.  Therefore, potential investors should consult their own tax advisors with respect to the various state tax consequences of an investment in the securities.
 
ERISA CONSIDERATIONS
 
The following describes certain considerations under ERISA and Section 4975 of the Code which apply only to securities of a series that are not divided into subclasses.  If securities are divided into subclasses, the prospectus supplement will contain information concerning considerations relating to ERISA and the Section 4975 of the Code that are applicable to such securities.
 
ERISA and Section 4975 of the Code impose requirements on employee benefit plans (and on certain other retirement plans and arrangements, including individual retirement accounts and annuities and certain Keogh plans, and on collective investment funds and separate accounts in which such plans, accounts or arrangements are invested) (collectively “Plans”) subject to ERISA or to Section 4975 of the Code 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 discretionary 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 Section 3(32) of ERISA) and, if no election has been made under Section 410(d) of the Code, church plans (as defined in Section 3(33) of ERISA), are not subject to ERISA requirements.  Accordingly, assets of such plans may be invested in securities 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 Sections 401(a) and 501(a) of the Code, however, is subject to the prohibited transaction rules set forth in Section 503 of the Code.
 
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.  Certain Parties in Interest that participate in a prohibited transaction may be subject to excise taxes imposed pursuant to Section 4975 of the Code, or a penalty imposed pursuant to Section 502(i) of ERISA, unless a statutory, regulatory or administrative exemption is available.
 
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.  Under this regulation, the underlying assets and properties of corporations, partnerships, trusts and certain other entities in which a Plan acquires an “equity” interest could be deemed for purposes of ERISA and Section 4975 of the Code to be assets of the investing Plan in certain circumstances unless certain exceptions apply.
 
Under the Plan Asset Regulation, the term “equity” interest is defined as any interest in an entity other than an instrument which (i) is treated as indebtedness under “applicable local law“ and (ii) has no “substantial equity features.” If the securities of a series consist of notes or bonds that are not treated as equity interests in the issuing entity for purposes of the Plan Asset Regulation, a Plan’s investment in such notes or bonds would not cause the issuing entity assets to be deemed Plan assets.  However, the depositor, the servicer, the trustee and the underwriter may be the sponsor or investment advisor with respect to one or more Plans.  Because such parties may receive certain benefits in connection with the sale of the notes or bonds, the purchase of notes or bonds using Plan assets over which any such parties (or any affiliates thereof) has investment authority might be deemed to be a violation of the prohibited transaction rules of ERISA and Section 4975 of the Code for which no exemption may be available.  Accordingly, notes or bonds may not be purchased using the assets of any Plan if the depositor, the servicer, the trustee, the underwriter or any of their affiliates (a) has investment or administrative discretion with respect to such Plan assets; (b) has authority or responsibility to give, or regularly gives, investment advice with respect to

 
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such Plan assets for a fee and pursuant to an agreement of understanding that such advice (i) will serve as a primary basis for investment decisions with respect to such Plan assets and (ii) will be based on the particular investment needs for such Plan; or (c) is an employer maintaining or contributing to such Plan.
 
In addition, the issuing entity or an affiliate might be considered or might become a Party in Interest with respect to a Plan.  Also, any holder of certificates issued by the issuing entity, because of its activities or the activities of its respective affiliates, may be deemed to be a Party in Interest with respect to certain Plans, including but not limited to Plans sponsored by such holder.  In either case, the acquisition or holding of notes by or on behalf of such a Plan could be considered to give rise to a prohibited transaction within the meaning of ERISA and Section 4975 of the Code, unless it is subject to one or more exemptions such as:
 
 
·
Prohibited Transaction Class Exemption (“PTCE”) 84-14, which exempts certain transactions effected on behalf of a Plan by a “qualified professional asset manager”;
 
 
·
PTCE 90-1, which exempts certain transactions involving insurance company pooled separate accounts;
 
 
·
PTCE 91-38, which exempts certain transactions involving bank collective investment funds;
 
 
·
PTCE 95-60, which exempts certain transactions involving insurance company general accounts; or
 
 
·
PTCE 96-23, which exempts certain transactions effected on behalf of a Plan by certain “in-house asset managers.”
 
The prospectus supplement for a series of securities may require that Plans or Plan asset investors investing in notes or bonds represent that the relevant conditions for exemptive relief under at least one of the foregoing exemptions have been satisfied.
 
The Plan Asset Regulation provides that, generally, the assets of an entity in which a Plan invests will not be deemed to be assets of such Plan for purposes of ERISA if the equity interest acquired by the investing Plan is a publicly-offered security, or if equity participation by benefit plan investors is not significant.  In general, a publicly-offered security, as defined in the Plan Asset Regulation, is a security that is widely held, freely transferable and registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Equity participation in an entity by benefit plan investors is not significant if, after the most recent acquisition of an equity interest in the entity, less than 25% of the value of each class of equity interest in the entity is held by “benefit plan investors,” which include benefit plans described in ERISA or under Section 4975 of the Code, whether or not they are subject to ERISA, as well as entities whose underlying assets include assets of a Plan by reason of a Plan’s investment in the entity.
 
