424B2 1 f23114e424b2.htm PRELIMINARY PROSPECTUS SUPPLEMENT e424b2
Table of Contents

     
 
  Filed Pursuant to Rule 424 (b)(2)
 
  Registration Statement No. 333-132123-01

The information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED AUGUST 17, 2006
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus dated July 26, 2006)
$756,148,100 (Approximate)
SEQUOIA MORTGAGE TRUST 2006-1
Mortgage Pass-Through Certificates, Series 2006-1
RWT Holdings, Inc., Sponsor and Seller
Sequoia Residential Funding, Inc., Depositor
Sequoia Mortgage Trust 2006-1, Issuing Entity
 

Consider carefully the risk factors beginning on page S-16 of this prospectus supplement and on page 1 of the prospectus.
For a list of capitalized terms used in this prospectus supplement, see the index of certain definitions on page I-1 of this prospectus supplement.
The certificates are redeemable only under circumstances described in this prospectus supplement.
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 party.
This prospectus supplement may be used to offer and sell the certificates only if accompanied by the prospectus.
Sequoia Mortgage Trust 2006-1 will issue:
  Eight classes of senior certificates, including two classes of residual interest certificates; and
 
  Six classes of subordinate certificates.
     The certificates represent ownership interests in the assets of the issuing entity, consisting primarily of three pools of hybrid, adjustable rate, fully amortizing mortgage loans secured by first liens on one-to- four family residential properties. The mortgage loans generally provide for a fixed interest rate during an initial period of five or seven years from their origination and thereafter provide adjustments to the interest rate either every six months, generally based on the six-month LIBOR index, or every twelve months, generally based either on the one-year CMT index or the one-year LIBOR index, in each case, as specified in the related mortgage note.
     The classes of certificates offered by this prospectus supplement are listed, together with their initial class principal amounts and interest rates under “The Offered Certificates” on page S-1 of this prospectus supplement. This prospectus supplement and the accompanying prospectus relate only to the offering of 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 on the offered certificates will be payable monthly, as described in this prospectus supplement. The first expected distribution date is September 20, 2006. Credit enhancement for the offered certificates includes subordination and loss allocation features.
     The certificates offered by this prospectus supplement will be purchased by Banc of America Securities LLC and Countrywide Securities Corporation, as underwriters, from Sequoia Residential Funding, Inc., as depositor, and are being offered by the underwriters from time to time for sale to the public in negotiated transactions or otherwise at varying prices to be determined at the time of sale. The underwriters have the right to reject any order. Proceeds to Sequoia Residential Funding, Inc. from the sale of these certificates will be approximately [ ]% of their initial principal balance, before deducting expenses.
     Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the certificates or determined this prospectus supplement or the accompanying prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
     On or about August 30, 2006, delivery of the certificates offered by this prospectus supplement (other than the Class 1-AR Certificates, which will be delivered in physical, fully registered form) will be made through the book-entry facilities of The Depository Trust Company, Clearstream Banking Luxembourg and the Euroclear System.
BANC OF AMERICA SECURITIES LLC
COUNTRYWIDE SECURITIES CORPORATION
August  , 2006

 


Table of Contents

Important Notice About Information Presented in this Prospectus Supplement
and the Accompanying Prospectus
     We provide information to you about the certificates offered by this prospectus supplement in two separate documents that 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.
     We do not claim that the information in this prospectus supplement and prospectus is accurate as of any date other than the dates stated on their respective covers.
 
     We include cross-references in this prospectus supplement and the accompanying prospectus to captions in these materials where you can find further related discussions. The table of contents for this prospectus supplement and the table of contents included in the accompanying prospectus provide the pages on which these captions are located.
     You can find a listing of the pages where capitalized terms used in this prospectus supplement are defined under “Index of Certain Definitions” in this prospectus supplement.
 
     Dealers will deliver a prospectus supplement and prospectus when acting as underwriters of the certificates and with respect to their unsold allotments and subscriptions. In addition, all dealers selling the certificates will be required to deliver a prospectus supplement and prospectus for ninety days following the date of this prospectus supplement
 
     This prospectus supplement and the accompanying prospectus contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Specifically, forward-looking statements, together with related qualifying language and assumptions, are found in the materials, including tables, under the headings “Risk Factors” and “Yield, Prepayment and Weighted Average Life” in this prospectus supplement and “Risk Factors” and “Yield and Prepayment Considerations” in the prospectus. Forward-looking statements are also found in other places throughout this prospectus supplement and the prospectus, and may be identified by accompanying language, including “expects,” “intends,” “anticipates,” “estimates” or analogous expressions, or by qualifying language or assumptions. These statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results or performance to differ materially from the forward-looking statements. These risks, uncertainties and other factors include, among others, general economic and business conditions, competition, changes in political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, customer preference and various other matters, many of which are beyond the depositor’s control. These forward-looking statements speak only as of the date of this prospectus supplement. The depositor expressly disclaims any obligation or undertaking to distribute any updates or revisions to any forward-looking statements to reflect changes in the depositor’s expectations with regard to those statements or any change in events, conditions or circumstances on which any forward-looking statement is based.

S-ii


Table of Contents

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


Table of Contents

Table of Contents
Prospectus Supplement
     
    Page
  S-1
  S-3
  S-16
  S-23
  S-24
  S-27
  S-27
  S-27
  S-27
  S-29
  S-33
  S-33
  S-35
  S-38
  S-43
  S-45
  S-47
  S-47
  S-48
  S-49
  S-49
  S-50
  S-50
  S-51
  S-52
  S-52
  S-58
  S-61
  S-61
  S-62
  S-65
  S-67
  S-69
  S-70
  S-71
  S-71
  S-71
  S-73
  S-73
  S-78
  S-78
  S-79
  S-83
  S-84
  S-84
  S-85
  S-85
  S-86
  S-87
  S-87
  S-90
  S-90
  S-99
  S-99
  S-99
  S-100
  S-100
  S-103
  S-104

S-iv


Table of Contents


Table of Contents

THE OFFERED CERTIFICATES
     The certificates consist of the classes of certificates listed in the tables below, together with the Class B-4, Class B-5, Class B-6 and Class LT-R Certificates. Only the classes of certificates listed in the tables below are offered by this prospectus supplement.
                             
    Initial Class     Initial              
    Principal     Interest           Initial Certificate Ratings
Class   Amount(1)     Rate(2)   Interest Rate Formula (3)   Principal Type   Fitch   S&P
 
1-A1
  $ 194,792,000     [___]%   Weighted Average Net Mortgage Rate   Super Senior   AAA   AAA
1-A2
  $ 9,048,000     [___]%   Weighted Average Net Mortgage Rate   Senior Support   AAA   AAA
1-AR
  $ 100     [___]%   Weighted Average Net Mortgage Rate   Residual/Senior   AAA   AAA
2-A1
  $ 108,228,000     [___]%   Weighted Average Net Mortgage Rate   Super Senior   AAA   AAA
2-A2
  $ 7,719,000     [___]%   Weighted Average Net Mortgage Rate   Senior Support   AAA   AAA
3-A1
  $ 382,761,000     [___]%   Weighted Average Net Mortgage Rate   Super Senior   AAA   AAA
3-A2
  $ 27,301,000     [___]%   Weighted Average Net Mortgage Rate   Senior Support   AAA   AAA
B-1
  $ 17,152,000     [___]%   Weighted Average Net Mortgage Rate   Subordinate   AA   N/R
B-2
  $ 5,717,000     [___]%   Weighted Average Net Mortgage Rate   Subordinate   A   N/R
B-3
  $ 3,430,000     [___]%   Weighted Average Net Mortgage Rate   Subordinate   BBB   N/R
 
(1)   These balances are approximate and are subject to an increase or decrease of up to 10%, as described in this prospectus supplement.
 
(2)   Reflects the interest rate as of the closing date.
 
(3)   An annual rate equal to the weighted average of the net mortgage rates of the mortgage loans during the applicable period, as described in this prospectus supplement.
 
(4)   The designation “N/R” means that the specified rating agency will not rate the certificates of that class.

S-1


Table of Contents

     The offered certificates will also have the following characteristics:
                                     
                Final       Minimum          
        Delay/   Interest   Scheduled   Expected Final   Denomination          
    Record   Accrual   Accrual   Distribution   Distribution   or Percentage     Incremental   CUSIP
Class   Date(1)   Period(2)   Convention   Date(3)   Date(4)   Interest(5)     Denomination   Number
1-A1
  CM   19 Day   30/360   September 2046   August 2046   $ 25,000     $1   81743Q AA 2
1-A2
  CM   19 Day   30/360   September 2046   August 2046   $ 25,000     $1   81743Q AB 0
1-AR
  CM   19 Day   30/360   September 2046   September 2006     100 %(6)   $1   81743Q AF 1
2-A1
  CM   19 Day   30/360   September 2036   August 2036   $ 25,000     $1   81743Q AG 9
2-A2
  CM   19 Day   30/360   September 2036   August 2036   $ 25,000     $1   81743Q AH 7
3-A1
  CM   19 Day   30/360   September 2036   August 2036   $ 25,000     $1   81743Q AJ 3
3-A2
  CM   19 Day   30/360   September 2036   August 2036   $ 25,000     $1   81743Q AK 0
B-1
  CM   19 Day   30/360   September 2046   August 2046   $ 100,000     $1   81743Q AL 8
B-2
  CM   19 Day   30/360   September 2046   August 2046   $ 100,000     $1   81743Q AM 6
B-3
  CM   19 Day   30/360   September 2046   August 2046   $ 100,000     $1   81743Q AN 4
 
(1)   CM = For any distribution date, the close of business on the last business day of the calendar month preceding the month of the related distribution date.
 
(2)   Calculated as described in this prospectus supplement.
 
(3)   Determined by adding one month to the month of scheduled maturity of the latest maturing mortgage loan in the related mortgage pool, in the case of the senior certificates, or in all three mortgage pools, in the case of the subordinate certificates.
 
(4)   The expected final distribution date, based upon (1) a CPR of 25% and (2) the modeling assumptions used in this prospectus supplement, as described under “Yield, Prepayment and Weighted Average Life—Weighted Average Life.” The actual final distribution date for each class of offered certificates may be earlier or later, and could be substantially later, than the applicable expected final distribution date listed above.
 
(5)   With respect to the initial European investors only, the underwriter will only sell offered certificates in minimum total investment amounts of $100,000.
 
(6)   The Class 1-AR Certificate will be issued in definitive, fully registered form, representing the entire percentage interest of that class.

S-2


Table of Contents

SUMMARY OF TERMS
    This summary highlights selected information from this prospectus supplement and does not contain all of the information that you need to consider in making your investment decision. To understand all of the terms of the offering of the certificates, you should carefully read this entire prospectus supplement and the accompanying prospectus.
 
    While 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.
 
    Whenever we refer to a percentage of some or all of the mortgage loans held by the issuing entity, that percentage has been calculated on the basis of the total stated principal balance of those mortgage loans as of July 1, 2006 unless we specify otherwise. We explain in this prospectus supplement under “Description of the Certificates — Distributions of Interest” how the stated principal balance of a mortgage loan is determined. Whenever we refer in this Summary of Terms or in the Risk Factors section to the total stated principal balance of any mortgage loans, we mean the total of their stated principal balances determined by that method, unless we specify otherwise.
Sponsor and Seller
     RWT Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of Redwood Trust, Inc., has previously acquired the mortgage loans, directly or indirectly, from the originators. On the closing date, RWT Holdings, Inc., as seller, will sell all of its interest in the mortgage loans to the depositor.
Depositor
     Sequoia Residential Funding, Inc., a Delaware special purpose corporation and indirect wholly-owned subsidiary of Redwood Trust, Inc. On the closing date, Sequoia Residential Funding, Inc. will assign all of its interest in the mortgage loans to the issuing entity. The depositor’s address is One Belvedere Place, Suite 330, Mill Valley, California 94941, and its telephone number is (415) 389-7373.
Issuing Entity
     Sequoia Mortgage Trust 2006-1, a common law trust formed under the laws of the State of New York.
The Trustee
     HSBC Bank USA, National Association, a national banking association, will act as trustee of the issuing entity under the pooling and servicing agreement.
The Securities Administrator
     Wells Fargo Bank, N.A., will perform certain administrative duties with respect to the certificates, on behalf of the trustee including acting as authentication agent, calculation agent, paying agent, certificate registrar and the party responsible for preparing distribution statements and tax information for certificateholders and preparing tax filings for the issuing entity.
The Master Servicer
     Wells Fargo Bank, N.A. will act as master servicer for the mortgage loans.
The Servicers
     ABN AMRO Mortgage Group, Inc., Countrywide Home Loans Servicing, LP and various other servicers will initially service the mortgage loans. In addition, servicing may

