424B5 1 v046694_424b5.htm
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 2, 2006)

$2,404,833,000 (Approximate)
STRUCTURED ASSET INVESTMENT LOAN TRUST
Mortgage Pass-Through Certificates, Series 2006-4
[AURORA LOGO]
 
Lehman Brothers Holdings Inc.
Sponsor and Seller
Structured Asset Investment Loan Trust 2006-4
Issuing Entity
Aurora Loan Services LLC
Master Servicer
Structured Asset Securities Corporation
Depositor
_____________________
   
Consider carefully the risk factors beginning on page S-20 of this prospectus supplement and on page 6 of the prospectus.
For a list of capitalized terms used in this prospectus supplement and the prospectus, see the glossary of defined terms beginning on page S-118 in this prospectus supplement and the index of principal terms on page 204 in the prospectus.
The certificates will represent interests in the issuing entity only and will not represent interests in or obligations of the sponsor, the depositor or any of their affiliates or any other entity.
This prospectus supplement may be used to offer and sell the certificates offered hereby only if accompanied by the prospectus.
The trust fund will issue certificates including the following classes offered hereby:
· five classes of senior certificates
· eight classes of subordinate certificates
The classes of certificates offered by this prospectus supplement are listed, together with their initial class principal amounts and interest rates, in the table 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 the certificates listed in the table on page S-1 and not to the other classes of certificates that will be issued by the issuing entity as described in this prospectus supplement.
Principal and interest will be payable monthly, as described in this prospectus supplement. The first expected distribution date will be July 25, 2006. Credit enhancement for the offered certificates includes excess interest, overcollateralization, subordination, loss allocation and limited cross-collateralization features and primary mortgage insurance. Amounts payable under an interest rate swap agreement and an interest rate cap agreement, both provided by ABN AMRO Bank, N.V., will be applied to pay certain interest shortfalls, maintain overcollateralization and repay certain losses.
 
The assets of the trust fund will primarily consist of three pools of conventional, first and second lien, adjustable and fixed rate, fully amortizing and balloon, residential mortgage loans, which were originated in accordance with underwriting guidelines that are not as strict as Fannie Mae and Freddie Mac guidelines.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the certificates or determined that this prospectus supplement or the accompanying prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
 
The certificates offered by this prospectus supplement will be purchased by Lehman Brothers Inc., as underwriter, from Structured Asset Securities Corporation, and are being offered from time to time for sale to the public in negotiated transactions or otherwise at varying prices to be determined at the time of sale. The underwriter has the right to reject any order. Proceeds to Structured Asset Securities Corporation from the sale of these certificates will be approximately 100.00% of their initial total class principal amount before deducting expenses.
 
On or about June 30, 2006, delivery of the certificates offered by this prospectus supplement will be made through the book-entry facilities of The Depository Trust Company, Clearstream Banking Luxembourg and the Euroclear System.
 
Underwriter:
LEHMAN BROTHERS
The date of this prospectus supplement is June 21, 2006

 
Important notices 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 progressively provide 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. If the specific terms of this prospectus supplement and the general terms of the accompanying prospectus vary, you should rely on the information in this prospectus supplement.
 
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 different information.
 
We are not offering the certificates in any state where the offer is not permitted. 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.
 
_______________________
 
Dealers will deliver a prospectus supplement and prospectus when acting as underwriters of the certificates and with respect to their unsold allotments or 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.
 
_______________________
 
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.
 
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”), the underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of certificates to the public in that Relevant Member State prior to the publication of a prospectus in relation to the certificates which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of certificates to the public in that Relevant Member State at any time: (a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; (b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or (c) in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.
 
For the purposes of this provision, the expression an “offer of certificates to the public” in relation to any certificates in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the certificates to be offered so as to enable an investor to decide to purchase or subscribe 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.
 
S-ii


Table of Contents
 
Prospectus Supplement
  Page
   
The Offered Certificates
S-1
Summary of Terms
S-3
Risk Factors
S-20
Glossary
S-32
Description of the Certificates
S-32
General
S-32
Book-Entry Registration
S-33
Distributions of Interest
S-34
Determination of LIBOR
S-36
Distributions of Principal
S-37
Credit Enhancement
S-41
Supplemental Interest Trust
S-44
Optional Purchase of the Mortgage Loans
S-48
Fees and Expenses of the Trust Fund
S-49
Description of the Mortgage Pools
S-50
General
S-50
Adjustable Rate Mortgage Loans
S-52
The Index
S-53
Primary Mortgage Insurance
S-53
Pool 1 Mortgage Loans
S-60
Pool 2 Mortgage Loans
S-61
Pool 3 Mortgage Loans
S-61
Static Pool Information
S-61
Material Legal Proceedings
S-61
Affiliations and Relationships
S-61
Additional Information
S-62
The Sponsor
S-63
The Depositor
S-63
Origination of the Mortgage Loans and Underwriting Guidelines
S-63
General
S-63
BNC Mortgage, Inc.
S-63
LBB Underwriting Guidelines
S-68
New Century Mortgage Corporation
S-71
Underwriting Standards of New Century
S-72
General Underwriting Guidelines
S-76
The Master Servicer
S-78
The Servicers
S-78
General
S-78
Option One Mortgage Corporation
S-79
Wells Fargo Bank, N.A.
S-83
Aurora Loan Services LLC
S-85
JPMorgan Chase Bank, National Association
S-85
Administration of the Trust Fund
S-87
Servicing and Administrative Responsibilities
S-87
Trust Accounts
S-89
Example of Distributions
S-90
Mortgage Loan Servicing
S-92
General
S-92
Servicing Accounts and the Collection Account
S-93
Servicing Compensation and Payment of Expenses
S-93
Waiver or Modification of Mortgage Loan Terms
S-93
Prepayment Interest Shortfalls
S-94
Advances
S-94
Primary Mortgage Insurance
S-94
Collection of Taxes, Assessments and Similar Items
S-94
Insurance Coverage
S-94
Evidence as to Compliance
S-95
Master Servicer Default; Servicer Default
S-95
Amendment of the Servicing Agreements
S-96
Custody of the Mortgage Files
S-96
The Credit Risk Manager
S-96
Optional Purchase of Defaulted Mortgage Loans
S-96
Special Servicer for Distressed Mortgage Loans
S-97
Pledge of Servicing Rights
S-97
The Trust Agreement
S-97
General
S-97
The Issuing Entity
S-97
The Trustee
S-98
The Securities Administrator
S-99
Assignment of Mortgage Loans
S-100
Representations and Warranties
S-100
Certain Matters Under the Trust Agreement
S-101
Reports to Certificateholders
S-105
Voting Rights
S-107
Yield, Prepayment and Weighted Average Life
S-107
General
S-107
Overcollateralization
S-110
Subordination of the Offered Subordinate Certificates
S-110
Weighted Average Life
S-111
 
S-iii

 
  Page
   
Material Federal Income Tax Considerations
S-112
General
S-112
Tax Treatment of the Offered Certificates
S-112
Legal Investment Considerations
S-114
ERISA Considerations
S-115
Use of Proceeds
S-116
Underwriting
S-116
Legal Matters
S-116
Ratings
S-116
Glossary of Defined Terms
S-118
Annex A: Certain Characteristics of the Mortgage Loans
S-A-1
Annex B-1: Assumed Mortgage Loan Characteristics
S-B-1-1
Annex B-2: Principal Amount
 
Decrement Tables
S-B-2-1
Annex C-1: Swap Agreement
 
Scheduled Notional Amounts and Rates of Payment
S-C-1-1
Annex C-2: Interest Rate Cap
 
Agreement Scheduled Notional Amounts and Strike Rate
S-C-2-1



 

S-iv





The Offered Certificates
 
The certificates consist of the classes of certificates listed in the tables below, together with the Class B1, Class B2, Class P, Class X, Class LT-R and Class R Certificates. Only the classes of certificates listed in the tables below are offered by this prospectus supplement.
 
Class
Related
Mortgage
Pool(s)
Class
Principal
Amount(1)
Initial
Interest
Rate(2)
Interest Rate
Formula
(until Initial
Optional
Termination
Date)(3)(4)
Interest Rate
Formula
(after Initial
Optional
Termination
Date)(4)(5)
Principal Type
Interest
Type
Initial Certificate Ratings
Moody’s
S&P
Fitch
A1
1
$747,827,000
5.49500%
LIBOR plus 0.17250%
LIBOR plus 0.34500%
Senior
Variable Rate
Aaa
AAA
AAA
A2
2
$391,109,000
5.45250%
LIBOR plus 0.13000%
LIBOR plus 0.26000%
Senior
Variable Rate
Aaa
AAA
AAA
A3
3
$602,379,000
5.37250%
LIBOR plus 0.05000%
LIBOR plus 0.10000%
Senior, Sequential Pay
Variable Rate
Aaa
AAA
AAA
A4
3
$190,163,000
5.47250%
LIBOR plus 0.15000%
LIBOR plus 0.30000%
Senior, Sequential Pay
Variable Rate
Aaa
AAA
AAA
A5
3
$  90,492,000
5.63250%
LIBOR plus 0.31000%
LIBOR plus 0.62000%
Senior, Sequential Pay
Variable Rate
Aaa
AAA
AAA
M1
1, 2 & 3
$157,794,000
5.59250%
LIBOR plus 0.27000%
LIBOR plus 0.40500%
Subordinated
Variable Rate
Aa2
AA
AA
M2
1, 2 & 3
$  47,705,000
5.67250%
LIBOR plus 0.35000%
LIBOR plus 0.52500%
Subordinated
Variable Rate
Aa3
AA-
AA-
M3
1, 2 & 3
$  39,143,000
5.72250%
LIBOR plus 0.40000%
LIBOR plus 0.60000%
Subordinated
Variable Rate
A1
A+
A+
M4
1, 2 & 3
$  36,696,000
5.76250%
LIBOR plus 0.44000%
LIBOR plus 0.66000%
Subordinated
Variable Rate
A2
A
A
M5
1, 2 & 3
$  31,803,000
5.80250%
LIBOR plus 0.48000%
LIBOR plus 0.72000%
Subordinated
Variable Rate
A3
A-
A-
M6
1, 2 & 3
$  31,803,000
6.32250%
LIBOR plus 1.00000%
LIBOR plus 1.50000%
Subordinated
Variable Rate
Baa1
BBB+
BBB+
M7
1, 2 & 3
$  19,571,000
6.52250%
LIBOR plus 1.20000%
LIBOR plus 1.80000%
Subordinated
Variable Rate
Baa2
BBB
BBB
M8
1, 2 & 3
$  18,348,000
7.32250%
LIBOR plus 2.00000%
LIBOR plus 3.00000%
Subordinated
Variable Rate
Baa3
BBB-
BBB-
_____________
(1)
These balances are approximate, as described in this prospectus supplement.
(2)
Reflects the interest rate as of the closing date.
(3)
Reflects the interest rate formula up to and including the earliest possible distribution date on which the master servicer has the option to purchase the mortgage loans as described in this prospectus supplement under “Description of the Certificates—Optional Purchase of the Mortgage Loans.”
(4)
Subject to the applicable net funds cap, as described in this prospectus supplement under “Summary of Terms—The Certificates—Payments on the Certificates—Interest Payments.”
(5)
Reflects the interest rate formula after the option to purchase the mortgage loans is not exercised by the master servicer on the earliest possible distribution date as described in this prospectus supplement under “Description of the Certificates—Optional Purchase of the Mortgage Loans.”


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
Denominations(5)
 
Incremental
Denominations
 
CUSIP
Number
A1
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
11/25/2014
 
$  25,000
 
$1
 
86360W AA 0
A2
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
11/25/2014
 
$  25,000
 
$1
 
86360W AB 8
A3
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
10/25/2008
 
$  25,000
 
$1
 
86360W AC 6
A4
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
3/25/2012
 
$  25,000
 
$1
 
86360W AD 4
A5
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
11/25/2014
 
$  25,000
 
$1
 
86360W AE 2
M1
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
6/25/2012
 
$100,000
 
$1
 
86360W AF 9
M2
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
11/25/2014
 
$100,000
 
$1
 
86360W AG 7
M3
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
11/25/2014
 
$100,000
 
$1
 
86360W AH 5
M4
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
11/25/2014
 
$100,000
 
$1
 
86360W AJ 1
M5
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
11/25/2014
 
$100,000
 
$1
 
86360W AK 8
M6
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
7/25/2014
 
$100,000
 
$1
 
86360W AL 6
M7
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
8/25/2013
 
$100,000
 
$1
 
86360W AM 4
M8
 
DD
 
0 day
 
Actual/360
 
7/25/2036
 
10/25/2012
 
$100,000
 
$1
 
86360W AN 2
__________________
(1)
DD = For any distribution date, the close of business on the business day immediately before that distribution date.
(2)
0 day = For any distribution date, the interest accrual period will be the period beginning on the immediately preceding distribution date (or June 25, 2006, in the case of the first interest accrual period) and ending on the calendar day immediately before the related distribution date.
(3)
The final scheduled distribution date for the offered certificates is based upon the second distribution date after the date of the last scheduled payment of the latest maturing thirty year mortgage loan.
(4)
The expected final distribution date, based upon (a) a constant prepayment rate of 30% per annum and the modeling assumptions used in this prospectus supplement, each as described under “Yield, Prepayment and Weighted Average Life—Weighted Average Life” and (b) the assumption that the option to purchase the mortgage loans is exercised by the master servicer on the earliest possible distribution date as described in this prospectus supplement under “Description of the Certificates—Optional Purchase of the Mortgage Loans.” The actual final distribution date for each class of offered certificates may be earlier or later, and could be substantially later, than the applicable expected final distribution date listed above.
(5)
With respect to initial European investors only, the underwriter will only sell offered certificates in minimum total investment amounts of $100,000.
 
 
S-2


Summary of Terms
 
·
This summary highlights selected information from this document 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, it is necessary that you read carefully this entire document and the accompanying prospectus.
 
·
While this 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.
 
·
Some of the information that follows consists of forward-looking statements relating to future economic performance or projections and other financial items. Forward-looking statements are subject to a variety of risks and uncertainties, such as general economic and business conditions and regulatory initiatives and compliance, many of which are beyond the control of the parties participating in this transaction. Accordingly, what actually happens may be very different from the projections included in this prospectus supplement.
 
·
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 scheduled principal balance of those mortgage loans as of June 1, 2006, unless we specify otherwise. We explain in this prospectus supplement under “Glossary of Defined Terms” how the scheduled principal balance of a mortgage loan is determined. Whenever we refer in this Summary of Terms or in the Risk Factors section of this prospectus supplement to the total principal balance of any mortgage loans, we mean the total of their scheduled principal balances unless we specify otherwise.
 
Parties
 
Sponsor and Seller
 
Lehman Brothers Holdings Inc. will sell the mortgage loans to the depositor.
 
Depositor
 
Structured Asset Securities Corporation, a Delaware special purpose corporation, will sell the mortgage loans to the issuing entity. The depositor’s address is 745 Seventh Avenue, New York, New York 10019, and its telephone number is (212) 526-7000.
 
Issuing Entity
 
Structured Asset Investment Loan Trust 2006-4, a common law trust formed under the laws of the State of New York.
 
Trustee 
 
U.S. Bank National Association.
 
Securities Administrator
 
Wells Fargo Bank, N.A., will be responsible for preparing monthly distribution statements and certain tax information for investors and certain tax filings for the trust fund.
 
Master Servicer
 
Aurora Loan Services LLC will oversee the servicing of the mortgage loans by the servicers.
 
Primary Servicers
 
On the closing date, Option One Mortgage Corporation, Wells Fargo Bank, N.A., Ocwen Loan Servicing, LLC, HomEq Servicing Corporation, Aurora Loan Services LLC and JPMorgan Chase Bank, National Association will service approximately 45.36%, 41.05%, 7.31%, 5.42%, 0.86% and less than 0.01%, respectively, of the mortgage loans included in the trust fund.
 
See “The Mortgage Loans―Mortgage Loan Servicing” below.
S-3

 
Credit Risk Manager
 
Clayton Fixed Income Services Inc. will monitor and advise the servicers with respect to default management of the mortgage loans and also prepare certain loan-level reports for the trust fund which will be available for review by certificateholders.
 
Originators
 
BNC Mortgage, Inc., New Century Mortgage Corporation, Lehman Brother Bank, FSB and Finance America, LLC originated approximately 45.36%, 38.43%, 0.86% and 0.22%, respectively, of the mortgage loans to be included in the trust fund. The remainder of the mortgage loans were originated by various other banks, savings and loans and other mortgage lending institutions, none of which originated more than approximately 7.29% of the mortgage loans.
 
Swap Counterparty
 
ABN AMRO Bank, N.V.
 
Cap Counterparty

ABN AMRO Bank, N.V.
 
LPMI Insurers
 
On the closing date, Mortgage Guaranty Insurance Corporation, Republic Mortgage Insurance Company and PMI Mortgage Insurance Co. will provide primary mortgage insurance for certain of the first lien mortgage loans with original loan-to-value ratios in excess of 80%.
 
The Certificates
 
The certificates offered by this prospectus supplement will be issued with the initial approximate characteristics set forth under “The Offered Certificates” in the table on page S-1.
 
The offered certificates will be issued in book-entry form. The minimum denominations and the incremental denominations of each class of offered certificates are set forth in the table on page S-2.
 
The certificates represent ownership interests in a trust fund, the assets of which will consist primarily of conventional, adjustable and fixed rate, fully amortizing and balloon, first and second lien, residential mortgage loans having a total principal balance as of the cut-off date, which is June 1, 2006, of approximately $2,446,422,263. In addition, the supplemental interest trust will hold an interest rate swap agreement and an interest rate cap agreement for the benefit of the certificateholders.
 
For purposes of allocating payments of interest and principal to certificateholders, the mortgage loans to be included in the trust fund will be divided into three mortgage pools: “pool 1,” “pool 2” and “pool 3.” Pool 1 will consist of those mortgage loans in the trust fund with original principal balances that do not exceed the applicable Fannie Mae maximum original loan amount limitations for one- to four-family residential mortgaged properties. Pool 2 will consist of those mortgage loans in the trust fund with original principal balances that do not exceed the applicable Freddie Mac maximum original loan amount limitations for one- to four-family residential mortgaged properties. Pool 3 will consist of mortgage loans with original principal balances that may be less than, equal to, or in excess of, Fannie Mae or Freddie Mac original loan amount limitations for one- to four- family residential mortgaged properties.
 
Payments of principal and interest on the Class A1 Certificates, or the “group 1 certificates,” will be based primarily on collections from pool 1 mortgage loans. Payments of principal and interest on the Class A2 Certificates, or the “group 2 certificates,” will be based primarily on collections from pool 2 mortgage loans. Payments of principal and interest on the Class A3, A4 and A5 Certificates, or the “group 3 certificates,” will be based primarily on collections from pool 3 mortgage loans. Payments of principal and interest on the Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates will be based on collections from all of the mortgage pools as described in this prospectus supplement.
 
The rights of holders of the Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates to receive payments of principal and interest will be subordinate to the rights of the holders of certificates having a senior priority of payment, as described in this Summary of Terms under “—Enhancement of Likelihood of Payment on the Certificates—Subordination of Payments” below. We refer to the Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates collectively as “subordinate” certificates. We refer to the Class A1, A2, A3, A4 and A5 Certificates collectively as “senior” certificates.
 
The Class P Certificates will be entitled to receive all the cash flow from the mortgage pools solely arising from prepayment premiums paid by the borrowers on certain voluntary, full and partial prepayments of the mortgage loans. Accordingly, these amounts will not be available for payments to the servicers or to holders of other classes of certificates.
S-4

 
The Class X Certificates will be entitled to receive any monthly excess cashflow remaining after required distributions are made to the offered certificates and the Class B1 and Class B2 Certificates.
 
The Class B1, Class B2, Class X, Class P, Class LT-R and Class R Certificates are not offered by this prospectus supplement.
 
The offered certificates will have an approximate total initial principal amount of $2,404,833,000. 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%.
 
Payments on the Certificates
 
Principal and interest on the certificates will be paid on the 25th day of each month, beginning in July 2006. 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.
 
Interest Payments
 
Amounts Available for Interest Payments
 
Interest will accrue on each class of offered certificates at the applicable annual rates described below:
 
·
Class A1 Certificates: the lesser of (1) the applicable annual rate as described in the table on page S-1 and (2) with respect to any distribution date on which any of the Class A2, A3, A4 or A5 Certificates are outstanding, the pool 1 net funds cap; and after the distribution date on which the class principal amounts of the Class A2, A3, A4 and A5 Certificates have each been reduced to zero, the subordinate net funds cap.
 
·
Class A2 Certificates: the lesser of (1) the applicable annual rate as described in the table on page S-1 and (2) with respect to any distribution date on which any of the Class A1, A3, A4 or A5 Certificates are outstanding, the pool 2 net funds cap; and after the distribution date on which the class principal amounts of the Class A1, A3, A4 and A5 Certificates have each been reduced to zero, the subordinate net funds cap.
 
·
Class A3, Class A4 and Class A5 Certificates: the lesser of (1) the applicable annual rate as described in the table on page S-1 and (2) with respect to any distribution date on which either of the Class A1 or A2 Certificates are outstanding, the pool 3 net funds cap; and after the distribution date on which the class principal amounts of the Class A1 and A2 Certificates have each been reduced to zero, the subordinate net funds cap.
 
Interest will accrue on each class of the Class M1, M2, M3, M4, M5, M6, M7 and M8 Certificates at an annual rate equal to the lesser of (1) the applicable annual rate as described in the table on page S-1 and (2) the subordinate net funds cap.
 
If the option to purchase the mortgage loans is not exercised by the master servicer on the initial optional termination date as described under “—The Mortgage Loans—Optional Purchase of the Mortgage Loans” below, then with respect to the next distribution date and each distribution date thereafter, the annual rate in clause (1) of each interest rate formula set forth above will be increased for each class of offered certificates to the applicable annual rate as described in the table on page S-1, subject in each case to the applicable net funds cap.
 
See “—The Mortgage Loans—Optional Purchase of the Mortgage Loans” below.
 
The pool 1 net funds cap is a limitation generally based on the weighted average mortgage rate of the pool 1 mortgage loans during the applicable collection period, net of certain fees and expenses of the trust fund and any net swap payments owed to the swap counterparty allocable to pool 1. The pool 2 net funds cap is a limitation generally based on the weighted average mortgage rate of the pool 2 mortgage loans during the applicable collection period, net of certain fees and expenses of the trust fund and any net swap payments owed to the swap counterparty allocable to pool 2. The pool 3 net funds cap is a limitation generally based on the weighted average mortgage rate of the pool 3 mortgage loans during the applicable collection period, net of certain fees and expenses of the trust fund and any net swap payments owed to the swap counterparty allocable to pool 3. The subordinate net funds cap is generally the weighted average of the pool 1 net funds cap, the pool 2 net funds cap and the pool 3 net funds cap.
 
See “Description of the Certificates—Distributions of Interest—Interest Distribution Priorities” in this prospectus supplement for the priority of payment of interest and “Glossary of Defined Terms” in this prospectus supplement for a description of the defined terms relevant to the payment of interest.
S-5

 
Priority of Interest Payments
 
The key payment concept for payments of interest is the “interest remittance amount,” which is, generally, for any distribution date and any mortgage pool, the amount of interest collected or advanced by the servicers on the mortgage loans during the related collection period, plus other amounts collected or recovered (such as insurance proceeds) which are allocated to interest, but minus the servicing fees, premiums on primary mortgage insurance policies and certain costs reimbursable to the trustee, the servicers, the master servicer, the securities administrator or the custodians.
 
See “Glossary of Defined Terms” in this prospectus supplement for a description of the Interest Remittance Amount.
 
On each distribution date (or, in the case of payments to the swap counterparty, the business day prior to each distribution date), the interest remittance amount for each mortgage pool will be paid in the following order of priority:
 
first, to the interest rate swap account, any net swap payment or swap termination payment owed to the swap counterparty, to be paid from each of pool 1, pool 2 and pool 3 interest collections in proportion to the aggregate principal balance of the mortgage loans in each mortgage pool and then from the unrelated mortgage pools to the extent not paid;
 
second, concurrently, (a) from pool 1 interest collections, to the Class A1 Certificates, current interest due and any interest unpaid from previous distribution dates, (b) from pool 2 interest collections, to the Class A2 Certificates, current interest due and any interest unpaid from previous distribution dates and (c) from pool 3 interest collections, to the Class A3, A4 and A5 Certificates, on a pro rata basis, based on the interest entitlements of each such class, current interest due and any interest unpaid from previous distribution dates; provided that any interest collections remaining after the payments in clauses (a), (b) and (c) have been made, will be applied to pay interest due and not paid to the senior certificates related to any other mortgage pool or pools;
 
third, to each class of Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, current interest due and any interest unpaid for each such class from the previous distribution date;
 
fourth, to the credit risk manager, the credit risk manager’s fee;
 
fifth, to the trustee, certain unreimbursed extraordinary costs; and
 
sixth, any remaining amount of interest remittance amount will be applied as part of monthly excess cashflow for that distribution date, as described under “—Enhancement of Likelihood of Payment on the Certificates—Application of Excess Cashflow” below.
 
See “Description of the Certificates—Distributions of Interest—Interest Distribution Priorities” in this prospectus supplement for a complete description of the priority of payment of interest.
 
Principal Payments
 
Amounts Available for Principal Payments
 
The amount of principal payable to the offered certificates will be determined by (1) formulas that allocate portions of principal payments received on the mortgage loans from all three mortgage pools and among the different certificate classes, (2) funds received on the mortgage loans that are available to make principal payments on the certificates and (3) the application of excess interest from all three mortgage pools to pay principal on the certificates. Funds received on the mortgage loans may consist of (1) expected monthly scheduled payments or (2) unexpected payments resulting from prepayments or defaults by borrowers, liquidation of defaulted mortgage loans or repurchases of mortgage loans under the circumstances described in this prospectus supplement.
 
The manner of allocating payments of principal on the mortgage loans will differ, as described in this prospectus supplement, depending upon the occurrence of several different events or triggers:
 
·
whether a distribution date occurs before or on or after the “stepdown date,” which is the earlier of (A) the first distribution date following the distribution date on which the class principal amounts of all the senior certificates have been paid to zero or (B) the later of (1) the distribution date in July 2009 and (2) the first distribution date on which the ratio of (a) the total principal balance of the subordinate certificates plus any overcollateralization amount to (b) the total principal balance of the mortgage loans in the trust fund equals or exceeds the percentage specified in this prospectus supplement;
 
S-6

 
·
whether a “cumulative loss trigger event” occurs, which is when cumulative losses on the mortgage loans are higher than certain levels specified in this prospectus supplement; and
 
·
whether a “delinquency event” occurs, which is when the rate of delinquencies of the mortgage loans over any three-month period is higher than certain levels set forth in this prospectus supplement.
 
See “Description of the Certificates—Distributions of Principal—Principal Distribution Priorities” in this prospectus supplement for the priority of payment of principal and “Glossary of Defined Terms” in this prospectus supplement for a description of the defined terms relevant to the payment of principal.
 
Priority of Principal Payments
 
The key payment concept for payments of principal is the “principal distribution amount,” which is, generally, for any distribution date and any mortgage pool, the amount of principal collected or advanced by the servicers on the mortgage loans during the related collection period, including any prepayments in full or in part collected during the related prepayment period, plus other amounts collected or recovered (such as insurance proceeds) which are allocated to principal, but minus certain costs reimbursable to the trustee, the servicers, the master servicer, the securities administrator or the custodians.
 
See “Glossary of Defined Terms” in this prospectus supplement for a description of the Principal Distribution Amount.
 
A. On each distribution date (or, in the case of payments to the swap counterparty, the business day prior to each distribution date) which occurs (a) before the stepdown date or (b) when a trigger event is in effect, the principal distribution amount for each mortgage pool will be paid in the following order of priority:
 
first, to the interest rate swap account, any net swap payment or swap termination payment owed to the swap counterparty to be paid from each of the pool 1, pool 2 and pool 3 principal collections in proportion to the aggregate principal balance of the mortgage loans of each mortgage pool (to the extent those amounts were not paid previously or not paid from the interest remittance amount);
 
second, to the interest rate swap account, the amount of any net swap payment or swap termination payment owed to the swap counterparty to be paid from the unrelated mortgage pools in proportion to the principal distribution amounts for such other mortgage pools (to the extent not paid from the other mortgage pools, not paid previously or not paid from the interest remittance amount);
 
third, on a concurrent basis, (i) all principal collections from the pool 1 mortgage loans will be paid to the Class A1 Certificates, until such class has been paid to zero, (ii) all principal collections from the pool 2 mortgage loans will be paid to the Class A2 Certificates, until such class has been paid to zero and (iii) all principal collections from the pool 3 mortgage loans will be paid to the Class A3, A4 and A5 Certificates, sequentially, in that order, until each such class has been paid to zero; provided, however, if the class or classes of one group have been paid to zero, all principal collections from the related mortgage pool will be allocated to the class or classes of the other groups, on a pro rata basis between groups, until such class or classes have been reduced to zero, and if the class or classes of two groups have been paid to zero, all principal collections from the related mortgage pools will be allocated to the class or classes of the remaining group, until such class or classes have been reduced to zero;
 
fourth, to each class of Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, until each such class has been paid to zero; and
 
fifth, any remaining amount of the principal distribution amount will be applied as part of monthly excess cashflow for that distribution date, as described under “—Enhancement of Likelihood of Payment on the Certificates—Application of Excess Cashflow” below.
 