If no exception under the Plan Asset Regulation applies and if a Plan (or a person investing Plan assets, such as an insurance company general account) acquires an equity interest in an issuing entity established for a series of securities, then the issuing entity assets would be considered to be assets of the Plan.  Because the loans held by the issuing entity may be deemed Plan assets of each Plan that purchases equity securities, an investment in the securities by a Plan might be a prohibited transaction under Sections 406 and 407 of ERISA and subject to an excise tax under Section 4975 of the Code and may cause transactions undertaken in the course of operating the issuing entity to constitute prohibited transactions, unless a statutory or administrative exemption applies.
 
The DOL has issued PTCE 83-1, which exempts 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.  If the general conditions (discussed below) of PTEC 83-1 are satisfied, investments by a Plan in certificates that provide for pass-through payments of principal and interest and represent beneficial

 
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undivided fractional interests in a fixed investment pool consisting solely of interest-bearing obligations secured by first or second mortgages or deeds of trust on single-family residential property, property acquired in foreclosure and undistributed cash (“single-family securities”) will be exempt from the prohibitions of Sections 406(a) and 407 of ERISA (relating generally to transactions with Parties in Interest who are not fiduciaries) if the Plan purchases the single-family securities at no more than fair market value and will be exempt from the prohibitions of ERISA Sections 406(b)(1) and (2) (relating generally to transactions with fiduciaries) if, in addition, the purchase is approved by an independent fiduciary, no sales commission is paid to the pool depositor, the Plan does not purchase more than 25% of all single-family securities, and at least 50% of all single-family securities are purchased by persons independent of the pool depositor or pool trustee.  PTCE 83-1 does not provide an exemption for transactions involving subordinate securities.
 
            The discussion in this and the next succeeding paragraph applies only to single-family securities.  PTCE 83-1 sets forth three general conditions which must be satisfied for any transaction to be eligible for exemption:
 
 
·
the maintenance of a system of insurance or other protection for the pooled mortgage loans and property securing such loans, and for indemnifying certificateholders against reductions in pass-through payments due to property damage or defaults in loan payments in an amount not less than the greater of one percent of the aggregate principal balance of all covered pooled mortgage loans or the principal balance of the largest covered pooled mortgage loan;
 
 
·
the existence of a pool trustee who is not an affiliate of the pool depositor; and
 
 
·
a limitation on the amount of the payment retained by the pool depositor, together with other funds inuring to its benefit, to not more than adequate consideration for selling the mortgage loans plus reasonable compensation for services provided by the pool depositor to the pool.
 
The depositor believes that the first general condition referred to above will be satisfied with respect to the certificates issued without a subordination feature, or the senior certificates only in a series issued with a subordination feature, provided that the subordination and reserve account, subordination by shifting of interests, the pool insurance or other form of credit enhancement described under “Credit Enhancement” in this prospectus (such subordination, pool insurance or other form of credit enhancement being the system of insurance or other protection referred to above) with respect to a series of certificates is maintained in an amount not less than the greater of one percent of the aggregate principal balance of the loans or the principal balance of the largest loan.  See “Description of the Securities” in this prospectus.  In the absence of a ruling that the system of insurance or other protection with respect to a series of certificates satisfies the first general condition referred to above, there can be no assurance that these features will be so viewed by the DOL.  As to the second general condition, the trustee will not be affiliated with the depositor.
 
Each Plan fiduciary who is responsible for making the investment decisions as to whether to purchase or commit to purchase and to hold single family securities must make its own determination as to whether the first and third general conditions, and the specific conditions described briefly in the preceding paragraphs, of PTCE 83-1 have been satisfied, or as to the availability of any other prohibited transaction exemptions.  Each Plan fiduciary should also determine whether, under the general fiduciary standards of investment prudence 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.
 
The DOL has issued to various underwriters individual prohibited transaction exemptions which generally exempt from the application of certain prohibited transaction provisions of ERISA and Section 4975 of the Code transactions with respect to the initial purchase, the holding and the subsequent resale by Plans of securities issued by the investment pools whose assets consist of:
 

 
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·
certain types of secured receivables, secured loans and other secured obligations, including home equity loans, obligations secured by shares issued by a cooperative housing association, and obligations that bear interest or are purchased at a discount and which are secured by single-family residential real property and/or multi-family residential real property (including obligations secured by leasehold interests on residential real property);
 
 
·
property securing a permitted obligation;
 
 
·
undistributed cash, cash credited to a “pre-funding account” or a “capitalized interest account,” and certain temporary investments made therewith; and
 
 
·
certain types of credit support arrangements, including yield supplement agreements and interest-rate swaps that meet certain requirements set forth in exemptions.
 
The securities covered by the underwriter exemptions include certificates representing a beneficial ownership interest in the assets of an issuing entity (including a grantor trust, owner trust or REMIC) and which entitle the holder to payments of principal, interest and/or other payments made with respect to the assets of such issuing entity.
 