S-3


Table of Contents

subsequently be transferred to servicers other than the initial servicers, in accordance with the pooling and servicing agreement and the servicing agreements, as described in this prospectus supplement.
     The servicers will service the mortgage loans pursuant to existing servicing agreements between each such servicer and the seller. The rights of the seller under each such servicing agreement will be assigned to the depositor, and the depositor, in turn, will assign such rights to the trustee for the benefit of certificateholders.
     We refer you to “The Agreements — Mortgage Loan Servicing” in this prospectus supplement for more information.
The Originators
     As of the statistical cut-off date, approximately 34.72% and 52.62% of the mortgage loans were originated by ABN AMRO Mortgage Group, Inc. and Countrywide Home Loans, Inc., respectively. The remainder of the mortgage loans were originated by various mortgage lending institutions.
     We refer you to “The Originators” in this prospectus supplement for more information.
The Custodian
     Wells Fargo Bank, N.A. will maintain custody of the mortgage files relating to the mortgage loans on behalf of the issuing entity.
Cut-off Date
     August 1, 2006, the date on and after which the issuing entity will be entitled to receive all collections on and proceeds of the mortgage loans.
Statistical Cut-off Date
     July 1, 2006. Unless otherwise indicated in this prospectus supplement, any statistical information with respect to the mortgage loans contained in this prospectus supplement, including the statistical information in Annex B, is based on the stated principal balances of those mortgage loans selected to be included in the mortgage pools acquired by the issuing entity as of July 1, 2006.
Closing Date
     August 30, 2006.
The Certificates
     The classes of Sequoia Mortgage Trust Mortgage Pass-Through Certificates, Series 2006-1, issued with the initial approximate characteristics set forth under “The Offered Certificates” in the table on page S-1.
     The certificates offered by this prospectus supplement, except for the Class 1-AR Certificate, will be issued in book-entry form and in the minimum denominations (or multiples thereof) set forth under “The Offered Certificates” in the table on page S-1. The Class 1-AR Certificate will be issued in fully registered definitive form.
     The certificates will represent solely beneficial ownership interests in three separate pools of hybrid, adjustable rate, fully amortizing mortgage loans, “pool 1,” “pool 2” and “pool 3.”
     Generally, with certain limited exceptions discussed at “Limited Cross-Collateralization” below, distributions to the Class 1-A1, Class 1-A2 and Class 1-AR Certificates (referred to herein as the “group 1 certificates”) will be derived solely from collections on the pool 1 mortgage loans, distributions to the Class 2-A1 and Class 2-A2 Certificates (referred to herein as the “group 2 certificates”) will be derived solely from collections on the pool 2 mortgage loans, and distributions to the Class 3-A1 and Class 3-A2 Certificates (referred to herein as the “group 3 certificates”) will be derived solely from collections on the pool 3 mortgage loans. Aggregate collections from all pools of mortgage loans will be available to make distributions on the Class B-1, Class B-2 and

S-4


Table of Contents

Class B-3 Certificates and the other subordinate classes.
     The Class B-4, Class B-5, Class B-6 and Class LT-R Certificates are not offered by this prospectus supplement. The offered certificates will have an approximate total initial principal amount of $756,148,100. Any difference between the total principal amount of the offered certificates on the date they are issued and the approximate total principal amount of the offered certificates as reflected in this prospectus supplement will not exceed 10%.
     Principal and interest on the certificates will be paid on the 20th day of each month, beginning in September 2006. However, if the 20th day is not a business day, payments will be made on the next business day after the 20th day of the month. Distributions on each distribution date will be made to certificateholders of record as of the related record date, except that the final distribution on the certificates will be made only upon presentment and surrender of the certificates at the corporate trust office of the securities administrator.
Distributions of Interest
     On each distribution date, to the extent of available funds from the related mortgage pool (or all mortgage pools in the aggregate, in the case of the Class B-1, Class B-2 and Class B-3 Certificates), each class of certificates will, subject to the limitations described herein, be entitled to receive accrued and unpaid interest determined on the basis of the outstanding class principal amount of such class immediately prior to such distribution date, the applicable certificate interest rate and the related accrual period.
     Interest will accrue on each class of the offered certificates at an annual rate equal to the weighted average of the net mortgage rates of the mortgage loans in the related pool of mortgage loans (or all three mortgage pools, in the case of the subordinate certificates), as of the due date of the calendar month immediately preceding the calendar month of such distribution date, weighted on the basis of their stated principal balances.
     The net mortgage rate of a mortgage loan for any distribution date is generally the applicable mortgage rate for the related period, reduced by the sum of the master servicing fee rate, the related servicing fee rate and the rate at which the premium on any lender-paid mortgage insurance policy is calculated, if applicable.
     Interest payments will be allocated among certificateholders of a class of certificates on a pro rata basis.
     We refer you to “Description of the Certificates — Distributions of Interest” in this prospectus supplement for more information.
Distributions of Principal
     The amount of principal distributable on the certificates on any distribution date will be determined by (1) priorities and formulas that allocate portions of principal payments received on the mortgage loans among the different classes of certificates and (2) the amount of funds actually received on the mortgage loans and available to make distributions on the certificates. Funds actually received on the mortgage loans may consist of scheduled payments and unscheduled payments resulting from prepayments by borrowers, liquidation of defaulted mortgage loans or repurchases of mortgage loans under the circumstances described in this prospectus supplement.
     Generally, each group of senior certificates will receive principal payments on each distribution date in an amount equal to the related “Senior Principal Distribution Amount” based on principal collections from the related mortgage pool for the related due period. Except under the limited circumstances described in this prospectus supplement, the Class B-1, Class B-2 and Class B-3 Certificates and the other subordinate classes will not receive principal prepayments (or subsequent recoveries) from collections on the mortgage loans until the distribution date in September 2013. From and after that distribution date,

S-5


Table of Contents

provided that certain tests are met, the Class B-1, Class B-2 and Class B-3 Certificates and the other subordinate classes will receive principal collections in an amount equal to their allocable share of each “Subordinate Principal Distribution Amount” based on collections of principal from the mortgage pools in the aggregate for the related due period.
     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 cumulative losses on the mortgage loans are higher than certain levels specified in this prospectus supplement;
 
    whether the delinquency performance of the mortgage loans over any six-month period is worse than certain levels set forth in this prospectus supplement;
 
    whether the “subordination percentage,” which is equal to the ratio of (a) the total class principal balance of all classes of subordinate certificates to (b) the total principal balance of the mortgage loans held by the issuing entity is less than the percentage specified in this prospectus supplement; and
 
    whether the “senior percentage,” which is equal to the ratio of (a) the total class principal balance of all classes of senior certificates to (b) the total principal balance of the mortgage loans held by the issuing entity is greater than the percentage specified in this prospectus supplement.
     We refer you to “Description of the Certificates — Distributions of Principal” in this prospectus supplement and “Description of the Securities — Distributions on Securities” in the prospectus for more information.
Priority of Distributions
     On each distribution date, except as otherwise provided in this prospectus supplement, available funds in respect of the mortgage loans will be distributed in the following order of priority:
      first, concurrently,
(a) from available funds for Pool 1, to the Class 1-AR, Class 1-A1 and Class 1-A2 Certificates, pro rata, accrued and unpaid interest, as described under “Description of the Certificates — Priority of Distributions” in this prospectus supplement;
(b) from available funds for Pool 2, to the Class 2-A1 and Class 2-A2 Certificates, pro rata, accrued and unpaid interest, as described under “Description of the Certificates — Priority of Distributions” in this prospectus supplement; and
(c) from available funds for Pool 3, to the Class 3-A1 and Class 3-A2 Certificates, pro rata, accrued and unpaid interest, as described under “Description of the Certificates — Priority of Distributions” in this prospectus supplement;
      second, concurrently,
(a) from available funds for Pool 1, (1) to the Class 1-AR Certificates, the Senior Principal Distribution Amount for Pool 1, until the class principal amount of such class has been reduced to zero and (2) pro rata, to the Class 1-A1 and Class 1-A2 Certificates, the remaining Senior Principal Distribution Amount for Pool 1, until the respective class principal amounts of such classes have been reduced to zero;
(b) from available funds for Pool 2, to the Class 2-A1 and Class 2-A2 Certificates, pro rata, the Senior Principal Distribution Amount for Pool 2 until the respective class principal

S-6


Table of Contents

amounts of such classes have been reduced to zero; and
(b) from available funds for Pool 3, to the Class 3-A1 and Class 3-A2 Certificates, pro rata, the Senior Principal Distribution Amount for Pool 3 until the respective class principal amounts of such classes have been reduced to zero; and
      third, from available funds from all mortgage pools, sequentially, to the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates, in that order, interest and then principal, with both interest and principal being paid to one class before any payments are made to the next class.
     We refer you to “Description of the Certificates — Priority of Distributions” in this prospectus supplement for more information.
Limited Recourse
     The only source of cash available to make interest and principal payments on the certificates will be the assets of the issuing entity pledged to secure the certificates. The issuing entity will have no source of cash other than collections and recoveries on the mortgage loans, through insurance or otherwise or amounts on deposit in the trust accounts. No other entity will be required or expected to make any payments on the certificates.
Credit Enhancement
     The payment structure of this securitization includes subordination and loss allocation features to enhance the likelihood that holders of more senior classes of certificates will receive regular distributions of interest and principal.
     Subordination. The subordinate certificates will provide credit enhancement for the senior certificates. Certificates with an “A” in their class designation will have a payment priority as a group over the subordinate certificates. In addition, the Class B-1 Certificates will have a payment priority over the Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates; the Class B-2 Certificates will have a payment priority over the Class B-3, Class B-4, Class B-5 and Class B-6 Certificates; and the Class B-3 Certificates will have a payment priority over the Class B-4, Class B-5 and Class B-6 Certificates.
     Loss Allocation. As described in this prospectus supplement, amounts representing losses on the mortgage loans will be applied to reduce the class principal amount of the class of subordinate certificates that is still outstanding and has the lowest payment priority, until the class principal amount of that class has been reduced to zero. Losses will first be allocated in reduction of the class principal amount of the Class B-6 Certificates, until it is reduced to zero; then in reduction of the class principal amount of the Class B-5 Certificates, until it is reduced to zero; then in reduction of the class principal amount of the Class B-4 Certificates, until it is reduced to zero; then in reduction of the class principal amount of the Class B-3 Certificates, until it is reduced to zero; then in reduction of the class principal amount of the Class B-2 Certificates, until it is reduced to zero; and then in reduction of the class principal amount of the Class B-1 Certificates, until it is reduced to zero.
     If the subordination provided by the subordinate certificates is insufficient to absorb losses, then losses realized by the applicable mortgage pool will be allocated in reduction of the class principal amount of the related group of senior certificates; provided, however, that losses that would otherwise reduce the class principal amount of the Class 1-A1 Certificates will first reduce the class principal amount of the Class 1-A2 Certificates until the class principal amount of the Class 1-A2 Certificates has been reduced to zero; provided, further, that losses that would otherwise reduce the class principal amount of the Class 2-A1 Certificates will first reduce the class principal amount of the Class 2-A2 Certificates until the class principal amount of the Class 2-A2 Certificates has been reduced to zero; and provided, further, that losses that

S-7


Table of Contents

would otherwise reduce the class principal amount of the Class 3-A1 Certificates will first reduce the class principal amount of the Class 3-A2 Certificates until the class principal amount of the Class 3-A2 Certificates has been reduced to zero.
     If a loss has been allocated to reduce the principal amount of your certificate, you will receive no payment in respect of that reduction, except to the extent of any subsequent recoveries allocable to your certificate. On any distribution date on which a subsequent recovery is distributed, the class principal amount of any class of certificates then outstanding to which a realized loss amount has been applied will be increased, by the amount of such subsequent recovery as described at “Description of the Certificates — Distributions of Interest” in this prospectus supplement. However, it is expected that the Class B-1, Class B-2 and Class B-3 Certificates and the other subordinate classes will not receive any distributions in respect of subsequent recoveries before the distribution date in September 2013.
     If the subordination of the related subordinate certificates is insufficient to absorb losses, then, to the extent described in this prospectus supplement, the senior certificates relating to the mortgage pool incurring the realized losses will be allocated such losses and may never receive all of their principal payments.
     In certain limited circumstances relating to a pool’s experiencing either rapid prepayments or disproportionately high realized losses, principal and interest collected from the other pools may be applied to pay principal or interest, or both, to the senior certificates, as applicable, related to the pool experiencing such conditions.
     We refer you to “Risk Factors — Risks Related to Potential Inadequacy of Credit Enhancement,” “Description of the Certificates — Priority of Distributions,” “— Limited Cross-Collateralization” and “— Allocation of Realized Losses” in this prospectus supplement for more information.
Fees and Expenses
     Before distributions are made on the certificates, each servicer will be paid from interest collections on the related mortgage loans, prior to deposit into the collection account, a monthly fee, calculated as, for mortgage loans initially serviced by ABN AMRO Mortgage Group, Inc., not in excess of approximately 0.375% annually, for mortgage loans initially serviced by Countrywide Home Loans Servicing, LP, and for mortgage loans serviced by the remaining servicers, as provided in the related servicing agreement, not in excess of approximately 0.250% annually, in each case, on the principal balance of each mortgage loan serviced by that servicer. As of the statistical cut-off date, the weighted average servicing fee rate is approximately 0.2934% annually. Each servicer will also be entitled to receive, to the extent provided in the applicable servicing agreement, additional compensation in the form of any interest or other income earned on funds it has deposited in a collection account pending remittance to the master servicer, as well as late charges and certain fees paid by borrowers and, in certain cases, REO management fees.
     Before distributions are made on the certificates, the master servicer will be paid from interest collections on the mortgage loans, prior to deposit into the certificate distribution account, a monthly fee for each mortgage loan calculated as 0.0075% annually on the total principal balance of the mortgage loans.
     The securities administrator will be paid by the master servicer from the master servicing fee, and as additional compensation, the securities administrator will retain investment income on funds in the certificate distribution account.
     As compensation for its services, the trustee will receive a fee of $3,500 per annum, which will be paid by the master servicer pursuant to a separate agreement between the trustee and the master servicer.
     The fees and expenses of the custodian will be paid by the master servicer from the master