B. On each distribution date (or, in the case of payments to the swap counterparty, the business day prior to each distribution date) which occurs (a) on or after the stepdown date and (b) when a trigger event is not in effect, the principal distribution amount will be paid in the following order of priority:
S-7

 
first, to the interest rate swap account, any net swap payment or swap termination payment owed to the swap counterparty to be paid from each of the pool 1, pool 2 and pool 3 principal collections in proportion to the aggregate principal balance of the mortgage loans of each mortgage pool (to the extent those amounts were not paid previously and not paid from the interest remittance amount);
 
second, to the interest rate swap account, the amount of any net swap payment or swap termination payment owed to the swap counterparty to be paid from the unrelated mortgage pools in proportion to the principal distribution amounts for such other mortgage pools (to the extent those amounts were not paid from the other mortgage pools, not paid previously, and not paid from the interest remittance amount);
 
third, on a concurrent basis, to the senior certificates of each group in the same manner as provided in priority third above, except that principal collections will only be allocated to each class of senior certificates in an amount necessary to maintain certain credit enhancement targets;
 
fourth, to each class of Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, until each such class has been paid to maintain certain credit enhancement targets; and
 
fifth, any remaining amount of principal distribution amount will be applied as part of monthly excess cashflow for that distribution date, as described under “—Enhancement of Likelihood of Payment on the Certificates—Application of Excess Cashflow” below.
 
See “Description of the Certificates—Distributions of Principal—Principal Distribution Priorities” and “Glossary of Defined Terms” in this prospectus supplement for a complete description of the priority of payment of principal and for a description of the terms relating to the payment of principal, respectively.
 
The Interest Rate Swap Agreement
 
The trustee, on behalf of the supplemental interest trust, will enter into an interest rate swap agreement with ABN AMRO Bank, N.V., as swap counterparty. Under the interest rate swap agreement, one business day prior to each distribution date, beginning in August 2006 and ending in June 2011, the supplemental interest trust will be obligated to make fixed payments at the applicable rate of payment owed by the trust fund, which will range from 5.44% to 5.72% annually, as described in this prospectus supplement, and the swap counterparty will be obligated to make floating payments at LIBOR (as determined under the interest rate swap agreement), in each case calculated on a scheduled notional amount and adjusted to a monthly basis. To the extent that a fixed payment exceeds the floating payment relating to any distribution date, amounts otherwise available to certificateholders will be applied to make a net swap payment to the swap counterparty, and to the extent that a floating payment exceeds the fixed payment on any distribution date, the swap counterparty will owe a net swap payment to the supplemental interest trust.
 
Any net amounts received under the interest rate swap agreement will be deposited into the interest rate swap account and will generally be paid on each distribution date (or, in the case of payments to the swap counterparty, the business day prior to each distribution date) in the following order of priority:
 
first, to the swap counterparty, any net swap payment owed to the swap counterparty, and then any unpaid swap termination payment owed to the swap counterparty which was not due to a breach by the swap counterparty;
 
second, to the senior certificates concurrently, and then to the Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, any interest which is unpaid under the interest payment priorities;
 
third, to the offered certificates and the Class B1 and Class B2 Certificates, in accordance with the principal payment rules in effect for such distribution date as described in “Payments on the Certificates —Principal Payments—Priority of Principal Payments” above, the amount of principal necessary to maintain certain credit enhancement targets;
 
fourth, to each class of Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, any “deferred amounts,” which generally are amounts in respect of any unpaid realized losses previously allocated to those certificates;
S-8

 
fifth, to the senior certificates, concurrently, and then to the Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, any basis risk shortfalls on those classes;
 
sixth, for the purchase of any replacement interest rate swap agreement (if necessary);
 
seventh, to the swap counterparty, any unpaid swap termination payment owed to the swap counterparty which was due to a breach by the swap counterparty; and
 
eighth, to the Class X Certificates.
 
See “Description of the Certificates—Supplemental Interest Trust—Interest Rate Swap Agreement” and “—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Swap Agreement” in this prospectus supplement.
 
The Interest Rate Cap Agreement
 
The trustee, on behalf of the supplemental interest trust, will enter into an interest rate cap agreement with ABN AMRO Bank, N.V., as cap counterparty. Under the interest rate cap agreement, on the business day prior to each distribution date, beginning on the distribution date in June 2007 and ending on the distribution date in June 2011, the cap counterparty will be obligated to make payments to the supplemental interest trust if one-month LIBOR (as determined under the interest rate cap agreement) moves above 6.00%, in each case calculated on a scheduled notional amount and adjusted to a monthly basis.
 
Any amounts received under the interest rate cap agreement will be deposited into the interest rate cap account and will generally be paid on each distribution date in the following order of priority:
 
first, to the senior certificates, concurrently, and then to the Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, any interest which remains unpaid under the interest payment priorities and the interest rate swap payment priorities for that distribution date;
 
second, to the offered certificates and the Class B1 and Class B2 Certificates, in accordance with the principal payment rules in effect for such distribution date as described in “Payments on the Certificates —Principal Payments—Priority of Principal Payments” above, the amount of principal necessary to maintain certain credit enhancement targets;
 
third, to each class of Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, any “deferred amounts” which generally are amounts in respect of any unpaid realized losses previously allocated to those certificates;
 
fourth, to the senior certificates, concurrently, and then to the Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, any basis risk shortfalls on those classes;
 
fifth, for the purchase of any replacement interest rate cap agreement (if necessary); and
 
sixth, to the Class X Certificates.
 
See “Description of the Certificates— Supplemental Interest Trust—Interest Rate Cap Agreement” and “—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Cap Agreement” in this prospectus supplement.
 
Limited Recourse
 
The only sources of cash available to make interest and principal payments on the certificates will be the assets of the trust fund and the supplemental interest trust. The trust fund will have no source of cash other than collections and recoveries of the mortgage loans through insurance or otherwise. No other entity will be required or expected to make any payments on the certificates.
 
Enhancement of Likelihood of Payment on the Certificates
 
In order to enhance the likelihood that holders of more senior classes of certificates will receive regular distributions of interest and principal, the payment structure of this securitization includes excess interest and the application of excess cashflow, overcollateralization, subordination, loss allocation and limited cross-collateralization features, primary mortgage insurance, an interest rate swap agreement and an interest rate cap agreement.
 
The Class B2 Certificates are more likely to experience losses than the Class B1, M8, M7, M6, M5, M4, M3, M2 and M1 Certificates and the senior certificates. The Class B1 Certificates are more likely to experience losses than the Class M8, M7, M6, M5, M4, M3, M2 and M1 Certificates and the senior certificates. The Class M8 Certificates are more likely to experience losses than the Class M7, M6, M5, M4, M3, M2 and M1 Certificates and the senior certificates. The Class M7 Certificates are more likely to experience losses than the Class M6, M5, M4, M3, M2 and M1 Certificates and the senior certificates. The Class M6 Certificates are more likely to experience losses than the Class M5, M4, M3, M2 and M1 Certificates and the senior certificates. The Class M5 Certificates are more likely to experience losses than the Class M4, M3, M2 and M1 Certificates and the senior certificates. The Class M4 Certificates are more likely to experience losses than the Class M3, M2 and M1 Certificates and the senior certificates. The Class M3 Certificates are more likely to experience losses than the Class M2 and M1 Certificates and the senior certificates. The Class M2 Certificates are more likely to experience losses than the Class M1 Certificates and the senior certificates. The Class M1 Certificates are more likely to experience losses than the senior certificates.
S-9

 
See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement and Other Support,” “Description of the Certificates—Credit Enhancement” and “—Supplemental Interest Trust” in this prospectus supplement for a more detailed description of excess interest, overcollateralization, subordination, loss allocation, limited cross-collateralization, the interest rate cap agreement and the interest rate swap agreement.
 
Subordination of Payments
 
Certificates with an “A” in their class designation will have a payment priority as a group over all other certificates. The Class M1 Certificates will have a payment priority over the Class M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates; the Class M2 Certificates will have a payment priority over the Class M3, M4, M5, M6, M7, M8, B1 and B2 Certificates; the Class M3 Certificates will have a payment priority over the Class M4, M5, M6, M7, M8, B1 and B2 Certificates; the Class M4 Certificates will have a payment priority over the Class M5, M6, M7, M8, B1 and B2 Certificates; the Class M5 Certificates will have a payment priority over the Class M6, M7, M8, B1 and B2 Certificates; the Class M6 Certificates will have a payment priority over the Class M7, M8, B1 and B2 Certificates; the Class M7 Certificates will have a payment priority over the Class M8, B1 and B2 Certificates; the Class M8 Certificates will have a payment priority over the Class B1 and B2 Certificates; and the Class B1 Certificates will have a payment priority over the Class B2 Certificates. Each class of offered certificates and the Class B1 and Class B2 Certificates will have a payment priority over the Class X, Class LT-R and Class R Certificates.
 
See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement and Other Support” and “Description of the Certificates—Credit Enhancement—Subordination” in this prospectus supplement.
 
Allocation of Losses
 
As described in this prospectus supplement, amounts representing losses on the mortgage loans (to the extent that those losses exceed any monthly excess cashflow and any overcollateralization, as described in this prospectus supplement) will be applied to reduce the principal amount of the subordinate class of certificates still outstanding that has the lowest payment priority, until the principal amount of that class of certificates has been reduced to zero. For example, losses in excess of overcollateralization and excess cashflow will first be allocated in reduction of the principal amount of the Class B2 Certificates, until it is reduced to zero, then in reduction of the principal amount of the Class B1 Certificates until it is reduced to zero, then in reduction of the principal amount of the Class M8 Certificates until it is reduced to zero, then in reduction of the principal amount of the Class M7 Certificates until it is reduced to zero, then in reduction of the principal amount of the Class M6 Certificates until it is reduced to zero, then in reduction of the principal amount of the Class M5 Certificates until it is reduced to zero, then in reduction of the principal amount of the Class M4 Certificates until it is reduced to zero, then in reduction of the principal amount of the Class M3 Certificates until it is reduced to zero, then in reduction of the principal amount of the Class M2 Certificates until it is reduced to zero and finally in reduction of the principal amount of the Class M1 Certificates until it is reduced to zero. If a loss has been allocated to reduce the principal amount of a subordinate certificate, it is unlikely that investors will receive any payment in respect of that reduction.
 
See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement and Other Support” and “Description of the Certificates—Credit Enhancement—Application of Realized Losses” in this prospectus supplement.
 
Overcollateralization
 
On the closing date, the total principal balance of the mortgage loans in the trust fund is expected to exceed the total principal amount of the offered certificates and the Class B1 and Class B2 Certificates by approximately $12,232,263, which represents approximately 0.50% of the total principal balance of the mortgage loans in the trust fund as of June 1, 2006. This condition is referred to in this prospectus supplement as “overcollateralization.” Thereafter, to the extent described in this prospectus supplement, a portion of excess interest may be applied to pay principal on the certificates to the extent needed to maintain the required level of overcollateralization. We cannot, however, assure you that sufficient interest will be generated by the mortgage loans to maintain any level of overcollateralization.
S-10

 
See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement and Other Support” and “Description of the Certificates—Credit Enhancement—Overcollateralization” in this prospectus supplement.
 
Limited Cross-Collateralization
 
Under certain limited circumstances, principal payments on the mortgage loans in a mortgage pool may be distributed as principal to holders of the senior certificates corresponding to the other mortgage pool or pools.
 
If the senior certificates relating to one or two mortgage pools have been retired, then principal payments on the mortgage loans relating to the retired senior certificates will be distributed to the remaining senior certificates of the other mortgage pool or pools, if any, before being distributed to the subordinate classes of certificates.
 
See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement and Other Support” and “Description of the Certificates—Distributions of Principal” in this prospectus supplement.
 
Excess Interest
 
The mortgage loans bear interest each month that in the aggregate is expected to exceed the amount needed to pay monthly interest on the offered certificates and the Class B1 and Class B2 Certificates, certain fees and expenses of the trust fund and any net swap payments owed to the swap counterparty. This “excess interest” received from the mortgage loans each month will be available to absorb realized losses on the mortgage loans and to maintain the required level of overcollateralization, as described below under “—Application of Excess Cashflow.”
 
See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement and Other Support” and “Description of the Certificates—Credit Enhancement—Excess Interest” in this prospectus supplement.
 
Application of Excess Cashflow
 
The amount of any excess interest, together with (a) any excess amounts of overcollateralization not needed to maintain the required level of overcollateralization as specified by the rating agencies and (b) certain amounts of the principal distribution amount not paid to the certificates will be applied as “excess cashflow” in order to pay principal on the offered certificates and the Class B1 and Class B2 Certificates, to absorb realized losses on the mortgage loans, to maintain the required level of overcollateralization and to pay interest shortfalls.
 
Any excess cashflow will be paid on each distribution date in the following order of priority:
 
first, the excess cashflow will be paid as principal to the offered certificates and the Class B1 and Class B2 Certificates, generally in accordance with the priorities summarized under “—Payments on the Certificates—Principal Payments—Priority of Principal Payments” above;
 
second, to each class of Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, as “deferred amounts,” which generally are amounts in respect of any unpaid realized losses previously allocated to those certificates;
 
third, to the senior certificates, concurrently, and then to the Class M1, M2, M3, M4, M5, M6, M7, M8, B1 and B2 Certificates, sequentially, in that order, to pay any basis risk shortfalls on those classes; and
 
fourth, any remaining excess cashflow will be paid to various certificates not offered by this prospectus supplement, including residual certificates.
 
See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement and Other Support” and see also “Description of the Certificates—Credit Enhancement—Application of Monthly Excess Cashflow” in this prospectus supplement for a complete description of the priority of payment of excess cashflow.
S-11

 
Primary Mortgage Insurance
 
On the closing date, loan-level primary mortgage insurance policies will be obtained on behalf of the trust fund from Mortgage Guaranty Insurance Corporation, Republic Mortgage Insurance Company and PMI Mortgage Insurance Co. in order to provide initial primary mortgage insurance coverage for approximately 79.97% of those first lien mortgage loans with original loan-to-value ratios in excess of 80%. However, as discussed herein, these primary mortgage insurance policies will provide only limited protection against losses on defaulted mortgage loans.
 
See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement and Other Support—Primary Mortgage Insurance” and “Description of the Mortgage Pools—Primary Mortgage Insurance” in this prospectus supplement.
 
The Interest Rate Swap Agreement
 
Any net swap payment received under the interest rate swap agreement will be applied to pay interest shortfalls, maintain overcollateralization and repay losses, as described in this prospectus supplement.
 
See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement and Other Support—The Interest Rate Swap Agreement,” “Description of the Certificates—Supplemental Interest Trust—Interest Rate Swap Agreement” and “—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Swap Agreement” in this prospectus supplement.
 
The Interest Rate Cap Agreement
 
Any payment received under the interest rate cap agreement will be applied to pay interest shortfalls, maintain overcollateralization and repay losses, as described in this prospectus supplement.
 
See “Risk Factors—Risks Related to Potential Inadequacy of Credit Enhancement and Other Support—The Interest Rate Cap Agreement,” “Description of the Certificates—Supplemental Interest Trust—Interest Rate Cap Agreement” and “—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Cap Agreement” in this prospectus supplement.
 
Fees and Expenses
 
Before payments are made on the certificates, the servicers will be paid a monthly fee calculated at a rate of 0.50% per annum on the principal balance of the mortgage loans serviced by that servicer (subject to reduction as described in this prospectus supplement).
 
In addition, the providers of the loan-level primary mortgage insurance policies will be paid a monthly fee calculated as an annual percentage on the principal balance of each mortgage loan insured by that primary mortgage insurance provider. These fees will be 1.030% annually for Mortgage Guaranty Insurance Corporation, between 0.150% to 2.750% annually (with a weighted average as of the cut-off date of approximately 1.734% annually) for Republic Mortgage Insurance Company and between 0.448% to 2.746% annually (with a weighted average as of the cut-off date of approximately 1.470% annually) for PMI Mortgage Insurance Co.
 
The master servicer will receive as compensation all investment earnings on amounts on deposit in the collection account, and any investment earnings on amounts on deposit in the certificate account after payment to the trustee of any of the trustee’s fee remaining unpaid from the securities administration account. The trustee will be paid a fixed annual fee from investment earnings on funds held in the securities administration account. The securities administrator will receive as compensation the investment income on funds held in the securities administration account after payment of the trustee fee. After payments of interest on the certificates have been made, the credit risk manager will be paid a monthly fee calculated as 0.011% annually on the total principal balance of the mortgage loans.
 
Expenses of the servicers, the custodians, the master servicer and the securities administrator will be reimbursed before payments are made on the certificates. Expenses of the trustee will be reimbursed up to a specified amount annually before payments are made on the certificates; any additional unpaid expenses will be paid to the trustee after payments of interest on the certificates and payment of the credit risk manager’s fee.
 
See “Fees and Expenses of the Trust Fund” in this prospectus supplement.
S-12

 
Final Scheduled Distribution Date
 
The final scheduled distribution date for the offered certificates will be the distribution date specified in the table on page S-2. The final scheduled distribution date for the offered certificates is based upon the second distribution date after the date of the last scheduled payment of the latest maturing thirty year mortgage loan. The actual final distribution date for each class of offered certificates may be earlier or later, and could be substantially earlier, than the final scheduled distribution date.
 
The NIMS Insurer
 
One or more insurance companies, referred to herein collectively as the NIMS Insurer, may issue a financial guaranty insurance policy covering certain payments to be made on net interest margin securities to be issued by a separate trust or other special purpose entity and secured by all or a portion of the Class P and Class X Certificates. In that event, the NIMS Insurer will be able to exercise rights which could adversely affect certificateholders.
 
We refer you to “Risk Factors—Rights of a NIMS Insurer May Affect Securities” in the prospectus for additional information concerning the NIMS Insurer.
 
The Mortgage Loans
 
General
 
On the closing date, which is expected to be on or about June 30, 2006, the assets of the trust fund will consist primarily of three mortgage pools of conventional, adjustable and fixed rate, fully amortizing and balloon, first and second lien, residential mortgage loans with a total principal balance as of the cut-off date of approximately $2,446,422,263. Payments of principal and interest on the Class A1 Certificates will be based primarily on collections from pool 1 mortgage loans. Payments of principal and interest on the Class A2 Certificates will be based primarily on collections from pool 2 mortgage loans. Payments of principal and interest on the Class A3, A4 and A5 Certificates will be based primarily on collections from pool 3 mortgage loans. Payments of principal and interest on the subordinate certificates will be based on collections from all of the mortgage pools as described herein. 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 depositor expects that the mortgage loans will have the following approximate characteristics as of the cut-off date:
 
 
S-13

 

 

Aggregate Mortgage Loan Summary
 
 
Range or
Total
 
Weighted
Average
 
Total
Percentage(1)
Number of Mortgage Loans
12,510
 
 
Number of Fixed Rate Mortgage Loans
3,623
 
 
17.17%
Number of Adjustable Rate Mortgage Loans
8,887
 
 
82.83%
Total Scheduled Principal Balance
$2,446,422,263
 
 
Scheduled Principal Balances
$12,960 to $1,248,787
 
$195,557
 
Mortgage Rates
5.200% to 14.140%
 
8.389%
 
Original Terms to Maturity (in months)
120 to 480
 
353
 
Remaining Terms to Maturity (in months)
116 to 475
 
351
 
Original Combined Loan-to-Value Ratios
8.57% to 100.00%
 
82.14%
 
Number of Second Lien Mortgage Loans
1,741
 
 
4.30%
Number of Interest-Only Mortgage Loans
1,555
 
 
19.08%
Number of Balloon Loans
4,596
 
 
39.61%
Geographic Concentration in Excess of 10% of the Total Scheduled Principal Balance:
 
 
 
 
 
Number of Mortgaged Properties in California
2,938
 
 
34.39%
Number of Mortgaged Properties in the Maximum Single Zip Code Concentration
31
 
 
0.29%
Credit Scores
469 to 813
 
621
 
Number of Mortgage Loans with Prepayment Premiums at Origination
8,407
 
 
67.97%
Gross Margins
2.750% to 10.400%
 
6.102% (2)
 
Maximum Mortgage Rates
10.000% to 20.400%
 
15.249% (2)
 
Minimum Mortgage Rates
2.750% to 13.400%
 
8.275% (2)
 
Months to Next Mortgage Rate Adjustment
1 to 59
 
23 (2)
 
Initial Caps
1.000% to 6.000%
 
2.457% (2)
 
Periodic Caps
1.000% to 2.000%
 
1.218% (2)
 
__________________
 
(1)
Percentages are calculated based on the total principal balance of the mortgage loans in all three pools.

(2)
The weighted average is based on the adjustable rate mortgage loans in all three pools.


S-14


Pool 1 Mortgage Loan Summary
 
 
Range or Total
 
Weighted
Average
 
Total
Percentage(1)
Number of Mortgage Loans
5,443
 
 
Number of Fixed Rate Mortgage Loans
1,778
 
 
19.15%
Number of Adjustable Rate Mortgage Loans
3,665
 
 
80.85%
Total Scheduled Principal Balance
$904,811,369
 
 
Scheduled Principal Balances
$14,973 to $759,692
 
$166,233
 
Mortgage Rates
5.200% to 12.950%
 
8.435%
 
Original Terms to Maturity (in months)
120 to 360
 
352
 
Remaining Terms to Maturity (in months)
117 to 360
 
350
 
Original Combined Loan-to-Value Ratios
8.57% to 100.00%
 
82.17%
 
Number of Second Lien Mortgage Loans
1,045
 
 
5.55%
Number of Interest-Only Mortgage Loans
296
 
 
7.88%
Number of Balloon Loans
2,381
 
 
48.10%
Geographic Concentration in Excess of 10% of the Total Scheduled Principal Balance:
 
 
 
   
Number of Mortgaged Properties in California
1,172
 
 
30.11%
Number of Mortgaged Properties in the Maximum Single Zip Code Concentration
17
 
 
0.43%
Credit Scores
469 to 804
 
621
 
Number of Mortgage Loans with Prepayment Premiums at Origination
3,681
 
 
67.72%
Gross Margins
3.500% to 7.450%
 
6.006% (2)
 
Maximum Mortgage Rates
12.200% to 19.450%
 
15.378% (2)
 
Minimum Mortgage Rates
5.700% to 12.450%
 
8.383% (2)
 
Months to Next Mortgage Rate Adjustment
17 to 59
 
23 (2)
 
Initial Caps
1.000% to 3.000%
 
2.318% (2)
 
Periodic Caps
1.000% to 1.500%
 
1.226% (2)
 
_______________

(1)
Percentages are calculated based on the total principal balance of the mortgage loans in pool 1.

(2)
The weighted average is based only on the adjustable rate mortgage loans in pool 1.


S-15


Pool 2 Mortgage Loan Summary
 
 
Range or Total
 
Weighted
Average
 
Total
Percentage(1)
Number of Mortgage Loans
2,638
 
 
Number of Fixed Rate Mortgage Loans
552
 
 
14.61%
Number of Adjustable Rate Mortgage Loans
2,086
 
 
85.39%
Total Scheduled Principal Balance
$473,211,484
 
 
Scheduled Principal Balances
$12,960 to $594,000
 
$179,382
 
Mortgage Rates
5.500% to 13.450%
 
8.347%
 
Original Terms to Maturity (in months)
120 to 360
 
357
 
Remaining Terms to Maturity (in months)
117 to 360
 
354
 
Original Combined Loan-to-Value Ratios
8.83% to 100.00%
 
81.07%
 
Number of Second Lien Mortgage Loans
160
 
 
1.33%
Number of Interest-Only Mortgage Loans
467
 
 
24.04%
Number of Balloon Loans
625
 
 
25.52%
Geographic Concentration in Excess of 10% of the Total Scheduled Principal Balance:
 
 
 
   
Number of Mortgaged Properties in California
427
 
 
24.44%
Number of Mortgaged Properties in Florida
330
 
 
11.86%
Number of Mortgaged Properties in the Maximum Single ZIP Code Concentration
9
 
 
0.59%
Credit Scores
489 to 811
 
609
 
Number of Mortgage Loans with Prepayment Premiums at Origination
1,717
 
 
66.25%
Gross Margins
3.750% to 9.450%
 
6.202% (2)
 
Maximum Mortgage Rates
11.950% to 19.300%
 
15.211% (2)
 
Minimum Mortgage Rates
3.750% to 12.300%
 
8.261% (2)
 
Months to Next Mortgage Rate Adjustment
14 to 59
 
23 (2)
 
Initial Caps
1.000% to 3.000%
 
2.708% (2)
 
Periodic Caps
1.000% to 1.500%
 
1.196% (2)
 
_______________

(1)
Percentages are calculated based on the total principal balance of the mortgage loans in pool 2.
 
(2)
The weighted average is based only on the adjustable rate mortgage loans in pool 2.
 
S-16


Pool 3 Mortgage Loan Summary
 
 
Range or Total
 
Weighted
Average
 
Total
Percentage(1)
Number of Mortgage Loans
4,429
 
 
Number of Fixed Rate Mortgage Loans
1,293
 
 
16.63%
Number of Adjustable Rate Mortgage Loans
3,136
 
 
83.37%
Total Scheduled Principal Balance
$1,068,399,410
 
 
Scheduled Principal Balances
$18,366 to $1,248,787
 
$241,228
 
Mortgage Rates
5.250% to 14.140%
 
8.368%
 
Original Terms to Maturity (in months)
120 to 480
 
352
 
Remaining Terms to Maturity (in months)
116 to 475
 
350
 
Original Combined Loan-to-Value Ratios
9.43% to 100.00%
 
82.58%
 
Number of Second Lien Mortgage Loans
536
 
 
4.56%
Number of Interest-Only Mortgage Loans
792
 
 
26.37%
Number of Balloon Loans
1,590
 
 
38.67%
Geographic Concentration in Excess of 10% of the Total Scheduled Principal Balance:
         
Number of Mortgaged Properties in California
1,339
 
 
42.42%
Number of Mortgaged Properties in the Maximum Single Zip Code Concentration
12
 
 
0.43%
Credit Scores
478 to 813
 
626
 
Number of Mortgage Loans with Prepayment Premiums at Origination
3,009
 
 
68.95%
Gross Margins
2.750% to 10.400%
 
6.137% (2)
 
Maximum Mortgage Rates
10.000% to 20.400%
 
15.160% (2)
 
Minimum Mortgage Rates
2.750% to 13.400%
 
8.194% (2)
 
Months to Next Mortgage Rate Adjustment
1 to 59
 
23 (2)
 
Initial Caps
1.000% to 6.000%
 
2.457% (2)
 
Periodic Caps
1.000% to 2.000%
 
1.222% (2)
 
____________________

(1)
Percentages are calculated based on the total principal balance of the mortgage loans in pool 3.
 
(2)
The weighted average is based only on the adjustable rate mortgage loans in pool 3.
 
 
 
 
S-17

 
The mortgage loans were generally originated or acquired in accordance with underwriting guidelines that are less strict than Fannie Mae and Freddie Mac guidelines. As a result, the mortgage loans are likely to experience higher rates of delinquency, foreclosure and bankruptcy than mortgage loans underwritten in accordance with higher standards.
 
The mortgage loans in the trust fund will not be insured or guaranteed by any government agency.
 
Mortgage Loan Representations and Warranties
 
Each transferor of mortgage loans has made certain representations and warranties concerning the mortgage loans. The sponsor’s rights to these representations and warranties will be assigned to the depositor under a sale and assignment agreement and, in turn, will be assigned by the depositor to the trustee for the benefit of certificateholders under the trust agreement. In addition, the sponsor will represent that none of the mortgage loans in the trust fund will be “high cost” loans under applicable federal, state or local anti-predatory or anti-abusive lending laws.
 
Following the discovery of a breach of any representation or warranty that materially and adversely affects the value of a mortgage loan, or receipt of notice of that breach, the applicable transferor or the sponsor will be required to either (1) cure that breach, (2) repurchase the affected mortgage loan from the trust fund or (3) in certain circumstances, substitute another mortgage loan.
 