Among the conditions that must be satisfied for the underwriter exemptions to apply are the following:
 
 
·
The Plan must acquire the securities on terms, including the security price, that are at least as favorable to the Plan as they would be in an arm’s-length transaction with an unrelated party;
 
 
·
the securities must not be subordinated to any other class of securities issued by the same issuer, unless the securities are issued in a “designated transaction”;
 
 
·
at the time of acquisition, the securities acquired by the Plan must have received a rating in one of the three (or, in the case of designated transactions, four) highest generic rating categories from Standard and Poor’s Rating Services, Moody’s Investors Service, Inc., Fitch Ratings, DBRS Limited or DBRS, Inc., each referred to herein as a “rating agency”;
 
 
·
the trustee must not be an affiliate of any other member of the “restricted group”;
 
 
·
the sum of all payments made to and retained by the underwriter must not total more than reasonable compensation for underwriting the securities, the sum of all payments made to and retained by the issuer’s depositor for assigning the obligations to the issuer must not total more than the fair market value of the obligations, and the sum of all payments made to and retained by any servicer must not total more than reasonable compensation and expense reimbursement for its services;
 
 
·
the Plan must be an “accredited investor” as defined in Rule 501(a)(l) of Regulation D of the commission under the Securities Act of 1933; and
 
 
·
in the event that all of the obligations used to fund the issuer have not been transferred to the issuer on the closing date, additional obligations having an aggregate value equal to no more than 25% of the total principal amount of the securities being offered may be transferred to the issuer under a pre-funding feature within 90 days or three months following the closing date.

 
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The issuer must also meet the following requirements:
 
 
·
the assets of the issuer must consist solely of assets of the type that have been included in other investment pools;
 
 
·
securities evidencing interests in other investment pools must have been rated in one of the three (or in the case of designated transactions, four) highest rating categories by a rating agency for at least one year prior to the Plan’s acquisition of securities; and
 
 
·
investors other than Plans must have purchased securities evidencing interests in the other investment pools for at least one year prior to the Plan’s acquisition of securities.
 
For purposes of the underwriter exemptions, the term “designated transaction” includes any securitization transaction in which the assets of the issuer consist solely of home equity loans, obligations secured by shares issued by a cooperative housing association and/or obligations that bear interest or are purchased at a discount and which are secured by single-family residential real property and/or multi-family residential real property (including obligations secured by leasehold interests on residential real property).  Such home equity loans and residential mortgage loans may be less than fully secured, provided that:
 
 
·
the securities acquired by a Plan in the designated transaction are not subordinated to any other class of securities issued by the same issuer;
 
 
·
at the time of acquisition, the securities acquired by the Plan must have received a rating in one of the two highest generic rating categories from a rating agency; and
 
 
·
the obligations must be secured by collateral whose fair market value on the closing date of the designated transaction is at least equal to 80% of the sum of (i) the outstanding principal balance due under the obligation and (ii) the outstanding principal balance of any other obligations of higher priority (whether or not held by the issuer) which are secured by the same collateral.
 
The underwriter exemptions also provide relief from various self-dealing/conflict of interest prohibited transactions that may occur when a Plan fiduciary causes a Plan to acquire securities of an issuer and the fiduciary, or its affiliate, is an obligor with respect to obligations or receivables contained in the issuer; provided that, among other requirements:
 
 
·
in the case of an acquisition in connection with the initial issuance of the securities, at least 50% of each class of securities in which Plans have invested is acquired by persons independent of the restricted group and at least 50% of the aggregate interest in the issuer is acquired by persons independent of the restricted group;
 
 
·
the fiduciary, or its affiliate, is an obligor with respect to five percent or less of the fair market value of the obligations or receivables contained in the issuer;
 
 
·
the Plan’s investment in each class of securities does not exceed 25% of all of the securities of that class outstanding at the time of acquisition; and
 
 
·
immediately after the Plan acquires the securities, no more than 25% of the Plan’s assets for which the person is a fiduciary are invested in certificates representing an interest in one or more trusts containing assets sold or serviced by the same entity.
 
The underwriter exemptions do not apply to Plans sponsored by a member of the restricted group, which includes the depositor, the servicer (and any subservicer), the trustee, the underwriter, any obligor with respect to obligations or receivables included in the issuer constituting more than five percent of the

 
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aggregate unamortized principal balance of the issuer’s assets, any insurer, the counterparty to any interest-rate swap entered into by the issuer and any affiliate of these parties.
 
Prohibited Transaction Exemption 2000-58 amended the underwriter exemptions and extended the relief available thereunder to transactions involving the initial purchase, holding and subsequent resale by Plans of securities denominated as debt that are issued by, and are obligations of, investment pools whose assets are held in trust.  The same conditions described above relating to certificates must also be met with respect to notes.  In addition, prior to the issuance of the notes, the issuer must have received a legal opinion to the effect that the noteholders will have a perfected security interest in the issuer’s assets.  As with certificates, exemptive relief would not be available for Plans sponsored by a member of the restricted group.
 