S-8


Table of Contents

servicing fee. Expenses of the servicers, the master servicer, the trustee, the securities administrator and the custodian that are permitted to be reimbursed under the servicing agreements, the pooling and servicing agreement and the custodial agreement will be paid prior to any distributions to certificateholders.
     See “The Agreements Fees and Expenses of the Issuing Entity” in this prospectus supplement.
Final Scheduled Distribution Date
     The final scheduled distribution date for the offered certificates is the distribution date specified in the table on page S-2 and is determined by adding one month to the month of scheduled maturity of the related mortgage loan with the latest maturity. 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 Mortgage Loans
     Statistical Information. The statistical information on the mortgage loans presented herein is based on the principal balance of such mortgage loans as of the statistical cut-off date. Such information does not take into account defaults, delinquencies and prepayments that may have occurred with respect to the mortgage loans since such date. As a result, the statistical distribution of the characteristics in the final mortgage pools as of the closing date will vary from the statistical distribution of such characteristics as presented in this prospectus supplement, although such variance will not be material.
     General. On the closing date, the assets of the issuing entity will consist primarily of three pools of hybrid, adjustable rate, fully amortizing, first lien residential mortgage loans with a total principal balance as of the statistical cut-off date of approximately $762,246,764. As described under “Description of the Mortgage Pools—General,” the mortgage loans on the closing date may vary from the statistical mortgage loans described in this prospectus supplement, although it is not anticipated that those variances will be material.
     The mortgage rate on each mortgage loan in pool 1 and pool 3 is fixed for an initial five-year period from the respective date of origination, and the mortgage rate on each mortgage loans in pool 2 is fixed for an initial seven-year period from the respective date of origination.
     The mortgage loans have interest rates that adjust at the intervals and based on the indices described in this prospectus supplement. Approximately 95.41% of the mortgage loans have original terms to maturity of 30 years and approximately 4.59% of the mortgage loans have original terms to maturity of 40 years.
     Approximately 84.66% of the mortgage loans provide for payments of interest at the related mortgage rate, but no payments of principal, for a period of five years (in the case of approximately 59.49% of the mortgage loans), seven years (in the case of approximately 12.41% of the mortgage loans) or ten years (in the case of approximately 12.76% of the mortgage loans), in each case following origination of such mortgage loan. Following such five, seven or ten-year period, the monthly payment with respect to each such mortgage loan will be increased to an amount sufficient to amortize the principal balance of such mortgage loan over its remaining term, and to pay interest at the related mortgage rate.
     The mortgage loans will not be insured or guaranteed by any government agency.
     The depositor expects that the mortgage loans will have the following approximate characteristics as of the statistical cut-off date:

S-9


Table of Contents

Mortgage Pool Summary – All Mortgage Loans
                         
    Range or   Weighted   Total
    Total   Average   Percentage
Number of Mortgage Loans
    1,326              
Total Principal Balance
  $ 762,246,764              
Principal Balances
  $52,800 to $2,804,000   $ 574,847        
Mortgage Rates
  4.250% to 7.875%     6.289 %      
Original Terms to Maturity (in months)
    360 to 480       366        
Remaining Terms to Maturity (in months)
    346 to 480       364        
Original Loan-to Value Ratios
  10.25% to 95.00%     72.31 %      
Number of Six-Month LIBOR Mortgage Loans
    74             4.59 %
Number of One-Year LIBOR Mortgage Loans
    1,249             95.16 %
Number of One-Year CMT Mortgage Loans
    3             0.26 %
Number of Interest Only Mortgage Loans
    1,113             84.66 %
Geographic Concentration in Excess of 10.00% of the Total Scheduled Principal Balance:
                       
California
    582             45.95 %
Maximum Single Zip Code Concentration
                0.70 %
Credit Scores*
    626 to 816       739        
Number of Mortgage Loans with Prepayment Penalties at Origination
    168             14.74 %
Gross Margins
  2.250% to 2.750%     2.251 %      
Maximum Mortgage Rates
  9.250% to 12.875%     11.289 %      
Minimum Mortgage Rates
  2.250% to 2.750%     2.251 %      
Months to Next Mortgage Rate Adjustment
    46 to 84       63        
Initial Caps
  2.000% to 5.000%     4.992 %      
Periodic Caps
  1.000% to 2.000%     1.954 %      
 
*   The weighted average is based only on the mortgage loans in all mortgage pools having credit scores.

S-10


Table of Contents

Pool 1 Mortgage Loan Summary
                         
    Range or   Weighted   Total
    Total   Average   Percentage
Number of Mortgage Loans
    364              
Total Principal Balance
  $ 212,888,207              
Principal Balances
  $67,920 to $2,804,000   $ 584,858        
Mortgage Rates
  4.250% to 7.625%     6.426 %      
Original Terms to Maturity (in months)
    360 to 480       380        
Remaining Terms to Maturity (in months)
    346 to 480       379        
Original Loan-to Value Ratios
  23.40% to 95.00%     71.69 %      
Number of Six-Month LIBOR Mortgage Loans
    74             16.43 %
Number of One-Year LIBOR Mortgage Loans
    290             83.57 %
Number of Interest Only Mortgage Loans
    337               93.45 %
Geographic Concentration in Excess of 10.00% of the Total Scheduled Principal Balance:
                       
California
    153             44.56 %
Maximum Single Zip Code Concentration
                1.48 %
Credit Scores*
    629 to 810       732          
Number of Mortgage Loans with Prepayment Penalties at Origination
    43             15.54 %
Gross Margins
  2.250% to 2.250%     2.250 %      
Maximum Mortgage Rates
  9.250% to 12.625%     11.426 %      
Minimum Mortgage Rates
  2.250% to 2.250%     2.250 %      
Months to Next Mortgage Rate Adjustment
    46 to 60       59        
Initial Caps
  5.000% to 5.000%     5.000 %      
Periodic Caps
  1.000% to 2.000%     1.836 %      
 
*   The weighted average is based only on the mortgage loans in pool 1 having credit scores.

S-11


Table of Contents

Pool 2 Mortgage Loan Summary
                         
    Range or   Weighted   Total
    Total   Average   Percentage
Number of Mortgage Loans
  228            
Total Principal Balance
  $121,094,465            
Principal Balances
  $79,066 to $1,650,000   $ 531,116        
Mortgage Rates
  5.000% to 7.125%     6.310 %      
Original Terms to Maturity (in months)
  360 to 360     360        
Remaining Terms to Maturity (in months)
  350 to 360     358        
Original Loan-to Value Ratios
  25.41% to 94.89%     73.08 %      
Number of One-Year LIBOR Mortgage Loans
  228           100.00 %
Number of Interest Only Mortgage Loans
  177             78.12 %
Geographic Concentration in Excess of 10.00% of the Total Scheduled Principal Balance:
                       
California
  96           45.73 %
Illinois
  26           12.22 %
Maximum Single Zip Code Concentration
            1.41 %
Credit Scores*
  626 to 809     733          
Number of Mortgage Loans with Prepayment Penalties at Origination
  0           0.00 %
Gross Margins
  2.250% to 2.250%     2.250 %      
Maximum Mortgage Rates
  10.000% to 12.125%     11.310 %      
Minimum Mortgage Rates
  2.250% to 2.250%     2.250 %      
Months to Next Mortgage Rate Adjustment
  74 to 84     82        
Initial Caps
  5.000% to 5.000%     5.000 %      
Periodic Caps
  2.000% to 2.000%     2.000 %      
 
*   The weighted average is based only on the mortgage loans in pool 2 having credit scores.

S-12


Table of Contents

Pool 3 Mortgage Loan Summary
                         
    Range or   Weighted   Total
    Total   Average   Percentage
Number of Mortgage Loans
    734              
Total Principal Balance
  $ 428,264,092              
Principal Balances
  $52,800 to $1,900,000   $ 583,466        
Mortgage Rates
  5.250% to 7.875%     6.215 %      
Original Terms to Maturity (in months)
    360 to 360       360        
Remaining Terms to Maturity (in months)
    347 to 360       359        
Original Loan-to Value Ratios
  10.25% to 91.90%     72.39 %      
Number of One-Year LIBOR Mortgage Loans
    731             99.54 %
Number of One-Year CMT Mortgage Loans
    3             0.46 %
Number of Interest Only Mortgage Loans
    599               82.13 %
Geographic Concentration in Excess of 10.00% of the Total Scheduled Principal Balance:
                       
California
    333             46.70 %
Maximum Single Zip Code Concentration
                0.72 %
Credit Scores*
    650 to 816       744          
Number of Mortgage Loans with Prepayment Penalties at Origination
    125             18.50 %
Gross Margins
  2.250% to 2.750%     2.252 %      
Maximum Mortgage Rates
  10.250% to 12.875%     11.215 %      
Minimum Mortgage Rates
  2.250% to 2.750%     2.252 %      
Months to Next Mortgage Rate Adjustment
    47 to 60       59        
Initial Caps
  2.000% to 5.000%     4.986 %      
Periodic Caps
  2.000% to 2.000%     2.000 %      
 
*   The weighted average is based only on the mortgage loans in pool 3 having credit scores.

S-13


Table of Contents

Mortgage Loan Representations and Warranties
     Each originator of mortgage loans has made certain representations and warranties concerning the mortgage loans The seller’s rights to these representations and warranties will be assigned to the depositor under a mortgage loan purchase and sale agreement and, in turn, will be assigned by the depositor to the trustee under the pooling and servicing agreement for the benefit of certificateholders. In addition, the sponsor will represent that none of the mortgage loans held by the issuing entity will be “high cost” loans under applicable federal, state or local anti-predatory or anti-abusive lending laws, and for certain of the mortgage loans, will make additional representations and warranties.
     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 seller will be required to either (1) cure that breach, (2) repurchase the affected mortgage loan from the issuing entity or (3) in certain circumstances, substitute another mortgage loan for the breaching mortgage loan.
     In order to substitute a new mortgage loan for a mortgage loan that has been removed from the assets of the issuing entity because of a breach of a representation or warranty, (a) substitution must take place within two years after the closing date and (b) a mortgage loan that is materially similar to the defective mortgage loan must be available for substitution.
     See “The Agreements — Representations and Warranties” in this prospectus supplement.
Mortgage Loan Servicing
     The master servicer will supervise the performance of each servicer under the related servicing agreement.
     Under the servicing agreements, the servicers are generally obligated to make monthly advances of cash (to the extent such advances are deemed recoverable), which will be included with mortgage principal and interest collections, in an amount equal to any delinquent monthly payments due on the mortgage loans on the immediately preceding determination date. The master servicer will be obligated to make any required advance if a servicer fails in its obligation to do so, to the extent described in this prospectus supplement. The master servicer and the servicers will be entitled to reimburse themselves for any such advances from future payments and collections (including insurance or liquidation proceeds) with respect to the mortgage loans. However, if the master servicer or the servicers make advances which are determined to be nonrecoverable from future payments and collections on the related mortgage loan, such parties will be entitled to reimbursement for such advances prior to any distributions to certificateholders.
     The servicers will also make interest payments to compensate in part for any shortfall in interest payments on the certificates which results from a borrower prepaying a mortgage loan in whole. However, the amount of such payments will generally not exceed the servicing fees payable to the servicers for the related due period. If a servicer fails to make a required payment in respect of such shortfalls, the master servicer will be obligated to reduce a portion of its master servicing fee to the extent necessary to fund any such shortfall.
     We refer you to “The Agreements —Mortgage Loan Servicing” in this prospectus supplement for more detail.
Optional Redemption of the Certificates
     The holder of the Class LT-R Certificate, which may include the depositor, will have the option to redeem all, but not less than all, of the certificates on any distribution date on or after which the aggregate outstanding principal balance of the mortgage loans is equal to or less than 10% of the aggregate principal balance of the mortgage loans as of the cut-off date. The optional redemption price of the

S-14


Table of Contents

certificates must equal 100% of the unpaid principal balance of the certificates plus accrued and unpaid interest thereon.
     We refer you to “The Agreements — Optional Redemption of the Certificates” in this prospectus supplement for more information.
Tax Status
     The securities administrator, on behalf of the trustee, will elect to treat all or a portion of the assets of the issuing entity as one or more “real estate mortgage investment conduits” or “REMICs” for federal income tax purposes. Each of the offered certificates, other than the Class 1-AR Certificate, will represent ownership of “regular interests” in a REMIC. The Class 1-AR Certificate will be designated as the sole class of “residual interest” in the upper-tier REMIC.
     There are restrictions on the types of investors that are permitted to purchase the Class 1-AR Certificates.
     We refer you to “Federal Income Tax Consequences” in this prospectus supplement and in the accompanying prospectus for additional information concerning the application of federal income tax laws to the certificates.
ERISA Matters
     Subject to important considerations described under “ERISA Matters” in this prospectus supplement and in the accompanying prospectus, the offered certificates, other than the Class 1-AR Certificate, will be eligible for purchase by persons investing assets of employee benefit plans or individual retirement accounts. The Class 1-AR Certificate will not be eligible for purchase by any such plan or account.
     We refer you to “ERISA Matters” in this prospectus supplement and “ERISA Considerations” in the accompanying prospectus for more information.
Legal Investment
     Generally all of the certificates offered by this prospectus supplement (except the Class 1-AR, Class B-2 and Class B-3 Certificates) will constitute “mortgage related securities” for purposes of the Secondary Mortgage Market Enhancement Act of 1984.
     There may be other restrictions on the ability of certain types of investors to purchase the certificates that prospective investors should also consider.
     We refer you to “Legal Investment” in the prospectus for more information.
Rating of the Certificates
     It is a condition of the issuance of the offered certificates that they receive ratings from Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and Fitch, Inc. specified on page S-1. It is a condition of the issuance of the offered certificates that they receive ratings from the rating agencies not lower than the ratings set forth in the table on page S-1.
     The ratings are not recommendations to buy, sell or hold the offered certificates. A rating may be changed or withdrawn at any time by the assigning rating agency.
     The ratings do not address the possibility that, as a result of principal prepayments, the yield on your certificates may be lower than anticipated.
     We refer you to “Ratings” in this prospectus supplement for a more complete discussion of the certificate ratings.