In order to substitute a new mortgage loan for a mortgage loan that has been removed from the trust fund because of a breach of a representation or warranty, (a) substitution must take place within two years from the closing date and (b) a mortgage loan that is materially similar to the deleted mortgage loan must be available for substitution.
 
See “The Trust Agreement—Representations and Warranties” in this prospectus supplement.
 
Mortgage Loan Servicing
 
On the closing date, Option One Mortgage Corporation, Wells Fargo Bank, N.A., Ocwen Loan Servicing, LLC, HomEq Servicing Corporation, Aurora Loan Services LLC and JPMorgan Chase Bank, National Association will service approximately 45.36%, 41.05%, 7.31%, 5.42%, 0.86% and less than 0.01%, respectively, of the mortgage loans included in the trust fund. It is anticipated that on or about August 1, 2006, the servicing of approximately 43.00%, 39.01% and 17.99% of the mortgage loans initially serviced by Option One Mortgage Corporation will be transferred to JPMorgan Chase Bank, National Association, Wells Fargo Bank, N.A. and Aurora Loan Services LLC, respectively. After the completion of these servicing transfers, Wells Fargo Bank, N.A., JPMorgan Chase Bank, National Association and Aurora Loan Services LLC will service approximately 58.74%, 19.51% and 9.02%, respectively, of the mortgage loans included in the trust fund and Option One Mortgage Corporation will have relinquished all of its servicing obligations with respect to the mortgage loans.
 
Primary servicing also may be subsequently transferred to servicers other than the initial servicers in accordance with the trust agreement and the applicable servicing agreement, as described in this prospectus supplement. Lehman Brothers Holdings Inc. will retain certain rights relating to the servicing of the mortgage loans, including the right to terminate and replace any servicer, at any time, without cause, in accordance with the terms of the trust agreement and the applicable servicing agreement, which, among other things, generally requires payment of a termination fee.
 
See “The Master Servicer,” “The Servicers” and “Mortgage Loan Servicing” in this prospectus supplement.
 
Optional Purchase of the Mortgage Loans
 
The master servicer, with the prior written consent of the seller and the NIMS Insurer, which consent may not be unreasonably withheld, may purchase the mortgage loans on or after the initial optional termination date, which is the distribution date following the month in which the total principal balance of the mortgage loans (determined in the aggregate rather than by mortgage pool) declines to less than 5% of the initial total principal balance of the mortgage loans as of the cut-off date. If the master servicer fails to exercise this option, the NIMS Insurer will have the right to direct the master servicer to exercise this option so long as it is insuring the net interest margin securities or any amounts payable to the NIMS Insurer in respect of the insurance remain unpaid.
S-18

 
If the mortgage loans are purchased, the certificateholders will be paid accrued interest and principal in an amount not to exceed the purchase price.
 
If the option to purchase the mortgage loans is not exercised on the initial optional termination date, then, beginning with the next distribution date and thereafter, the interest rates on the offered certificates will be increased as described in the table on page S-1.
 
See “Description of the Certificates—Optional Purchase of the Mortgage Loans” in this prospectus supplement for a description of the purchase price to be paid for the mortgage loans upon an optional purchase.
 
See “Summary of Terms—The Certificates—Payments on the Certificates—Interest Payments” in this prospectus supplement for a description of the increased interest rates to be paid on the certificates after the initial optional termination date.
 
Financing
 
An affiliate of Lehman Brothers Inc. has provided financing for certain of the mortgage loans. A portion of the proceeds of the sale of the certificates will be used to repay the financing.
 
Tax Status
 
The trustee will elect to treat a portion of the trust fund as multiple REMICs for federal income tax purposes. Each of the offered certificates will represent ownership of “regular interests” in a REMIC, along with certain contractual rights and obligations. Each of the Class LT-R and Class R Certificates will represent the sole class of “residual interests” in one or more REMICs.
 
See “Material Federal Income Tax Considerations” 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
 
Generally, all of the certificates offered by this prospectus supplement may be purchased by employee benefit plans or other retirement arrangements subject to the Employee Retirement Income Security Act of 1974 or Section 4975 of the Internal Revenue Code of 1986. However, prior to the termination of the interest rate swap agreement and the interest rate cap agreement, offered certificates may not be acquired or held by a person investing assets of any such plans or arrangements unless such acquisition or holding is eligible for the exemptive relief available under one of the class exemptions described in this prospectus supplement under “ERISA Considerations.”
 
See “ERISA Considerations” in this prospectus supplement and in the prospectus for a more complete discussion of these issues.
 
Legal Investment Considerations
 
None of the certificates will constitute “mortgage related securities” for purposes of the Secondary Mortgage Market Enhancement Act of 1984.
 
There are other restrictions on the ability of certain types of investors to purchase the certificates that prospective investors should also consider.
 
See “Legal Investment Considerations” in this prospectus supplement and in the prospectus.
 
Ratings of the Certificates
 
The certificates offered by this prospectus supplement will initially have the ratings from Moody’s Investors Service, Inc., Fitch Ratings and Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., set forth in the table on page S-1.
 
See “Ratings” in this prospectus supplement for a more complete discussion of the certificate ratings and “Risk Factors—Ratings on the Securities are Dependent on Assessments by the Rating Agencies” in the prospectus.
S-19

 
Risk Factors
 
The following information, which you should carefully consider, identifies certain significant sources of risk associated with an investment in the offered certificates. You should also carefully consider the information set forth under “Risk Factors” in the prospectus.
 
Risks Related to Higher Expected
Delinquencies of the Mortgage
Loans
 
 
The mortgage loans, in general, were originated according to underwriting guidelines that are not as strict as Fannie Mae or Freddie Mac guidelines, so the mortgage loans are likely to experience rates of delinquency, foreclosure and bankruptcy that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in accordance with higher standards. In particular, a significant portion of the mortgage loans in the trust fund were classified in relatively low (i.e., relatively higher risk) credit categories.
   
 
Changes in the values of mortgaged properties related to the mortgage loans may have a greater effect on the delinquency, foreclosure, bankruptcy and loss experience of the mortgage loans in the trust fund than on mortgage loans originated under stricter guidelines. We cannot assure you that the values of the mortgaged properties have remained or will remain at levels in effect on the dates of origination of the related mortgage loans.
   
 
See “Description of the Mortgage Pools—General” in this prospectus supplement for a description of the characteristics of the mortgage loans in each mortgage pool and “Origination of the Mortgage Loans and Underwriting Guidelines” for a general description of the underwriting guidelines applied in originating the mortgage loans.
   
 
See also “Risk Factors—Mortgage Loans Originated According to Non-Agency Underwriting Guidelines May Have Higher Expected Delinquencies” in the prospectus for a discussion of the risks relating to “subprime,” “non-prime” and “non-conforming” mortgage loans.
   
Mortgage Loan Interest Rates May
Limit Interest Rates on the
Certificates
 
 
All of the offered certificates will accrue interest at an interest rate that adjusts monthly based on the one-month LIBOR index plus a specified margin. However, the interest rates on these certificates are subject to a limitation, generally based on the weighted average interest rate of the mortgage loans in pool 1 in the case of the Class A1 Certificates; in pool 2 in the case of the Class A2 Certificates; in pool 3 in the case of the Class A3, Class A4 and Class A5 Certificates; or in all of the mortgage pools in the case of the subordinate certificates, net of certain allocable fees and expenses of the trust fund and any net swap payments owed to the swap counterparty. All of the mortgage loans to be included in each mortgage pool will have interest rates that either are fixed or adjust semi-annually based on a six-month LIBOR index, as described in “Description of the Mortgage Pools—The Index.”
   
 
The adjustable rate mortgage loans in each mortgage pool may also have periodic maximum and minimum limitations on adjustments to their interest rates, and substantially all of these adjustable rate mortgage loans will have the first adjustment to their interest rates two, three or five years after their first payment dates. As a result, the offered certificates may accrue less interest than they would accrue if their interest rates were solely based on the one-month LIBOR index plus the specified margin.
 
S-20

 
 
A variety of factors could limit the interest rates and adversely affect the yield to maturity on, and market value of, the certificates. Some of these factors are described below.
   
 
·     The interest rates for the offered certificates adjust monthly based on the one-month LIBOR index, while the interest rates on the mortgage loans to be included in each mortgage pool either adjust less frequently, adjust based on a different index or do not adjust at all. Consequently, the limits on the interest rates on these certificates may prevent increases in the interest rates for extended periods in a rising interest rate environment.
   
 
·     The interest rates on the adjustable rate mortgage loans to be included in each mortgage pool may respond to economic and market factors that differ from those that affect the one-month LIBOR index. It is possible that the interest rates on the adjustable rate mortgage loans in each mortgage pool may decline while the interest rates on the certificates are stable or rising. It is also possible that the interest rates on the adjustable rate mortgage loans to be included in each mortgage pool and the interest rates on the related certificates may both decline or increase during the same period, but that the interest rates on those certificates may decline or 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 certificates may be reduced as a result of the applicable net funds cap limitations described in this prospectus supplement.
   
 
·     If the interest rates on the offered certificates and the Class B1 and Class B2 Certificates are limited for any distribution date, the resulting basis risk shortfalls may be recovered by the holders of those certificates on future distribution dates, but only if there is enough cashflow generated from excess interest (and in limited circumstances, principal) on the mortgage loans to fund these shortfalls or payments are received under the interest rate swap agreement or interest rate cap agreement in an amount sufficient to pay these shortfalls.
   
 
See “Summary of Terms—The Certificates—Payments on the Certificates—Interest Payments,” “Description of the Certificates—Distributions of Interest” and “—Credit Enhancement—Overcollateralization” in this prospectus supplement. For a general description of the interest rates of the mortgage loans, see “Description of the Mortgage Pools” in this prospectus supplement.
 
S-21

 
Risks Related to Potential Inadequacy of
Credit Enhancement and Other
Support
 
 
The excess interest, overcollateralization, subordination, loss allocation and limited cross-collateralization features, together with the primary mortgage insurance; interest rate swap agreement and interest rate cap agreement, all as described in this prospectus supplement, are intended to enhance the likelihood that holders of more senior classes will receive regular payments of interest and principal, but are limited in nature and may be insufficient to repay all losses on the mortgage loans.
   
 
Excess Interest and Overcollateralization. In order to maintain overcollateralization, it will be necessary that the mortgage loans in each mortgage pool generate more interest than is needed to pay interest on the related senior certificates and the subordinate certificates, as well as that mortgage pool’s allocable portion of certain fees and expenses of the trust fund and any net swap payments owed to the swap counterparty. 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 in each mortgage pool is expected to be higher than the weighted average of the interest rates on the related certificates plus the weighted average aggregate expense rate and any net swap payments owed to the swap counterparty. Any remaining interest generated by the mortgage loans will be used to absorb losses on the mortgage loans and to maintain overcollateralization. On the closing date, the total principal balance of the mortgage loans will exceed the total principal amount of the offered certificates and the Class B1 and Class B2 Certificates by approximately $12,232,263, which is equal to approximately 0.50% of the aggregate principal balance of the mortgage loans as of the cut-off date. This excess is referred to in this prospectus supplement as “overcollateralization” and will be available to absorb losses. We cannot assure you, however, that the mortgage loans, together with amounts available from the interest rate swap agreement and the interest rate cap agreement, will generate enough excess interest to maintain this overcollateralization level as set by the rating agencies. The following factors will affect the amount of excess interest that the mortgage loans will generate:
   
 
·     Prepayments. 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 on your certificates of this reduction 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.
   
 
·     Defaults, Delinquencies and Liquidations. If the rates of delinquencies, defaults or losses on the mortgage loans turn out to be higher than expected, excess interest will be reduced by the amount necessary to compensate for any shortfalls in cash available to pay certificateholders. Every time a mortgage loan is liquidated or written off, excess interest is reduced because that mortgage loan will no longer be outstanding and generating interest.
 
S-22

 
 
·     Increases in LIBOR. All of the mortgage loans have either fixed interest rates or interest rates that adjust based on a six-month LIBOR index and not the one-month LIBOR index used to determine the interest rates on the offered certificates and the Class B1 and Class B2 Certificates. As a result of an increase in one-month LIBOR, the interest rates on the certificates may increase relative to interest rates on the mortgage loans, requiring that more of the interest generated by the mortgage loans be applied to pay interest on the certificates.
   
 
See “Description of the Certificates—Credit Enhancement—Overcollateralization” in this prospectus supplement.
   
 
The Interest Rate Swap Agreement. Any amounts received under the interest rate swap agreement will be applied as described in this prospectus supplement to pay interest shortfalls, maintain overcollateralization and repay losses. However, no amounts will be payable to the supplemental interest trust by the swap counterparty unless the floating amount owed by the swap counterparty on a distribution date exceeds the fixed amount owed to the swap counterparty. This will not occur except in periods when one-month LIBOR (as determined pursuant to the interest rate swap agreement) exceeds the applicable rate of payment owed by the trust fund, which will range from 5.44% to 5.72% per annum, on the scheduled notional amount and adjusted on a monthly basis as described in this prospectus supplement. We cannot assure you that any amounts will be received under the interest rate swap agreement, or that any such amounts that are received will be sufficient to maintain required overcollateralization, pay interest shortfalls or repay losses on the mortgage loans.
   
 
See “Description of the Certificates—Supplemental Interest Trust—Interest Rate Swap Agreement” in this prospectus supplement.
   
 
The Interest Rate Cap Agreement. Any amounts received under the interest rate cap agreement will be applied as described in this prospectus supplement to pay interest shortfalls, maintain overcollateralization and repay losses. However, no amounts will be payable to the supplemental interest trust by the cap counterparty unless one-month LIBOR (as determined pursuant to the interest rate cap agreement) moves above 6.00%, in each case calculated on a scheduled notional amount and adjusted to a monthly basis. We cannot assure you that any amounts will be received under the interest rate cap agreement, or that any such amounts that are received will be sufficient to maintain required overcollateralization, pay interest shortfalls or repay losses on the mortgage loans.
   
 
See “Description of the Certificates—Supplemental Interest Trust—Interest Rate Cap Agreement” in this prospectus supplement.
   
 
Subordination and Allocation of Losses. If the applicable subordination is insufficient to absorb losses, then certificateholders will likely incur losses and may never receive all of their principal payments. You should consider the following:
 
S-23

 
 
·     if you buy a Class M8 Certificate and losses on the mortgage loans exceed excess interest and any overcollateralization that has been created, plus the total principal amount of the Class B2 and Class B1 Certificates, the principal amount of your certificate will be reduced proportionately with the principal amounts of the other Class M8 Certificates by the amount of that excess;
   
 
·     if you buy a Class M7 Certificate and losses on the mortgage loans exceed excess interest and any overcollateralization that has been created, plus the total principal amount of the Class B2, Class B1 and Class M8 Certificates, the principal amount of your certificate will be reduced proportionately with the principal amounts of the other Class M7 Certificates by the amount of that excess;
   
 
·     if you buy a Class M6 Certificate and losses on the mortgage loans exceed excess interest and any overcollateralization that has been created, plus the total principal amount of the Class B2, Class B1, Class M8 and Class M7 Certificates, the principal amount of your certificate will be reduced proportionately with the principal amounts of the other Class M6 Certificates by the amount of that excess;
   
 
·     if you buy a Class M5 Certificate and losses on the mortgage loans exceed excess interest and any overcollateralization that has been created, plus the total principal amount of the Class B2, Class B1, Class M8, Class M7 and Class M6 Certificates, the principal amount of your certificate will be reduced proportionately with the principal amounts of the other Class M5 Certificates by the amount of that excess;
   
 
·     if you buy a Class M4 Certificate and losses on the mortgage loans exceed excess interest and any overcollateralization that has been created, plus the total principal amount of the Class B2, Class B1, Class M8, Class M7, Class M6 and Class M5 Certificates, the principal amount of your certificate will be reduced proportionately with the principal amounts of the other Class M4 Certificates by the amount of that excess;
   
 
·     if you buy a Class M3 Certificate and losses on the mortgage loans exceed excess interest and any overcollateralization that has been created, plus the total principal amount of the Class B2, Class B1, Class M8, Class M7, Class M6, Class M5 and Class M4 Certificates, the principal amount of your certificate will be reduced proportionately with the principal amounts of the other Class M3 Certificates by the amount of that excess;
   
 
·     if you buy a Class M2 Certificate and losses on the mortgage loans exceed excess interest and any overcollateralization that has been created, plus the total principal amount of the Class B2, Class B1, Class M8, Class M7, Class M6, Class M5, Class M4 and Class M3 Certificates, the principal amount of your certificate will be reduced proportionately with the principal amounts of the other Class M2 Certificates by the amount of that excess; and
 
S-24

 
 
·     if you buy a Class M1 Certificate and losses on the mortgage loans exceed excess interest and any overcollateralization that has been created, plus the total principal amount of the Class B2, Class B1, Class M8, Class M7, Class M6, Class M5, Class M4, Class M3 and Class M2 Certificates, the principal amount of your certificate will be reduced proportionately with the principal amounts of the other Class M1 Certificates by the amount of that excess.
   
 
Losses on the mortgage loans will not reduce the principal amount of the senior certificates.
   
 
If overcollateralization is maintained at the required amount and the mortgage loans generate interest in excess of the amount needed to pay interest and principal on the offered certificates and the Class B1 and Class B2 Certificates, the fees and expenses of the trust fund and any net swap payments owed to the swap counterparty, then excess interest will be used to pay you and other certificateholders the amount of any reduction in the principal amounts of the certificates caused by application of losses. These payments will be made in order of seniority. We cannot assure you, however, that any excess interest will be generated and, in any event, no interest will be paid to you on the amount by which your principal amount was reduced because of the application of losses.
   
 
See “Description of the Certificates—Credit Enhancement—Subordination” and “—Application of Realized Losses” in this prospectus supplement.
   
 
Limited Cross-Collateralization. Principal payments on the senior certificates will depend, for the most part, on collections on the mortgage loans in the related mortgage pool. However, the senior certificates will have the benefit of credit enhancement in the form of overcollateralization and subordination from each mortgage pool. That means that even if the rate of losses on mortgage loans in the mortgage pool related to any class of senior certificates is low, losses in the unrelated mortgage pool may reduce the loss protection for those certificates.
   
 
Primary Mortgage Insurance. Approximately 46.99%, 52.58% and 35.98% of the mortgage loans in pool 1, pool 2 and pool 3, respectively, are first lien mortgage loans having original loan-to-value ratios greater than 80%, calculated as described under “Description of the Mortgage Pools—General.” On the closing date, three loan-level primary mortgage insurance policies will be acquired on behalf of the trust fund from Mortgage Guaranty Insurance Corporation, Republic Mortgage Insurance Company and PMI Mortgage Insurance Co., providing initial insurance coverage for approximately 43.51%, 16.38% and 20.08%, respectively, of 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 approximately 60%. However, these policies will only cover first lien mortgage loans and are subject to various other limitations and exclusions. As a result, coverage may be limited or denied on some mortgage loans. In addition, since 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 trust fund 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.
 
S-25

 
 
See “Description of the Mortgage Pools—Primary Mortgage Insurance” in this prospectus supplement.
   
Effect of Creditworthiness of Primary
Mortgage Insurers on Ratings of
Certificates
 
 
The ratings assigned to the certificates by the rating agencies will be based in part on the financial strength ratings assigned to Mortgage Guaranty Insurance Corporation, Republic Mortgage Insurance Company and PMI Mortgage Insurance Co., the insurers providing the primary mortgage insurance coverage described above. Mortgage Guaranty Insurance Corporation’s financial strength ratings are currently “AA” by S&P and “Aa2” by Moody’s. Republic Mortgage Insurance Company’s financial strength ratings are currently “AA” by S&P, “Aa3” by Moody’s and “AA” by Fitch. PMI Mortgage Insurance Co.’s financial strength ratings are currently “AA” by S&P, “AA+” by Fitch and “Aa2” by Moody’s. However, any of these ratings could be qualified, reduced or withdrawn at any time.
   
 
Any qualification, reduction or withdrawal of the ratings assigned to Mortgage Guaranty Insurance Corporation, Republic Mortgage Insurance Company or PMI Mortgage Insurance Co. could result in a reduction of the ratings assigned to the offered certificates, which could in turn affect the liquidity and market value of those certificates.
   
 
See “Description of the Mortgage Pools—Primary Mortgage Insurance” in this prospectus supplement.
   
Risks Related to Balloon Loans
Approximately 41.67% of the adjustable rate mortgage loans and approximately 29.69% of the fixed rate mortgage loans are balloon loans. Balloon loans pose a special payment risk because the borrower must make a large lump sum payment of principal at the end of the loan term.
   
 
See “Risk Factors—Balloon Loans” in the prospectus.
   
Purchase Obligations of Certain
Transferors Could Result In
Prepayment of Certificates
 
 
With respect to approximately 3,569 of the mortgage loans (representing approximately 29.95% of the mortgage loans), in the event that any such mortgage loan is delinquent in payment with respect to the first, second and/or third monthly payment due to the seller or such mortgage loan is delinquent in payment with respect to the first monthly payment due under the mortgage note, as applicable, as set forth under the related sale agreement or sale and assignment agreement, the related transferor or the seller, as applicable, will be obligated to purchase such mortgage loan from the trust fund.
   
 
Any such purchase will result in a payment of principal to the holders of the offered certificates. As a result, any such purchase will have a negative effect on the yield of any offered certificate purchased at a premium.
 
S-26

 
 
See ‘‘The Trust Agreement—Assignment of the Mortgage Loans” in this prospectus supplement.
   
Risks Related to the Interest Rate Swap
Agreement
 
Any net swap payment payable to the swap counterparty under the terms of the interest rate swap agreement will reduce amounts available for distribution to certificateholders, and may reduce payments of interest on the certificates. If the rate of prepayments on the mortgage loans is faster than anticipated, the scheduled notional amount on which payments due under the interest rate swap agreement 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 net 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, the combination of a rapid rate of prepayment and low prevailing interest rates could adversely affect the yields on the certificates.
   
 
In the event that the trust fund, after application of all interest and principal received on the mortgage loans, cannot make the required net swap payment to the swap counterparty, a swap termination payment as described in this prospectus supplement will be owed to the swap counterparty. Any termination payment payable to the swap counterparty in the event of an early termination of the interest rate swap agreement will reduce amounts available for distribution to certificateholders.
   
 
See “Description of the Certificates—Distributions of Interest,” “—Distributions of Principal” and “—Supplemental Interest Trust” in this prospectus supplement.
   
Effect of Creditworthiness of Swap
Counterparty on Ratings of
Certificates
 
 
As of the date of this prospectus supplement, the swap counterparty under the interest rate swap agreement currently have the ratings described under “Description of the Certificates—Supplemental Interest Trust—The Swap Counterparty.” The ratings of the certificates are dependent in part upon the credit ratings of the swap counterparty. If a credit rating of the swap counterparty is qualified, reduced or withdrawn and the swap counterparty does not post collateral securing its obligations under the interest rate swap agreement or a substitute counterparty is not obtained in accordance with the terms of the interest rate swap agreement, the ratings of the offered certificates may be qualified, reduced or withdrawn. In that event, the value and marketability of those certificates will be adversely affected.
   
 
See “Description of the Certificates—Supplemental Interest Trust—Interest Rate Swap Agreement” in this prospectus supplement.
 
S-27

 
Effect of Creditworthiness of Cap
Counterparty on Ratings of
Certificates
 
 
As of the date of this prospectus supplement, the cap counterparty under the interest rate cap agreement currently have the ratings described under “Description of the Certificates—Supplemental Interest Trust—The Cap Counterparty.” The ratings of the certificates are dependent in part upon the credit ratings of the cap counterparty. If a credit rating of the cap counterparty is qualified, reduced or withdrawn and the cap counterparty does not post collateral securing its obligations under the interest rate cap agreement or a substitute counterparty is not obtained in accordance with the terms of the interest rate cap agreement, the ratings of the offered certificates may be qualified, reduced or withdrawn. In that event, the value and marketability of those certificates will be adversely affected.
   
 
See “Description of the Certificates—Supplemental Interest Trust—Interest Rate Cap Agreement” in this prospectus supplement.
   
Special Default Risk of Second Lien
Mortgage Loans
 
Approximately 5.55%, 1.33% and 4.56% of the mortgage loans in pool 1, pool 2 and pool 3, respectively, are secured by second liens on the related mortgaged properties. These second lien mortgage loans are subordinate to the rights of the mortgagee under the related first lien mortgage loans and may present special risks upon default of any second lien mortgage loans.
   
 
See “Risk Factors—Special Default Risk of Second Lien Mortgage Loans” and “—Risks Related to Simultaneous Second Liens and Other Borrower Debt” in the prospectus.
   
Risks Related to 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, approximately 67.72%, 66.25%, 68.95% of the mortgage loans in pool 1, pool 2 and pool 3, respectively, 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 six months to three years after origination, in the case of group 1 and group 2, and six months to five years, in the case of group 3. These prepayment premiums may discourage borrowers from prepaying their mortgage loans during the applicable period.
   
 
A prepayment of a mortgage loan will usually result in a payment of principal on the certificates, and, depending on the type of certificate and the price investors paid for that certificate, may affect the yield on that certificate.
 
S-28

 
 
See “Yield, Prepayment and Weighted Average Life” in this prospectus supplement and “Risk Factors—Unpredictability and Effect of Prepayments” in the prospectus for a description of factors that may influence the rate and timing of prepayments on the mortgage loans.
   
Risks Related to Mortgage Loans with
Interest-Only Payments
 
Approximately 7.88%, 24.04% and 26.37% of the mortgage loans in pool 1, pool 2 and pool 3, respectively, provide for payment of interest at the related mortgage interest rate, but no payment of principal, for a period of two, five, seven or ten years following origination. 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 related mortgage interest rate.
   
 
The presence of these mortgage loans in the trust fund will, absent other considerations, result in longer weighted average lives of the related certificates than would have been the case had these loans not been included in the trust fund. In addition, a borrower may view the absence of any obligation to make a payment of principal during the first two, five, seven or ten years of the term of a mortgage loan as a disincentive to prepayment. After the monthly payment has been increased to include principal amortization, delinquency or default may be more likely.
   
 
See “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 prospectus.
   
Servicing Transfers May Affect Yields
on the Certificates
 
At the closing date, the servicers of the mortgage loans will include Option One Mortgage Corporation, Wells Fargo Bank, N.A., Ocwen Loan Servicing, LLC, HomEq Servicing Corporation, Aurora Loan Services LLC and JPMorgan Chase Bank, National Association, as described in “Summary of Terms—Mortgage Loan Servicing.” Through servicing transfers expected to be effected in August of this year, Option One Mortgage Corporation will transfer all of its servicing obligations with respect to the mortgage loans to the other servicers. The servicing of mortgage loans may also be transferred in the future to servicers other than the initial primary servicers in accordance with the provisions of the trust agreement and the related servicing agreement as a result of, among other things, (i) the occurrence of unremedied events of default in servicer performance under the related servicing agreement, (ii) the exercise by the seller of its right to terminate one or more servicers without cause upon thirty days’ or sixty days’ written notice or (iii) with respect to certain servicers, the occurrence of certain mortgage loss and delinquency triggers.
 
S-29

 
 
Disruptions resulting from servicing transfers may affect the yields of the certificates. In addition, servicing transfers may result in a longer or shorter prepayment period immediately following the date of the transfer if the related servicers have different prepayment periods which may affect the yield on the certificates.
   
 
See “The Servicers” and “Mortgage Loan Servicing” in this prospectus supplement and “Risk Factors—Delinquencies Due to Servicing Transfer” in the prospectus.
   
Risks Related to Geographic
Concentration of Mortgage
Loans
 
 
Approximately 30.11%, 24.44% and 42.42% of the mortgage loans in pool 1, pool 2 and pool 3, respectively, are secured by mortgaged properties located in California. Approximately 11.86% of the mortgage loans in pool 2 are secured by mortgaged properties located in Florida. Mortgaged properties in particular regions may be more susceptible to certain types of natural disasters. For example, mortgaged properties located in California may be more susceptible to earthquakes, mudslides and wildfires, while mortgaged properties located in Florida may be more susceptible to hurricanes and floods. The rate of delinquencies, defaults and losses on the mortgage loans may be higher than if fewer of the mortgage loans were concentrated in California or Florida because certain conditions in those States will have a disproportionate impact on the mortgage loans in general.
   
 
See “Yield, Prepayment and Weighted Average Life” in this prospectus supplement and “Risk Factors—Geographic Concentration of the Mortgage Loans” in the prospectus. For additional information regarding the geographic concentration of the mortgage loans to be included in the mortgage pools, see the geographic distribution tables in Annex A of this prospectus supplement.
   
Legal Proceedings Concerning Option
One Mortgage Corporation
 
Option One Mortgage Corporation is subject to certain legal proceedings that may be material to Certificateholders.
   