The prospectus supplement will provide further information that Plans should consider before purchasing the securities.  Any Plan fiduciary that proposes to cause a Plan or an entity holding Plan assets to purchase securities is encouraged to consult with its counsel concerning the impact of ERISA and the Code, the applicability of PTCE 83-1, the availability and applicability of any underwriter exemption or any other exemptions from the prohibited transaction provisions of ERISA and Section 4975 of the Code and the potential consequences in their specific circumstances, before making the investment.  Moreover, each Plan fiduciary should determine whether under the general fiduciary standards of investment prudence and diversification an investment in the securities is appropriate for the Plan, taking into account the overall investment policy of the Plan and composition of the Plan’s investment portfolio.
 
LEGAL INVESTMENT
 
The prospectus supplement for each series of securities will specify which, if any, of the classes of securities offered thereby constitute “mortgage related securities” for purposes of the Secondary Mortgage Market Enhancement Act of 1984 (“SMMEA”).  Classes of securities 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 regulations 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 enacted legislation prior to October 4, 1991 specifically limiting the legal investment authority of any of these entities with respect to mortgage related securities, securities 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 this type of legislation affect the validity of any contractual commitment to purchase, hold or invest in securities, or require the sale or other disposition of securities, so long as such contractually commitment was made or such securities were acquired prior to the enactment of the 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 securities without limitations as to the percentage of their assets represented thereby, federal credit unions may invest in mortgage related securities, and national banks may purchase securities for their own account without regard to the limitations generally applicable to investment securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable federal 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 NCUA 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), which sets forth certain restrictions on investments by federal credit unions in mortgage related securities (in each case whether or not the class of securities under consideration for purchase constituted a mortgage related security).
 

 
125

 

The Office of Thrift Supervision, or the OTS, has issued Thrift Bulletin 13a, entitled “Management of Pass-Through Rate Risk, Investment Securities, and Derivatives Activities,” or “TB 13a,” which is effective as of December 1, 1998 and applies to thrift institutions regulated by the OTS.  One of the primary purposes of TB 13a is to require thrift institutions, prior to taking any investment position, to:
 
 
·
conduct a pre-purchase portfolio sensitivity analysis for any “significant transaction” involving securities or financial derivatives; and
 
 
·
conduct a pre-purchase price sensitivity analysis of any “complex security” or financial derivative.
 
For the purposes of TB 13a, “complex security” includes among other things any collateralized mortgage obligation or REMIC security, other than any “plain vanilla” mortgage pass-through security, that is, securities that are part of a single class of securities in the related pool that are non-callable and do not have any special features.  One or more classes of the securities offered by this prospectus and the accompanying prospectus supplement may be viewed as “complex securities.” The OTS recommends that while a thrift institution should conduct its own in-house pre-acquisition analysis, it may rely on an analysis conducted by an independent third party as long as management understands the analysis and its key assumptions.  Further, TB 13a recommends that the use of “complex securities with high price sensitivity” be limited to transactions and strategies that lower a thrift institution’s portfolio interest rate risk.  TB 13a warns that investment in complex securities by thrift institutions that do not have adequate risk measurement, monitoring and control systems may be viewed by OTS examiners as an unsafe and unsound practice.
 
The predecessor to the OTS issued a bulletin entitled “Mortgage Derivative Products and Mortgage Swaps” applicable to thrift institutions regulated by the OTS.  The bulletin established guidelines for the investment by savings institutions in certain “high-risk” mortgage derivative securities and limitations on the use of those securities by insolvent, undercapitalized or otherwise “troubled” institutions.  Similar policy statements have been issued by regulators having jurisdiction over other types of depository institutions.
 
On April 23, 1998, the Federal Financial Institutions Examination Council issued its 1998 Policy Statement.  The 1998 Policy Statement has been adopted by the Federal Reserve Board, the Office of the Comptroller of the Currency, the FDIC, the National Credit Union Administration, or the NCUA, and the OTS with an effective date of May 26, 1998.  The 1998 Policy Statement rescinds a 1992 policy statement that had required, prior to purchase, a depository institution to determine whether a mortgage derivative product that it is considering acquiring is high-risk, and, if so, that the proposed acquisition would reduce the institution’s overall interest rate risk.  The 1998 Policy Statement eliminates former constraints on investing in certain “high-risk” mortgage derivative products and substitutes broader guidelines for evaluating and monitoring investment risk.
 
Institutions whose investment activities are subject to regulation by federal or state authorities should review rules, policies and guidelines adopted from time to time by those authorities before purchasing any securities, as certain series, classes or subclasses may be deemed unsuitable investments, or may otherwise be restricted, under those rules, policies or guidelines, in certain instances irrespective of SMMEA.
 
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, provisions which may restrict or prohibit investment in securities which are not “interest bearing” or “income paying,” and, with regard to any securities issued in book-entry form, provisions which may restrict or prohibit investments in securities which are issued in book-entry form.
 
Except as to the status of certain classes of securities as “mortgage related securities,” no representation is made as to the proper characterization of the securities for legal investment purposes,

 
126

 

financial institution regulatory purposes, or other purposes, or as to the ability of particular investors to purchase securities under applicable legal investment restrictions.  The uncertainties described above, and any unfavorable future determinations concerning legal investment or financial institution regulatory characteristics of the securities, may adversely affect the liquidity of the securities.
 
Investors should consult their own legal advisors in determining whether and to what extent securities offered by this prospectus and the accompanying prospectus supplement constitute legal investments for them.
 