S-15


Table of Contents

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 consider the risk factors described in the accompanying prospectus. All statistical information referred to in this section is based on the mortgage pools as constituted on the statistical cut-off date.
Mortgage Loans with Interest-Only Payments
     Approximately 93.45% of the mortgage loans in pool 1 provide for payment of interest at the related mortgage rate, but no payment of principal, for a period of five or ten years following the origination of the related mortgage loan. Approximately 78.12% of the mortgage loans in pool 2 provide for payment of interest at the related mortgage rate, but no payment of principal, for a period of seven years following the origination of the related mortgage loan. Approximately 82.13% of the mortgage loans in pool 3 provide for payment of interest at the related mortgage rate, but no payment of principal, for a period of five or ten years following the origination of the related mortgage loan. Following the applicable interest-only period, the monthly payment with respect to each mortgage loan will be increased to an amount sufficient to amortize the principal balance of such mortgage loan over its remaining term and to pay interest at the related mortgage interest rate. The required payment of principal will increase the burden on the borrower and may increase the risk of default under the related mortgage loan. Higher scheduled monthly payments may induce the related mortgagors to refinance their mortgage loans, which could result in higher prepayments.
     Such interest-only mortgage loans will, absent other considerations, result in longer weighted average lives of the certificates when compared to certificates backed by fully amortizing mortgage loans without interest-only periods. If you purchase a certificate at a discount, you should consider that the extension of its weighted average life could result in a lower yield than would be the case if such mortgage loans provided for payment of principal and interest on every distribution date. In addition, a borrower may view the absence of any obligation to make a payment of principal during the first five, seven or ten years of the term of the mortgage loan as a disincentive to prepayment.
     If a recalculated monthly payment as described above is substantially higher than a borrower’s previous interest-only monthly payment, that loan may also be subject to an increased risk of delinquency and loss.
     See “Description of the Mortgage Pools” in this prospectus supplement.
Default Risk on High Balance Loans
     As of the statistical cut-off date, the principal balances of approximately 23 of the mortgage loans in pool 1, representing approximately 17.04% of the pool 1 statistical cut-off date balance, were in excess of $1,000,000, approximately 4 of the mortgage loans in pool 2, representing approximately 4.65% of the pool 2 statistical cut-off date balance, were in excess of $1,000,000, and approximately 15 of the mortgage loans in pool 3, representing approximately 4.77% of the pool 3 statistical cut-off date balance, were in excess of $1,000,000. You should consider the risk that the loss and delinquency experience on these high balance loans may have a disproportionate effect on the related mortgage pool.
     See “Description of the Mortgage Pools” in this prospectus supplement.

S-16


Table of Contents

Geographic Concentration of Mortgage Loans
     Approximately 44.56%, 45.73% and 46.70% of the mortgage loans included in pool 1, pool 2 and pool 3, respectively, are secured by mortgaged properties located in California. Approximately 3.64%, 5.45% and 5.22% of the mortgage loans included in pool 1, pool 2 and pool 3, respectively, are secured by mortgaged properties located in Florida. Consequently, losses and prepayments on the mortgage loans in a particular pool and the resultant payments on the related certificates may be affected significantly by changes in the housing markets and the regional economies in areas in these states and by the occurrence of natural disasters, such as earthquakes, tornadoes, tidal waves, mud slides, fires and floods in areas in these states.
     See “Description of the Mortgage Pools — Certain Characteristics of the Mortgage Loans” in this prospectus supplement.
Mortgage Loan Interest Rates May Limit Interest Rates on the Certificates
     As described in this prospectus supplement, the certificate interest rates of the offered certificates on each distribution date will be equal to the weighted average net mortgage rate of the related mortgage loans (or all the mortgage loans in the case of the subordinate certificates). The mortgage rate on each mortgage loan in pool 1 and pool 3 is fixed for an initial five-year period from the respective date of origination. The mortgage rate on each mortgage loan in pool 2 is fixed for an initial seven-year period from the respective date of origination. Thereafter, the mortgage rate on substantially all of the mortgage loans will be adjusted to equal the sum of six-month LIBOR, one-year LIBOR or one-year CMT and a margin. Increases and decreases in mortgage rates may be limited for any adjustment date due to application of an initial or periodic cap. In addition, the mortgage rates may be subject to overall maximum and minimum mortgage rates. As a result of such limitations, increases in the value of six-month LIBOR, one-year LIBOR, or one-year CMT will not necessarily be reflected in corresponding increases in the value of the weighted average net mortgage rates of the mortgage loans. The yield on the certificates will be directly affected by changes in the weighted average net mortgage rates.
     No prediction can be made as to future levels of six-month LIBOR, one-year LIBOR or one-year CMT or as to the timing of any changes therein, each of which will directly affect the yields of the certificates.
     See “Description of the Certificates — Distributions of Interest” in this prospectus supplement.
Risks Related to Potential Inadequacy of Credit Enhancement
     The certificates are not insured by any financial guaranty insurance policy. The subordination and loss allocation features described in this prospectus supplement are intended to enhance the likelihood that holders of more senior classes of certificates will receive regular payments of interest and principal, but are limited in nature and may be insufficient to cover all losses on the mortgage loans.
     The amount of any loss experienced on a mortgage loan will be applied to reduce the principal amount of the class of subordinate certificates with the highest numerical class designation, until the principal balance of that class has been reduced to zero. If subordination is insufficient to absorb losses, then holders of more senior classes will incur losses and may never receive all of their principal payments. You should consider the following:
    if you buy a Class B-3 Certificate and losses on the mortgage loans exceed the total principal amount of the Class B-4, Class B-5 and Class B-6 Certificates, the principal amount of your

S-17


Table of Contents

      certificate will be reduced proportionately with the principal amount of the other Class B-3 Certificates by the amount of that excess;
 
    if you buy a Class B-2 Certificate and losses on the mortgage loans exceed the total principal amount of the Class B-3, Class B-4, Class B-5 and Class B-6 Certificates, the principal amount of your certificate will be reduced proportionately with the principal amount of the other Class B-2 Certificates by the amount of that excess;
 
    if you buy a Class B-1 Certificate and losses on the mortgage loans exceed the total principal amount of the Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates, the principal amount of your certificate will be reduced proportionately with the principal amount of the other Class B-1 Certificates by the amount of that excess; and
 
    after the total class principal amount of the subordinate certificates has been reduced to zero, losses on the mortgage loans in each pool will reduce the class principal amounts of the senior certificates of the related pool; provided, however, that losses that would otherwise reduce the principal amount of the Class 1-A1 Certificates will first reduce the principal amount of the Class 1-A2 Certificates until the principal amount of the Class 1-A2 Certificates has been reduced to zero; provided, further, that losses that would otherwise reduce the principal amount of the Class 2-A1 Certificates will first reduce the principal amount of the Class 2-A2 Certificates until the principal amount of the Class 2-A2 Certificates has been reduced to zero; and provided, further, that losses that would otherwise reduce the principal amount of the Class 3-A1 Certificates will first reduce the principal amount of the Class 3-A2 Certificates until the principal amount of the Class 3-A2 Certificates has been reduced to zero.
     The earlier in the transaction that a loss on a mortgage loan occurs, the greater the impact on the yield. If a loss has been allocated to reduce the principal amount of your certificate, you will receive no payment in respect of that reduction, except to the extent of any subsequent recoveries allocable to your certificate. It is generally not anticipated that any such amounts will be recovered, or that any distributions in respect of subsequent recoveries will be made to the subordinate certificates prior to the distribution date in September 2013. No interest will be paid to certificateholders on the amount by which the principal amount of their certificates was reduced due to application of realized losses.
     Losses on the related mortgage loans will reduce the loss protection provided by the subordinate certificates to the senior certificates and will increase the likelihood that the senior certificates will not receive all of their expected principal payments.
     See “Description of the Certificates — Priority of Distributions” and “— Allocation of Realized Losses” in this prospectus supplement.
Limited Cross-Support; Limited Recourse
     The assets of the issuing entity include three separate mortgage pools, as specified in this prospectus supplement. With very limited exceptions described in “Description of the Certificates — Limited Cross-Collateralization,” interest and principal on the senior certificates will be allocated based on amounts collected in respect of the mortgage loans in the related mortgage pool, and the mortgage pools will generally not be “cross-collateralized” — interest and principal collections received from the mortgage loans in a pool will only be available for distribution to the related certificates and not to the senior certificates related to the other pool. For example, collections from pool 1 will generally only be available to make distributions to the group 1 certificates, but not to the group 2 certificates or the group 3

S-18


Table of Contents

certificates; collections from pool 2 will generally only be available to make distributions to the group 2 certificates, but not to the group 1 certificates or the group 3 certificates; collections from pool 3 will generally only be available to make distributions to the group 3 certificates, but not to the group 1 certificates or the group 2 certificates and collections from all mortgage pools will be available to make distributions to the subordinate certificates.
     Because the subordinate certificates represent interests in all mortgage pools, the class principal amounts of the subordinate certificates could be reduced to zero as a result of realized losses on the mortgage loans in any one pool. Therefore, the allocation of realized losses on the mortgage loans in any one pool to the subordinate certificates will reduce the subordination provided by the subordinate certificates to all of the senior certificates, including the senior certificates related to the mortgage pool that did not suffer any losses. This will increase the likelihood that future realized losses may be allocated to the senior certificates related to the mortgage pool that did not suffer those previous losses. That means that even if the rate of losses on mortgage loans in the pool related to your class of senior certificates is low, losses in an unrelated pool may reduce the loss protection for your certificates.
     Neither the certificates nor the assets of the issuing entity will be guaranteed by the depositor, the seller, the master servicer, the servicers, the trustee or any of their respective affiliates or insured by any governmental agency. Consequently, if collections on the related mortgage loans are insufficient to make all payments required on the certificates and the protection against losses provided by subordination is exhausted, you may incur a loss on your investment.
Unpredictability and Effect of Prepayments
     The rate of principal distributions and yield to maturity on the certificates will be directly related to the rate of principal payments on the mortgage loans. The rate of prepayments on the mortgage loans will be sensitive to prevailing interest rates. If prevailing interest rates rise, prepayments on the mortgage loans may decrease.
     All of the mortgage loans are hybrid adjustable-rate mortgage loans with an initial fixed-rate period of five years, in the case of the mortgage loans in pool 1 and pool 3, and seven years, in the case of mortgage loans in pool 2. As is the case with conventional fixed-rate mortgage loans, adjustable-rate mortgage loans may be subject to a greater rate of principal prepayments in a declining interest rate environment. For example, if prevailing mortgage rates fall significantly, adjustable-rate mortgage loans with an initial fixed-rate period could be subject to higher prepayment rates either before or after the interest rate on the mortgage loan begins to adjust than if prevailing mortgage rates remain constant because the availability of fixed-rate mortgage loans at competitive interest rates may encourage borrowers to refinance their mortgage loans to “lock-in” lower fixed interest rates. The features of adjustable-rate mortgage loan programs during the past years have varied significantly in response to market conditions including the interest-rate environment, consumer demand, regulatory restrictions and other factors. The lack of uniformity of the terms and provisions of such adjustable-rate mortgage loan programs have made it impracticable to compile meaningful comparative data on prepayment rates and, accordingly, we cannot assure you as to the rate of prepayments on the mortgage loans in stable or changing interest rate environments.
     Borrowers may prepay their mortgage loans in whole or in part at any time; however, some or all of the mortgage loans to be held by the issuing entity may require the payment of a prepayment premium in connection with any voluntary prepayments in full, and certain voluntary prepayments in part, made during periods ranging from the periods specified in this prospectus supplement. These prepayment premiums may discourage borrowers from prepaying their mortgage loans during the applicable period.