 
See “The Servicers—Option One Mortgage Corporation—Legal Proceedings Pending Against Option One.”
   
Violation of Various Federal, State and
Local Laws May Result in Losses on
the Mortgage Loans
 
 
Violations of certain federal, state or local laws and regulations relating to the protection of consumers, unfair and deceptive practices and debt collection practices 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 trust fund to damages and administrative enforcement.
   
 
See “Risk Factors—Violations of Various Federal, State and Local Laws May Result in Losses on the Mortgage Loans” in the prospectus.
 
S-30

 
Violation of Predatory Lending
Laws/Risks Related to High Cost
Loans
 
 
Various federal, state and local laws have been enacted that are designed to discourage predatory lending practices. Failure to comply with these laws, to the extent applicable to any of the mortgage loans, could subject the trust fund, as an assignee of the mortgage loans, to monetary penalties and could result in the borrowers rescinding the affected mortgage loans. If the mortgage loans are found to have been originated in violation of predatory or abusive lending laws and the seller does not repurchase the affected mortgage loans and pay any related liabilities, certificateholders could incur losses.
   
 
For a discussion of anti-predatory lending laws and the effect of any “high cost” loans on the trust fund, See “Risk Factors—Predatory Lending Laws/High Cost Loans” in the prospectus.
   
Relief Act Reductions and Prepayment
Interest Shortfalls May Reduce the
Yield on the Offered Certificates
 
 
On any distribution date, any reduction of the applicable mortgage rate on a mortgage loan by the application of the Servicemembers Civil Relief Act, as amended, and similar state and local laws, and any shortfalls in interest collections that are attributable to prepayments, to the extent not covered by compensating interest paid by the applicable servicer, will reduce the amount of interest available for distribution to certificateholders. Any such reduction of interest will first reduce interest available to pay the subordinate certificates in reverse order of distribution priority and second reduce the amount of interest available to pay the senior certificates.
   
 
See “Yield, Prepayment and Weighted Average Life—General” in this prospectus supplement and “Risk Factors—Military Action and Terrorist Attacks” in the prospectus for additional information.

 
 
 
 

S-31


Glossary
 
A glossary of defined terms used in this prospectus supplement begins on page S-118. Any terms used in this prospectus supplement and not defined in the glossary are defined in the accompanying prospectus.
 
Description of the Certificates
 
General
 
The Series 2006-4 Structured Asset Investment Loan Trust Mortgage Pass-Through Certificates will consist of the Class A1, Class A2, Class A3, Class A4, Class A5, Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7, Class M8, Class B1, Class B2, Class P, Class X, Class LT-R and Class R Certificates. The Certificates represent beneficial ownership interests in the Trust Fund, the assets of which consist primarily of (1) three pools of conventional, adjustable and fixed rate, fully amortizing and balloon, first and second lien, residential Mortgage Loans, (2) such assets as from time to time are deposited in respect of the Mortgage Loans in the Servicing Accounts, the Collection Account, the Securities Administration Account and the Certificate Account, (3) property acquired by foreclosure of Mortgage Loans or deed in lieu of foreclosure, (4) primary mortgage insurance and other insurance policies covering certain of the Mortgage Loans or the related Mortgaged Properties, (5) the rights of the Depositor under the Sale and Assignment Agreement, as described under “The Trust Agreement—Assignment of Mortgage Loans,” (6) the Basis Risk Reserve Fund, as described under “—Distributions of Interest—Basis Risk Shortfalls” and (7) all proceeds of the foregoing. In addition, the Certificates will represent beneficial ownership interests in the Supplemental Interest Trust, the assets of which will be (a) the Swap Agreement as described under “—Supplemental Interest Trust—Interest Rate Swap Agreement,” and all proceeds thereof and (b) the Interest Rate Cap Agreement as described under “—Supplemental Interest Trust—Interest Rate Cap Agreement,” and all the proceeds thereof.
 
The Mortgage Loans to be included in the Trust Fund will consist of Fixed Rate Mortgage Loans and Adjustable Rate Mortgage Loans, as described under “Description of the Mortgage Pools.” Pool 1 will consist of Mortgage Loans with original principal balances that do not exceed the applicable Fannie Mae maximum original loan amount limitations for one- to four-family residential mortgaged properties. Pool 2 will consist of Mortgage Loans with original principal balances that do not exceed the applicable Freddie Mac maximum original loan amount limitations for one- to four-family residential mortgaged properties. Pool 3 will consist of Mortgage Loans with original principal balances that may be less than, equal to, or in excess of, Fannie Mae or Freddie Mac original loan amount limitations for one- to four-family residential mortgaged properties.
 
Each class of Offered Certificates will be issued in the respective approximate Class Principal Amount specified in the table on page S-1 and will accrue interest at the respective Interest Rate specified in the table on page S-1 and as further described under “Summary of Terms—The Certificates—Payments on the Certificates—Interest Payments.” The Class B1 and Class B2 Certificates will be issued in the approximate initial Class Principal Amount of $12,232,000 and $17,125,000, respectively, and will accrue interest at their respective Interest Rates as described under “—Distributions of Interest—Calculation of Interest.” The Class P, Class X, Class LT-R and Class R Certificates will be issued without interest rates. The initial total Certificate Principal Amount of the Offered Certificates and the Class B Certificates may be increased or decreased by up to five percent to the extent that the Cut-off Date Balance of the Mortgage Loans is correspondingly increased or decreased as described under “Description of the Mortgage Pools” herein.
 
For purposes of allocating distributions of principal and interest on the Senior Certificates, (1) the Group 1 Certificates will relate to, and generally will be limited to collections from, the Pool 1 Mortgage Loans, (2) the Group 2 Certificates will relate to, and generally will be limited to collections from, the Pool 2 Mortgage Loans and (3) the Group 3 Certificates will relate to, and generally will be limited to collections from, the Pool 3 Mortgage Loans. However, holders of each class of Senior Certificates will receive the benefit of Monthly Excess Interest generated by each Mortgage Pool and, to a limited extent, certain principal payments generated by the Mortgage Pools unrelated to that class. Holders of the Offered Subordinate Certificates and the Class B Certificates will be entitled to receive distributions based upon principal and interest collections from each Mortgage Pool, but such rights to distributions will be subordinate to the rights of the holders of the Senior Certificates to the extent described herein.
S-32

 
The Class X Certificates will be entitled to Monthly Excess Cashflow, if any, from each Mortgage Pool, remaining after required distributions are made to the Offered Certificates and the Class B Certificates and to pay certain expenses of the Trust Fund (including any payments to the Swap Counterparty). The Class P Certificates will solely be entitled to receive all Prepayment Premiums received in respect of the Mortgage Loans from each Mortgage Pool and, accordingly, such amounts will not be available for distribution to the holders of the other classes of Certificates or to the Servicers as additional servicing compensation. The Class LT-R and Class R Certificates will represent the remaining interest in the assets of the Trust Fund after the required distributions are made to all other classes of Certificates and will evidence the residual interests in the REMICs.
 
Lehman Pass-Through Securities Inc., an affiliate of the Sponsor, the Depositor, Aurora Loan Services LLC and Lehman Brothers Inc., will initially hold the Class P and Class X Certificates and intends to enter into a NIMS Transaction. The NIM Securities issued in the NIMS Transaction may be insured by a NIMS Insurer. If the NIM Securities are so insured, the NIMS Insurer will have certain rights under the Trust Agreement and each Servicing Agreement as described herein.
 
Distributions on the Offered Certificates will be made on the Distribution Date to Certificateholders of record on the applicable record date specified in the table on page S-2. Distributions on the Offered Certificates will be made to each registered holder entitled thereto, by wire transfer in immediately available funds; provided, that the final distribution in respect of any Certificate will be made only upon presentation and surrender of such Certificate at the Corporate Trust Office of the Trustee. See “The Trust Agreement—The Trustee” herein.
 
Book-Entry Registration
 
The Offered Certificates will be issued, maintained and transferred on the book-entry records of DTC and its Participants. Each class of Book-Entry Certificates will be represented by one or more Global Securities that equal in the aggregate the initial Class Principal Amount of the related class registered in the name of the nominee of DTC. The Offered Certificates will be issued in minimum denominations in the principal amounts and the incremental denominations in excess thereof specified in the table on page S-2. With respect to initial European investors only, the Underwriter will only sell Offered Certificates in minimum total investment amounts of $100,000.
 
Beneficial Owners of the Book-Entry Certificates will hold their Certificates through DTC in the United States, or Clearstream Luxembourg or Euroclear in Europe if they are participants of such systems, or indirectly through organizations which are participants in such systems. Each class of Book-Entry Certificates will be issued in one or more certificates that equal the initial Class Principal Amount of the related class of Offered Certificates 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 Relevant Depositary’s names on the books of DTC. Except as described below, no Beneficial Owner will be entitled to receive a physical certificate representing such Certificate. Unless and until Definitive Certificates are issued for the Book-Entry Certificates under the limited circumstances described herein, all references to actions by Certificateholders with respect to the Book-Entry Certificates will refer to actions taken by DTC upon instructions from its Participants, and all references herein to distributions, notices, reports and statements to Certificateholders with respect to the Book-Entry Certificates will refer to distributions, notices, reports and statements to DTC or Cede & Co., as the registered holder of the Book-Entry Certificates, for distribution to Beneficial Owners by DTC in accordance with DTC procedures. See “Description of the Securities—Book-Entry Registration” in the prospectus.
 
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 or Euroclear Participant to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream Luxembourg or Euroclear cash account only as of the business day following settlement in DTC.
S-33

 
For information with respect to tax documentation procedures relating to the Book-Entry Certificates, see “Material Federal Income Tax Considerations—Taxation of Securities Treated as Debt Instruments” and “Global Clearance, Settlement and Tax Documentation Procedures—Certain U.S. Federal Income Tax Documentation Requirements” in the prospectus.
 
Distributions of Interest
 
Calculation of Interest. The amount of interest distributable on each Distribution Date in respect of each class of Offered Certificates and the Class B Certificates will equal the sum of (1) Current Interest for such class and for such date and (2) any Carryforward Interest for such class and for such date. Interest will accrue on the Offered Certificates and the Class B Certificates on the basis of a 360-day year and the actual number of days elapsed in each Accrual Period.
 
The Interest Rate for each class of Offered Certificates will be the applicable annual rate described under “Summary of Terms—The Certificates—Payments on the Certificates—Interest Payments.” The Interest Rate for the Class B1 Certificates will be the lesser of (1) the B1 Interest Rate and (2) the Subordinate Net Funds Cap. The Interest Rate for the Class B2 Certificates will be the lesser of (1) the B2 Interest Rate and (2) the Subordinate Net Funds Cap.
 
Basis Risk Shortfalls. With respect to each Distribution Date and any class of Offered Certificates and the Class B Certificates, such class will be entitled to the amount of any Basis Risk Shortfall and Unpaid Basis Risk Shortfall with interest thereon at the applicable Interest Rate (calculated without regard to the applicable Net Funds Cap) before the holders of the Class X, Class LT-R and Class R Certificates are entitled to any distributions. The Offered Certificates and the Class B Certificates will be entitled to the amount of such Basis Risk Shortfall and Unpaid Basis Risk Shortfall from (1) Monthly Excess Cashflow, treated as paid from, and to the extent such funds are on deposit in, the Basis Risk Reserve Fund, (2) any amounts received under the Swap Agreement and (3) any amounts received under the Interest Rate Cap Agreement. See “—Credit Enhancement—Application of Monthly Excess Cashflow,” “—Supplemental Interest Trust—Interest Rate Swap Agreement” and “—Supplemental Interest Trust—Interest Rate Cap Agreement” below. The source of funds on deposit in the Basis Risk Reserve Fund will be limited to (1) an initial deposit of $1,000 by the Sponsor and (2) certain amounts that would otherwise be distributed to the Class X Certificates. Notwithstanding the foregoing, the amount of any Basis Risk Shortfall for any class of Offered Certificates and the Class B Certificates in respect of any Distribution Date may not exceed the amount, if any, by which (x) the amount payable at the applicable Maximum Interest Rate exceeds (y) the amount payable at the applicable Net Funds Cap.
 
The amount of Monthly Excess Cashflow distributable with respect to the Class X Certificates on any Distribution Date will be reduced by the amount of any Basis Risk Payment not satisfied from amounts, if any, on deposit in the Basis Risk Reserve Fund.
 
Interest Distribution Priorities.
 
(A)           The Interest Remittance Amount for each Mortgage Pool will be distributed on each Distribution Date (or, in the case of payments to the Swap Counterparty, the Business Day prior to each Distribution Date) concurrently, as follows:
 
(i)           The Interest Remittance Amount for Pool 1 for such date will be distributed in the following order of priority:
 
(a)           for deposit into the Interest Rate Swap Account, the allocable portion of any Net Swap Payment or Swap Termination Payment for Pool 1 (based on the applicable Pool Percentage) owed to the Swap Counterparty (including amounts remaining unpaid from previous Distribution Dates);
S-34

 
(b)           for deposit into the Interest Rate Swap Account, the amount of any Net Swap Payment or Swap Termination Payment owed to the Swap Counterparty to the extent not paid previously or from the Interest Remittance Amounts from the other Mortgage Pools in accordance with clauses (A)(ii)(a) and (A)(iii)(a) below, to be paid concurrently and in proportion to Principal Distribution Amounts available with respect to such other Mortgage Pools;
 
(c)           to the Class A1 Certificates, Current Interest and any Carryforward Interest for such class for such Distribution Date; and
 
(d)           for application pursuant to clause (B) below, any such Interest Remittance Amount remaining undistributed for such Distribution Date.
 
(ii)           The Interest Remittance Amount for Pool 2 for such date will be distributed in the following order of priority:
 
(a)           for deposit into the Interest Rate Swap Account, the allocable portion of any Net Swap Payment or Swap Termination Payment for Pool 2 (based on the applicable Pool Percentage) owed to the Swap Counterparty (including amounts remaining unpaid from previous Distribution Dates);
 
(b)           for deposit into the Interest Rate Swap Account, the amount of any Net Swap Payment or Swap Termination Payment owed to the Swap Counterparty to the extent not paid previously or from the Interest Remittance Amounts from the other Mortgage Pools in accordance with clauses (A)(i)(a) above and (A)(iii)(a) below, to be paid concurrently and in proportion to Principal Distribution Amounts available with respect to such other Mortgage Pools;
 
(c)           to the Class A2 Certificates, Current Interest and any Carryforward Interest for such class for such Distribution Date; and
 
(d)           for application pursuant to clause (B) below, any such Interest Remittance Amount remaining undistributed for such Distribution Date.
 
(iii)           The Interest Remittance Amount for Pool 3 for such date will be distributed in the following order of priority:
 
(a)           for deposit into the Interest Rate Swap Account, the allocable portion of any Net Swap Payment or Swap Termination Payment for Pool 3 (based on the applicable Pool Percentage) owed to the Swap Counterparty (including amounts remaining unpaid from previous Distribution Dates);
 
(b)           for deposit into the Interest Rate Swap Account, the amount of any Net Swap Payment or Swap Termination Payment owed to the Swap Counterparty to the extent not paid previously or from the Interest Remittance Amounts from the other Mortgage Pools in accordance with clauses (A)(i)(a) and (A)(ii)(a) above, to be paid concurrently and in proportion to Principal Distribution Amounts available with respect to such other Mortgage Pools;
 
(c)           concurrently, to the Class A3, Class A4 and Class A5 Certificates, Current Interest and any Carryforward Interest for such classes for such Distribution Date (any shortfall in Current Interest and Carryforward Interest to be allocated among such classes in proportion to the amount of Current Interest and Carryforward Interest that would have otherwise been distributable thereon); and
 
(d)           for application pursuant to clause (B) below, any such Interest Remittance Amount remaining undistributed for such Distribution Date.
 
(B)           On each Distribution Date, the Trustee will distribute the aggregate of any remaining Interest Remittance Amounts from clauses (A)(i)(d), (A)(ii)(d) and (A)(iii)(d) above, in the following order of priority:
S-35

 
(i)           concurrently, to each class of Senior Certificates, Current Interest and any Carryforward Interest for such classes for such Distribution Date (any shortfall in Current Interest and Carryforward Interest to be allocated among such classes in proportion to the amount of Current Interest and Carryforward Interest that would have otherwise been distributable thereon) to the extent not paid on such Distribution Date pursuant to clauses (A)(i)(c), (A)(ii)(c) and (A)(iii)(c) above;
 
(ii)           to each class of Offered Subordinate Certificates and the Class B Certificates, in accordance with the Subordinate Priority, Current Interest and any Carryforward Interest for such classes for such Distribution Date;
 
(iii)           to the Credit Risk Manager, the Credit Risk Manager’s Fee;
 
(iv)           to the Trustee, previously unreimbursed extraordinary costs, liabilities and expenses to the extent provided in the Trust Agreement; and
 
(v)           for application as part of Monthly Excess Cashflow for such Distribution Date, as described under “—Credit Enhancement—Application of Monthly Excess Cashflow” below, any such Interest Remittance Amount remaining undistributed for such Distribution Date.
 
Prepayment Interest Shortfalls. When a principal prepayment in full or in part is made on a Mortgage Loan, the borrower is charged interest only to the date of such prepayment, instead of for a full month, with a resulting reduction in interest payable for the month during which the prepayment is made. Full or partial prepayments (or proceeds of other liquidations) received in the applicable Prepayment Period will be distributed to holders of the Offered Certificates and the Class B Certificates on the Distribution Date following that Prepayment Period. To the extent that, as a result of a full prepayment, a borrower is not required to pay a full month’s interest on the amount prepaid, a Prepayment Interest Shortfall could result. However, in the case of a prepayment in full on a Mortgage Loan serviced by any Servicer which has a Prepayment Period that ends in mid-month, which prepayment is made in the same month in which such prepayment is distributed to Certificateholders, a Prepayment Interest Excess could result.
 
With respect to prepayments in full or in part, the related Servicer will be obligated to pay Compensating Interest to the extent a Prepayment Interest Shortfall occurs. The Master Servicer is not obligated to fund any Prepayment Interest Shortfalls required to be paid but not paid by the related Servicer. See “Mortgage Loan Servicing—Prepayment Interest Shortfalls” herein. Any Net Prepayment Interest Shortfall will reduce the Interest Remittance Amount available for distribution on the related Distribution Date.
 
Determination of LIBOR
 
On each LIBOR Determination Date, the Securities Administrator will determine LIBOR based on (1) the offered rates for U.S. dollar deposits of one month maturity, as such rates appear on the Designated Telerate Page set by the BBA as of 11:00 a.m. (London time) on such LIBOR Determination Date or (2) if such offered rate does not appear on the Designated Telerate Page as of 11:00 a.m. (London time), the Securities Administrator will obtain such rate from the Reuters Monitor Money Rates Service page “LIBOR01,” and if the offered rate does not appear therein, from the Bloomberg L.P. page “BBAM.”
 
If any such offered rate is not published for such LIBOR Determination Date, LIBOR for such date will be the most recently published offered rate on the Designated Telerate Page. In the event that the BBA no longer sets such offered rate, the Securities Administrator will designate an alternative index that has performed, or that the Securities Administrator expects to perform, in a manner substantially similar to the BBA’s offered rate. The Securities Administrator will select a particular index as the alternative index only if it receives an opinion of counsel (furnished at the Trust Fund’s expense) that the selection of such index will not cause any of the REMICs to lose their classification as REMICs for federal income tax purposes.
 
The establishment of LIBOR on each LIBOR Determination Date by the Securities Administrator and the Securities Administrator’s calculation of the Interest Rate applicable to each class of Offered Certificates and the Class B Certificates for the related Accrual Period will (in the absence of manifest error) be final and binding.
S-36

 
LIBOR for the first Accrual Period will be 5.32250%.
 
Distributions of Principal
 
General. Distributions of principal on the Senior Certificates will be made primarily from the Principal Distribution Amount for the related Mortgage Pool and secondarily from the Principal Distribution Amounts from the unrelated Mortgage Pools, from Monthly Excess Cashflow from each Mortgage Pool, to the extent of such excess available funds, as described under “—Credit Enhancement—Application of Monthly Excess Cashflow” below, from the Interest Rate Swap Amount (if any), as described under “—Supplemental Interest Trust—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Swap Agreement” below and from the Interest Rate Cap Amount (if any), as described under “—Supplemental Interest Trust—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Cap Agreement” below. Distributions of principal on the Offered Subordinate Certificates and the Class B Certificates will be made primarily from the aggregate of the Principal Distribution Amounts from each Mortgage Pool after distributions of principal have been made on the Senior Certificates, and secondarily from Monthly Excess Cashflow from each Mortgage Pool, to the extent of such excess available funds, as described under “—Credit Enhancement—Application of Monthly Excess Cashflow” below, from the Interest Rate Swap Amount (if any), as described under “—Supplemental Interest Trust—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Swap Agreement” below and from the Interest Rate Cap Amount (if any), as described under “—Supplemental Interest Trust—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Cap Agreement” below.
 
Principal Distribution Priorities. The Principal Distribution Amount for each Mortgage Pool will be distributed on each Distribution Date (or, in the case of payments to the Swap Counterparty, the Business Day prior to each Distribution Date) in the following order of priority:
 
I.    On each Distribution Date (or, in the case of payments to the Swap Counterparty, the Business Day prior to each Distribution Date) (a) prior to the Stepdown Date or (b) with respect to which a Trigger Event is in effect, until the aggregate Certificate Principal Amount of the Offered Certificates and the Class B Certificates equals the Target Amount for such Distribution Date, the Trustee will make the following distributions (for clauses (A), (B) and (C), concurrently):
 
(A)           For Pool 1: The Principal Distribution Amount for Pool 1 will be distributed in the following order of priority:
 
(i)           for deposit into the Interest Rate Swap Account, the allocable portion of any Net Swap Payment or Swap Termination Payment with respect to Pool 1 (based on the applicable Pool Percentage) owed to the Swap Counterparty (to the extent not paid previously or from the Interest Remittance Amount in accordance with “—Distributions of Interest—Interest Distribution Priorities” above);
 
(ii)           for deposit into the Interest Rate Swap Account, the amount of any Net Swap Payment or Swap Termination Payment owed to the Swap Counterparty (to the extent not paid previously, from the Interest Remittance Amount in accordance with “—Distributions of Interest—Interest Distribution Priorities” above, or from the Principal Distribution Amounts for Pool 2 and Pool 3 in accordance with clause I.(B)(i) or I.(C)(i) below or pursuant to clause (i) above), to be paid concurrently and in proportion to Principal Distribution Amounts available with respect to such other Mortgage Pools;
 
(iii)           to the Class A1 Certificates, until the Class Principal Amount of such class has been reduced to zero; and
 
(iv)           for application pursuant to clause I.(D) below, any such Principal Distribution Amount remaining undistributed for such Distribution Date.
S-37

 
(B)           For Pool 2: The Principal Distribution Amount for Pool 2 will be distributed in the following order of priority:
 
(i)           for deposit into the Interest Rate Swap Account, the allocable portion of any Net Swap Payment or Swap Termination Payment with respect to Pool 2 (based on the applicable Pool Percentage) owed to the Swap Counterparty (to the extent not paid previously or from the Interest Remittance Amount in accordance with “—Distributions of Interest—Interest Distribution Priorities” above);
 
(ii)           for deposit into the Interest Rate Swap Account, the amount of any Net Swap Payment or Swap Termination Payment owed to the Swap Counterparty (to the extent not paid previously, from the Interest Remittance Amount in accordance with “—Distributions of Interest—Interest Distribution Priorities” above, or from the Principal Distribution Amounts for Pool 1 and Pool 3 in accordance with clause I.(A)(i) above or I.(C)(i) below or pursuant to clause (i) above), to be paid concurrently and in proportion to Principal Distribution Amounts available with respect to such other Mortgage Pools;
 
(iii)           to the Class A2 Certificates, until the Class Principal Amount of such class has been reduced to zero; and
 
(iv)           for application pursuant to clause I.(D) below, any such Principal Distribution Amount remaining undistributed for such Distribution Date.
 
(C)           For Pool 3: The Principal Distribution Amount for Pool 3 will be distributed in the following order of priority:
 
(i)           for deposit into the Interest Rate Swap Account, the allocable portion of any Net Swap Payment or Swap Termination Payment with respect to Pool 3 (based on the applicable Pool Percentage) owed to the Swap Counterparty (to the extent not paid previously or from the Interest Remittance Amount in accordance with “—Distributions of Interest—Interest Distribution Priorities” above);
 
(ii)           for deposit into the Interest Rate Swap Account, the amount of any Net Swap Payment or Swap Termination Payment owed to the Swap Counterparty (to the extent not paid previously, from the Interest Remittance Amount in accordance with “—Distributions of Interest—Interest Distribution Priorities” above, or from the Principal Distribution Amounts for Pool 1 and Pool 2 in accordance with clause I.(A)(i) or I.(B)(i) above or pursuant to clause (i) above), to be paid concurrently and in proportion to Principal Distribution Amounts available with respect to such other Mortgage Pools;
 
(iii)           sequentially, to the Class A3, Class A4 and Class A5 Certificates, in that order, until the Class Principal Amounts of each such class have been reduced to zero; and
 
(iv)           for application pursuant to clause I.(D) below, any such Principal Distribution Amount remaining undistributed for such Distribution Date.
 
(D)           On each Distribution Date, the Trustee will distribute the aggregate of any remaining Principal Distribution Amounts from clauses I.(A)(iv), I.(B)(iv) and I.(C)(iv) above, in the following order of priority:
 
(i)           concurrently, in proportion to the aggregate Class Principal Amounts of the Group 1, Group 2 and Group 3 Certificates, after giving effect to principal distributions on such Distribution Date pursuant to clauses I.(A)(iii), I.(B)(iii) and I.(C)(iii) above, to the Group 1, Group 2 and Group 3 Certificates, in each case in accordance with the Related Senior Priority, until the Class Principal Amount of each such class has been reduced to zero;
S-38

 
(ii)           to the Offered Subordinate Certificates and the Class B Certificates, in accordance with the Subordinate Priority, until the Class Principal Amount of each such class has been reduced to zero; and
 
(iii)           for application as part of Monthly Excess Cashflow for such Distribution Date, as described under “—Credit Enhancement—Application of Monthly Excess Cashflow” below, any such Principal Distribution Amount remaining after application pursuant to clauses (i) and (ii) above.
 
Any Principal Distribution Amount remaining on any Distribution Date after the Target Amount is achieved will be applied as part of the Monthly Excess Cashflow for such Distribution Date as described under “—Credit Enhancement—Application of Monthly Excess Cashflow” below.
 