METHOD OF DISTRIBUTION
 
Each series of securities offered hereby and by means of the related prospectus supplement may be sold directly by the depositor or may be offered through an underwriter or underwriting syndicates represented by one or more lead underwriters.  The prospectus supplement with respect to each series of securities will set forth the terms of the offering of that series of securities and each subclass within that series, including the name or names of the underwriters, the proceeds to the depositor, and either the initial public offering price, the discounts and commissions to the underwriters and any discounts or concessions allowed or re-allowed to certain dealers, or the method by which the price at which the underwriters will sell the securities will be determined.
 
Generally, the underwriters will be obligated to purchase all of the offered securities of a series described in the prospectus supplement with respect to that series if any securities are purchased.  The offered securities may be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale.  If stated in the applicable prospectus supplement, the underwriters will not be obligated to purchase all of the offered securities of a series described in the prospectus supplement with respect to that series if any securities are purchased.
 
If stated in the prospectus supplement, the depositor will authorize underwriters or other persons acting as the depositor’s agents to solicit offers by certain institutions to purchase the offered securities from the depositor pursuant to contracts providing for payment and delivery on a future date.  Institutions with which those contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases those institutions must be approved by the depositor.  The obligation of any purchaser under any contract will be subject to the condition that the purchase of the offered securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which that purchaser is subject.  The underwriters and other agents will not have any responsibility in respect of the validity or performance of those contracts.
 
The depositor may also sell the securities offered by means of this prospectus and the related prospectus supplements from time to time in negotiated transactions or otherwise, at prices determined at the time of sale.  The depositor may effect those transactions by selling securities to or through dealers, and those dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the depositor and any purchasers of securities for whom they may act as agents.
 
The place and time of delivery for each series of securities offered hereby and by means of the related prospectus supplement will be set forth in the prospectus supplement with respect to that series.
 
If and to the extent required by applicable law or regulation, this prospectus and the attached prospectus supplement will also be used by the underwriter after the completion of the offering in connection with offers and sales related to market-making transactions in the offered securities in which the underwriter acts as principal.  Sales will be made at negotiated prices determined at the time of those sales.
 
One or more of the underwriters with respect to a series of securities, or affiliates of the underwriters, may engage in financing transactions with the depositor or affiliates of the depositor, including loans or repurchase agreements to provide financing of loans or other assets pending the transfer of those assets to an issuing entity.
 

 
127

 

Underwriters and agents may be entitled under agreements entered into with the depositor to indemnification by the depositor 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.
 
Redwood Trust, Inc. or other affiliates of the depositor may purchase securities offered hereby and pledge them to secure indebtedness or, together with its pledgees, donees, transferees or other successors in interest, sell the securities, from time to time, either directly or indirectly through one or more underwriters, underwriting syndicates or designated agents.  This prospectus may be used in connection with any such pledge or sale.  In addition, in connection with any offering of securities backed by private mortgage-backed securities, this prospectus may be used for both the offering of such securities and any offering of the underlying securities deemed to occur under applicable SEC rules.  The prospectus supplement relating to any offering of securities backed by private mortgage-backed securities will identify the issuing entity, depositor, sponsor and each underwriter as an underwriter for the offering of the underlying securities.
 
If a series is offered other than through underwriters, the prospectus supplement relating to that series will contain information regarding the nature of the offering and any agreements to be entered into between the depositor and purchasers of securities of that series.
 
LEGAL MATTERS
 
The validity of the securities will be passed upon for the issuing entity by Tobin & Tobin, a professional corporation, San Francisco, California.  Certain federal income tax consequences with respect to the securities will be passed upon for the issuing entity by Chapman and Cutler LLP, San Francisco, California.  Certain matters may be passed on by counsel specified in the applicable prospectus supplement.
 
FINANCIAL INFORMATION
 
Each depositor has determined that its financial statements are not material to investors in the securities offered by this prospectus.  The securities will not represent an interest in or an obligation of either depositor.
 
A new issuing entity will be formed for each series of securities, and no issuing entity will engage in any business activities or have any material assets or obligations before the issuance of the securities of the related series.  Accordingly, no financial statements for any issuing entity will be included in this prospectus or in the applicable prospectus supplement.
 
STATIC POOL INFORMATION
 
Static pool information with respect to the sponsor’s prior securitized pools , presented by pool, or the portfolio of mortgage loans originated or purchased by the sponsor or its affiliates, presented by vintage year, will, to the extent material, be available online at an internet website address specified in the applicable prospectus supplement.  In addition, to the extent material, static pool information with respect to the prior securitized pools, presented by pool, or the portfolio of mortgage loans originated or purchased by one or more originators, presented by vintage year, will be similarly available, if specified in the applicable prospectus supplement.  The static pool data related to an issuing entity will include information, to the extent material, relating to:
 
 
·
payment delinquencies of the mortgage loans;
 
 
·
cumulative losses with respect to the mortgage loans; and
 
 
·
prepayments of the mortgage loans,
 
in each case presented in periodic increments.
 