S-19


Table of Contents

Prepayment premiums will be paid to the Servicers as additional servicing compensation and accordingly, will not be available to make distributions on the Offered Certificates.
     Prepayments on the mortgage loans may occur as a result of solicitations of the borrowers by mortgage loan originators, including the seller and its affiliates, the servicers and the master servicer. In addition, the availability of newer mortgage products with more flexible payment terms or that require lower monthly payments, such as “option ARMs,” may result in an increase in the number of borrowers who prepay their mortgage loans to take advantage of new products.
     The timing of prepayments of principal may also be affected by liquidations of or insurance payments on the mortgage loans. In addition, the Sponsor, as the Seller of the mortgage loans to the depositor may be required to purchase mortgage loans from the issuing entity in the event that certain breaches of representations and warranties made with respect to the mortgage loans are not cured. These purchases will have the same effect on certificateholders as prepayments of mortgage loans.
     The rate of principal distributions and yield to maturity on the certificates will be directly related to the rate of principal payments on the mortgage loans of the related mortgage pool, in the case of the group 1 certificates, the group 2 certificates and the group 3 certificates, or the combined mortgage pools, in the case of the subordinate certificates.
     The prepayment experience of the mortgage loans to be held by the issuing entity may differ significantly from that of other residential mortgage loans.
     The yield to maturity of the certificates will also be affected by the exercise of the optional redemption right by the holder of the Class LT-R Certificate.
     As of the statistical cut-off date, approximately 84.46% of the mortgage loans in pool 1, all of the mortgage loans in pool 2 and 81.50% of the mortgage loans in pool 3 may be prepaid in whole or in part at any time without payment of a prepayment penalty. The rate of principal payments on mortgage loans is influenced by a wide variety of economic, geographic, social and other factors, including general economic conditions, the level of prevailing interest rates, the availability of alternative financing and homeowner maturity. For example, if interest rates for similar loans fall below the interest rates on the mortgage loans, the rate of prepayment would generally be expected to increase. Conversely, if interest rates on similar loans rise above the interest rates on the mortgage loans, the rate of prepayment would generally be expected to decrease. We cannot predict the rate at which borrowers will repay their mortgage loans. Please consider the following:
    if you are purchasing any offered certificate at a discount, your yield may be lower than expected if principal payments on the related mortgage loans occur at a slower rate than you expected;
 
    if you are purchasing any offered certificate at a premium, your yield may be lower than expected if principal payments on the related mortgage loans occur at a faster rate than you expected, and you could lose your initial investment;
 
    if the rate of default and the amount of losses on the related mortgage loans are higher than you expect, then your yield may be lower than you expect;
 
    the earlier a payment of principal occurs, the greater the impact on your yield. For example, if you purchase any offered certificate at a premium, although the average rate of principal payments is consistent with your expectations, if the rate of principal payments occurs

S-20


Table of Contents

      initially at a rate higher than expected, which would adversely impact your yield, a subsequent reduction in the rate of principal payments will not offset any adverse yield effect; and
 
    the priorities governing payments of scheduled and unscheduled principal will have the effect of accelerating the rate of principal payments to holders of the classes of senior certificates relative to the classes of subordinate certificates.
     The prepayment of mortgage loans with relatively higher net mortgage rates may also result in a lower weighted average net mortgage rate and will reduce the certificate interest rate of the certificates.
     See “Yield, Prepayment and Weighted Average Life” and “Description of the Certificates — Distributions of Principal” in this prospectus supplement and “Yield and Prepayment Considerations” in the accompanying prospectus for a description of the factors that may influence the rate and timing of prepayments on the mortgage loans.
Delay in Receipt of Liquidation Proceeds; Liquidation Proceeds May Be Less Than Mortgage Balance
     Substantial delays could be encountered in connection with the liquidation of delinquent mortgage loans. Further, reimbursement of advances made by a servicer and liquidation expenses such as legal fees, real estate taxes and maintenance and preservation expenses may reduce the portion of liquidation proceeds payable to certificateholders. If a mortgaged property fails to provide adequate security for the related mortgage loan, you could incur a loss on your investment if the applicable credit enhancement is insufficient to cover the loss.
Delinquencies Due to Servicing Transfer
     Mortgage loans serviced by the initial servicers may be transferred in the future to new servicers in accordance with the provisions of the pooling and servicing agreement and the applicable servicing agreements.
     Mortgage loans subject to servicing transfers may experience increased delays in payment until all of the borrowers are informed of the transfer and the related servicing mortgage files and records and all other relevant data has been obtained by the new servicer.
     See “The Master Servicer and the Servicers” and “The Agreements —Mortgage Loan Servicing” in this prospectus supplement.
Military Action and Terrorist Attacks
     The effects that military action by U.S. forces in Iraq or other regions and terrorist attacks in the United States or other incidents and related military action may have on the performance of the mortgage loans or on the values of mortgaged properties cannot be determined at this time. Investors should consider the possible effects on delinquency, default and prepayment experience of the mortgage loans. Federal agencies and non-government lenders may defer, reduce or forgive payments and delay foreclosure proceedings in respect of loans to borrowers affected in some way by recent and possible future events. In addition, activation of a substantial number of U.S. military reservists or members of the National Guard may significantly increase the proportion of mortgage loans whose mortgage rates are reduced by application of the Servicemembers Civil Relief Act, as amended, or similar state or local laws, and neither the master servicer nor the servicers will be required to advance for any interest shortfall caused by any such reduction. Shortfalls in interest may result from the application of the

S-21


Table of Contents

Servicemembers Civil Relief Act, as amended, or similar state or local laws. Interest payable to senior and subordinate certificateholders will be reduced on a pro rata basis by any reductions in the amount of interest collectible as a result of application of the Servicemembers Civil Relief Act or similar state or local laws.
Ability to Resell Certificates May Be Limited
     There is currently no market for any of the certificates and the underwriters are not required to assist investors in resales of the offered certificates, although they may do so. We cannot assure you that a secondary market will develop, or if it does develop, that it will continue to exist for the term of the certificates. Consequently, you may not be able to sell your certificates readily or at prices that will enable you to realize your desired yield. The market values of the certificates are likely to fluctuate; these fluctuations may be significant and could result in significant losses to you.
     The secondary market for mortgage pass-through certificates has experienced periods of illiquidity and can be expected to do so in the future. Illiquidity can have a severe adverse effect on the prices of certificates that are especially sensitive to prepayment, credit or interest rate risk, or that have been structured to meet the investment requirements of limited categories of investors.
Violation of Various Federal, State and Local Laws May Result in Losses on the Mortgage Loans
     Applicable state laws generally regulate interest rates and other charges, require certain disclosure, and require licensing of lenders. In addition, other state laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing and collection of mortgage loans.
     Mortgage loans are also subject to various federal laws, including:
    the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to borrowers regarding the terms of their mortgage loans;
 
    the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit; and
 
    the Fair Credit Reporting Act, which regulates the use and reporting of information related to the borrower’s credit experience.
     Violations of certain provisions of these federal laws may limit the ability of the servicers to collect all or part of the principal of or interest on the related mortgage loans and in addition could subject the issuing entity to damages and administrative enforcement.
     The seller of the mortgage loans represents in the mortgage loan sale agreement described in this prospectus supplement that each mortgage loan was originated in compliance with applicable federal, state and local laws and regulations. In the event of a breach of this representation, the seller will be obligated to cure the breach or repurchase or replace the affected mortgage loan in the manner described in this prospectus supplement and under “The Agreements—Assignment of the Mortgage Loans” in this prospectus supplement.

S-22


Table of Contents

Predatory Lending Laws/High Cost Loans
     Various federal, state and local laws have been enacted that are designed to discourage predatory lending practices. The federal Home Ownership and Equity Protection Act of 1994, commonly known as HOEPA, prohibits inclusion of certain provisions in mortgage loans that have mortgage rates or origination costs in excess of prescribed levels, and requires that borrowers be given certain disclosures prior to the origination of mortgage loans. Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than those in HOEPA.
     In addition, under the anti-predatory lending laws of some states, the origination of certain mortgage loans (including loans that are not classified as “high cost” loans under applicable law) must satisfy a net tangible benefits test with respect to the related borrower. This test may be highly subjective and open to interpretation. As a result, a court may determine that a mortgage loan does not meet the test even if the related originator reasonably believed that the test was satisfied.
     Failure to comply with these laws, to the extent applicable to any of the mortgage loans, could subject the issuing entity, as an assignee of the related mortgage loans, to monetary penalties and could result in the borrowers rescinding the affected mortgage loans. Lawsuits have been brought in various states making claims against assignees of high cost loans for violations of state law. Named defendants in these cases have included numerous participants within the secondary mortgage market, including some securitization trusts.
     The seller will represent that the assets of the issuing entity do not include any mortgage loans that are subject to HOEPA or that would be classified as “high cost” loans under any similar state or local predatory or abusive lending law. There may be mortgage loans held by the issuing entity that are subject to the state or local requirement that the loan provide a net tangible benefit (however denominated) to the borrower; the seller will represent that these mortgage loans are in compliance with applicable requirements. If it is determined that the assets of the issuing entity include loans subject to HOEPA or otherwise classified as high cost loans, or which do not comply with applicable net tangible benefit requirements, the seller will be required to repurchase the affected loans and to pay any liabilities incurred by the issuing entity due to any violations of these laws. If the loans are found to have been originated in violation of predatory or abusive lending laws and the seller does not repurchase the affected loans and pay any related liabilities, certificateholders could incur losses.
Bankruptcy or Insolvency Proceedings Could Delay or Reduce Payments on the Certificates
     Each transfer of a mortgage loan to the sponsor, from the seller to the depositor and from the depositor to the issuing entity, will be intended to be an absolute and unconditional sale of that mortgage loan and will be reflected as such in the applicable documents. However, in the event of the bankruptcy or insolvency of a prior owner of a mortgage loan, a trustee in bankruptcy or a receiver or creditor of the insolvent party could attempt to recharacterize the sale of that mortgage loan by the insolvent party as a borrowing secured by a pledge of the mortgage loan. Such an attempt, even if unsuccessful, could result in delays in payments on the certificates. If such an attempt were successful, it is possible that the affected mortgage loans could be sold in order to liquidate the assets of the insolvent entity. In the case of the bankruptcy or insolvency of the seller, there can be no assurance that the proceeds of such a liquidation would be sufficient to repay the certificates in full.
DESCRIPTION OF THE MORTGAGE POOLS
     Wherever reference is made herein to a percentage of some or all of the Mortgage Loans, that percentage (unless otherwise specified) is determined on the basis of the total scheduled principal balance of such Mortgage Loans (or the specified pool of Mortgage Loans) as of July 1, 2006 (the “Statistical Cut-off Date”).

S-23


Table of Contents

General
     On August 30, 2006 (the “Closing Date”), the assets of the Issuing Entity are expected to include three pools (“Pool 1”, “Pool 2” and “Pool 3”, respectively, and each, a “Mortgage Pool”) having, in the aggregate, approximately 1,326 conventional, adjustable rate hybrid mortgage loans (the “Mortgage Loans”) secured by first liens on one-to-four family residential properties (each, a “Mortgaged Property”) with original terms to maturity of either 30 or 40 years, having an aggregate Stated Principal Balance as of the Statistical Cut-off Date of approximately $762,246,764 (the “Aggregate Statistical Cut-off Date Balance”). As described herein at “Description of the Certificates — General,” the Mortgage Loans have been segregated into Pool 1, Pool 2 and Pool 3 for the purpose of allocating distributions among the Senior Certificates. Each Mortgage Pool has the characteristics described below. All of the Mortgage Loans are first lien mortgage loans. Approximately 95.41% of the Mortgage Loans have original terms to maturity from the due date of the first monthly payment of 30 years and approximately 4.59% of the Mortgage Loans have original terms to maturity from the due date of the first monthly payment of 40 years.
     Countrywide Home Loans, Inc. and ABN AMRO Mortgage Group, Inc. originated approximately 52.62% and 34.72% of the Mortgage Loans, respectively, and the remaining Mortgage Loans were originated by various mortgage lending institutions, each of which originated less than 10% of the Mortgage Loans (collectively with Countrywide Home Loans, Inc. ABN AMRO Mortgage Group, Inc., the “Originators”).
     The underwriting guidelines generally applied by the Originator in originating the Mortgage Loans are described under “The Originators” in this prospectus supplement. The Mortgage Loans will be acquired by the Depositor from the Seller and the Depositor will, in turn, convey the Mortgage Loans to the Issuing Entity. We refer you to “The Mortgage Loan Purchase Agreement and the Pooling and Servicing Agreement—Sale of the of Mortgage Loans.”
     The Mortgage Loans are hybrid, adjustable rate, fully amortizing mortgage loans secured by first liens on one-to- four family residential properties.
     Pursuant to its terms, each Mortgage Loan, other than a loan secured by a condominium unit, is required to be covered by a standard hazard insurance policy in an amount generally equal to the lower of the unpaid principal amount thereof or the replacement value of the improvements on the related Mortgaged Loan. Generally, a condominium association is responsible for maintaining hazard insurance covering the entire building.
     Approximately 84.66% of the Mortgage Loans provide for monthly payments of interest, but not principal, for a period of up to five, seven or ten years following origination, after which the monthly payments will be increased to amounts sufficient to pay interest and to amortize the principal balances over the remaining terms. If the monthly payment at the end of the interest only period is substantially higher than the interest only payment, that loan may be subject to an increased risk of default.
     Approximately 45.95% of the Mortgage Loans are secured by Mortgaged Properties located in the state of California.
     Approximately 56.61%, 32.55% and 54.98% of the Mortgage Loans in Pool 1, Pool 2 and Pool 3, respectively, were originated under “preferred” or “stated income documentation” programs, pursuant to which some underwriting documentation concerning income, employment and asset verification is waived, and certain non-standard documentation is permitted for income and employment verification. Certain documentation with respect to some Mortgage Loans, including, in some cases, the related