II.           On each Distribution Date (or, in the case of payments to the Swap Counterparty, the Business Day prior to each Distribution Date) (a) on or after the Stepdown Date and (b) with respect to which a Trigger Event is not in effect, the Principal Distribution Amount for each Mortgage Pool for such date will be distributed in the following order of priority:
 
(i)           for deposit into the Interest Rate Swap Account, the allocable portion of any Net Swap Payment or Swap Termination Payment for such Mortgage Pool (based on the applicable Pool Percentage) owed to the Swap Counterparty (to the extent not paid previously or from the Interest Remittance Amount in accordance with “—Distributions of Interest—Interest Distribution Priorities” above);
 
(ii)           for deposit into the Interest Rate Swap Account, any Net Swap Payment or Swap Termination Payment with respect to the other Mortgage Pools owed to the Swap Counterparty (to the extent not paid previously, from the Interest Remittance Amount in accordance with “—Distributions of Interest—Interest Distribution Priorities” above or pursuant to clause (i) above), to be paid concurrently and in proportion to Principal Distribution Amounts available with respect to such other Mortgage Pools;
 
(iii)           (a) so long as any of the Offered Subordinate Certificates and the Class B Certificates are outstanding, to the Class A1 Certificates (from amounts in Pool 1 except as provided below), to the Class A2 Certificates (from amounts in Pool 2 except as provided below) and to the Group 3 Certificates in accordance with the Related Senior Priority (from amounts in Pool 3 except as provided below), in each case, an amount equal to the lesser of (x) the excess of (1) the Principal Distribution Amount for the related Mortgage Pool for such Distribution Date over (2) the amount paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account with respect to such Distribution Date pursuant to clauses (i) and (ii) above, and (y) the Related Senior Principal Distribution Amount for such Mortgage Pool for such Distribution Date, in each case until the Class Principal Amount of each such class has been reduced to zero; provided, however, to the extent that the Principal Distribution Amount for a Mortgage Pool exceeds the Related Senior Principal Distribution Amount for such Mortgage Pool, such excess will be applied to the Senior Certificates related to the other Mortgage Pools (in accordance with the Related Senior Priority), but in an amount not to exceed the Senior Principal Distribution Amount for such Distribution Date (as reduced by any distributions pursuant to subclauses (x) or (y) of this clause (iii) on such Distribution Date); or (b) otherwise to the Group 1, Group 2 and Group 3 Certificates (in each case in accordance with the Related Senior Priority), the excess of (A) the Principal Distribution Amount for the related Mortgage Pool for such Distribution Date over (B) the amount paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account with respect to such Distribution Date pursuant to clauses (i) and (ii) above, in each case until the Class Principal Amount of each such class has been reduced to zero;
 
(iv)           to the Class M1 and Class M2 Certificates, sequentially and in that order, an amount equal to the lesser of (x) the excess of (a) the aggregate of the Principal Distribution Amounts for Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount distributed to the Senior Certificates or paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account pursuant to clauses (i) through (iii) above, and (y) the M2 Principal Distribution Amount for such Distribution Date, until the Class Principal Amount of such class has been reduced to zero;
S-39

 
(v)           to the Class M3 Certificates, an amount equal to the lesser of (x) the excess of (a) the aggregate of the Principal Distribution Amounts for Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount distributed to the Senior Certificates and the Class M1 and Class M2 Certificates or paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account pursuant to clauses (i) through (iv) above, and (y) the M3 Principal Distribution Amount for such Distribution Date, until the Class Principal Amount of such class has been reduced to zero;
 
(vi)           to the Class M4 Certificates, an amount equal to the lesser of (x) the excess of (a) the aggregate of the Principal Distribution Amounts for Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount distributed to the Senior Certificates and the Class M1, Class M2 and Class M3 Certificates or paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account pursuant to clauses (i) through (v) above, and (y) the M4 Principal Distribution Amount for such Distribution Date, until the Class Principal Amount of such class has been reduced to zero;
 
(vii)           to the Class M5 Certificates, an amount equal to the lesser of (x) the excess of (a) the aggregate of the Principal Distribution Amounts for Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount distributed to the Senior Certificates and the Class M1, Class M2, Class M3 and Class M4 Certificates or paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account pursuant to clauses (i) through (vi) above, and (y) the M5 Principal Distribution Amount for such Distribution Date, until the Class Principal Amount of such class has been reduced to zero;
 
(viii)           to the Class M6 Certificates, an amount equal to the lesser of (x) the excess of (a) the aggregate of the Principal Distribution Amounts for Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount distributed to the Senior Certificates and the Class M1, Class M2, Class M3, Class M4 and Class M5 Certificates or paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account pursuant to clauses (i) through (vii) above, and (y) the M6 Principal Distribution Amount for such Distribution Date, until the Class Principal Amount of such class has been reduced to zero;
 
(ix)           to the Class M7 Certificates, an amount equal to the lesser of (x) the excess of (a) the aggregate of the Principal Distribution Amounts for Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount distributed to the Senior Certificates and the Class M1, Class M2, Class M3, Class M4, Class M5 and Class M6 Certificates or paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account pursuant to clauses (i) through (viii) above, and (y) the M7 Principal Distribution Amount for such Distribution Date, until the Class Principal Amount of such class has been reduced to zero;
 
(x)           to the Class M8 Certificates, an amount equal to the lesser of (x) the excess of (a) the aggregate of the Principal Distribution Amounts for Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount distributed to the Senior Certificates and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6 and Class M7 Certificates or paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account pursuant to clauses (i) through (ix) above, and (y) the M8 Principal Distribution Amount for such Distribution Date, until the Class Principal Amount of such class has been reduced to zero;
 
(xi)           to the Class B1 Certificates, an amount equal to the lesser of (x) the excess of (a) the aggregate of the Principal Distribution Amounts for Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount distributed to the Senior Certificates and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7 and Class M8 Certificates or paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account pursuant to clauses (i) through (x) above, and (y) the B1 Principal Distribution Amount for such Distribution Date, until the Class Principal Amount of such class has been reduced to zero;
 
(xii)           to the Class B2 Certificates, an amount equal to the lesser of (x) the excess of (a) the aggregate of the Principal Distribution Amounts for Pool 1, Pool 2 and Pool 3 for such Distribution Date over (b) the amount distributed to the Senior Certificates and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7, Class M8 and Class B1 Certificates or paid to the Supplemental Interest Trust for deposit into the Interest Rate Swap Account pursuant to clauses (i) through (xi) above, and (y) the B2 Principal Distribution Amount for such Distribution Date, until the Class Principal Amount of such class has been reduced to zero; and
S-40

 
(xiii)           for application as part of Monthly Excess Cashflow for such Distribution Date, as described under “—Credit Enhancement—Application of Monthly Excess Cashflow” below, any such Principal Distribution Amount remaining after application pursuant to clauses (i) through (xii) above.
 
Credit Enhancement
 
Credit enhancement for the Offered Certificates and the Class B Certificates consists of, in addition to limited cross-collateralization, the subordination of the Subordinate Certificates, the priority of application of Realized Losses, excess interest, an interest rate swap agreement, an interest rate cap agreement and overcollateralization, in each case as described herein.
 
Subordination. The rights of holders of the Offered Subordinate Certificates and the Class B Certificates to receive distributions with respect to the Mortgage Loans will be subordinated, to the extent described herein, to such rights of holders of each class of Offered Certificates having a higher priority of distribution, as described under “—Distributions of Interest” and “—Distributions of Principal.” This subordination is intended to enhance the likelihood of regular receipt by holders of Offered Certificates having a higher priority of distribution of the full amount of interest and principal distributable thereon, and to afford such Certificateholders limited protection against Realized Losses incurred with respect to the Mortgage Loans.
 
The limited protection afforded to holders of the Offered Certificates by means of the subordination of the Offered Subordinate Certificates and the Class B Certificates having a lower priority of distribution will be accomplished by the preferential right of holders of such Offered Certificates to receive, prior to any distribution in respect of interest or principal being made on any Distribution Date in respect of Certificates having a lower priority of distribution, the amounts of interest due them and principal available for distribution, respectively, on such Distribution Date.
 
Application of Realized Losses. Realized Losses on the Mortgage Loans will have the effect of reducing amounts distributable in respect of, first, the Class X Certificates (both through the application of Monthly Excess Cashflow to fund such deficiency and through a reduction in the Overcollateralization Amount for the related Distribution Date); second, the Class B2 Certificates; third, the Class B1 Certificates; fourth, the Class M8 Certificates; fifth, the Class M7 Certificates; sixth, the Class M6 Certificates; seventh, the Class M5 Certificates, eighth, the Class M4 Certificates, ninth, the Class M3 Certificates; tenth, the Class M2 Certificates and eleventh, the Class M1 Certificates; before reducing amounts distributable in respect of the Senior Certificates.
 
To the extent that Realized Losses are incurred, those Realized Losses will reduce the Aggregate Pool Balance, and thus may reduce the Overcollateralization Amount. As described herein, the Overcollateralization Amount is increased and maintained by application of Monthly Excess Cashflow to make distributions of principal on the Offered Certificates and the Class B Certificates.
 
If on any Distribution Date after giving effect to all Realized Losses incurred with respect to the Mortgage Loans during the related Collection Period and distributions of principal on such Distribution Date, there are Applied Loss Amounts, the Certificate Principal Amounts of the Offered Subordinate Certificates and the Class B Certificates will be reduced in inverse order of priority of distribution. Applied Loss Amounts will be allocated in reduction of the Class Principal Amount of first, the Class B2 Certificates, until their Class Principal Amount has been reduced to zero; second, the Class B1 Certificates, until their Class Principal Amount has been reduced to zero; third, the Class M8 Certificates, until their Class Principal Amount has been reduced to zero; fourth, the Class M7 Certificates, until their Class Principal Amount has been reduced to zero; fifth, the Class M6 Certificates, until their Class Principal Amount has been reduced to zero; sixth, the Class M5 Certificates, until their Class Principal Amount has been reduced to zero; seventh, the Class M4 Certificates, until their Class Principal Amount has been reduced to zero; eighth, the Class M3 Certificates, until their Class Principal Amount has been reduced to zero; ninth, the Class M2 Certificates, until their Class Principal Amount has been reduced to zero; and tenth, the Class M1 Certificates, until their Class Principal Amount has been reduced to zero. The Certificate Principal Amounts of the Senior Certificates will not be reduced by allocation of Applied Loss Amounts.
S-41

 
Holders of the Offered Subordinate Certificates and the Class B Certificates will not receive any distributions in respect of Applied Loss Amounts, except from Monthly Excess Cashflow from each Mortgage Pool, to the extent of such excess available funds, as described under “—Credit Enhancement—Application of Monthly Excess Cashflow” below, the Interest Rate Swap Amount (if any), as described under “—Supplemental Interest Trust—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Swap Agreement” below and the Interest Rate Cap Amount (if any), as described under “—Supplemental Interest Trust—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Cap Agreement” below.
 
In the event that the related Servicer or the Master Servicer recovers any Subsequent Recovery, such Subsequent Recovery will be distributed in accordance with the priorities described under “—Distributions of Principal—Principal Distribution Priorities” in this prospectus supplement and the Class Principal Amount of each class of Certificates that has previously been reduced by an Applied Loss Amount will be increased as described in the definition of “Certificate Principal Amount.” Any Subsequent Recovery that is received during a Prepayment Period will be included as a part of the Principal Remittance Amount for the related Distribution Date.
 
Excess Interest. The Mortgage Loans included in each Mortgage Pool bear interest each month that in the aggregate is expected to exceed the amount needed to pay monthly interest on the Offered Certificates and the Class B Certificates, the fees and expenses of the Servicers, the Custodians, the Master Servicer, the Securities Administrator, the Trustee and the Credit Risk Manager; any Net Swap Payments owed to the Swap Counterparty and the premiums on the LPMI Policies. Such excess interest from the Mortgage Loans each month will be available to absorb Realized Losses on the Mortgage Loans and to maintain overcollateralization at the required level.
 
Interest Rate Swap Agreement. Amounts received under the Swap Agreement will be applied to pay interest shortfalls, repay losses and to maintain the Targeted Overcollateralization Amount as described under “—Supplemental Interest Trust—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Swap Agreement” below.
 
Interest Rate Cap Agreement. Amounts received under the Interest Rate Cap Agreement will be applied to pay interest shortfalls, repay losses and to maintain the Targeted Overcollateralization Amount as described under “—Supplemental Interest Trust—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Cap Agreement” below.
 
Overcollateralization. The Aggregate Pool Balance as of the Cut-off Date will exceed the initial aggregate Class Principal Amount of the Offered Certificates and the Class B Certificates by approximately $12,232,263, which represents approximately 0.50% of the Cut-off Date Balance. The weighted average of the Net Mortgage Rates of the Mortgage Loans is currently, and generally in the future is expected to be, higher than the weighted average interest rate on such Certificates, fees and expenses of the Trust Fund and any Net Swap Payments and Swap Termination Payments due to the Swap Counterparty. As described below, interest collections will be applied as distributions of principal to the extent needed to maintain overcollateralization (i.e., the excess of the Aggregate Pool Balance over the aggregate Class Principal Amount of the Offered Certificates and the Class B Certificates) at the Targeted Overcollateralization Amount. However, Realized Losses with respect to Mortgage Loans in any Mortgage Pool will reduce overcollateralization, and could result in an Overcollateralization Deficiency.
 
As described herein, to the extent that the Overcollateralization Amount for such Distribution Date exceeds the Targeted Overcollateralization Amount, a portion of the Principal Remittance Amount will not be applied in reduction of the Certificate Principal Amounts of the Offered Certificates and the Class B Certificates, but will instead be applied as described below.
 
Application of Monthly Excess Cashflow. Any Monthly Excess Cashflow will, on each Distribution Date, be distributed in the following order of priority:
S-42


(1)           for each Distribution Date occurring (a) before the Stepdown Date or (b) on or after the Stepdown Date and for which a Trigger Event is in effect, then until the aggregate Certificate Principal Amount of the Offered Certificates and the Class B Certificates equals the Target Amount for such Distribution Date, in the following order of priority:
 
(a)           concurrently, in proportion to the aggregate Class Principal Amount of the Senior Certificates relating to each Mortgage Pool, after giving effect to principal distributions on such Distribution Date (as described under “—Distributions of Principal—Principal Distribution Priorities” above), to the Group 1, Group 2 and Group 3 Certificates, in each case in accordance with the Related Senior Priority, in reduction of their respective Class Principal Amounts, until the Class Principal Amount of each such class has been reduced to zero; and
 
(b)           to the Offered Subordinate Certificates and the Class B Certificates, in accordance with the Subordinate Priority, in reduction of their respective Class Principal Amounts, until the Class Principal Amount of each such class has been reduced to zero;
 
(2)           for each Distribution Date occurring on or after the Stepdown Date and for which a Trigger Event is not in effect, in the following order of priority:
 
(a)           concurrently, in proportion to the aggregate Class Principal Amount of the Senior Certificates relating to each Mortgage Pool, after giving effect to principal distributions on such Distribution Date (as described under “—Distributions of Principal—Principal Distribution Priorities” above), to the Group 1, Group 2 and Group 3 Certificates, in each case in accordance with the Related Senior Priority, in reduction of their respective Class Principal Amounts until the Class Principal Amount of each such class after giving effect to distributions on such Distribution Date, equals the Senior Target Amount;
 
(b)           to the Class M1 and Class M2 Certificates, sequentially and in that order, in reduction of their respective Class Principal Amounts, until the aggregate Class Principal Amount of the Senior Certificates, the Class M1 and Class M2 Certificates, after giving effect to distributions on such Distribution Date, equals the M2 Target Amount;
 
(c)           to the Class M3 Certificates, in reduction of their Class Principal Amount, until the aggregate Class Principal Amount of the Senior Certificates and the Class M1, Class M2 and Class M3 Certificates, after giving effect to distributions on such Distribution Date, equals the M3 Target Amount;
 
(d)           to the Class M4 Certificates, in reduction of their Class Principal Amount, until the aggregate Class Principal Amount of the Senior Certificates and the Class M1, Class M2, Class M3 and Class M4 Certificates, after giving effect to distributions on such Distribution Date, equals the M4 Target Amount;
 
(e)           to the Class M5 Certificates, in reduction of their Class Principal Amount, until the aggregate Class Principal Amount of the Senior Certificates and the Class M1, Class M2, Class M3, Class M4 and Class M5 Certificates, after giving effect to distributions on such Distribution Date, equals the M5 Target Amount;
 
(f)           to the Class M6 Certificates, in reduction of their Class Principal Amount, until the aggregate Class Principal Amount of the Senior Certificates and the Class M1, Class M2, Class M3, Class M4, Class M5 and Class M6 Certificates, after giving effect to distributions on such Distribution Date, equals the M6 Target Amount;
 
(g)           to the Class M7 Certificates, in reduction of their Class Principal Amount, until the aggregate Class Principal Amount of the Senior Certificates and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6 and Class M7 Certificates, after giving effect to distributions on such Distribution Date, equals the M7 Target Amount;
 
(h)           to the Class M8 Certificates, in reduction of their Class Principal Amount, until the aggregate Class Principal Amount of the Senior Certificates and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7 and Class M8 Certificates, after giving effect to distributions on such Distribution Date, equals the M8 Target Amount;
S-43

 
(i)           to the Class B1 Certificates, in reduction of their Class Principal Amount, until the aggregate Class Principal Amount of the Senior Certificates and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7, Class M8 and Class B1 Certificates, after giving effect to distributions on such Distribution Date, equals the B1 Target Amount; and
 
(j)           to the Class B2 Certificates, in reduction of their Class Principal Amount, until the aggregate Class Principal Amount of the Senior Certificates and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7, Class M8, Class B1 and Class B2 Certificates, after giving effect to distributions on such Distribution Date, equals the B2 Target Amount;
 
(3)           to the Offered Subordinate Certificates and the Class B Certificates, in accordance with the Subordinate Priority, any Deferred Amount for each such class and such Distribution Date;
 
(4)           to the Basis Risk Reserve Fund, the amount of any Basis Risk Payment, and then from the Basis Risk Reserve Fund, in the following order of priority:
 
(a)           concurrently, in proportion to their respective Basis Risk Shortfall and Unpaid Basis Risk Shortfall amounts, to the Senior Certificates, any Basis Risk Shortfall and Unpaid Basis Risk Shortfall for each such class and such Distribution Date;
 
(b)           to the Offered Subordinate Certificates and the Class B Certificates, in accordance with the Subordinate Priority, any applicable Basis Risk Shortfall and Unpaid Basis Risk Shortfall for each such class and such Distribution Date; and
 
(c)           for addition to amounts distributable pursuant to priority (6) below, any amounts remaining in the Basis Risk Reserve Fund in excess of amounts required to be on deposit therein after satisfying priorities (4)(a) and (b) above for such Distribution Date;
 
(5)           to the Class P Certificates, the amount distributable thereon under the Trust Agreement;
 
(6)           to the Interest Rate Swap Account, for distribution pursuant to priority (11) under “—Supplemental Interest Trust—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Swap Agreement” below; and
 
(7)           to the Residual Certificate, any remaining amount.
 
Supplemental Interest Trust
 
Interest Rate Swap Agreement. Under the Swap Agreement, one Business Day prior to each Distribution Date commencing in August 2006, the Trustee, on behalf of the Supplemental Interest Trust, will be obligated to pay to the Swap Counterparty a fixed amount equal to the product of (a) the Rate of Payment for the related Distribution Date, (b) the Scheduled Notional Amount for the related Distribution Date and (c) a fraction, the numerator of which is the actual number of days in each Accrual Period and the denominator of which is 360, and the Swap Counterparty will be obligated to pay to the Trustee, on behalf of the Supplemental Interest Trust, a floating amount equal to the product of (x) LIBOR (as determined pursuant to the Swap Agreement), (y) the Scheduled Notional Amount for the related Distribution Date and (z) a fraction, the numerator of which is the actual number of days in each Accrual Period and the denominator of which is 360. A Net Swap Payment will be required to be made for the related Distribution Date either (a) by the Supplemental Interest Trust to the Swap Counterparty, to the extent that the fixed amount exceeds the corresponding floating amount, or (b) by the Swap Counterparty to the Supplemental Interest Trust, to the extent that the floating amount exceeds the corresponding fixed amount.
 
The Swap Agreement will terminate immediately following the Distribution Date in June 2011 unless terminated earlier upon the occurrence of a Swap Default or Swap Early Termination.
S-44

 
The Swap Agreement and any payments made by the Swap Counterparty thereunder will be assets of the Supplemental Interest Trust but will not be assets of any REMIC.
 
The Trustee will establish the Interest Rate Swap Account, into which the Sponsor will make an initial deposit of $1,000 on the Closing Date. The Trustee will deposit into the Interest Rate Swap Account any Interest Rate Swap Amount received by the Trustee, and the Trustee will distribute from the Interest Rate Swap Account any Interest Rate Swap Amount pursuant to the priority of payments set forth under “—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Swap Agreement” below.
 
As of the Cut-off Date, the aggregate significance percentage with respect to ABN AMRO Bank, N.V. as Swap Counterparty and Cap Counterparty will be less than 10%.
 
The Swap Counterparty.
 
ABN AMRO Bank N.V., a public limited liability company incorporated under the laws of The Netherlands (“ABN AMRO”), is an international banking group offering a wide range of banking products and financial services on a global basis through a network of 3,557 offices and branches in 58 countries and territories as of year-end 2005. ABN AMRO is one of the largest banking groups in the world, with total consolidated assets of € 880.8 billion at December 31, 2005. As of the date of this prospectus supplement, ABN AMRO’s senior unsecured debt obligations are rated “AA-“ by Standard & Poor’s and ”Aa3” by Moody’s.

Additional information, including the most recent form 20-F for the year ended December 31, 2005 of ABN AMRO Holding N.V., the parent company of ABN AMRO, and additional quarterly and current reports filed with the Securities and Exchange Commission by ABN AMRO Holding N.V., may be obtained upon written request to ABN ARMO Bank N.V., ABN AMRO Investor Relations Department, Hoogoorddreef 66-68, P.O. Box 283, 1101 BE Amsterdam, The Netherlands. Except for the information provided in this paragraph and in the immediately preceding paragraph, neither the Swap Counterparty nor ABN AMRO Holding N.V. have been involved in the preparation of, and do not accept responsibility for, this prospectus supplement or the accompanying prospectus.
 
ABN AMRO may be replaced as Swap Counterparty and Cap Counterparty if the aggregate significance percentage of the Swap Agreement and the Interest Rate Cap Agreement is equal to or greater than 6%.
 
The respective obligations of the Swap Counterparty and the Supplemental Interest Trust to pay specified amounts due under the Swap Agreement will be subject to the following conditions precedent: (1) no Swap Default or event that with the giving of notice or lapse of time or both would become a Swap Default will have occurred and be continuing with respect to the Swap Agreement and (2) no Early Termination Date has occurred or been effectively designated with respect to the Swap Agreement.
 
In addition, there are Additional Termination Events relating to the Supplemental Interest Trust, including if the Supplemental Interest Trust or the Trust Fund should terminate, if the Trust Agreement is amended in a manner adverse to the Swap Counterparty without the prior written consent of the Swap Counterparty where written consent is required or if, pursuant to the terms of the Trust Agreement, the Master Servicer exercises its option to purchase the Mortgage Loans. With respect to the Swap Counterparty, an Additional Termination Event will occur if any applicable short-term or long-term credit rating of the Swap Counterparty is downgraded below the specified levels set forth in the Swap Agreement and the Swap Counterparty fails to either post collateral or obtain a substitute Swap Counterparty, as more specifically described below.
 
Upon the occurrence of any Swap Default under the Swap Agreement, the non-defaulting party will have the right to designate an Early Termination Date. With respect to Termination Events, an Early Termination Date may be designated by one of the parties (as specified in the Swap Agreement) and will occur only upon notice and, in some circumstances, after any Affected Party has used reasonable efforts to transfer its rights and obligations under the Swap Agreement to a related entity within a specified period after notice has been given of the Termination Event, all as set forth in the Swap Agreement.
S-45

 
Upon any Swap Early Termination, the Supplemental Interest Trust or the Swap Counterparty may be liable to make a Swap Termination Payment to the other (regardless, if applicable, of which of the parties has caused the termination). The Swap Termination Payment will be based on the value of the Swap Agreement computed in accordance with the procedures set forth in the Swap Agreement taking into account the present value of the unpaid amounts that would have been owed by the Supplemental Interest Trust or the Swap Counterparty under the remaining scheduled term of the Swap Agreement. In the event that the Supplemental Interest Trust is required to make a Swap Termination Payment, such payment will be paid from the Trust Fund on the Business Day prior to the related Distribution Date, and on the Business Day prior to any subsequent Distribution Dates until paid in full, prior to distributions to Certificateholders.
 
If the Swap Counterparty’s applicable short-term or long-term credit rating by any Rating Agency falls below the applicable levels specified in the Swap Agreement, the Swap Counterparty will be required either to (1) post collateral securing its obligations under the Swap Agreement or (2) obtain a substitute swap counterparty acceptable to the Trustee and the Rating Agencies that will assume the obligations of the Swap Counterparty under the Swap Agreement, all as provided in the Swap Agreement.
 
The Swap Counterparty is permitted to transfer its rights and obligations to another party, provided, that such replacement swap counterparty assumes all the obligations of the Swap Counterparty as set forth in the Swap Agreement and the Rating Agencies confirm in writing that as a result of such transfer, the Offered Certificates and the Class B Certificates will not be downgraded, all as provided in the Swap Agreement.
 
Interest Rate Cap Agreement. On or prior to the Closing Date, the Trustee, on behalf of the Supplemental Interest Trust, will enter into the Interest Rate Cap Agreement for the benefit of the Offered Certificates and the Class B Certificates.
 
Under the terms of the Interest Rate Cap Agreement, in exchange for a fixed payment made on behalf of the Supplemental Interest Trust on the Closing Date, the Cap Counterparty is obligated to pay to the Supplemental Interest Trust at least one Business Day prior to each Distribution Date, commencing with the Distribution Date in June 2007 and ending with the Distribution Date in June 2011, one month’s interest calculated at an annual rate equal to the excess, if any, of LIBOR (as determined pursuant to the Interest Rate Cap Agreement) over the strike rate on the Scheduled Notional Amount for the related Distribution Date, multiplied by a fraction, the numerator of which is the actual number of days in the Accrual Period related to such Distribution Date and the denominator of which is 360. The strike rate is equal to 6.00%. The initial Scheduled Notional Amount will equal approximately $2,936,000 for the Distribution Date in June 2007.
 
The Interest Rate Cap Agreement will terminate after the Distribution Date in June 2011.
 
The Interest Rate Cap Agreement and any payments made by the Cap Counterparty thereunder will be assets of the Supplemental Interest Trust but will not be assets of any REMIC.
 
The Trustee will establish the Interest Rate Cap Account, into which the Sponsor will make an initial deposit of $1,000 on the Closing Date. The Trustee will deposit into the Interest Rate Cap Account any payments received by the Trustee under the Interest Rate Cap Agreement, and the Trustee will distribute from the Interest Rate Cap Account any Interest Rate Cap Amount pursuant to the priority of payments set forth under “—Application of Deposits and Payments Received by the Supplemental Interest Trust—Interest Rate Cap Agreement” below.
 
ABN AMRO may be replaced as Cap Counterparty if the aggregate significance percentage of the Swap Agreement and the Cap Agreement is equal to or greater than 6%.
 
The Cap Counterparty. The Cap Counterparty is the same entity as the Swap Counterparty. See “—The Supplemental Interest Trust—The Swap Counterparty” above.
 
Application of Deposits and Payments Received by the Supplemental Interest Trust.
 
Interest Rate Swap Agreement. The Interest Rate Swap Amount will, on each Distribution Date (or, in the case of payments to the Swap Counterparty, the Business Day prior to each Distribution Date), be distributed from the Interest Rate Swap Account, after making all distributions under “—Application of Monthly Excess Cashflow” above, in the following order of priority:
S-46

 
(1)           to the Swap Counterparty, any Net Swap Payment owed to the Swap Counterparty pursuant to the Swap Agreement for the related Distribution Date;
 
(2)           to the Swap Counterparty, any unpaid Swap Termination Payment not due to a Swap Counterparty Trigger Event owed to the Swap Counterparty pursuant to the Swap Agreement;
 
(3)           to the Senior Certificates, Current Interest and any Carryforward Interest for each such class for such Distribution Date pursuant to clause (B)(i) under “—Distributions of Interest—Interest Distribution Priorities” above to the extent unpaid;
 
(4)           to the Offered Subordinate Certificates and the Class B Certificates, in accordance with the Subordinate Priority, Current Interest and any Carryforward Interest for each such class and such Distribution Date to the extent unpaid;
 
(5)           to the Offered Certificates and the Class B Certificates, any amount necessary to maintain the applicable target amounts specified in clauses (1) and (2) under “—Credit Enhancement—Application of Monthly Excess Cashflow” above for such Distribution Date, for application pursuant to the priorities set forth in such clauses, after giving effect to distributions pursuant to such clauses;
 
(6)           to the Offered Subordinate Certificates and the Class B Certificates, in accordance with the Subordinate Priority, any Deferred Amount for each such class and such Distribution Date to the extent unpaid;
 
(7)           to the Senior Certificates, any Basis Risk Shortfalls and Unpaid Basis Risk Shortfalls for each such class and for such Distribution Date, for application pursuant to the priorities set forth in clause (4)(a) under “—Credit Enhancement—Application of Monthly Excess Cashflow” above, to the extent unpaid;
 
(8)           to the Offered Subordinate Certificates and the Class B Certificates, any Basis Risk Shortfalls and Unpaid Basis Risk Shortfalls for each such class and for such Distribution Date, for application pursuant to the priorities set forth in clause (4)(b) under “—Credit Enhancement—Application of Monthly Excess Cashflow” above, to the extent unpaid;
 
(9)           if applicable, for application to the purchase of a replacement interest rate swap agreement;
 
(10)          to the Swap Counterparty, any unpaid Swap Termination Payment triggered by a Swap Counterparty Trigger Event owed to the Swap Counterparty pursuant to the Swap Agreement; and
 
(11)          to the Class X Certificates, any amount deposited into the Interest Rate Swap Account as described under “—Credit Enhancement—Application of Monthly Excess Cashflow” above and any remaining Interest Rate Swap Amount.
 
With respect to each Distribution Date, the sum of all amounts distributed pursuant to clauses (5) and (6) above will not exceed cumulative Realized Losses incurred as reduced by amounts previously distributed pursuant to clauses (5) and (6) above together with amounts previously distributed pursuant to clauses (3) and (4) under “—Interest Rate Cap Agreement” below.
 