 
128

 

In addition, for each prior securitized pool or vintage origination year, summary information of the original characteristics of the securitized pool or the originated and purchased mortgage loans, as applicable, will be provided.  This information may include, among other things (in each case by pool or vintage year), the number of securitized mortgage loans or of originated or purchased mortgage loans; the original pool balance for each securitized pool or the total original balance of the originated or purchased mortgage loans; the weighted average interest rate; the weighted average original term to maturity; the weighted average remaining term to maturity; the weighted average and minimum and maximum credit score; the product type(s); the loan purposes; the weighted average loan-to-value ratio; the distribution of mortgage loans by interest rate; and information regarding the geographic distribution of the mortgage loans.
 
Static pool information is not deemed part of this prospectus or of the Registration Statement of which the prospectus is a part to the extent that the static pool information relates to (a) any issuing entity that was established by the depositor or any other party before January 1, 2006, (b) information with respect to the portfolio of mortgage loans originated or purchased by an originator for periods before January 1, 2006 or (c) in the case of any information regarding the mortgage loans in any issuing entity established on or after January 1, 2006, information regarding those mortgage loans for periods before January 1, 2006.
 
Static pool information made available via an internet web site in connection with an offering of securities of any series will remain available on that web site for at least five years following commencement of the offering.
 
AVAILABLE INFORMATION
 
The depositors have filed the registration statement with the Securities and Exchange Commission (Registration Nos. 333-159791 and 333-159791-01).  The depositors are also subject to some of the information requirements of the Exchange Act, and, accordingly, will file reports thereunder with the Securities and Exchange Commission.  The registration statement and the exhibits thereto, and reports and other information filed by the depositors under the Exchange Act can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549, and at certain of its Regional Offices located as follows: Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office, 233 Broadway, New York, New York 10279 and electronically through the Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval System at the Securities and Exchange Commission’s web site (http://www.sec.gov).
 
The depositors’ annual reports on Form 10-K, the distribution reports on Form 10-D, current reports on Form 8-K and any amendments to those reports will be filed with the Securities and Exchange Commission (333-159791).  These reports will be made available at www.ctslink.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission.
 
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
The Securities and Exchange Commission (the “SEC”) allows each depositor to “incorporate by reference” the information filed with the SEC by the depositor, under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, that relates to the issuing entity for the securities.  This means that the depositor can disclose important information to any investor by referring the investor to these documents.  The information incorporated by reference is an important part of this prospectus, and information filed by the depositor with the SEC that relates to the issuing entity for any series of securities will automatically update and supersede this information.  Documents that may be incorporated by reference for a particular series of securities include an insurer’s financial statements, a surety policy, mortgage pool policy, computational materials, collateral term sheets, the related agreement and amendments thereto, and other documents on Form 8-K and Section 13(a), 13(c), 14 or 15(d) of the Exchange Act as may be required in connection with the related issuing entity.
 

 
129

 

Each depositor will provide or cause to be provided without charge to each person to whom this prospectus and accompanying prospectus supplement is delivered in connection with the offering of one or more classes of the related series of securities, on written or oral request of that person, a copy of any or all reports incorporated in this prospectus by reference, in each case to the extent the reports relate to one or more of the classes of the related series of securities, other than the exhibits to those documents, unless the exhibits are specifically incorporated by reference in the documents.  Requests should be directed in writing to the Sponsor at One Belvedere Place, Suite 310, Mill Valley, California 94941.
 
RATING
 
It is a condition to the issuance of the securities of each series offered by this prospectus that at the time of issuance they will have been rated in one of the four highest rating categories by the nationally recognized statistical rating agency or agencies specified in the related prospectus supplement.
 
Ratings on securities address the likelihood of the receipt by securityholders of their allocable share of principal and interest on the underlying mortgage loans.  These ratings address such factors as:
 
 
·
structural and legal aspects associated with the securities;
 
 
·
the extent to which the payment stream on the underlying assets is adequate to make payments required by the securities; and
 
The credit quality of the credit enhancer or guarantor, if any.
 
 
·
Ratings on the securities do not, however, constitute a statement regarding:
 
 
·
the likelihood of principal prepayments by borrowers;
 
 
·
the degree by which the rate of prepayments made by borrowers might differ from that originally anticipated; or
 
 
·
whether the yields originally anticipated by investors of any series of securities may be adversely affected as a result of those prepayments.
 
As a result, investors in securities of any series might suffer a lower than anticipated yield.
 
A rating on any or all of the securities of any series by certain other rating agencies, if assigned at all, may be lower than the rating or ratings assigned to the securities by the rating agency or agencies specified in the related prospectus supplement.  A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency.  Each security rating should be evaluated independently of any other security rating.

 
130

 

INDEX OF DEFINED TERMS
 
   
Page No.
     