S-24


Table of Contents

Mortgage Note, Mortgage or title insurance policy, is unavailable. Except as otherwise noted herein, the Seller will make only limited representations and warranties with respect to the Mortgage Loans; however, the Issuing Entity will be able to enforce the Seller’s rights against the Originators for their representations and warranties made with respect to the Mortgage Loans at the time of sale of the Mortgage Loans to the Seller. We refer you to “The Agreements—Assignment of the Mortgage Loans” in this prospectus supplement.
     The Seller will represent and warrant that no Mortgage Loan is a “high cost” or “covered” loan under federal, state or local predatory lending laws.
     Certain general information with respect to the Mortgage Loans is set forth below. Prior to the Closing Date, Mortgage Loans may be removed from the assets of the Issuing Entity and other mortgage loans may be substituted therefor. The Depositor believes that the information set forth herein with respect to the Mortgage Loans as presently constituted is representative of the characteristics of the Mortgage Loans as they will be constituted at the Closing Date, although the numerical data and certain other characteristics of the Mortgage Loans described herein may vary within a range of plus or minus 10%.
     None of the Mortgage Loans will be guaranteed by any governmental agency. All of the Mortgage Loans will have been assigned to the Issuing Entity by the Depositor, which, in turn, will have acquired them from the Seller pursuant to an agreement (the “Mortgage Loan Purchase Agreement”) between the Depositor and the Seller. The Mortgage Loans have been acquired by the Seller, directly or indirectly, from the Originators in the ordinary course of its business. All of the Mortgage Loans were underwritten by the Originators substantially in accordance with the underwriting criteria specified herein. See “The Originators” below. The Servicers will service the Mortgage Loans pursuant to existing Servicing Agreements with the Seller, which agreements have been assigned to the Issuing Entity.
     The Mortgage Loans generally provide for payments due on the first day of each month (the “Due Date”). Due to the provisions for Monthly Advances by the applicable Servicer, Scheduled Payments made by the borrowers either earlier or later than the scheduled Due Dates thereof will not affect the amortization schedule or the relative application of such payments to principal and interest. Approximately 14.74% of the Mortgage Loans (by Aggregate Statistical Cut-off Date Balance) include prepayment penalties for early voluntary prepayments in full or in part. Prepayment premiums will be paid to the Servicers as additional servicing compensation and accordingly, will not be available to make distributions on the Offered Certificates.
     The Mortgage Loans were originated from April 2005 through July 2006. No more than approximately 0.70% of the Mortgage Loans are secured by Mortgaged Properties located in any one zip code area. The latest stated maturity date of any Mortgage Loan is August 1, 2046.
     As of the Statistical Cut-off Date, all of the Mortgage Loans were less than 30 days delinquent in payment. In addition, substantially all of the Mortgage Loans were originated within the twelve months preceding the Statistical Cut-off Date. The Sponsor or an affiliate of the Sponsor acquired all of the Mortgage Loans on dates subsequent to the Statistical Cut-off Date, and the Originators represented and warranted that none of the Mortgage Loans being sold by them had been delinquent thirty or more days during the twelve months preceding the date of sale.
     As of the Statistical Cut-off Date, the weighted average Mortgage Rate of the Mortgage Loans is approximately 6.289% per annum, the weighted average Servicing Fee Rate is approximately 0.2934% per annum, the weighted average margin is approximately 2.251% per annum, the weighted average

S-25


Table of Contents

remaining term to maturity is approximately 364 months, and the weighted average remaining interest only term is approximately 72 months.
     No Mortgage Loan had a Loan-to-Value Ratio at origination of more than 100%. Approximately 0.96% of the Mortgage Loans had a Loan-to-Value Ratio at origination of greater than 80%. Substantially all of the Mortgage Loans with a Loan-to-Value Ratio at origination of greater than 80% are covered by a primary mortgage insurance policy.
     The “Loan-to-Value Ratio” of a Mortgage Loan at any given time is a fraction, expressed as a percentage, the numerator of which is the principal balance of the related Mortgage Loan at the date of determination and the denominator of which is (a) in the case of a purchase, the lesser of the selling price of the Mortgaged Property and its appraised value determined in an appraisal obtained by the originator at origination of such Mortgage Loan, or (b) in the case of a refinance, the appraised value of the Mortgaged Property at the time of such refinance. No assurance can be given that the value of any Mortgaged Property has remained or will remain at the level that existed on the appraisal or sales date. If residential real estate values generally or in a particular geographic area decline, the Loan-to-Value Ratios might not be a reliable indicator of the rates of delinquencies, foreclosures and losses that could occur with respect to such Mortgage Loans. The “Effective Loan-to-Value Ratio” means a fraction, expressed as a percentage, the numerator of which is the original Stated Principal Balance of the related Mortgage Loan, less the amount secured by the related Additional Collateral required at the time of origination, if any, and the denominator of which is the appraised value of the related Mortgaged Property at such time, or in the case of a Mortgage Loan financing the acquisition of the Mortgaged Property, the sales price of the Mortgaged Property if such sales price is less than such appraised value.
Adjustable Mortgage Rates
     As of the Statistical Cut-off Date, after their initial fixed rate period, (i) approximately 4.59% of the Mortgage Loans will provide for semi-annual adjustment of the related Mortgage Rate based on the six-month LIBOR index, (ii) approximately 95.16% of the Mortgage Loans will provide for annual adjustment of the related Mortgage Rate based on the one-year LIBOR index, and (iii) approximately 0.26% of the Mortgage Loans will provide for annual adjustment of the related Mortgage Rate based on the one-year CMT index, each as described under “—The Indices” below. With respect to each Mortgage Loan, there will be corresponding adjustments to the monthly payment amount, in each case on each Adjustment Date applicable thereto; provided that the first such adjustment for all of the Mortgage Loans will occur, in the case of approximately 84.11% of the Mortgage Loans, after an initial period of approximately five years following origination and in the case of approximately 15.89% of the Mortgage Loans, after an initial period of approximately seven years following origination. On each Adjustment Date for a Mortgage Loan, the Mortgage Rate will be adjusted to equal the sum, rounded generally to the next highest or nearest multiple of 1/8%, of the related Index and the related Gross Margin, provided that the Mortgage Rate on the Mortgage Loans may not increase or decrease on any interest rate adjustment date by more than a specified percentage per annum (the “Periodic Cap”) ranging from 1.000% to 2.000%, as specified in the related Mortgage Note on any related Adjustment Date and will not exceed the related Maximum Rate over the life of such Mortgage Loan or be less than the Minimum Rate. Effective with the first monthly payment due on each Mortgage Loan after each related Adjustment Date after the interest-only period, if any, has concluded, the monthly payment amount will be adjusted to an amount that will amortize fully the outstanding principal balance of the related Mortgage Loan over its remaining term, and pay interest at the Mortgage Rate as so adjusted. Due to the application of the Periodic Caps and Maximum Rates, the Mortgage Rate on each such Mortgage Loan, as adjusted on any related Adjustment Date, may be less than the sum of the related Index and the related Gross Margin, rounded as described herein. We refer you to “—The Indices” below.

S-26


Table of Contents

     The Mortgage Loans do not permit the related borrower to convert the adjustable Mortgage Rate to a fixed Mortgage Rate.
The Indices
     As indicated above, the index applicable to the determination of the Mortgage Rates for the Mortgage Loans will be the six-month LIBOR index, the one-year LIBOR or the one-year CMT index as most recently available as of the first business day of the month preceding the month of such Adjustment Date. In the event that the six-month LIBOR index, the one-year LIBOR or the one-year CMT index becomes unavailable or otherwise unpublished, the applicable Servicer will select a comparable alternative index over which it has no direct control and which is readily verifiable.
Certain Characteristics of the Mortgage Loans
     The Mortgage Loans are expected to have the stated characteristics as of the Statistical Cut-off Date as set forth in Annex B to this prospectus supplement. The sum of the amounts of the aggregate Stated Principal Balances and the percentages in the tables in Annex B may not equal the totals due to rounding.
     Prior to the issuance of the Certificates, Mortgage Loans may be removed as a result of incomplete documentation or otherwise, if the Depositor deems such removal necessary or appropriate.
DESCRIPTION OF THE CERTIFICATES
General
     On the Closing Date the Certificates will be issued pursuant to the Pooling and Servicing Agreement. Set forth below are summaries of the specific terms and provisions of the Pooling and Servicing Agreement. The following summaries are subject to, and are qualified in their entirety by reference to, the provisions of the Pooling and Servicing Agreement. When particular provisions or terms used in the Pooling and Servicing Agreement are referred to, the actual provisions (including definitions of terms) are incorporated by reference.
     The Certificates will consist of the Class 1-A1, Class 1-A2, Class 1-AR, Class LT-R, Class 2-A1, Class 2-A2, Class 3-A1 and Class 3-A2 Certificates (the “Senior Certificates”) and the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates (the “Subordinate Certificates” or the “Subordinate Classes”). The Senior Certificates (other than the Class LT-R Certificate) and the Class B-1, Class B-2 and Class B-3 Certificates are sometimes collectively referred to herein as the “Offered Certificates.” Only the Offered Certificates are offered under this prospectus supplement. The Class LT-R, Class B-4, Class B-5 and Class B-6 Certificates are collectively referred to as the “Privately-Offered Certificates.” The Privately-Offered Certificates are not offered under this prospectus supplement. Accordingly, the description of the Privately-Offered Certificates provided in this prospectus supplement is solely for informational purposes.
     The Offered Certificates will be issued in the initial Class Principal Amounts set forth in the table under “The Offered Certificates.” The Class B-4, Class B-5 and Class B-6 Certificates will be issued in the approximate initial Class Principal Amounts of $2,287,000, $1,906,000 and $1,905,664, respectively. The Class LT-R Certificate will not have a Class Principal Amount. The initial Class Principal Amount of each class may be increased or decreased by up to 10% to the extent that the Stated Principal Balance of the Mortgage Loans is increased or decreased as described at “Description of the Mortgage Pools.”

S-27


Table of Contents

     An affiliate of the Sponsor and the Depositor will hold the Class LT-R Certificates.
     The minimum denominations and incremental denominations of the Offered Certificates are set forth in the table on page S-2.
     The Certificates represent beneficial ownership interests in the Issuing Entity. On the Closing Date, the assets of the Issuing Entity will consist primarily of (1) the Pool 1 Mortgage Loans, the Pool 2 Mortgage Loans and the Pool 3 Mortgage Loans; (2) such assets as from time to time are identified as deposited in respect of the Mortgage Loans in the Collection Accounts and the Certificate Distribution Account (see “— Payments on Mortgage Loans; Accounts” below); (3) the Issuing Entity’s rights under various assignment, assumption and recognition agreements pursuant to which the Seller and the Depositor assigned their respective interests in the various underlying mortgage loan purchase agreements and servicing agreements with respect to the Mortgage Loans originally entered into between the Seller and the Originators; (5) the Issuing Entity’s rights under the Mortgage Loan Purchase Agreement, as described above under “Description of the Mortgage Pools — Assignment of the Mortgage Loans,” (6) property acquired by foreclosure of the Mortgage Loans or deed in lieu of foreclosure; (7) any applicable insurance policies and (8) the proceeds of all of the foregoing.
     Solely for purposes of determining distributions of interest and principal on the Senior Certificates, the Senior Certificates have been divided into the following payment groups (each a “Certificate Group”):
      The Group 1 Certificates: The Class 1-A1, Class 1-A2, Class 1-AR, Class LT-R Certificates are referred to herein as the “Group 1 Certificates.” With the limited exceptions described at “— Limited Cross-Collateralization,” distributions of interest and principal on the Group 1 Certificates will be based solely on interest and principal received on, or advanced with respect to, the Pool 1 Mortgage Loans.
      The Group 2 Certificates: The Class 2-A1 and Class 2-A2 Certificates are referred to herein as the “Group 2 Certificates.” With the limited exceptions described at “— Limited Cross-Collateralization,” distributions of interest and principal on the Group 2 Certificates will be based solely on interest and principal received on, or advanced with respect to, the Pool 2 Mortgage Loans.
      The Group 3 Certificates: The Class 3-A1 and Class 3-A2 Certificates are referred to herein as the “Group 3 Certificates.” With the limited exceptions described at “— Limited Cross-Collateralization,” distributions of interest and principal on the Group 3 Certificates will be based solely on interest and principal received on, or advanced with respect to, the Pool 3 Mortgage Loans.
     Distributions on the Certificates will be made by the Securities Administrator, on behalf of the Trustee, on the 20th day of each month, or if such day is not a Business Day, on the first Business Day thereafter commencing in September 2006 (each, a “Distribution Date”), to the persons in whose names such Certificates are registered on the applicable Record Date. For this purpose, a “Business Day” is any day other than (i) a Saturday or Sunday, or (ii) a day on which banking institutions in the City of New York, New York, the states of Maryland or Minnesota or the city in which the Corporate Trust Office of the Trustee is located are authorized or obligated by law or Executive Order to be closed. A “Record Date” with respect to the Offered Certificates is the last Business Day of the month preceding the month of that Distribution Date.