Interest Rate Cap Agreement. The Interest Rate Cap Amount will, on each Distribution Date, be distributed from the Interest Rate Cap Account, after making all distributions under “—Interest Rate Swap Agreement” above, in the following order of priority:
 
(1)           to the Senior Certificates, Current Interest and any Carryforward Interest for each such class for such Distribution Date pursuant to clause (3) under “—Interest Rate Swap Agreement” above (such shortfall in Current Interest and Carryforward Interest to be allocated among such classes in proportion to the amount of Current Interest and Carryforward Interest that would have otherwise been distributable thereon), to the extent unpaid;
S-47

 
(2)           to the Offered Subordinate Certificates and the Class B Certificates, in accordance with the Subordinate Priority, Current Interest and any Carryforward Interest for each such class and such Distribution Date; to the extent unpaid;
 
(3)           to the Offered Certificates and the Class B Certificates, any amount necessary to maintain the applicable target amounts specified in clauses (1) and (2) under “—Credit Enhancement—Application of Monthly Excess Cashflow” above for such Distribution Date, for application pursuant to the priorities set forth in such clauses, after giving effect to distributions pursuant to such clauses;
 
(4)           to the Offered Subordinate Certificates and the Class B Certificates, in accordance with the Subordinate Priority, any Deferred Amount for each such class and such Distribution Date to the extent unpaid;
 
(5)           to the Senior Certificates, any Basis Risk Shortfalls and Unpaid Basis Risk Shortfalls for each such class and for such Distribution Date, for application pursuant to the priorities set forth in clause (4)(a) under “—Credit Enhancement—Application of Monthly Excess Cashflow” above, to the extent unpaid;
 
(6)           to the Offered Subordinate Certificates and the Class B Certificates, any Basis Risk Shortfalls and Unpaid Basis Risk Shortfalls for each such class and for such Distribution Date, for application pursuant to the priorities set forth in clause (4)(b) under “—Credit Enhancement—Application of Monthly Excess Cashflow” above, to the extent unpaid;
 
(7)           if applicable, for application to the purchase of a replacement interest rate cap agreement; and
 
(8)           to the Class X Certificates, any remaining Interest Rate Cap Amount.
 
With respect to each Distribution Date, the sum of all amounts distributed pursuant to clauses (3) and (4) above will not exceed cumulative Realized Losses incurred as reduced by amounts previously distributed pursuant to clauses (3) and (4) above together with amounts previously distributed pursuant to clauses (5) and (6) under “—Interest Rate Swap Agreement” above.
 
Optional Purchase of the Mortgage Loans
 
On the Initial Optional Termination Date, the Master Servicer, with the prior written consent of the NIMS Insurer and LBH (which consent will not be unreasonably withheld), will have the option to purchase the Mortgage Loans, any REO Property and any other property remaining in the Trust Fund for a price equal to the Purchase Price. The Master Servicer, the Trustee, the Securities Administrator, each Servicer and each Custodian will be reimbursed from the Purchase Price for (i) any outstanding Advances, servicing advances and unpaid Servicing Fees, as applicable and (ii) any other amounts due under the Trust Agreement, the Servicing Agreements or the Custodial Agreements, as applicable. If the Master Servicer fails to exercise such option, the NIMS Insurer will have the right to direct the Master Servicer to exercise such option so long as it is insuring the NIM Securities or is owed any amounts in connection with such guaranty of the NIM Securities. If such option is exercised, the Trust Fund will be terminated. If the Master Servicer fails to exercise such option (either voluntarily or at the direction of the NIMS Insurer) on the Initial Optional Termination Date, the margin of each class of Offered Certificates will be increased as described under “Summary of Terms—The Certificates—Payments on the Certificates—Interest Payments” herein, and the margin of the Class B1 and Class B2 Certificates will be increased as described under “Glossary of Defined Terms—B1 Interest Rate” and “—B2 Interest Rate,” respectively.
 
The Trust Agreement will provide that if there are NIMS Securities outstanding on the date on which the Master Servicer intends to exercise its option to purchase the assets of the Trust Fund, the Master Servicer may only exercise its option with the prior written consent of 100% of the holders of the NIMS Securities and upon payment of an additional amount which will retire any amounts of principal and/or interest due to the holders of the NIMS Securities.
S-48

 
Fees and Expenses of the Trust Fund
 
In consideration of their duties on behalf of the Trust Fund, the Servicers, the LPMI Providers, the Master Servicer, the Trustee, the Securities Administrator and the Credit Risk Manager will receive from the assets of the Trust Fund certain fees as set forth in the following table:
 
Fee Payable to:
Frequency
of Payment:
Amount of Fee:
How and When
Fee Is Payable:
       
Servicers
monthly
For each Mortgage Loan, (i) a monthly fee paid to each Servicer out of interest collections received from the related Mortgage Loan calculated as the product of (a) the outstanding principal balance of each Mortgage Loan and (b) 0.50% per annum and (ii) all investment earnings on amounts on deposit in the related Servicing Account.
Withdrawn from the related Servicing Account in respect of each Mortgage Loan serviced by the related Servicer, before payment of any amounts to Certificateholders.
       
LPMI Providers
monthly
For any Mortgage Loan covered by an LPMI Policy, the product of the outstanding Scheduled Principal Balance of the related Mortgage Loan and the following applicable Insurance Fee Rate:
Payable out of funds on deposit in the Collection Account or the related Servicing Account, as applicable, before payment of any amounts to Certificateholders.
       
   
·  for MGIC, an annual percentage rate of 1.030% of the Scheduled Principal Balance of each 80+ LTV Loan insured under the MGIC Policy;
 
       
   
·  for RMIC, the annual percentage rate set forth in the RMIC Policy with respect to each 80+ LTV Loan covered by the RMIC Policy of between 0.150% and 2.750% (with a weighted average as of the Cut-off Date of approximately 1.734%) of the Scheduled Principal Balance of each Mortgage Loan insured under the RMIC Policy; or
 
       
   
·  for PMI, the annual percentage rate set forth in the PMI Policy with respect to each 80+ LTV Loan covered by the PMI Policy of between 0.448% and 2.746% (with a weighted average as of the Cut-off Date of approximately 1.470%) of the Scheduled Principal Balance of each Mortgage Loan insured under the PMI Policy.
 
 
S-49

 
Fee Payable to:
Frequency
of Payment:
Amount of Fee:
How and When
Fee Is Payable:
       
Master Servicer
monthly
All investment earnings on amounts on deposit in the Collection Account, and any investment earnings on amounts on deposit in the Certificate Account after payment to the Trustee of any of the Trustee’s fee remaining unpaid from the Securities Administration Account, as described below.
Retained by the Master Servicer.
       
Trustee
annually
A fixed annual fee of $4,000.
Payable from investment earnings on amounts on deposit in the Securities Administration Account and, if not sufficient, from investment earnings on amounts on deposit in the Certificate Account.
       
Securities
Administrator
monthly
All investment earnings on amounts on deposit in the Securities Administration Account less any payment of the Trustee’s fee.
Retained by the Securities Administrator.
       
Credit
RiskManager
monthly
0.011% per annum on the Scheduled Principal Balance of each Mortgage Loan.
Payable after payments of interest have been made to Certificateholders.

The Servicing Fees set forth in the table above may not be increased without amendment of the applicable Servicing Agreement as described under “Mortgage Loan Servicing—Amendment of the Servicing Agreements” below. None of the other fees set forth in the table above may be changed without amendment of the Trust Agreement as described under “The Trust Agreement—Certain Matters Under the Trust Agreement—Amendment of the Trust Agreement” below.
 
Fees to the Cap Counterparty in consideration of the Cap Counterparty’s entering into the Interest Rate Cap Agreement will be paid by LBH on or prior to the Closing Date and will not be payable from the assets of the Trust Fund.
 
Expenses of the Servicers, the Custodians, the Master Servicer and the Securities Administrator will be reimbursed before payments are made on the Certificates. Expenses of the Trustee will be reimbursed up to $200,000 annually before payments of interest and principal are made on the Certificates; any additional unpaid expenses above $200,000 in any anniversary year will be paid to the Trustee to the extent of any remaining Interest Remittance Amount after all payments of Current Interest and any Carryforward Interest on the Certificates and payment of the Credit Risk Manager’s Fee.
 
Description of the Mortgage Pools
 
General
 
Except where otherwise specifically indicated, the discussion that follows and the statistical information presented therein are derived solely from the characteristics of the Mortgage Loans as of the Cut-off Date. Whenever reference is made herein to the characteristics of the Mortgage Loans or to a percentage of the Mortgage Loans, unless otherwise specified, that reference is based on the Cut-off Date Balance.
S-50

 
The Trust Fund will primarily consist of approximately 12,510 conventional, adjustable and fixed rate, fully amortizing and balloon, first and second lien, residential Mortgage Loans, all of which have original terms to maturity from the first due date of the Scheduled Payment of not more than 40 years and have a Cut-off Date Balance (after giving effect to Scheduled Payments due on such date) of approximately $2,446,422,263.
 
Approximately 45.36%, 38.43%, 0.86% and 0.22% of the Mortgage Loans were acquired by the Seller or the Bank from BNC, New Century, LBB and Finance America, respectively. The remaining 15.14% of Mortgage Loans were acquired by the Seller or the Bank by various other originators. Underwriting guidelines of the type described under “Origination of the Mortgage Loans and Underwriting Guidelines” were applied by the Originators underwriting the Mortgage Loans. Because, in general, such Underwriting Guidelines are less strict than Fannie Mae or Freddie Mac guidelines, the Mortgage Loans are likely to experience higher rates of delinquency, foreclosure and bankruptcy than if they had been underwritten to a higher standard. The Mortgage Loans will be acquired by the Depositor from the Seller and the Depositor will, in turn, convey such Mortgage Loans to the Trust Fund. See “The Trust Agreement—Assignment of Mortgage Loans.”
 
Approximately 3,623 (or 17.17%) of the Mortgage Loans are Fixed Rate Mortgage Loans and approximately 8,887 (or 82.83%) of the Mortgage Loans are Adjustable Rate Mortgage Loans, as described in more detail under “—Adjustable Rate Mortgage Loans” below. Interest on the Mortgage Loans accrues on the basis of a 360-day year consisting of twelve 30-day months.
 
Approximately 10,769 (or 95.70%) of the Mortgage Loans are First Lien Mortgage Loans and approximately 1,741 (or 4.30%) are Second Lien Mortgage Loans or deeds of trust or similar security instruments on Mortgaged Properties consisting of residential properties including one- to four-family dwelling units, individual units in planned unit developments, individual condominium units and condotels.
 
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 Mortgaged Property. Generally, a cooperative housing corporation or a condominium association is responsible for maintaining hazard insurance covering the entire building. See “Description of Mortgage and Other Insurance—Hazard Insurance on the Loans” in the prospectus.
 
Approximately 4,708 (or 43.26%) of the Mortgage Loans are 80+ LTV Loans. In the case of the Second Lien Mortgage Loans, all of the related Mortgaged Properties have Combined Loan-to-Value Ratios no greater than 100%. With respect to approximately 82.12%, 74.40% and 81.19%, of the 80+ LTV Loans in Pool 1, Pool 2 and Pool 3, respectively, LBH has acquired initial primary mortgage insurance coverage through MGIC, RMIC or PMI as described under “Primary Mortgage Insurance” below. Second Lien Mortgage Loans are not covered by these primary mortgage insurance policies. Such primary mortgage insurance coverage will generally have the effect of reducing the original Loan to Value Ratios of such 80+ LTV Loans to 60%.
 
Approximately 58.33% of the Adjustable Rate Mortgage Loans and approximately 70.31% of the Fixed Rate Mortgage Loans are fully amortizing. However, approximately 41.67% of the Adjustable Rate Mortgage Loans and approximately 29.69% of the Fixed Rate Mortgage Loans are Balloon Loans. Approximately 7.82% and 92.18% of the Balloon Loans have original terms to maturity of 15 years and 30 years, respectively. The ability of the borrower to repay a Balloon Loan at maturity frequently will depend on such borrower’s ability to refinance the loan. Any loss on a Balloon Loan as a result of the borrower’s inability to refinance the loan will be borne by Certificateholders, to the extent not repaid by the applicable credit enhancement. None of the Servicers, the Master Servicer, the Securities Administrator or the Trustee will make any Advances with respect to delinquent Balloon Payments.
 
Approximately 7.88%, 24.04% and 26.37% of the Mortgage Loans in Pool 1, Pool 2 and Pool 3, respectively, are Interest-Only Mortgage Loans that provide for payment of interest at the related Mortgage Rate, but no payment of principal, for a period of two, five, seven or ten years following the origination of the related Mortgage Loan. Following the applicable interest-only period, the monthly payment with respect to the Interest-Only Mortgage Loans will be increased to an amount sufficient to amortize the principal balance of the Interest-Only Mortgage Loan over its remaining term, and to pay interest at the related Mortgage Rate.
S-51

 
Approximately 67.97% of the Mortgage Loans provide for a Prepayment Premium in connection with certain voluntary, full or partial prepayments made within the Prepayment Premium Period, as described herein. The Prepayment Premium Periods range from six months to three years after origination, in the case of Pool 1 and Pool 2, and six months to five years after origination, in the case of Pool 3. The amount of the applicable Prepayment Premium, to the extent permitted under applicable state law, is as provided in the related mortgage note; for approximately 77.35% of the Mortgage Loans with Prepayment Premiums, this amount is equal to six months’ interest on any amounts prepaid in excess of 20% of the original principal balance during any 12-month period during the applicable Prepayment Premium Period. Prepayment Premiums will not be part of available funds applied to pay interest or principal on the Offered Certificates or the Class B Certificates, but rather will be distributed to the holders of the Class P Certificates. A Servicer may waive (or permit a subservicer to waive) a Prepayment Premium without the consent of the Trustee and the NIMS Insurer (and without reimbursing the Trust Fund from its own funds for any foregone Prepayment Premium) only if (i) the prepayment is not the result of a refinancing by such Servicer or its affiliates and such waiver relates to a default or a reasonably foreseeable default and, in the reasonable judgment of such Servicer, such waiver would maximize recovery of total proceeds from the Mortgage Loan, taking into account the value of the Prepayment Premium and the related Mortgage Loan or (ii) such waiver relates to a Prepayment Premium the collection of which would, in the reasonable judgment of the related Servicer, be in violation of law. The Servicers will be obligated to deposit with the Master Servicer from their own funds the amount of any Prepayment Premium to the extent not collected from a borrower (except with respect to a waiver of any such Prepayment Premium as described above).
 
As of the Cut-off Date, approximately 99.88% of the Mortgage Loans were less than 30 days delinquent in payment and approximately 0.12% of the Mortgage Loans were at least 30 but less than 60 days delinquent in payment. The delinquency status of a mortgage loan is determined as of the due date in the following month in accordance with the OTS method, so that, for example, if a borrower failed to make a monthly payment due on May 1 by May 31, that mortgage loan would be considered less than 30 days delinquent in payment. If a borrower failed to make a monthly payment due on April 1 by May 31, that mortgage loan would be considered to be at least 30 but less than 60 days delinquent in payment. Certain historical delinquency information is provided in Annex A to this prospectus supplement.
 
As of the Cut-off Date, none of the Mortgage Loans in the Trust Fund will be “high cost” loans under applicable federal, state or local anti-predatory or anti-abusive lending laws.
 
As earlier described under “Description of the Certificates—General,” the Mortgage Loans in the Trust Fund have been divided into three Mortgage Pools (Pool 1, Pool 2 and Pool 3) for the purpose of allocating interest and principal distributions among the Senior Certificates. On the Closing Date:
 
Pool 1 will consist of approximately (i) 1,778 Fixed Rate Mortgage Loans having an aggregate Cut-off Date Balance of approximately $173,280,742 and (ii) 3,665 Adjustable Rate Mortgage Loans having an aggregate Cut-off Date Balance of approximately $731,530,627; and
 
Pool 2 will consist of approximately (i) 552 Fixed Rate Mortgage Loans having an aggregate Cut-off Date Balance of approximately $69,147,478 and (ii) 2,086 Adjustable Rate Mortgage Loans having an aggregate Cut-off Date Balance of approximately $404,064,005.
 
Pool 3 will consist of approximately (i) 1,293 Fixed Rate Mortgage Loans having an aggregate Cut-off Balance of approximately $177,726,546 and (ii) 3,136 Adjustable Rate Mortgage Loans having an aggregate Cut-off Date Balance of approximately $890,672,863.
 
Other important statistical characteristics of each Mortgage Pool are described in Annex A to this prospectus supplement.
 
Adjustable Rate Mortgage Loans
 
All of the Adjustable Rate Mortgage Loans are Six-Month LIBOR Mortgage Loans. There will be corresponding adjustments to the monthly payment amount for each Adjustable Rate Mortgage Loan on the related Adjustment Date. In the case of approximately 0.06% of the Adjustable Rate Mortgage Loans, such adjustment will occur after an initial period of approximately six months following origination; in the case of approximately 92.08% of the Adjustable Rate Mortgage Loans, such adjustment will occur after an initial period of approximately two years following origination; in the case of approximately 6.72% of the Adjustable Rate Mortgage Loans, such adjustment will occur approximately three years following origination; and in the case of approximately 1.15% of the Adjustable Rate Mortgage Loans, such adjustment will occur approximately five years following origination.
S-52

 
On each Adjustment Date for an Adjustable Rate Mortgage Loan, the Mortgage Rate will be adjusted to equal the sum, rounded generally to the nearest multiple of 1/8%, of the Index and the Gross Margin, provided that the Mortgage Rate on each such Adjustable Rate Mortgage Loan will not increase or decrease by more than the related Periodic Cap on any related Adjustment Date and will not exceed the related Maximum Rate or be less than the related Minimum Rate. The Mortgage Rate generally will not increase or decrease on the first Adjustment Date by more than the Initial Cap; the Initial Caps range from 1.000% to 6.000% for all of the Adjustable Rate Mortgage Loans. Effective with the first monthly payment due on each Adjustable Rate Mortgage Loan after each related Adjustment Date, the monthly payment amount will be adjusted to an amount that will amortize fully the outstanding principal balance of the related Mortgage Loan over its remaining term, and pay interest at the Mortgage Rate as so adjusted. Due to the application of the Initial Cap, Periodic Cap and Maximum Rates, the Mortgage Rate on each such Adjustable Rate Mortgage Loan, as adjusted on any related Adjustment Date, may be less than the sum of the Index and the related Gross Margin, rounded as described herein. See “—The Index” below.
 
The Adjustable Rate 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 all of the Adjustable Rate Mortgage Loans will be an index based on Six-Month LIBOR as most recently available either as of (1) the first business day a specified period of time prior to such Adjustment Date or (2) the first business day of the month preceding the month of such Adjustment Date. In the event that Six-Month LIBOR becomes unavailable or otherwise unpublished, the Master Servicer will select a comparable alternative index over which it has no direct control and which is readily verifiable.
 
Primary Mortgage Insurance
 
Approximately 46.99%, 52.58% and 35.98% of the Mortgage Loans in Pool 1, Pool 2 and Pool 3, respectively, are 80+ LTV Loans. See “Description of the Mortgage Pools—General.” Three loan-level primary mortgage insurance policies will be acquired on behalf of the Trust Fund from MGIC, RMIC and PMI. The MGIC Policy will be acquired on or prior to the Closing Date from MGIC with respect to approximately 42.46%, 41.01% and 46.29% of the 80+ LTV Loans in Pool 1, Pool 2 and Pool 3, respectively. The RMIC Policy will be acquired on or prior to the Closing Date from RMIC with respect to approximately 15.96%, 18.47% and 15.49% of the 80+ LTV Loans in Pool 1, Pool 2 and Pool 3, respectively. The PMI Policy will be acquired on or prior to the Closing Date from PMI with respect to approximately 23.70%, 14.91% and 19.42% of the 80+ LTV Loans in Pool 1, Pool 2 and Pool 3, respectively.
 
The LPMI Policies are subject to various limitations and exclusions as described above or as provided in the applicable LPMI Policy, and will provide only limited protection against losses on defaulted Mortgage Loans.
 
Mortgage Guaranty Insurance Corporation. MGIC is a wholly owned subsidiary of MGIC Investment Corporation. As of the date of this prospectus supplement, MGIC had insurer financial strength ratings of “AA” from S&P and “Aa2” from Moody’s. The rating agencies issuing the insurer financial strength rating with respect to MGIC can withdraw or change its rating at any time. As of March 31, 2006, MGIC reported on a statutory accounting basis, assets of approximately $7,241,580,000, policyholders’ surplus of approximately $1,506,656,000 and a statutory contingency reserve of approximately $4,531,725,000. As of March 31, 2006, MGIC reported direct primary insurance in force of approximately $166.9 billion and direct pool risk in force of approximately $7.3 billion. An Annual Statement for MGIC for the year ended December 31, 2005, prepared on the Convention Form prescribed by the National Association of Insurance Commissioners, is available upon written request from the Trustee. For further information regarding MGIC, investors are directed to MGIC Investment Corporation’s periodic reports filed with the United States Securities and Exchange Commission, which are publicly available.
S-53

 
The MGIC Policy covers approximately 42.46%, 41.01% and 46.29% of the 80+ LTV Loans in Pool 1, Pool 2 and Pool 3, respectively. The MGIC Policy does not cover any Mortgage Loans 60 days or more delinquent in payment as of the Cut-off Date. Each Mortgage Loan covered by the MGIC Policy is covered for losses up to the policy limits; provided, however, that the MGIC Policy will not cover special hazard, bankruptcy or fraud losses or certain other types of losses as provided in such MGIC Policy. Claims on insured Mortgage Loans generally will reduce uninsured exposure to an amount equal to 60% of the lesser of the appraised value as of the origination date or the purchase price, as the case may be, of the related Mortgaged Property, subject to conditions, exceptions and exclusions and assuming that any pre-existing primary mortgage insurance policy covering the Mortgage Loans remains in effect and a full claim settlement is made thereunder.
 
The MGIC Policy is required to remain in force with respect to each Mortgage Loan covered thereunder until (i) the principal balance of the Mortgage Loan is paid in full; or (ii) the principal balance of the Mortgage Loan has amortized down to a level that results in a loan-to-value ratio for the Mortgage Loan of 55% or less (provided, however, that no coverage of any Mortgage Loan under such MGIC Policy is required where prohibited by applicable law); or (iii) any event specified in the MGIC Policy occurs that allows for the termination of the MGIC Policy by MGIC or cancellation of the MGIC Policy by the insured.
 
The MGIC Policy may not be assigned or transferred without the prior written consent of MGIC; provided, however, that MGIC has previously provided written consent to (i) the assignment of coverage on individual Mortgage Loans from the Trustee to the Seller in connection with any Mortgage Loan repurchased or substituted for by the Seller and (ii) the assignment of coverage on all Mortgage Loans from the Trustee to any successor Trustee, provided that in each case, prompt notice of such assignment is provided to MGIC.
 
The MGIC Policy generally requires that delinquencies on any Mortgage Loan insured thereunder must be reported to MGIC within four months of default, that reports regarding the delinquency of the Mortgage Loan must be submitted to MGIC on a monthly basis thereafter, and that appropriate proceedings to obtain title to the property securing such Mortgage Loan must be commenced within six months of default. As a condition to submitting a claim under the MGIC Policy, the insured must have (i) acquired, and tendered to MGIC, good and merchantable title to the property securing the Mortgage Loan, free and clear of all liens and encumbrances, including, but not limited to, any right of redemption by the mortgagor unless such acquisition of good and merchantable title is excused under the terms of such MGIC Policy, and (ii) if the Mortgage Loan is covered by a pre-existing primary mortgage insurance policy, a claim must be submitted and settled under such pre-existing primary mortgage insurance policy within the time frames specified in the MGIC Policy.
 
The claim amount generally includes unpaid principal, accrued interest to the date of such tender to MGIC by the insured, and certain expenses (less the amount of a full claim settlement under any pre-existing primary mortgage insurance policy covering the Mortgage Loan). When a claim is presented, MGIC will have the option of either (i) paying the claim amount and taking title to the property securing the Mortgage Loan, (ii) paying the insured a percentage of the claim amount (without deduction for a claim settlement under any pre-existing primary mortgage insurance policy covering the Mortgage Loan) and with the insured retaining title to the property securing such Mortgage Loan, or (iii) if the property securing the Mortgage Loan has been sold to a third party with the prior approval of MGIC, paying the claim amount reduced by the net sale proceeds as described in the MGIC Policy to reflect the actual loss.
 
Claims generally must be filed within 60 days after the insured has acquired good and merchantable title to the property securing the Mortgage Loan or such property has been sold to a third party with the prior approval of MGIC. A claim generally must be paid within 60 days after the claim is filed by the insured. No payment for a loss will be made under the MGIC Policy unless the property securing the Mortgage Loan is in the same physical condition as when such Mortgage Loan was originally insured, except for reasonable wear and tear, and unless premiums on the standard homeowners’ insurance policy, real estate taxes and foreclosure protection and preservation expenses have been advanced by or on behalf of the insured.
S-54

 
If a claim submitted under the MGIC Policy is incomplete, MGIC is required to provide notification of all information and documentation required to perfect the claim within 20 days of MGIC’s receipt of such incomplete claim. In such case, payment of the claim will be suspended until such information and documentation are provided to MGIC, provided that MGIC is not required to pay the claim if it is not perfected within 180 days after its initial filing.
 
Unless approved in writing by MGIC, no changes may be made to the terms of the Mortgage Loan, including the borrowed amount, interest rate, term or amortization schedule, except as specifically permitted by the terms of the Mortgage Loan; nor may the lender make any change in the property or other collateral securing the Mortgage Loan, nor may any mortgagor be released under the Mortgage Loan from liability. If a Mortgage Loan is assumed with the insured’s approval, MGIC’s liability for coverage of the Mortgage Loan under the MGIC Policy generally will terminate as of the date of such assumption unless MGIC approves the assumption in writing. In addition, with respect to any Mortgage Loan covered by the MGIC Policy, the applicable Servicer must obtain the prior approval of MGIC in connection with any acceptance of a deed in lieu of foreclosure or of any sale of the property securing the Mortgage Loan.
 
The MGIC Policy excludes coverage of: (i) any claim where the insurer under any pre-existing primary mortgage insurance policy has acquired the property securing the Mortgage Loan, (ii) any claim resulting from a default occurring after lapse or cancellation of coverage, (iii) certain claims resulting from a default existing at the inception of coverage; (iv) certain claims where there is an environmental condition which existed on the property securing the Mortgage Loan (whether or not known by the person or persons submitting an application for coverage of the Mortgage Loan) as of the effective date of coverage; (v) any claim, if the mortgage, deed of trust or other similar instrument did not provide the insured at origination with a first lien on the property securing the Mortgage Loan; (vi) certain claims involving or arising out of any breach by the insured of its obligations under, or its failure to comply with, the terms of the MGIC Policy or of its obligations as imposed by operation of law; (vii) certain claims resulting from physical damage to a property securing a Mortgage Loan; (viii) any claim arising from the failure of the borrower under a covered Mortgage Loan to make any balloon payment, if applicable, under such Mortgage Loan, and (ix) any claim submitted in connection with a Mortgage Loan if the Mortgage Loan did not meet MGIC’s requirements applicable to the origination of the Mortgage Loan.
 
In issuing the MGIC Policy, MGIC has relied upon certain information and data regarding the Mortgage Loans furnished to them by the Seller. The MGIC Policy will not insure against certain losses sustained by reason of a default arising from or involving certain matters, including (i) misrepresentation made, or knowingly participated in, by the lender, other persons involved in the origination of the Mortgage Loan or the application for insurance, or made by any appraiser or other person providing valuation information regarding the property securing the Mortgage Loan; (ii) negligence or fraud by the applicable Servicer of the Mortgage Loan, and (iii) failure to construct a property securing a Mortgage Loan in accordance with specified plans. The MGIC Policy permits MGIC to cancel coverage of a Mortgage Loan under the MGIC Policy or deny any claim submitted under the MGIC Policy in connection with a Mortgage Loan if the insured fails to furnish MGIC with copies of all documents in connection with the origination or servicing of a covered Mortgage Loan.
 
The preceding description of the MGIC Policy is only a brief outline and does not purport to summarize or describe the provisions, terms and conditions of the MGIC Policy. For a more complete description of these provisions, terms and conditions, reference is made to the MGIC Policy, a copy of which is available upon request from the Trustee.
 
Republic Mortgage Insurance Company.
 