1986 Act
 
104
accredited investor
 
123
Accretion Directed
 
46
Accrual
 
47
accrual period
 
106
accrual securities
 
45
accrual security
 
105
acquisition premium
 
106
additional charges
 
26
additional collateral loans
 
97
adjustable rate mortgage loans, or ARMs
 
2
adjusted issue price
 
106,112
Advances
 
74
Agreement
 
42
Alternative Mortgage Transaction Parity Act of 1982
 
99
applicable local law
 
120
asset test
 
114
Available funds
 
45
backup withholding
 
119
balloon payment
 
21
Bankruptcy Code
 
97
Bankruptcy Laws
 
97
beneficial owners
 
52
benefit plan investors
 
121
bondholders
 
20
bonds
 
19
book-entry securities
 
17
buydown
 
30
capital asset
 
117
capital assets
 
103
capitalized interest account
 
123
CERCLA
 
95
certificateholders
 
20
certificates
 
19
Chapter 37 of Title 38 of the United States Code
 
29
class security balance
 
45
Clearstream
 
52
CMT
 
23
Code
 
44, 103
COFI
 
23
collateral value
 
25
collection account
 
69
combined loan-to-value ratio
 
25
commercially reasonable
 
94
complex securities with high price sensitivity
 
126
complex security or complex securities
 
126
Component Securities
 
46
components
 
46
Comprehensive Crime Control Act of 1984
 
103
Comprehensive Environmental Response, Compensation and Liability Act of 1980
 
95
Conference Committee Report to the 1986 Act
 
104

 
I-1

 


contingent interest payment
 
105
cut-off date
 
3, 19
daily portion
 
111
daily portions
 
106
de minimis
 
105
Debt Security or Debt Securities
 
104
debt service reduction
 
99
deficient valuation
 
98
delinquency advance
 
74
Department of Housing and Urban Development
 
29
depositor
 
19
Depository Trust Company
 
17
designated transaction
 
123
disqualified organization
 
113
distribution account
 
71
Division A of The Housing and Economic Recovery Act of 2008
 
31
DOL
 
120
domestic building and loan association
 
117
draw
 
26
draw period
 
26
DTC
 
17
due on sale
 
21
due-on-sale
 
27
effective loan-to-value ratio
 
25
eligible investments
 
72
Employee Retirement Income Security Act of 1974
 
44
EPA
 
95
equity
 
120
ERISA
 
44
Euroclear
 
52
evidences of indebtedness
 
113,117
excess inclusion
 
112
Exchange Act
 
121
excluded balance
 
49
Fannie Mae
 
33
Fannie Mae Conservator
 
33
Fannie Mae Purchase Agreement
 
33
Federal Funds Rate
 
23
Federal Housing Finance Agency or FHFA
 
31
Federal Housing Finance Regulatory Reform Act of 2008
 
31
Federal National Mortgage Association Charter Act
 
33
Fixed Rate
 
48
Floating Rate
 
48
foreign person
 
114,118
formula test
 
114
Freddie Mac
 
31
Freddie Mac Conservator
 
31
Freddie Mac Lending Agreement
 
31
Freddie Mac Purchase Agreement
 
31
fully modified pass-through
 
29
Garn-St. Germain Act
 
99
Ginnie Mae
 
29
government securities
 
118
GPM fund
 
22
GPM loans
 
22
high cost
 
15

 
I-2

 


high-risk
 
126
HOEPA
 
15
home equity revolving
 
26
Home Ownership and Equity Protection Act of 1994
 
15, 102
hybrid
 
2, 22
income paying
 
126
incorporate by reference
 
129
indemnified party
 
78
indenture
 
35, 42
indenture trustee
 
42
indirect participants
 
17,53,54
inducement fees
 
114
in-house asset managers
 
121
interest bearing
 
126
interest on obligations secured by mortgages on real property
 
117
interest on obligations secured by mortgages on real property or on interests in real property
 
118
Interest Only or IO
 
48
interest-only
 
2, 22
Internal Revenue Code of 1986
 
44, 103
Inverse Floating Rate
 
48
Investment and Deposit Activities
 
125
IRS
 
103
issuing entity balance
 
49
LIBOR
 
23
LIBORSWAP
 
23
loans secured by an interest in real property
 
118
loan-to-value ratio
 
25
lockout periods
 
21
Lower Tier REMIC(s)
 
109
Management of Pass-Through Rate Risk, Investment Securities, and Derivatives Activities
 
126
master servicer event of default
 
69
MERS
 
69
Mortgage Derivative Products and Mortgage Swaps
 
126
mortgage pool pass-through certificates
 
121
mortgage related securities
 
125,126
MTA
 
23
National Credit Union Administration
 
125
National Housing Act
 
29
National Housing Act of 1934
 
29
NCUA
 
125
negative amortization
 
4, 22
noneconomic residual interest
 
113
noneconomic residual security
 
114
Non-REMIC Debt Securities
 
104
noteholders
 
20
notes
 
19
notional
 
61
Notional Amount Securities
 
46
objective rate
 
105
Office of Thrift Supervision
 
126
OID
 
104
OID Regulations
 
104
option ARMs
 
2, 22
OTS
 
99, 126
outside reserve fund
 
110
outstanding balance
 
98

 
I-3

 