General. Republic Mortgage Insurance Company, or RMIC, a North Carolina corporation, with administrative offices located at 190 Oak Plaza Boulevard in Winston-Salem, North Carolina 27105, is a monoline private mortgage insurance company. RMIC was organized in December 1972 and commenced business in March 1973, to provide primary mortgage guaranty insurance coverage on residential mortgage loans, as well as mortgage portfolio and pool insurance policies which enhance insurance coverage for various types of mortgage related securities. RMIC is a wholly owned subsidiary of Old Republic Mortgage Guaranty Group, Inc., a Delaware corporation, which is a wholly owned subsidiary of Old Republic International Corporation (NYSE: ORI) (“Old Republic”), a Delaware corporation based in Chicago, Illinois. RMIC is licensed in 49 states and the District of Columbia to offer such insurance and is approved as a private mortgage insurer by Freddie Mac and Fannie Mae.
S-55

 
An Annual Statement for RMIC for the years ended December 31, 2004 and 2005, prepared on the Convention Form prescribed by the National Association of Insurance Commissioners, is available upon request from the Trustee. As of December 31, 2004, RMIC reported on its annual report, which is maintained on a statutory accounting basis, assets of $1,660,956,496, policyholders’ surplus of $138,580,663 and a statutory contingency reserve of $1,285,160,465. As of December 31, 2005, RMIC reported on its annual report, which is maintained on a statutory accounting basis, assets of $1,659,577,852, policyholders’ surplus of $272,737,922 and a statutory contingency reserve of $1,022,579,436. As of March 31, 2006, RMIC reported on its unaudited quarterly report, which is maintained on a statutory accounting basis, assets of $1,547,389,432, policyholders’ surplus of $235,872,455 and a statutory contingency reserve of $1,063,268,279.
 
The financial strength of RMIC is rated “Aa3” by Moody’s, “AA” by S&P and “AA” by Fitch. Each rating of RMIC should be evaluated independently. The ratings reflect each respective Rating Agency’s current assessment of the creditworthiness of RMIC and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable Rating Agency.
 
The above ratings are not recommendations to buy, sell or hold the Certificates, and such ratings may be subject to revision or withdrawal at any time by the Rating Agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Certificates. RMIC does not guaranty the market price of the Certificates nor does it guaranty that the ratings on the Certificates will not be revised or withdrawn.
 
The RMIC Policy. The following summary of the RMIC Policy does not purport to describe all of the provisions of the RMIC Policy.
 
The RMIC Policy insures a portion of the loss that may be incurred on each Mortgage Loan insured thereunder. The RMIC Policy covers approximately 15.96%, 18.47% and 15.49% of the 80+ LTV Loans in Pool 1, Pool 2 and Pool 3, respectively.
 
Mortgage Loans with Loan-to-Value Ratios in excess of 80% (determined based on (i) the Mortgaged Property value used by the related originator to compute the original Loan-to-Value Ratio of the related Mortgage Loan and (ii) the principal balance of the related Mortgage Loan as of the date of the data file upon which RMIC bid to provide the RMIC Policy relating to the covered Mortgage Loans) that are otherwise eligible for coverage are sometimes referred to as RMIC Covered Loans.
 
The maximum amount of coverage under the RMIC Policy for each RMIC Covered Loan covered is equal to the lesser of:
 
 
(i)
the actual loss,
 
 
(ii)
$250,000 and
 
 
(iii)
the product of (x) the “Specified Coverage Amount” set forth in the table below and (y) the Claim Amount (as defined below) (exclusive of any principal payments paid or payable pursuant to any other primary mortgage insurance policy covering the Mortgage Loan, if applicable) of that RMIC Covered Loan.
 
S-56

 
Loan-to-Value Ratio as of the Cut-off Date
Specified Coverage Amount
Greater than 80% to 85%
30%
Greater than 85% to 90%
34%
Greater than 90% to 95%
37%
  Greater than 95% to 100%
40%
 
Thus, the covered portion of any loss on a defaulted Mortgage Loan will differ depending upon the Loan-to-Value Ratio of the RMIC Covered Loan.
 
The RMIC Policy does not cover Mortgage Loans having Loan-to-Value Ratios of less than or equal to 80% or greater than 100% (determined based on (i) the Mortgaged Property value used by the related Originator to compute the original Loan-to-Value Ratio of the related Mortgage Loan and (ii) the principal balance of the related mortgage as of the date of the data file upon which RMIC bid to provide a RMIC Policy relating to the covered Mortgage Loans). In addition, in order for an RMIC Covered Loan to be eligible for coverage under the RMIC Policy the loan must not be more than 30 days past due as of the Cut-off Date, and housing payments may not have been (i) 30 days delinquent on more than four occasions and 60 days delinquent on any occasion in the last 12 months preceding the Cut-Off Date, or (ii) 30 days delinquent on more than two occasions and 60 days delinquent on more than one occasion in the last 12 months preceding the Cut-off Date. Rolling lates are acceptable (maximum six consecutive months rolling lates equals one 30-day late). A borrower must also have a minimum 24 months since consummation of foreclosure proceedings and a minimum 18 months since bankruptcy discharge, in each case as of the Cut-Off Date. An existing mortgage may be no more than 30 days late at funding.
 
Pursuant to the terms of the RMIC Policy, losses on the Mortgage Loans insured thereunder may be covered in one of the following three ways at the discretion of RMIC:
 
(i)            if the related Mortgaged Property has been foreclosed upon by a related Servicer on behalf of the Trust Fund, RMIC may acquire the related Mortgaged Property for the Claim Amount (as defined below);
 
(ii)            if the related Mortgaged Property is sold to a third party prior to or after foreclosure (and, in either case, such sale has been previously approved by RMIC), then RMIC will pay to the Trust Fund the lesser of (A) the actual loss on the Mortgaged Property, (B) $250,000 or (C) the product of the Specified Coverage Amount (as described in the table above) and the Claim Amount (exclusive of any Mortgage Loan, if applicable); or
 
(iii)            if the related Mortgaged Property had been foreclosed upon by a Servicer and either RMIC elects not to acquire the property or an acceptable sale to a third party is not available at such time, then RMIC will pay to such Servicer an amount equal to the lesser of (A) the actual loss on the Mortgaged Property, (B) $250,000 or (C) the product of the Specified Coverage Amount and the Claim Amount (exclusive of any Mortgage Loan, if applicable).
 
The Claim Amount (the “Claim Amount”) is equal to:
 
(i)            the outstanding scheduled principal balance of the related Mortgage Loan; plus
 
(ii)            accrued and unpaid interest due on the Mortgage Loan computed at the mortgage interest rate through the date that the related claim was filed with RMIC, but excluding applicable late charges, penalty interest, and other changes to the interest rate by reason of the default; plus
 
(iii)            certain expenses after delinquency paid by the insured (such as hazard insurance premiums, taxes, maintenance expenses, attorneys fees and other foreclosure costs); minus
 
(iv)            certain amounts received or held by the insured (such as rental income and escrow deposits).
S-57

 
Under the RMIC Policy, the applicable Servicer is required to perform certain actions as a condition to eventually making a claim for payment. For example, the applicable Servicer is required to submit to RMIC written notice (i) within 45 days with regard to a Mortgage Loan that becomes 45 days delinquent if it occurs when the first payment is due under the Mortgage Loan, or (ii) within ten days of the earlier to occur of either (A) the date when the Mortgage Loan becomes four months delinquent, or (B) the date when legal or administrative actions have been commenced. In addition, the applicable Servicer is required to provide monthly reports regarding the delinquency of any Mortgage Loans covered under the RMIC Policy. The Servicer must make certain advances for the protection and preservation of the related Mortgaged Property. Furthermore, with respect to any Mortgage Loan covered under the RMIC Policy, the Servicer must obtain the prior approval of RMIC in connection with any:
 
(i)            modification by such Servicer of the terms of the related Mortgage Loan;
 
(ii)           assumption by a new borrower;
 
(iii)          acceptance of a deed in lieu of foreclosure; or
 
(iv)          sale of the underlying Mortgaged Property.
 
The applicable Servicer must follow specified procedures for making a claim on a Mortgage Loan covered under the RMIC Policy. When a Mortgage Loan becomes materially delinquent (in any event no later than when the Mortgage Loan becomes six months delinquent) and satisfactory arrangements to bring the Mortgage Loan current are not made, the Servicer must initiate foreclosure proceedings. The Servicer is required to file a claim with RMIC no later than 60 days after acquiring marketable title to the Mortgaged Property. If the Servicer is not required to have title to the Mortgaged Property to file a claim for a reason described in the RMIC Policy, then the claim must be filed (i) within 60 days after the property is conveyed in a pre-foreclosure sale, at the foreclosure sale or by exercise of the rights of redemption, or (ii) at a time otherwise directed by RMIC and communicated to the Servicer.
 
Subject to the conditions and exclusions of the RMIC Policy, RMIC is required to process and pay a claim within 60 days after a fully completed claim has been submitted to RMIC. If a claim filed by the applicable Servicer is incomplete, then RMIC may notify the Servicer within 20 days of receipt of the related claim. RMIC will not be required to make any payment in respect of such incomplete claim until 60 days after submission by the applicable Servicer of the missing or incomplete information. If the Servicer fails to file a fully completed claim with RMIC within 180 days after the filing of the claim (or such longer period as RMIC may allow), the insured will no longer be entitled to payment of a loss under the RMIC Policy.
 
The failure by the applicable Servicer to perform any actions that are a condition for payment of a claim may result either in such claim being excluded from coverage under the RMIC Policy or in the amount of such claim being reduced. In addition, RMIC will not be liable for, and the RMIC Policy will not cover, any claim relating to losses from physical damage or environmental conditions affecting the Mortgaged Property, fraud or misrepresentation by or on behalf of the Trust Fund in obtaining the RMIC Policy, failure of the mortgage to provide the lender with a first priority lien on the related property at origination of the mortgage loan, losses from the applicable Servicer’s negligence or release of the borrower from any portion of its payment obligations, non-compliance with the RMIC Policy and certain other types of losses described in the RMIC Policy. Claim payments under the RMIC Policy will be made to the applicable Servicer.
 
The Master Servicer will cause to be paid from interest collections the premium payable to RMIC for coverage of each insured Mortgage Loan (and any West Virginia, Kentucky or other applicable state taxes relating to such premium). These premiums are calculated as an annual percentage of the Scheduled Principal Balance of each RMIC Covered Loan insured under the RMIC Policy.
 
This description of the RMIC Policy is only a brief summary of the policy and does not purport to be complete with respect to any non-uniform amendment thereto required by a particular jurisdiction. For a more complete description of the provisions, time, and conditions of the RMIC Policy, prospective investors in the Certificates are encouraged to review such policy, copies of which are available upon request from the Trustee and will be filed with the Securities and Exchange Commission.
S-58

 
PMI Mortgage Insurance Co.
 
General. PMI is an Arizona corporation with its administrative offices in Walnut Creek, California. PMI is a monoline mortgage guaranty insurance company founded in 1972 and currently provides primary mortgage guaranty insurance on residential mortgage loans. PMI is a wholly owned subsidiary of The PMI Group, Inc., a publicly traded company (NYSE: PMI). PMI is licensed in 50 states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands to offer mortgage guaranty insurance and is approved as a private mortgage insurer by Freddie Mac and Fannie Mae. As of March 31, 2006, PMI reported, on a statutory accounting basis, admitted assets of $3,587,858,475, policyholders’ surplus of $564,592,751 and a statutory contingency reserve of $2,364,106,123. As of March 31, 2006, PMI reported total insurance in force (including primary and mortgage pool insurance) of $144,758,793,769. A quarterly statement for PMI for the period ended March 31, 2006, prepared on the convention form prescribed by the National Association of Insurance Commissioners, is available upon request from PMI. PMI is rated “AA” by S&P, “AA+” by Fitch and “Aa2” by Moody’s with respect to its claims-paying ability. There is no assurance that the ratings will continue for any given period of time or that they will not be revised or withdrawn entirely by such Rating Agencies if, in their judgment, circumstances so warrant.
 
The ratings reflect each respective Rating Agency’s current assessments of the creditworthiness of PMI and its ability to pay claims on its policies of insurance. Each financial strength rating of PMI should be evaluated independently. Any further explanation as to the significance of the above ratings may be obtained only from the applicable Rating Agency. The above ratings are not recommendations to buy, sell or hold any class of Offered Certificates, and such ratings are subject to revision, qualification or withdrawal at any time by the applicable Rating Agency. Any downward revision, qualification or withdrawal of any of the above ratings may have a material adverse effect on the market prices of the Offered Certificates. PMI does not guaranty the market prices of the Offered Certificates nor does it guaranty that its financial strength ratings will not be revised, qualified or withdrawn.
 
For further information regarding PMI, investors are directed to The PMI Group, Inc.’s periodic reports filed with the Securities and Exchange Commission, which are publicly available.
 
The Mortgage Insurance Policy. The following summary of the PMI Policy does not purport to describe all of the provisions of the PMI Policy. For a more complete description of the terms and conditions of the PMI Policy, reference is made to the form of PMI Policy, a copy of which is available upon request from the Trustee and will be filed with the Securities and Exchange Commission. This description of the PMI Policy is a summary and is qualified by reference to it.
 
The PMI Policy insures a portion of the loss that may be incurred on each Mortgage Loan insured thereunder. Pursuant to the terms of the PMI Policy, losses on the Mortgage Loans insured thereunder may be covered in one of the following three ways at the discretion of PMI: (1) if the related Mortgaged Property has been foreclosed upon by a Servicer, PMI may acquire the related Mortgaged Property from the Trust Fund for the PMI Claim Amount (as defined below); (2) if the related Mortgaged Property is sold to a third party prior to or after foreclosure (and, in either case, such sale has been previously approved by PMI), then PMI will pay to the Trust Fund the lesser of (a) the actual loss on the Mortgaged Property or (b) the PMI Coverage Percentage (as defined below) multiplied by the PMI Claim Amount; or (3) if the related Mortgaged Property has been foreclosed upon by a Servicer and either (a) PMI elects not to acquire the property or (b) an acceptable sale to a third party is not available at such time, then PMI will pay to such Servicer an amount equal to the PMI Coverage Percentage multiplied by the PMI Claim Amount.
 
The claim amount (the “PMI Claim Amount”) is equal to: (1) the outstanding Scheduled Principal Balance of the Mortgage Loan; plus (2) accrued and unpaid interest on the Mortgage Loan at the Mortgage Rate through the date that the related claim was filed with PMI; plus (3) certain advances required to be made by a Servicer, such as hazard insurance premiums, taxes, maintenance expenses and foreclosure costs; minus (4) certain amounts specified in the PMI Policy, including rental income and escrow deposits.
 
The coverage percentage (the “PMI Coverage Percentage”) for a PMI Mortgage Loan is equal to (a) one minus (b) the quotient of (x) 60% divided by (y) the original Loan-to-Value Ratio of such PMI Mortgage Loan; provided, however, that for these purposes (i) the original Loan-to-Value Ratio is rounded up to the nearest whole number (for example, 62.3% will be rounded up to 63% and 64.9% will be rounded up to 65%) and (ii) the value resulting from performing the calculation described in (b) above is rounded up to the nearest whole number (for example, the result of dividing 60% by 63% is approximately 95.24%, which will be rounded up to 96% and 60% divided by 65% is approximately 92.31%, which will be rounded up to 93%).
S-59

 
The PMI Policy is required to remain in force with respect to each Mortgage Loan until (i) the principal balance of such Mortgage Loan is paid in full or liquidated, (ii) optional termination of the trust occurs or (iii) any other event specified in the PMI Policy occurs that allows for the termination of such PMI Policy by PMI. Such events include, but are not limited to, the failure of the insured to pay premiums when due. The applicable Servicer must follow specified procedures for making a claim on a Mortgage Loan covered under the PMI Policy. When a Mortgage Loan becomes materially delinquent and satisfactory arrangements with respect to such Mortgage Loan are not made, the applicable Servicer will initiate foreclosure proceedings. The applicable Servicer is required to file a claim with PMI no later than 60 days after the earlier to occur of (i) acquiring marketable title to the Mortgaged Property or (ii) a pre-arranged sale of the Mortgaged Property in a manner described in the PMI Policy. Subject to the conditions and exclusions of the PMI Policy, PMI is required to process and pay a claim within 60 days after a fully completed claim has been submitted to PMI. If a claim filed by the applicable Servicer is incomplete, then PMI is required to notify such Servicer within 20 days of receipt of the related claim. PMI will not be required to make any payment in respect of such incomplete claim until 60 days after submission by the applicable Servicer of the missing or incomplete information.
 
Under the PMI Policy, the applicable Servicer is required to perform certain actions as a condition to claim payment. For example, the applicable Servicer is required to submit to PMI (a) a legal notice with regard to any Mortgage Loan that becomes 90 days delinquent or with respect to which legal or administrative actions have been commenced and (b) monthly reports regarding the delinquency of any Mortgage Loans covered under the PMI Policy. In addition, with respect to any Mortgage Loan covered under the PMI Policy, the applicable Servicer must obtain the prior approval of PMI in connection with any: (i) modification by such Servicer of the material terms of the related Mortgage Loan, (ii) assumption by a new borrower, (iii) acceptance of a deed in lieu of foreclosure, or (iv) sale of the underlying Mortgaged Property. The failure by the applicable Servicer to perform any actions that condition a claim payment may either result in such claim being excluded from coverage under the PMI Policy or in the amount of such claim being reduced. In addition, the related Mortgaged Property must be in the same physical condition it was when it was originally submitted for insurance under the PMI Policy except for reasonable wear and tear.
 
The PMI Policy may not cover loans where there is material fraud by a First Party (as that term is defined in the PMI Policy) in the origination of the loan or extension of coverage, certain losses from physical damage or environmental conditions, losses from the applicable Servicer’s negligence or non-compliance with the PMI Policy and certain other types of losses described in the PMI Policy. Claim payments under the PMI Policy will be made to the applicable Servicer, deposited in such Servicer’s Servicing Account, and treated in the same manner as other insurance proceeds.
 
Pool 1 Mortgage Loans
 
The Pool 1 Mortgage Loans are expected to have the approximate characteristics as of the Cut-off Date as set forth in Annex A to this prospectus supplement. The sum of the amounts of the aggregate Scheduled Principal Balances and the percentages in the tables in Annex A may not equal the totals due to rounding.
 
Prior to the issuance of the Certificates, Mortgage Loans may be removed from Pool 1, as a result of incomplete documentation or otherwise, if the Depositor deems such removal necessary or appropriate.
 
No more than approximately 0.43% of the Pool 1 Mortgage Loans are secured by Mortgaged Properties located in any one zip code area.
S-60

 
Pool 2 Mortgage Loans
 
The Pool 2 Mortgage Loans are expected to have the approximate characteristics as of the Cut-off Date as set forth in Annex A to this prospectus supplement. The sum of the amounts of the aggregate Scheduled Principal Balances and the percentages in the tables in Annex A may not equal the totals due to rounding.
 
Prior to the issuance of the Certificates, Mortgage Loans may be removed from Pool 2, as a result of incomplete documentation or otherwise, if the Depositor deems such removal necessary or appropriate.
 
No more than approximately 0.59% of the Pool 2 Mortgage Loans are secured by Mortgaged Properties located in any one zip code area.
 
Pool 3 Mortgage Loans
 
The Pool 3 Mortgage Loans are expected to have the approximate characteristics as of the Cut-off Date as set forth in Annex A to this prospectus supplement. The sum of the amounts of the aggregate Scheduled Principal Balances and the percentages in the tables in Annex A may not equal the totals due to rounding.
 
Prior to the issuance of the Certificates, Mortgage Loans may be removed from Pool 3, as a result of incomplete documentation or otherwise, if the Depositor deems such removal necessary or appropriate.
 
No more than approximately 0.43% of the Pool 3 Mortgage Loans are secured by Mortgaged Properties located in any one zip code area.
 
Static Pool Information
 
Certain static pool information may be found at:
 
http://www.lehman.com/reg_ab/deal.html?deal=SAIL06-4
 
Access to this internet address is unrestricted and free of charge.
 
Various factors may affect the prepayment, delinquency and loss performance of the Mortgage Loans over time. The various mortgage loan pools for which performance information is shown at the above internet address had initial characteristics that differed, and may have differed in ways that were material to the performance of those mortgage pools. These differing characteristics include, among others, product type, credit quality, geographic concentration, originator concentration, servicer 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 premiums. We do not make any representation, and you should not assume, that the performance information shown at the above internet address is in any way indicative of the performance of the Mortgage Loans in the Trust Fund.
 
Material Legal Proceedings
 
Option One is subject to certain litigation proceedings that may be material to Certificateholders. See “The Servicers—Option One Mortgage Corporation—Legal Proceedings Pending Against Option One.”
 
Affiliations and Relationships
 
The Depositor, the Sponsor, the Underwriter, Lehman Pass-Through Securities Inc., the Bank, Aurora and BNC are all affiliates of each other and have the following ownership structure:
S-61

 
 
·
The Depositor, Structured Asset Securities Corporation, is a wholly-owned, direct subsidiary of Lehman Commercial Paper Inc., which is a wholly-owned, direct subsidiary of Lehman Brothers Inc., which is a wholly-owned, direct subsidiary of the Sponsor, Lehman Brothers Holdings Inc.
 
 
·
The Underwriter, Lehman Brothers Inc., is a wholly-owned, direct subsidiary of the Sponsor.
 
 
·
Lehman Pass-Through Securities Inc., which will purchase the Class P and Class X Certificates from the Depositor, is a wholly-owned, direct subsidiary of Lehman Commercial Paper Inc., which is a wholly-owned, direct subsidiary of Lehman Brothers Inc., which is a wholly-owned, direct subsidiary of the Sponsor.
 
 
·
Aurora, which acts as the Master Servicer and is one of the Servicers, is a wholly-owned, direct subsidiary of Lehman Brothers Bank, FSB, which is a wholly-owned, direct subsidiary of Lehman Brothers Bancorp Inc., which is a wholly-owned, direct subsidiary of the Sponsor.
 
 
·
BNC Mortgage, Inc., which is one of the Originators, is a wholly-owned, direct subsidiary of BNC Holdings Inc., which is a wholly-owned, direct subsidiary of Lehman Brothers Bank, FSB, which is a wholly-owned, direct subsidiary of Lehman Brothers Bancorp Inc., which is a wholly-owned, direct subsidiary of the Sponsor.
 
 
·
LaSalle Bank National Association, a custodian, is a wholly owned subsidiary of ABN AMRO Bank, N.V., the Swap Counterparty and Cap Counterparty.
 
Certain of the Mortgage Loans were originated by BNC, LBB and Finance America and were subsequently purchased by the Seller in one or more arm’s length transactions on or before the Closing Date.
 
Immediately before the sale of the Mortgage Loans to the Trustee, certain of the Mortgage Loans were subject to financing provided by the Seller or its affiliates. A portion of the proceeds from the sale of the Certificates will be used to repay the financing.
 
Lehman Brothers Inc. has entered into an agreement with the Depositor to purchase the Class B1, Class B2, Class LT-R and Class R Certificates and Lehman Pass-Through Securities Inc. has entered into an agreement with the Depositor to purchase the Class P and Class X Certificates, each simultaneously with the purchase of the Offered Certificates, subject to certain conditions.
 
Additional Information
 
The description in this prospectus supplement of the Mortgage Loans and the Mortgaged Properties is based upon three pools of Mortgage Loans as constituted at the close of business on the Cut-off Date, as adjusted for Scheduled Payments due on or before that date. A Current Report on Form 8-K will be filed, together with the Trust Agreement and certain other transaction documents, with the Securities and Exchange Commission within fifteen days after the initial issuance of the Offered Certificates. In the event that Mortgage Loans are removed from or added to the Trust Fund, such removal or addition, to the extent material, will be noted in the Current Report on Form 8-K.
 
Pursuant to the Trust Agreement, the Securities Administrator will prepare a monthly statement to Certificateholders containing the information described under “The Trust Agreement—Reports to Certificateholders.” The Securities Administrator will make available each month, to any interested party, the monthly statement to Certificateholders via the Securities Administrator’s website. The Securities Administrator’s website will be located at www.ctslink.com and assistance in using the website can be obtained by calling the Securities Administrator’s customer service desk at (301) 815-6600. Parties that are unable to use the above distribution option are entitled to have a paper copy mailed to them via first class by notifying the Securities Administrator at Wells Fargo Bank, N.A., P.O. Box 98, Columbia, Maryland 21046, Attention: Securities Administrator, SAIL 2006-4. The Securities Administrator will have the right to change the way such reports are distributed in order to make such distributions more convenient and/or more accessible, and the Securities Administrator will provide timely and adequate notification to such parties regarding any such changes.
S-62

 
The Sponsor
 
Lehman Brothers Holdings Inc., a Delaware corporation, whose executive offices are located at 745 Seventh Avenue, New York, New York 10019, U.S.A., will be the Sponsor. See “The Sponsor” in the prospectus for more information regarding Lehman Brothers Holdings Inc.
 
The Depositor
 
The Depositor, Structured Asset Securities Corporation, was incorporated in the State of Delaware on January 2, 1987. The principal office of the Depositor is located at 745 Seventh Avenue, New York, New York 10019. Its telephone number is (212) 526-7000. The Depositor has filed with the Securities and Exchange Commission a registration statement under the Securities Act with respect to the Certificates (Registration No. 333-129480).
 
For more information regarding the Depositor, see “The Depositor” in the prospectus.
 
Origination of the Mortgage Loans and Underwriting Guidelines
 
General
 
Approximately 45.36%, 38.43%, 0.86% and 0.22% of the Mortgage Loans were originated in accordance with the BNC Underwriting Guidelines, the New Century Underwriting Guidelines, the LBB Underwriting Guidelines and the Finance America Underwriting Guidelines, respectively. The remainder of the Mortgage Loans were originated by other Originators in accordance with Underwriting Guidelines generally comparable to the General Underwriting Guidelines described below under “—General Underwriting Guidelines.” The General Underwriting Guidelines may differ among Originators in various respects. The following is a general summary of the BNC Underwriting Guidelines, Finance America Guidelines, LBB Underwriting Guidelines and New Century Underwriting Guidelines and General Underwriting Guidelines believed by the Depositor to be generally applied, with some variation, by the applicable Originators. The following does not purport to be a complete description of the underwriting standards of any of the Originators.
 
BNC Mortgage, Inc.
 
General. BNC Mortgage, Inc., a Delaware corporation (“BNC”), is a specialty finance company engaged in the business of originating, purchasing, and selling, on a whole loan basis for cash, non-conforming residential mortgage loans secured by first or second liens on one-to-four family residences. The term “non-conforming residential mortgage loans” as used in this description of BNC’s business means subprime loans, which are loans made to borrowers who are unable or unwilling to obtain mortgage financing from conventional mortgage lenders, whether for reasons of credit impairment, income qualification, credit history, higher loan-to-value ratios, or a desire to receive funding on an expedited basis.
 
BNC operates as a wholesale lender which means that it generates all of its loans through independent brokers and correspondent lenders. Approximately 96% of BNC’s loans are generated by means of loan originations through a nationwide network of approximately 20,000 independent mortgage brokers and approximately 4% are generated by means of loan purchases through a network of approximately 450 independent correspondent lenders.
 
As of the twelve months ended December 31, 2005, BNC’s loan originations and purchases totaled approximately $15.5 billion in loans which had approximately the following general production characteristics: (1) weighted average FICO credit score of 633; (2) weighted average loan-to-value ratio on first lien loans of 81.93% and weighted average loan-to-value ratio on second lien loans of 19.83%; (3) percentage of owner-occupied properties — 86%; (4) percentage first lien loans — 94% and second lien loans — 6%; (5) percentage of adjustable rate mortgage loans based upon the six month LIBOR index — 89.8% and percentage fixed rate mortgage loans — 10.2%; (6) percentage of “stated income” loans (loans in which a borrower’s income is not verified with additional documentation customarily required by conventional mortgage lenders but is as stated by the borrower on the loan application) — 41%.
S-63

 
BNC commenced operating and originating non-conforming residential mortgage loans in May of 1995. BNC has been a subsidiary of the Bank since March of 2004. As of December 31, 2005, BNC had approximately 1,385 employees in approximately 42 locations throughout the United States.
 
Effective January 1, 2006, Finance America, LLC (“Finance America”), merged into BNC, its affiliate.  Mortgage Loans designated as Finance America originations were originated prior to the merger using Finance America Underwriting Guidelines.  Prior to January 1, 2006, Finance America was a Delaware limited liability company and was a wholly-owned subsidiary of Finance America Holdings, LLC, also a Delaware limited liability company.  Finance America Holdings, LLC, was owned by two affiliates of Lehman Brothers Inc.  Finance America commenced operations on January 1, 2000, and was headquartered in Irvine, California.  
 