Overcollateralization
 
10, 60
owner or operator
 
95
owner trustee
 
42
Parity Act
 
99
Partial Accrual
 
48
Parties in Interest
 
120
passive losses
 
111
pass-through interest holder
 
115
plain vanilla
 
126
Planned Principal Class or PACs
 
47
Plans
 
120
pool
 
19
portfolio income
 
111
portfolio interest
 
112,118
pre-funding account
 
123
premium
 
110,116
Prime Rate
 
23
Principal Only or PO
 
48
prohibited transaction
 
115
prudent investor
 
126
PTCE
 
121
qualified floating rate
 
105
qualified floating rates
 
105
qualified mortgage
 
117
qualified mortgages
 
117
qualified professional asset manager
 
121
qualified REIT subsidiaries
 
116
qualified stated interest
 
105
qualified stated interest payments
 
105
qualified variable rate
 
105
qualifying liquidation
 
67
qualifying real property loans
 
117
Racketeer Influenced and Corrupt Organizations
 
103
rating agency
 
48, 123
RCRA
 
95
real estate assets
 
117,118
real estate mortgage investment conduit
 
41
real estate mortgage investment conduits
 
109
reasonably without cause to believe
 
103
recapture
 
117
recast
 
5
refinance loan
 
25
regular interest securities
 
104,109
regular interests
 
109,115
Regulatory Reform Act
 
31
Reigle Act
 
102
Reigle Community Development and Regulatory Improvement Act of 1994
 
102
Relief Act
 
101
REMIC
 
41, 109
REMIC Regulations
 
103
REMIC Securities
 
104
reportable payments
 
119
reportable transaction
 
119
residential loans
 
117
residual interest
 
109
residual interest securities
 
109

 
I-4

 


residual interest security
 
111
residual interests
 
115
Resource Conservation and Recovery Act
 
95
responsible parties
 
96
restricted group
 
123
retained interest
 
20
Revolving Account
 
28
Revolving Mortgage Loans
 
28
Revolving Period Arrangement
 
28
RICO
 
103
RWT
 
17
RWT Holdings
 
17
safe harbor
 
114
SBJPA of 1996
 
112
Scheduled Principal Class
 
47
SEC
 
127
Secondary Mortgage Market Enhancement Act of 1984
 
125
secured creditor exclusion
 
95
securities
 
19
Securities Act
 
37
Securities and Exchange Commission
 
129
Securities Exchange Act of 1934
 
121
securityholders
 
19
senior securities
 
48
Sequential Pay
 
47
Sequoia Mortgage Funding Corporation
 
18
Sequoia Residential Funding, Inc.
 
18
Servicemen’s Readjustment Act of 1944, as amended
 
29
servicing advances
 
74
short sale
 
13
significant transaction
 
125
significant value
 
112
single family securities
 
122
Small Business Job Protection Act of 1996
 
112
SMMEA
 
125
Soldiers’ and Sailors’ Relief Act of 1940
 
101
Sponsor
 
17
standard
 
22
startup day
 
115
step-down
 
23
Strip
 
47
structuring range
 
47
subordinate securities
 
48
substantial equity features
 
120
Support Class (or companion class)
 
47
Targeted Principal Class
 
47
tax avoidance potential
 
114
Tax Prepayment Assumption
 
105
Tax Reform Act of 1986
 
104
taxable mortgage pool
 
113
TB 13a
 
125
T-Bill
 
23
Terms and Conditions
 
54
thrift institutions
 
112
TILA
 
102
Title V
 
100

 
I-5

 


Title V of the Depository Institutions Deregulation and Monetary Control Act of 1980
 
100
Title V of the Housing Act of 1949
 
29
Treasury
 
31
troubled
 
126
trust agreement
 
88
Trust Indenture Act
 
84
Trust Indenture Act of 1939
 
84
trustee
 
90
Truth-in-Lending Act
 
102
U.S. Department of the Treasury
 
31
U.S. Person
 
119
United States Department of Labor
 
120
United States Environmental Protection Agency
 
95
Upper Tier REMIC
 
109
VA loans
 
29
Variable Rate
 
48
window period
 
99
window period states
 
99
withholding agent
 
118



 
I-6

 

 
 
 
You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you with any other information or to make any representations not contained in this prospectus supplement and the prospectus.  This prospectus supplement and the prospectus do not constitute an offer to sell, or a solicitation of an offer to buy, the securities offered hereby by anyone in any jurisdiction in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make any such offer or solicitation. We represent the accuracy of the information in this prospectus supplement and the accompanying prospectus only as of the dates on their respective covers.

$230,703,000 (Approximate)
 
SEQUOIA MORTGAGE TRUST 2010-H1
 
Mortgage Pass-Through Certificates

RWT Holdings, Inc.
Sponsor and Seller

Sequoia Residential Funding, Inc.
Depositor

CitiMortgage, Inc.
Originator and Servicer

Sequoia Mortgage Trust 2010-H1
Issuing Entity

PROSPECTUS SUPPLEMENT
 
____________________________

Citi
JPMorgan
 
April        , 2010
 
Dealers will be required to deliver a prospectus supplement and prospectus when acting as underwriters of the certificates offered hereby and with respect to their unsold allotments or subscriptions. In addition, all dealers selling the certificates, whether or not participating in this offering, may be required to deliver a prospectus supplement and prospectus until ninety days after the date of this prospectus supplement.