Finance America was a HUD-approved mortgagee and Freddie Mac approved seller that originated first and second lien, non-conforming “subprime” residential mortgage loans.  Finance America’s Wholesale Division funded approximately $7.6 billion in loans during the twelve months ended December 31, 2005 and the Broker Direct Division originated approximately $796 million in loans during the twelve months ended December 31, 2005.  As of December 31, 2005, Finance America’s combined originations totaled approximately $8.7 billion in loans which had approximately the following general production characteristics:  (1) weighted average FICO credit score of 627; (2) weighted average loan to value on first lien loans of 82.24% and weighted average loan to value on second lien loans of 99.96%; (3) “A” credit grade (1 x 30 on previous mortgage) percentage of 94%; (4) percentage of owner occupied properties - 91%; (5) percentage first liens-  93% and second liens - 7%; 6) percentage adjustable rate mortgage loans based upon the six month LIBOR index - 87.3% and percentage fixed rate mortgage loans - 12.7%.
 
BNC Underwriting Guidelines. The BNC Underwriting Guidelines are generally intended to evaluate the credit risk of Mortgage Loans made to borrowers with imperfect credit histories ranging from minor delinquencies to bankruptcy, or borrowers with relatively high ratios of monthly mortgage payments to income, or relatively high ratios of total monthly credit payments to income. In addition, such guidelines also evaluate the value and adequacy of the mortgaged property as collateral. On a case-by-case basis, BNC may determine that, based upon compensating factors, a prospective borrower who does not strictly qualify under the applicable underwriting guidelines warrants an underwriting exception. Compensating factors may include, but are not limited to, relatively low loan-to-value ratio, relatively low debt-to-income ratio, good credit history, stable employment, and financial reserves.
 
Under the BNC Underwriting Guidelines, BNC reviews the loan applicant’s sources of income, calculates the amount of income from all such sources indicated on the loan application or similar documentation (except under the “Stated Income” programs), reviews the credit history of the applicant and calculates the debt-to-income ratio to determine the applicant’s ability to repay the loan, and reviews the mortgaged property for compliance with the BNC Underwriting Guidelines. The BNC Underwriting Guidelines are applied in accordance with a procedure that generally requires (1) an appraisal of the mortgaged property that conforms generally to Fannie Mae and Freddie Mac standards and (2) a review of the appraisal, such review may be conducted by a BNC staff appraiser or representative which, depending upon the original principal balance and loan-to-value ratio of the mortgaged property, may include a desk review of the original appraisal or a drive-by review appraisal of the mortgaged property. The BNC Underwriting Guidelines generally permit one-to-two family loans with loan-to-value ratios or combined loan-to-value ratios at origination of up to 100% for the highest credit grading category, depending on the creditworthiness of the borrower and, in some cases, the type and use of the property and the debt-to-income ratio. Under the BNC Underwriting Guidelines, the maximum combined loan-to-value ratio for purchase money mortgage loans may differ depending on whether the secondary financing is institutional or private.
 
The Mortgage Loans were originated on the basis of loan application packages submitted through independent mortgage brokerage companies, or were purchased from originators, approved by BNC. Loan application packages submitted through independent mortgage brokerage companies, containing in each case relevant credit, property and underwriting information on the loan request, are compiled by those companies and submitted to BNC for approval and funding. The independent mortgage brokerage companies receive all or a portion of the loan origination fee charged to the borrower at the time the loan is made.
S-64

 
Each prospective borrower completes an application that includes information with respect to the applicant’s liabilities, income (except with respect to certain “Stated Income” mortgage loans as described below) and employment history, as well as certain other personal information. BNC pulls a credit report on each applicant from a credit reporting agency contracted by BNC. The report typically contains information relating to such matters as credit history with local and national merchants and lenders; installment, revolving and open debt payments; derogatory credit information including repossessions and/or foreclosures; and any public records of bankruptcies, tax liens, law suits or judgments. Also, the report includes Social Security number variations; name, address and employment variations; and consumer narrative, fraud, ID theft and OFAC alerts. Mortgaged properties are generally appraised by qualified independent appraisers. Each appraisal includes a market data analysis based on recent sales of comparable homes in the area and, where deemed appropriate, replacement cost analysis based on the current cost of constructing a similar home. Independent appraisals are reviewed by BNC before the loan is funded, with a full drive-by review appraisal performed in connection with loan amounts over a certain pre-determined dollar amount established for each state.
 
The BNC Underwriting Guidelines are less stringent than the standards generally acceptable to Fannie Mae and Freddie Mac. Borrowers who qualify under the BNC Underwriting Guidelines generally have payment histories and debt ratios that would not satisfy Fannie Mae and Freddie Mac underwriting guidelines, and may have a record of major derogatory credit items such as outstanding judgments or prior bankruptcies. The BNC Underwriting Guidelines establish the maximum permitted loan-to-value ratio for each loan type based upon these and other risk factors.
 
BNC generally reviews the applicant’s source of income, calculates the amount of income from sources indicated on the loan application or similar documentation (except with respect to certain “Stated Income” mortgage loans as described below), reviews the credit history of the applicant, calculates the debt-to-income ratio to determine the applicant’s ability to repay the loan, and reviews the type and use of the property being financed. The BNC Underwriting Guidelines require that mortgage loans be underwritten according to a standardized procedure that complies with applicable federal and state laws and regulations and require BNC’s underwriters to be satisfied that the value of the property being financed supports, as indicated by an appraisal and a review of the appraisal, the outstanding loan balance. The BNC Underwriting Guidelines permit one-to-two family loans to have loan-to-value ratios at origination of generally up to 100%, (and 3-to-4 family loans generally up to 90%) depending on, among other things, the loan documentation program, the purpose of the mortgage loan, the borrower’s credit history and repayment ability, as well as the type and use of the property.
 
Under the Full Documentation program, applicants generally are required to submit verification of stable income for at least 12 months. Under the Lite Documentation programs, generally verification is required for at least six months. Under the Stated Income programs, generally an applicant may be qualified based upon monthly income as stated on the mortgage loan application (FNMA 1003) with no supporting income documentation provided the applicant meets certain criteria. All the foregoing programs typically require that, with respect to each applicant, there be a telephone verification of the applicant’s employment.
 
Under the BNC Underwriting Guidelines, various risk categories are used to grade the likelihood that the borrower will satisfy the repayment conditions of the mortgage loan. These categories establish the maximum permitted loan-to-value ratio and loan amount, given the occupancy status of the mortgaged property and the borrower’s credit history and debt ratio. In general, higher credit risk mortgage loans are graded in categories that permit higher debt ratios and more (or more recent) major derogatory credit items such as outstanding judgments or prior bankruptcies; however, the BNC Underwriting Guidelines establish lower maximum ratios and maximum loan amounts for loans graded in such categories.
 
Finance America Underwriting Guidelines. Finance America developed a unique risk assessment model that was used to risk-score all loans originated and acquired. Finance America's risk-scoring process began with the risk matrix and utilized three key risk factors that drive performance to develop a base risk score. The three key loan factors were mortgage pay history, the borrower's Credit Bureau Score (defined below) and loan-to-value. Once the base score was determined, additional risk factors were identified and a total final Finance America risk score (the “Finance America Risk Score”) was calculated summing the base score and any add-ons. Additional risk factors included alternative documentation, stated income, property types other than single family residence, non-owner occupancy, CLTV greater than 95%, debt-to-income percentages greater than 45% and greater than 50%, cash out, no previous mortgage history and various bankruptcy history. The risk add-on values corresponded to the amount of additional risk each factor represented. They ranged from 0.25 to 3.25. The final score was then used to determine the loan's price (interest rate charged to the borrower), the maximum loan amount and any related underwriting requirements. Final Finance America Risk Scores ranged from 0.75 up to 5.0, with the lowest score representing the lowest risk and 5.0 representing the maximum amount of risk acceptable to Finance America. No score was permitted to exceed 5.0. Statistically, all loans with the same Finance America Risk Score should perform the same. In other words, a loan with a 4.5 score will generally have the same risk of delinquency as all other loans with a risk score of 4.5, regardless of the differing characteristics that determine how the score was calculated.
S-65

 
The risk-scoring matrix assisted in identifying and pricing the inherent risk underlying each loan and was based on extensive analysis of historical performance data on sub-prime loans originated by various sub-prime lenders over several years. This analysis yielded the key predictors of potential loan default. It was a risk assessment methodology similar to those used by the rating agencies. The risk scoring matrix was a key business driver for Finance America, used in conjunction with its underwriting guidelines, that defined the risk and appropriately graded and priced each loan in accordance with its risk level. The result was a reduction in the uncertainty and inconsistency of final credit decisions commonly present in the origination of sub-prime loans.
 
Additionally, Finance America's risk scoring program did not allow any upgrades for compensating factors or exceptions to the risk scoring or credit guidelines. Because the program was model-driven, results and performance were tracked, evaluated and used to validate and re-validate the risk matrix. Allowing exceptions to the guidelines or scoring would have diluted the risk assessment and could have blurred performance results. In limited circumstances, minor documentation exceptions were permitted. Increases to the maximum loan amount limit for each Finance America Risk Score were also permitted.
 
Because the credit risk decision was determined solely by Finance America's risk scoring matrix, Finance America used its underwriters primarily to evaluate the documentation required to substantiate the loan decision, to ensure all underwriting guidelines were followed, to ensure the loan file documentation complied with Federal and State regulations and to evaluate the strength of the appraisal. While loan pricing and grading were model-driven, no two applications are the same. All loan applications were individually underwritten with professional judgment. The applicant's past and present payment history, employment and income, assets, liabilities and property value were all factors considered during the underwriting review process. All loans were reviewed for accuracy, credit discrepancies, income contradictions and misrepresentations during the underwriting process. The loan application package must have been documented as required for the loan program and was required to contain sufficient information to render the final lending decision.
 
In addition to the Finance America Risk Score, Finance America also employed the traditional use of credit grades typically used in the origination of subprime loans. Their use, however, was limited to the definition of the borrower's mortgage (or rental) payment history (the “MPH”) for the previous 12-month period preceding the application. Finance America's “A” is a MPH of 0x30 or 1x30. An “A-” represents a MPH where the borrower may have had unlimited rolling 30's. A “B” is 1x60. A “C” is 1x90 and the loan-to-value is limited to 85%. A “D” is 1x120, where the loan-to-value to limited to 75% and cannot be a foreclosure in process. “D's” are also not allowed to provide the borrower with any cash at the loan funding.
 
The mortgage loans generally bear higher rates of interest than mortgage loans that are originated in accordance with Fannie Mae and Freddie Mac standards, and may experience rates of delinquency and foreclosure that are higher, and that may be substantially higher, than those experienced by portfolios of mortgage loans underwritten in a more traditional manner. Unless prohibited by state law or waived by Finance America upon the payment by the related mortgagor of buyout fees or acceptance of a higher Mortgage Rate, the mortgage loans provide for the payment by the mortgagor of a prepayment charge on certain full or partial prepayments made within one to three years from the date of origination of the related mortgage loan.
 
A majority of the mortgage loans originated by Finance America were originated based on loan application packages submitted through mortgage brokerage companies. These brokers were required to meet minimum standards set by Finance America based on an analysis of the following information submitted with an application for approval: applicable state lending license (in good standing) which was independently verified by the Finance America's broker approval staff, federal tax identification number and a signed broker agreement. Additionally, both the broker principal and the organization were investigated through a review of the MARI database and LexisNexis. Once approved, mortgage brokerage companies were eligible to fund loan application packages in compliance with the terms of the signed broker agreement. Approved brokers' submission and funding activity were closely monitored for potential fraud, licenses are monitored for validity and expiration, and all brokers were entered and monitored through an industry-accepted, nationally recognized database for potential integrity issues, misrepresentations or identified business risks.
S-66

 
All loans were processed and underwritten at the branch level by dedicated, experienced, full-time staff which had received approximately 40 hours of specialized training including compliance, fraud detection, appraisal valuation, underwriting, title and collateral processing. Finance America utilized a “modular” concept approach to training. Each underwriter was granted a level of authority commensurate with his or her proven judgment, successfully completed training modules and credit skills.
 
Finance America offered three loan origination programs that make up the population of the mortgage loans. The programs are called Mach 1, Mach 2 and Mach 3. All three programs utilized the risk-scoring matrix to generate Finance America Risk Scores on all mortgage loans. The loan programs also made use of credit bureau scores (the “Credit Bureau Score”). The Credit Bureau Score is available from the three national credit repositories and is calculated by the assignment of weightings to the most predictive data collected by the credit repositories and range from the 300s to the 900s. Although the Credit Bureau Scores are based solely on the information at the particular credit repository, such Credit Bureau Scores have been calibrated to indicate the same level of credit risk regardless of which credit repository is used. Finance America generally used the middle of three, or the lower of two score for the primary income borrower. The Credit Bureau Score was the credit score component used in the Finance America's Risk Scoring matrix to develop the Risk Score.
 
Mach 1 was a traditional sub-prime lending program with minimum Credit Bureau Scores of 500+ and an upper loan-to-value of 90%. The Mach 1 program allowed for both owner-occupied and non-owner occupied borrowers, mortgage pay histories from 0x30 up to 1x120, 1-4 family properties, and documentation which includes full, alternative and stated income. The typical average Credit Bureau Score for the Mach 1 program was generally around 600. Mach 1 loan amounts ranged from $40,000 up to $750,000.
 
The Mach 1 program also provided for loan amounts from $750,001 to $1 million (“Mach 1 Jumbo Loans”). Mach 1 Jumbo Loans generally required higher Credit Bureau Scores, typically a minimum 600 Credit Bureau Score for full documentation and 620 for less than full documentation loans. They also required lower loan-to-values and combined loan-to-values, typically maximum 80%/90% LTV/CLTV for full documentation loans and 70%/90% LTV/CLTV for less than full documentation loans. Purchase money transactions under this program required six months' verified assets for reserves and a minimum down payment of 10% of sales price.
 
The Mach 2 program was generally for a better credit quality borrower, with credit characteristics that were typically better than those of a Mach 1 borrower. Mach 2 loans required a minimum Credit Bureau Score of 580 and allowed for loan-to-values and combined loan-to-values up to 95%. With superior credit, a Mach 2 borrower could qualify for an 80/20 combination loan or a 100% first mortgage loan. Mach 2 loans could not exceed a 0x30 or a 1x30 mortgage pay history and were only made on owner-occupied properties. Mach 2 debt-to-income ratios could not exceed 50% and property types were limited to single-family residences, condominiums, PUDs and 2 units. The typical average Credit Bureau Score for the Mach 2 program is generally around 650. Mach 2 loan amounts range from $40,000 up to $750,000. The Mach 2 program also allowed for documentation that includes full, alternative and stated income. Finance America's 80/20 Combo loans were all originated under the Mach 2 program guidelines.
 
The Mach 3 program was for the highest credit quality borrower, with characteristics that were typically better than those of a Mach 2 borrower. Mach 3 loans required a minimum Credit Bureau Score of 660 and allowed for loan-to-values up to 100%. Mach 3 loans required less documentation commensurate with the higher credit profile of the borrower. Property types were limited to single-family residences, condominiums, and PUDs. Mach 3 loans were made on owner-occupied properties only and the loan amounts range from $40,000 up to $750,000.
 
Each prospective borrower completed an application that includes information with respect to the applicant’s liabilities, income and employment history, as well as certain other personal information. Finance America required a credit report for each applicant from a credit reporting company. Finance America's underwriters verified the income of each borrower under various documentation programs as follows: under the Full Income Documentation Programs, applicants were generally required to submit verification of stable income for the periods of six months to two years preceding the application dependent on the Finance America Risk Score; under the Alternative Income Documentation Program, the borrower was qualified based on the income set forth on the application and the applicants were generally required to submit verification of adequate cash flow to meet credit obligations for a 6 to 12 month period preceding the application; and under the Stated Income Program, applicants were qualified based on monthly income as stated on the mortgage application. All Stated Income loans were required to qualify for Finance America's payment shock test which limited the increase in the borrowers new payment (PITI) to 75% if the loan had a Finance America Risk Score of less than 3.0. The increase was limited to 50% if the Finance America Risk Score was greater than 3.0. In all cases, the income stated was required to be reasonable and customary for the applicant's line of work. A pre-closing audit to confirm the borrower's employment was conducted by phone on all wage earner borrowers. A self-employed borrower's business was verified to have been in existence for a minimum of two years preceding the mortgage application. The verification may have been made through independent validation of the business by using Dun and Bradstreet Information Services or LexisNexis, or may have been made by obtaining a valid business license, or a CPA/Enrolled Agent letter.
S-67

 
Finance America's guidelines were applied in accordance with a procedure that generally required an appraisal of the Mortgaged Property that conformed to Fannie Mae and Freddie Mac standards. Qualified independent appraisers had to meet minimum standards of licensing. Each Uniform Residential Appraisal Report included a market data analysis based on recent sales of comparable homes in the area and, where deemed appropriate, replacement cost analysis based on the current cost of constructing a similar home. The appraisal review process was initially conducted by the underwriter and may have been elevated to further review audits. These secondary audits may have consisted of an enhanced desk review conducted by a Finance America staff appraiser or representative, a field review or an automated valuation report that confirmed or supported the original appraiser's value of the mortgage property. Loans with specific geographic location or specific loan parameters required a mandatory staff appraisal review. A property value in excess of $750,000 also required a mandatory staff appraisal review and may have also required an additional independent full appraisal.
 
Finance America required title insurance on all mortgage loans. Finance America also required that fire and extended coverage casualty insurance be maintained on the secured property in an amount at least equal to the principal balance of the related residential loan or the replacement cost of the property, whichever is less.
 
Finance America conducted a number of quality control procedures including a post-funding credit and appraisal compliance audit program that provided for a re-underwriting of the mortgage loans. Additionally, Finance America also conducted a more traditional random quality control audit that was based on the error rate from the previous month's audit to ensure that the asset quality was consistent with Finance America's guidelines. The quality control review verified the existence and accuracy of legal documents, credit documentation, the appraisal analysis and the underwriting decision. A report detailing audit findings and level of error was sent monthly to each branch for response. Finance America's senior management reviewed the audit findings and branch responses. This post-funding review procedure allowed Finance America to assess programs for potential guideline changes, program enhancements, appraisal policies, areas of risk to be reduced or eliminated and the need for additional training or additional system edits.
 
LBB Underwriting Guidelines
 
Lehman Brothers Bank, FSB is a federal savings bank chartered under the Home Owners’ Loan Act and under the supervision of the Office of Thrift Supervision. LBB’s home office is located in Wilmington, Delaware, and LBB also has a branch in Jersey City, New Jersey. LBB originates and purchases residential and commercial mortgage loans and engages in other permitted bank activities. LBB began originating and purchasing residential mortgage loans in 1999.

LBB originates residential mortgage loans through its wholly-owned operating subsidiary and agent, Aurora Loan Services, LLC, a Delaware limited liability company. Aurora originates loans through its Conduit, Wholesale and Retail channels, and is headquartered in Denver, Colorado. Any reference to origination by Aurora under the heading “LBB Underwriting Guidelines” refers to the origination of mortgage loans by Aurora on behalf of the Bank, as agent for the Bank. For the years 2003, 2004, and 2005, LBB has originated residential mortgage loans through Aurora of approximately $32,000,000,000, $ 44,000,000,000 and $52,000,000,000, respectively.
S-68


The Conduit Division operates in two locations, Englewood, Colorado and Dallas, Texas. Conduit loans represented approximately 75% by loan origination volume ($) of Aurora’s total loan production in 2005. Correspondents are approved to do business with Aurora upon completion of an application, a satisfactory background check, and execution of a Correspondent Loan Sale Agreement. Correspondents generally underwrite loans to LBB Underwriting Guidelines (as described below). Approximately 24 % of Conduit’s loans in 2005 were pre-underwritten by either Aurora or an independent third party underwriter (using LBB’s Underwriting Guidelines) prior to purchase by LBB. Certain correspondents are given delegated underwriting authority, which is granted only to larger correspondents with adequate controls and net worth. Approximately 71% of Conduit’s loans in 2005 were underwritten by correspondents with delegated underwriting authority. A third group of correspondents sell to LBB through Aurora in “mini-bulk” transactions, in which they generally represent and warrant compliance with LBB’s Underwriting Guidelines or other guidelines approved by Aurora. Approximately 5% of Conduit’s loans in 2005 were purchased in mini-bulk transactions.

Some correspondents selling through mini-bulk transactions apply for and are granted authority to underwrite mortgage loans for sale to LBB using underwriting guidelines of a company other than Aurora/LBB. These are referred to “Other People’s Guidelines”, or OPG. The OPG are reviewed by the credit staff at Aurora to determine that they are acceptable to LBB. OPG may vary from LBB’s guidelines but the products are deemed by Aurora to be substantially similar to the products produced in accordance with LBB’s underwriting guidelines. OPG products made up approximately 4% of Aurora’s Conduit production in 2005.

The Wholesale Division operates out of four Regional Operations Centers. Wholesale production represented 24% of Aurora’s total loan production in 2005. All loans in the Wholesale Division are underwritten to LBB’s Underwriting Guidelines as described below. Brokers are approved to do business with Aurora upon completion of an application, a satisfactory background check, and execution of a Broker Agreement.

The Retail Division, known as National Consumer Direct Lending, operates out of a central location in Englewood, Colorado. Retail production represented 1% of Aurora’s total loan production in 2005.

The LBB Underwriting Guidelines are generally not as strict as Fannie Mae or Freddie Mac guidelines. The LBB Underwriting Guidelines are intended to evaluate the value and adequacy of the mortgaged property as collateral and to consider the borrower’s credit standing and repayment ability. On a case-by-case basis, the underwriter may determine that, based upon compensating factors, a prospective borrower not strictly qualifying under the applicable underwriting guidelines warrants an underwriting exception. Compensating factors may include, but are not limited to, low loan-to-value ratios, low debt-to-income ratios, good credit history, stable employment, financial reserves and time in residence at the applicant’s current address. A significant number of the Mortgage Loans may represent underwriting exceptions.

The LBB Underwriting Guidelines are applied in accordance with a procedure that generally requires (1) an appraisal of the mortgaged property by qualified independent appraisers, that conforms to Fannie Mae and Freddie Mac standards and (2) a review of such appraisal by the underwriter and, depending upon certain factors, including original principal balance and loan-to-value ratio of the mortgaged property, may include a review of the original appraisal by Aurora’s review appraisal department.

Each appraisal includes a market data analysis based on recent sales of comparable homes in the area. The LBB Underwriting Guidelines generally permit mortgage loans with loan-to-value ratios at origination of up to 103% (or, with respect to certain mortgage loans, up to 95%) for the highest credit-grading category, depending on the creditworthiness of the borrower, the type and use of the property, the debt-to-income ratio and the purpose of the loan application.

Each prospective borrower completes an application that includes information with respect to the applicant’s liabilities, assets, income and employment history (except with respect to certain “no documentation” mortgage loans described below), as well as certain other personal information. Each originator requires a credit report on each applicant from a credit reporting company. The report typically contains information relating to matters such as credit history with local and national merchants and lenders, installment debt payments and any record of defaults, bankruptcy, repossession, suits or judgments.
S-69


Aurora offers a number of loan products including Alt A, Classic and Mortgage Maker. Alt A loans generally provide for minimum credit score of 620 for full doc loans, 660 for reduced doc loans, maximum loan amount of $6,000,000, maximum DTI of 45%, maximum LTV of 97%, and may be of any documentation type. Alt A loans made up approximately 73% of Aurora’s Conduit loans, 69% of Aurora’s Retail loans, and 76% of Aurora’s Wholesale loans in 2005.

Classic products are generally directed to a slightly higher credit quality mortgagor than the Alt A products. They are available only on full doc loans to owner occupied or second home properties and with stated doc income guidelines to owner occupied homes. Minimum credit score for full doc owner occupied loans is 680,720 for stated documentation and full doc second homes, maximum loan amount of $2,000,000 and maximum DTI of 45%.

Mortgage Maker products are generally directed to a slightly lower credit quality mortgagor than the Alt A products. Mortgage Maker loans made up approximately 24% of Aurora’s Conduit loans in 2005. Mortgage Maker loans generally provide for minimum credit score of 620, maximum loan amount of $4,000,000, maximum DTI of 50%, maximum LTV of 95%, and may be of any documentation type.

Second liens are offered behind each of the first lien programs described above, and generally follow the same underwriting requirements as the first lien from the same program. Mortgage Maker second liens may be placed behind an Alt-A or Classic first liens.

Second liens accepted through the OPG process described above may be ‘stand-alone’ second liens, or may be concurrently funded liens, with the first lien also delivered to Aurora. All other second liens offered by Aurora through its other channels are concurrently funded with the first lien that is also delivered to Aurora. On all concurrently funded first and second lien transactions, both first and second liens must conform to the most restrictive guidelines of the applicable First or Second Lien requirements if there is a difference. Maximum loan amount is $200,000 for Alt-A and Classic second liens, $400,000 for Mortgage Maker second liens. Under the LBB Underwriting Guidelines, maximum CLTV is generally 100%.

In each program, LBB offers an interest only option on first liens, with a minimum interest-only period generally of 5 years and a maximum interest-only period of 10 years. DTIs for interest-only loans are computed using the initial interest-only payment (or, for ARMs which will experience rate adjustments in less than twenty-four months, using the fully-indexed interest-only payment).
LBB originates loans with different income and asset “documentation” requirements. The types of income and asset documentation include Full Doc (Alt A), Full Doc (Other than Alt A), Limited, Stated, Stated-Stated, No Ratio, and No Documentation. Verification of employment, income and assets in a mortgage loan file is dependent on the documentation program.

For “Full Documentation” program loans in Alt A, documentation consistent with Fannie Mae/Freddie Mac guidelines is required, which generally includes verification of current income and employment, a two-year history of previous income and employment (or for self-employed borrowers, two years of income tax returns), verification through deposit verifications of sufficient liquid assets for down payments, closing costs and reserves, and depository account statements or settlement statements documenting the funds received from the sale of the previous home.

“Full Documentation” program loans other than Alt A do not require documentation consistent with Fannie Mae/Freddie Mac guidelines, but generally provide for verification of current income and employment, a 12-24 month history of previous income and employment (or for self-employed borrowers, one or two years of income tax returns, verification through deposit verifications of sufficient liquid assets for down payments, closing costs and reserves, and depository account statements or settlement statements documenting the funds received from the sale of the previous home.

“Limited Documentation” loans generally provide for 6-12 months of income documentation or 6 months of personal or business bank statements.
S-70


For “Stated Income” program loans, current employment is verified, a two-year history of previous employment is required, qualifying income is based on the stated amount provided by the prospective borrower, and deposit verifications are made to ensure sufficient liquid assets. Verification of the source of funds (if any) required to be deposited by the applicant into escrow in the case of a purchase money loan is generally required under all program guidelines (except for no documentation program guidelines).

“Stated-Stated” program loans, are based upon Stated Income, as described above, except that there are no deposit verifications made and the asset analysis is based on the stated amount provided by the prospective borrower.

“No Ratio” program loans require verification of current employment, a minimum of two years’ history of previous employment and verification of sufficient liquid assets.

Under “No Documentation” program guidelines, no information was obtained regarding the borrowers’ income or employment and there was no verification of the borrowers’ assets. The no documentation program guidelines require stronger credit profiles than the other loan programs, and have substantially more restrictive requirements for loan amounts, loan-to-value ratios and occupancy.

All of the Mortgage Loans originated by LBB will be initially serviced by Aurora.

 
New Century Mortgage Corporation
 
The information set forth in this section and the following section with regard to New Century and New Century’s underwriting standards has been provided to the Depositor.
 
New Century Mortgage Corporation (“New Century”), a California corporation, originated all of the mortgage loans acquired by the Seller from New Century. New Century is a wholly owned operating subsidiary of New Century Financial Corporation, a publicly traded company. Founded in 1995 and headquartered in Irvine, California, New Century Financial Corporation is a real estate investment trust and a full service mortgage finance company, providing first and second mortgage products to borrowers nationwide. New Century Financial Corporation offers a broad range of mortgage products designed to meet the needs of all borrowers.
 
New Century is a consumer finance and mortgage banking company that originates, purchases and sells first lien and second lien mortgage loans and other consumer loans. A substantial number of the mortgage loans originated by New Century are commonly referred to as non-conforming “B&C” mortgage loans or subprime mortgage loans
 
As of March 31, 2006, New Century Financial Corporation employed approximately 7,100 associates and originated loans through its wholesale network of more than 47,000 independent mortgage brokers through 31 regional processing centers operating in 18 states. Its retail network operates through 240 sales offices in 35 states. For the quarter ending March 31, 2006, New Century Financial Corporation originated $13.4 billion in mortgage loans.

The following table describes the size, composition and growth of New Century’s total residential mortgage loan production over the periods indicated.
 
   
December 31, 2004
 
December 31, 2005
 
March 31, 2006
Loan Type
 
Number
 
Total Portfolio
of Loans
In thousands
 
Number
 
Total Portfolio
of Loans
In thousands
 
Number
 
Total Portfolio
of Loans
In thousands
Residential Mortgage Loans
 
242,877
 
$42,119,640
 
310,389
 
$56,108,241