S-28


Table of Contents

     Payments on each Distribution Date will be made by check mailed to the address of the holder of the certificate (the “Certificateholder”) entitled thereto as it appears on the applicable certificate register or, in the case of a Certificateholder who holds 100% of the Class 1-AR Certificate or who holds Certificates with an aggregate initial Class Principal Amount of $1,000,000 or more and who has so notified the Securities Administrator in writing in accordance with the Pooling and Servicing Agreement, by wire transfer in immediately available funds to the account of such Certificateholder at a bank or other depository institution having appropriate wire transfer facilities; provided, however, that the final payment in retirement of the Certificates will be made only upon presentment and surrender of such Certificates at the Corporate Trust Office of the Securities Administrator. See “— Book Entry Certificates” below for the method of payment to Beneficial Owners of Book-Entry Certificates.
Book-Entry Certificates
     General. The Offered Certificates (other than the Class 1-AR Certificate) will be book-entry certificates (each, a class of “Book-Entry Certificates”) issued, maintained and transferred on the book-entry records of The Depository Trust Company (“DTC”) and its Participants.
     Each class of Book-Entry Certificates will be represented by one or more global certificates which equal the initial principal balance of such class registered in the name of the nominee of DTC. The Depositor has been informed by DTC that DTC’s nominee will be Cede & Co. No person acquiring an interest in a Book-Entry Certificate (each, a “Beneficial Owner”) will be entitled to receive a physical certificate instrument evidencing such person’s interest (a “Definitive Certificates”), except as set forth in the prospectus under “Description of the Securities — Book-Entry Registration of Securities.” Unless and until Definitive Certificates are issued for the Book-Entry Certificates under the limited circumstances described in the prospectus, 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. Beneficial Owners are only entitled to exercise their rights indirectly through Participants in the DTC.
     Registration. Beneficial Owners will hold their interests in their Offered Certificates through DTC in the United States, or, upon request, through Clearstream Banking Luxembourg (hereafter, “Clearstream Luxembourg”) or the Euroclear System (“Euroclear”) in Europe if they are participants of such systems, or indirectly through organizations which are participants in such systems. Clearstream Luxembourg and Euroclear will hold omnibus positions on behalf of their participants through customers’ securities accounts in Clearstream Luxembourg’s and Euroclear’s names on the books of their respective depositaries which in turn will hold such positions in customers’ securities accounts in the depositaries’ names on the books of DTC. Citibank, N.A. generally, but not exclusively, will act as depositary for Clearstream Luxembourg and JPMorgan Chase Bank generally, but not exclusively, will act as depositary for Euroclear (in such capacities, individually the “Relevant Depositary” and collectively, the “European Depositaries”).
     The Beneficial Owner’s ownership interest in a Book-Entry Certificate will be recorded on the records of the brokerage firm, bank, thrift institution or other financial intermediary (each, a “Financial Intermediary”) that maintains the Beneficial Owner’s account for such purpose. In turn, the Financial Intermediary’s ownership of such Book-Entry Certificate will be recorded on the records of DTC (or of a participating firm (a “Participant”) that acts as agent for the Financial Intermediary, whose interest will in turn be recorded on the records of DTC, if the Beneficial Owner’s Financial Intermediary is not a DTC participant and on the records of Clearstream Luxembourg or Euroclear, as appropriate).

S-29


Table of Contents

     Beneficial Owners will receive all payments of principal of, and interest on, the Offered Certificates from the Securities Administrator, on behalf of the Trustee through DTC and DTC participants. While the Book-Entry Certificates are outstanding (except under the circumstances described below), under the rules, regulations and procedures creating and affecting DTC and its operations (the “Rules”), DTC is required to make book-entry transfers among Participants on whose behalf it acts with respect to the Book-Entry Certificates and is required to receive and transmit payments of principal of, and interest on, the Book-Entry Certificates. Participants and indirect participants with whom Beneficial Owners have accounts with respect to Book-Entry Certificates are similarly required to make book-entry transfers and receive and transmit such distributions on behalf of their respective Beneficial Owners. Accordingly, although Beneficial Owners will not possess physical certificates, the Rules provide a mechanism by which Beneficial Owners will receive payments and will be able to transfer their interest.
     Beneficial Owners will not receive or be entitled to receive Definitive Certificates representing their respective interests in the Book-Entry Certificates, except under the limited circumstances described below. Unless and until Definitive Certificates are issued, Beneficial Owners who are not Participants may transfer ownership of Book-Entry Certificates only through Participants and indirect participants by instructing such Participants and indirect participants to transfer their interest by book-entry transfer, through DTC for the account of the purchasers of such Certificates, which account is maintained with their respective Participants. Under the Rules and in accordance with DTC’s normal procedures, transfer of ownership of Book-Entry Certificates will be executed through DTC and the accounts of the respective Participants at DTC will be debited and credited. Similarly, the Participants and indirect participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing Beneficial Owners.
     Because of time zone differences, credits of securities received in Clearstream Luxembourg or Euroclear as a result of a transaction with a Participant will be made during subsequent securities settlement processing and dated the business day following the DTC settlement date. Such credits or any transactions in such securities settled during such processing will be reported to the relevant Euroclear or Clearstream Luxembourg Participants on such business day. Cash received in Clearstream Luxembourg or Euroclear as a result of sales of securities by or through a Clearstream Luxembourg Participant 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.
     Transfers between Participants will occur in accordance with DTC rules. Transfers between Clearstream Luxembourg Participants and Euroclear Participants will occur in accordance with their respective rules and operating procedures.
     Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream Luxembourg Participants or Euroclear Participants, on the other, will be effected in DTC in accordance with the DTC rules on behalf of the relevant European international clearing system by the Relevant Depositary; however, such cross market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to the Relevant Depositary to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same day funds settlement applicable to DTC. Clearstream Luxembourg Participants and Euroclear Participants may not deliver instructions directly to the European Depositaries.

S-30


Table of Contents

     DTC, which is a New York-chartered limited purpose trust company, performs services for its participants, some of which (and/or their representatives) own DTC. In accordance with its normal procedures, DTC is expected to record the positions held by each DTC participant in the Book-Entry Certificates, whether held for its own account or as a nominee for another person. In general, beneficial ownership of Book-Entry Certificates will be subject to the rules, regulations and procedures governing DTC and DTC participants as in effect from time to time.
     Clearstream Luxembourg is incorporated under the laws of Luxembourg as a professional depository. Clearstream Luxembourg holds securities for its participating organizations (“Clearstream Luxembourg Participants”) and facilitates the clearance and settlement of securities transactions between Clearstream Luxembourg Participants through electronic book-entry changes in accounts of Clearstream Luxembourg Participants, thereby eliminating the need for physical movement of certificates. Transactions may be settled in Clearstream Luxembourg in any of various currencies, including United States dollars. Clearstream Luxembourg provides to its Clearstream Luxembourg Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally-traded securities and securities lending and borrowing. Clearstream Luxembourg interfaces with domestic markets in several countries. As a professional depository, Clearstream Luxembourg is subject to regulation by the Luxembourg Monetary Institute. Clearstream Luxembourg Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to Clearstream Luxembourg is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Clearstream Luxembourg Participant, either directly or indirectly.
     Euroclear was created in 1968 to hold securities for its participants (“Euroclear Participants”) and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Transactions may be settled in any of various currencies, including United States dollars. Euroclear includes various other services, including securities lending and borrowing, and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. Euroclear is operated by Euroclear Bank, S.A./N.V. (the “Euroclear Operator”). All operations are conducted by the Euroclear Operator, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly.
     Securities clearance accounts and cash accounts with the Euroclear Operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System and applicable Belgian law (collectively, the “Terms and Conditions”). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no record of or relationship with persons holding through Euroclear Participants.
     Payments on the Book-Entry Certificates will be made on each Distribution Date by the Securities Administrator, on behalf of the Trustee to DTC. DTC will be responsible for crediting the amount of such payments to the accounts of the applicable DTC participants in accordance with DTC’s

S-31


Table of Contents

normal procedures. Each DTC participant will be responsible for disbursing such payment to the Beneficial Owners of the Book-Entry Certificates that it represents and to each Financial Intermediary for which it acts as agent. Each such Financial Intermediary will be responsible for disbursing funds to the beneficial owners of the Book-Entry Certificates that it represents.
     Under a book-entry format, Beneficial Owners of the Book-Entry Certificates may experience some delay in their receipt of payments, since such payments will be made by the Securities Administrator to Cede & Co. Payments with respect to Certificates held through Clearstream Luxembourg or Euroclear will be credited to the cash accounts of Clearstream Luxembourg Participants or Euroclear Participants in accordance with the relevant system’s rules and procedures, to the extent received by the Relevant Depositary. Such payments will be subject to tax reporting in accordance with relevant United States tax laws and regulations. See “Federal Income Tax Consequences — Withholding with Respect to Certain Foreign Investors” and “— Backup Withholding” in the accompanying prospectus.
     Because DTC can only act on behalf of Financial Intermediaries, the ability of a Beneficial Owner to pledge Book-Entry Certificates to persons or entities that do not participate in the Depository system, or otherwise take actions in respect of such Book-Entry Certificates, may be limited due to the lack of physical certificates for such Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in book-entry form may reduce the liquidity of such Certificates in the secondary market since certain potential investors may be unwilling to purchase Certificates for which they cannot obtain physical certificates.
     Monthly and annual reports will be provided to Cede & Co., as nominee of DTC, and may be made available by Cede & Co. to Beneficial Owners upon request, in accordance with the rules, regulations and procedures creating and affecting the Depository, and to the Financial Intermediaries to whose DTC accounts the Book-Entry Certificates of such Beneficial Owners are credited.
     DTC has advised the Trustee that, unless and until Definitive Certificates are issued, DTC will take any action permitted to be taken by the holders of the Book-Entry Certificates under the Agreement only at the direction of one or more Financial Intermediaries to whose DTC accounts the Book-Entry Certificates are credited, to the extent that such actions are taken on behalf of Financial Intermediaries whose holdings include such Book-Entry Certificates. Clearstream Luxembourg or the Euroclear Operator, as the case may be, will take any other action permitted to be taken by a Certificateholder under the Pooling and Servicing Agreement on behalf of a Clearstream Luxembourg Participant or Euroclear Participant only in accordance with its relevant rules and procedures and subject to the ability of the Relevant Depositary to effect such actions on its behalf through DTC. DTC may take actions, at the direction of the related Participants, with respect to some Book-Entry Certificates which conflict with actions taken with respect to other Certificates.
     Although DTC, Clearstream Luxembourg and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of Book-Entry Certificates among participants of DTC, Clearstream Luxembourg and Euroclear, they are under no obligation to perform or continue to perform such procedures and such procedures may be discontinued at any time.
     None of the Seller, the Depositor, the Securities Administrator, the Master Servicer, the Servicers or the Trustee will have any responsibility for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Book-Entry Certificates held by Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or transfers thereof.

S-32


Table of Contents

     Definitive Certificates will be issued to Beneficial Owners or their nominees, respectively, rather than to DTC or its nominee, only under the limited conditions set forth in the accompanying prospectus under “Description of the Securities — Book-Entry Registration of Securities.” Upon the occurrence of an event described in the penultimate paragraph thereunder, the Securities Administrator, on behalf of the Trustee, is required to direct DTC to notify Participants that have ownership of Book-Entry Certificates as indicated on the records of DTC of the availability of Definitive Certificates for the Book-Entry Certificates. Upon surrender by DTC of the Definitive Certificates representing the Book-Entry Certificates, and upon receipt of instruction from DTC for re-registration, the Securities Administrator, on behalf of the Trustee, will re-issue the Book-Entry Certificates as Definitive Certificates in the respective principal balances owned by the individual Beneficial Owner and thereafter the Trustee will recognize the holders of such Definitive Certificates as Certificateholders under the Pooling and Servicing Agreement.
     For information relating to tax documentation procedures relating to the Certificates, see “Material Federal Income Tax Consequences — Withholding with Respect to Certain Foreign Investors” and “— Backup Withholding” in the prospectus and “Global Clearance, Settlement and Tax Documentation Procedures — Certain U.S. Federal Income Tax Documentation Requirements” in Annex A hereto , which Annex A is attached to this prospectus supplement and is incorporated by reference herein.
Payments on Mortgage Loans; Accounts
     On or prior to the Closing Date, each Servicer will establish and maintain or cause to be established and maintained an account or accounts for the collection of payments on the Mortgage Loans which will be separate from such Servicer’s other assets (each, a “Collection Account”). On or prior to the Closing Date, the Securities Administrator will establish an account (the “Certificate Distribution Account”), which will be maintained with the Securities Administrator in trust for the benefit of the Certificateholders. On the 18th day of each month (or, if such 18th day is not a Business Day, on the immediately preceding Business Day) (each, a “Servicer Remittance Date”), each Servicer will remit all amounts on deposit in the related Collection Account to the Certificate Distribution Account. On each Distribution Date, to the extent of the Available Distribution Amount on deposit in the Certificate Distribution Account, the Securities Administrator, on behalf of the Trustee, will withdraw the Certificate Distribution Amount to pay the Certificateholders. The “Certificate Distribution Amount” for any Distribution Date will equal the sum of the (i) respective Interest Distribution Amounts with respect to each class of Certificates, (ii) the Senior Principal Distribution Amount for each Mortgage Pool and (iii) the Subordinate Principal Distribution Amount for each Mortgage Pool (as each such term is defined herein).
     As further compensation, funds credited to the Collection Account established by each Servicer may be invested at the discretion of such Servicer for its own benefit in permitted investments, as described in the related Servicing Agreement.
Available Distribution Amount
     Distributions of interest and principal on the Certificates will be made on each Distribution Date from the “Available Distribution Amount” of the related Mortgage Pool (in the case of the Senior Certificates) and from the Available Distribution Amount of all Mortgage Pools in the aggregate (in the case of the Subordinate Certificates) in the order of priority set forth below at “— Priority of Distributions.” The “Available Distribution Amount” with respect to each Mortgage Pool and any Distribution Date, as more fully described in the Pooling and Servicing Agreement, will generally equal the following amounts:

S-33


Table of Contents

      (1) all scheduled installments of interest (net of the Master Servicing Fee and the Servicing Fees) and principal collected on the related Mortgage Loans and due during the related Due Period, together with any Monthly Advances in respect thereof;
      (2) all proceeds of any primary mortgage guaranty insurance policies or any other insurance policies with respect to the related Mortgage Loans, to the extent such proceeds are not applied to the restoration or repair of the related Mortgaged Property or released to the related borrower in accordance with the Servicer’s normal servicing procedures (collectively, “Insurance Proceeds”);
      (3) all partial or full prepayments of principal, together with any accrued interest thereon, identified as having been received on the related Mortgage Loans during the calendar month immediately preceding the Distribution Date (the “Prepayment Period”), plus any amounts received from the Master Servicer or the Servicers in respect of Prepayment Interest Shortfalls (as defined at “— Distributions of Interest”) on such Mortgage Loans;
      (4) all other amounts received and retained in connection with the liquidation of defaulted Mortgage Loans in such Mortgage Pool, by foreclosure or otherwise (“Liquidation Proceeds”) during the Prepayment Period, including any Subsequent Recoveries; and
      (5) amounts received with respect to such Distribution Date as the purchase price or a price adjustment in respect of a Defective Mortgage Loan in such Mortgage Pool purchased or replaced by the Seller as of such Distribution Date as a result of a breach of a representation or warranty or a document defect;
    minus:
    an amount equal to the product of (a) the applicable Pool Percentage and (b) the sum of (i) all charges and other amounts payable or reimbursable to the Master Servicer, the Securities Administrator and the Trustee under the Pooling and Servicing Agreement (subject to an aggregate maximum amount of $300,000 annually to be paid to such parties collectively, whether from collections from Pool 1, Pool 2 or Pool 3) and (ii) all charges and other amounts payable to the Servicers under the Servicing Agreements;
 
    in the case of paragraphs (2) through (5) above with respect to the related Mortgage Loans, any unreimbursed expenses incurred in connection with a liquidation or foreclosure and any unreimbursed Monthly Advances or servicing advances due to the Master Servicer or the Servicers;
 
    with respect to the related Mortgage Loans, any unreimbursed Monthly Advances or servicing advances determined to be nonrecoverable; and
 
    in the case of paragraphs (1) through (4) above with respect to the related Mortgage Loans, any amounts collected which are determined to be attributable to a subsequent Due Period or Prepayment Period.
     The “Pool Percentage” for each Mortgage Pool and any Distribution Date will be a fraction, expressed as a percentage, the numerator of which is the aggregate Stated Principal Balance of the Mortgage Loans in such Mortgage Pool as of such date and the denominator of which is the sum of the aggregate Stated Principal Balance of all of the Mortgage Loans (in the aggregate) as of such date.

S-34


Table of Contents

Distributions of Interest
     General. The “Interest Distribution Amount” on each Distribution Date with respect to each class of Certificates will equal the Current Interest for that class on that Distribution Date as reduced by such class’ share of Net Interest Shortfalls (as described below).
    “Current Interest” for each class of Certificates on any Distribution Date will equal the amount of interest accrued during the related Accrual Period on the related Class Principal Amount immediately prior to that Distribution Date at the applicable Certificate Interest Rate.
 
    The “Accrual Period” applicable to the Certificates will be the calendar month immediately preceding the month in which the related Distribution Date occurs. For each Distribution Date and each related Accrual Period, interest on all classes of Certificates will be calculated and payable on the basis of a 360-day year consisting of twelve 30-day months.
 
    The “Class Principal Amount” of each class of Certificates will be equal to the aggregate Certificate Principal Amounts of the Certificates of that class.
 
    The “Certificate Principal Amount” of any Offered Certificate will equal its Certificate Principal Amount as of the Closing Date, as reduced by all amounts previously distributed on that Certificate in respect of principal and the principal portion of any Realized Losses (as defined at “— Allocation of Realized Losses”) previously allocated to that Certificate; provided, however, that on any Distribution Date on which a Subsequent Recovery is distributed, the Certificate Principal Amount of any class of Certificates then outstanding to which a Realized Loss amount has been applied will be increased, in order of seniority, by an amount equal to the total amount of any Subsequent Recovery distributed on such date to Holders of the Certificates, after application (for this purpose) to more senior classes of Certificates. The Certificate Principal Amount of a class of Subordinate Certificates may be additionally reduced by allocation of any Subordinate Certificate Writedown Amount (as defined at “— Allocation of Realized Losses”).
     Net Interest Shortfalls. As described above, the Current Interest for each class of Certificates for any Distribution Date will be reduced by the amount of Net Interest Shortfalls experienced by (a) Poo1 1, in the case of the Class 1-A1, Class 1-A2, Class 1-AR Certificates (b) Pool 2, in the case of the Class 2-A1 and Class 2-A2 Certificates, (c) Pool 3, in the case of the Class 3-A1 and Class 3-A2 Certificates and (b) all Mortgage Pools, in the case of the Subordinate Certificates. With respect to any Distribution Date and any Mortgage Pool, the “Net Interest Shortfall” is equal to the sum of:
    any Net Prepayment Interest Shortfalls for that Mortgage Pool and Distribution Date; and
 
    the amount of interest that would otherwise have been received with respect to any Mortgage Loan in such Mortgage Pool which was subject to a reduction in the amount of interest collectible as a result of application of the Servicemembers Civil Relief Act, as amended (the “Relief Act”) or similar state or local law (any such reduction, a “Relief Act Reduction”) (see “Certain Legal Aspects of the Loans — Servicemembers Civil Relief Act” in the accompanying prospectus.
    “Net Prepayment Interest Shortfalls” with respect to a Mortgage Loan and any Distribution Date is the amount by which a Prepayment Interest Shortfall for the related Due Period exceeds the amount that the Master Servicer is obligated to remit pursuant to the Pooling and

S-35


Table of Contents

      Servicing Agreement and/or each Servicer is obligated to remit pursuant to the applicable Servicing Agreement, to cover such shortfall for such Due Period.
 
    A “Prepayment Interest Shortfall” with respect to a Mortgage Loan and any Distribution Date is the amount by which one month’s interest at the applicable Mortgage Rate on a Mortgage Loan as to which a voluntary prepayment in full has been made, exceeds the amount of interest actually received in connection with such prepayment.
 
    The “Due Period” with respect to a Mortgage Loan and any Distribution Date is the period beginning on the second day of the calendar month preceding the month in which such Distribution Date occurs and ending on the first day of the calendar month in which such Distribution Date occurs.
     Net Interest Shortfalls for a Mortgage Pool and any Certificate Group on any Distribution Date will be allocated among each class of Senior Certificates entitled to distributions in respect of interest and to all classes of Subordinate Certificates proportionately based on (1) in the case of such classes of Senior Certificates, the amount of Net Interest Shortfalls experienced by the related Mortgage Pool and Current Interest otherwise distributable thereon on such Distribution Date, and (2) in the case of Subordinate Certificates, the amount of Net Interest Shortfalls experienced by all the Mortgage Loans and interest accrued on the Apportioned Principal Balances of the Subordinate Certificates before taking into account any reductions in such amounts from Net Interest Shortfalls for that Distribution Date.
     For purposes of allocating Net Interest Shortfalls for a Mortgage Pool to the Subordinate Certificates on any Distribution Date, the “Apportioned Principal Balance” of any class of Subordinate Certificates for any Distribution Date will be equal to the Class Principal Amount of that class immediately prior to that Distribution Date multiplied by a fraction, the numerator of which is the applicable Pool Subordinate Amount for that date and the denominator of which is the sum of the Pool Subordinate Amounts (in the aggregate) for that date.
    The “Pool Subordinate Amount” for each Mortgage Pool is as follows:
    The “Pool 1 Subordinate Amount” for any Distribution Date will equal the excess of the Stated Principal Balance of the Pool 1 Mortgage Loans as of the first day of the month preceding the month in which such Distribution Date occurs over the sum of the Class Principal Amounts of the Class 1-A1, Class 1-A2 and Class 1-AR Certificates immediately before such Distribution Date.
 
    The “Pool 2 Subordinate Amount” for any Distribution Date will equal the excess of the Stated Principal Balance of the Pool 2 Mortgage Loans as of the first day of the month preceding the month in which such Distribution Date occurs over the sum of the Class Principal Amounts of the Class 2-A1 and Class 2-A2 Certificates immediately before such Distribution Date.
 
    The “Pool 3 Subordinate Amount” for any Distribution Date will equal the excess of the Stated Principal Balance of the Pool 3 Mortgage Loans as of the first day of the month preceding the month in which such Distribution Date occurs over the sum of the Class Principal Amounts of the Class 3-A1 and Class 3-A2 Certificates immediately before such Distribution Date.
     If on a particular Distribution Date, the Available Distribution Amount for a Mortgage Pool applied in the order described below under “—Priority of Distributions” is not sufficient to make a full

S-36


Table of Contents

distribution of Current Interest on the Certificates in the related Certificate Group (an “Interest Shortfall”), interest will be distributed on each Certificate of equal priority within such Certificate Group based on the pro rata amount of interest it would otherwise have been entitled to receive in the absence of such shortfall. Any unpaid interest amount will be carried forward and added to the amount which holders of each such class of Certificates will be entitled to receive on the next Distribution Date. An Interest Shortfall could occur, for example, if losses realized on the Mortgage Loans in that Mortgage Pool were exceptionally high or were concentrated in a particular month. Any unpaid interest amount so carried forward will not bear interest.
     Certificate Interest Rates. The “Certificate Interest Rate” for each Accrual Period for each class of Certificates is as follows:
    Class 1-A1, Class 1-A2 and Class 1-AR Certificates: the Pool 1 Net WAC.
 
    Class 2-A1 and Class 2-A2 Certificates: the Pool 2 Net WAC.
 
    Class 3-A1 and Class 3-A2 Certificates: the Pool 3 Net WAC.
 
    Class B-1, Class B-2 and Class B-3 Certificates: the Subordinate Net WAC.
     Certificate Interest Rates for the Class B-4, Class B-5, Class B-6 and Class LT-R Certificates. The Certificate Interest Rate applicable to each of the Class B-4, Class B-5 and Class B-6 Certificates will equal the Subordinate Net WAC. The Class LT-R Certificate will not have a Certificate Interest Rate.
    The “Pool 1 Net WAC”, the “Pool 2 Net WAC” and the “Pool 3 Net WAC” as of any Distribution Date will in each case be the weighted average of the Net Mortgage Rates of the Mortgage Loans in the related Mortgage Pool as of the Due Date of the calendar month immediately preceding the calendar month of such Distribution Date, weighted on the basis of their Stated Principal Balances.
 
    The “Subordinate Net WAC” as of any Distribution Date will equal the weighted average of the Pool 1 Net WAC, the Pool 2 Net WAC and the Pool 3 Net WAC, in each case weighted on the basis of the relative Pool Subordinate Amounts for Pool 1, Pool 2 and Pool 3, respectively, immediately prior to such Distribution Date.
 
    The “Mortgage Rate” with respect to any Mortgage Loan is the annual rate of interest borne by the related Mortgage Note from time to time, as of the related due date.
 
    The “Net Mortgage Rate” as to any Mortgage Loan and any Distribution Date will equal the Mortgage Rate, reduced by the related Expense Rate.
 
    The “Expense Rate” as to each Mortgage Loan is equal to the sum of the Master Servicing Fee Rate, the applicable Servicing Fee Rate and the rate of premium on any lender-paid mortgage insurance policies.
 
    The “Stated Principal Balance” of a Mortgage Loan at any Due Date is equal to the unpaid principal balance of such Mortgage Loan as of such Due Date as specified in the amortization schedule at the time relating thereto (before any adjustment to such amortization schedule by reason of any moratorium or similar waiver or grace period) after giving effect to any previous principal prepayments and Liquidation

S-37


Table of Contents

      Proceeds allocable to principal and to the payment of principal due on such Due Date and irrespective of any delinquency in payment by the related borrower.
 
    The “Due Date” of a Mortgage Loan is the date specified in the related Mortgage Note on which the monthly Scheduled Payment of interest and principal (or interest only during the applicable interest-only period following origination) is due, which is the first day of the calendar month in the case of the Mortgage Loans.
Distributions of Principal
     General. All payments and other amounts received in respect of principal of the Mortgage Loans will be allocated between the Senior Certificates and the Subordinate Certificates as follows:
     Senior Principal Distribution Amount. On each Distribution Date and with respect to each Certificate Group, the related Mortgage Pool’s Available Distribution Amount remaining after the payment of the applicable Interest Distribution Amount for such Certificate Group, up to the amount of the related Senior Principal Distribution Amount, will be distributed as principal on the Senior Certificates of such Certificate Group.
    The “Senior Principal Distribution Amount” for a Certificate Group for each Distribution Date is equal to the sum of:
     (1) the product of (a) the related Senior Percentage and (b) the principal portion of each Scheduled Payment on each Mortgage Loan in the related Mortgage Pool due during the related Due Period;
     (2) the product of (a) the related Senior Prepayment Percentage and (b) each of the following amounts: (i) the principal portion of each full and partial principal prepayment made by a borrower on a Mortgage Loan in the related Mortgage Pool during the related Prepayment Period; (ii) each other unscheduled collection, including Subsequent Recoveries, Insurance Proceeds and net Liquidation Proceeds (other than with respect to any Mortgage Loan in the related Mortgage Pool that was finally liquidated during the related Prepayment Period) representing or allocable to recoveries of principal of the related Mortgage Loans received during the related Prepayment Period; and (iii) the principal portion of the purchase price of each Mortgage Loan purchased by the Seller or any other person pursuant to the Mortgage Loan Purchase Agreement due to a defect in documentation or a material breach of a representation and warranty with respect to such Mortgage Loan or, in the case of a permitted substitution of a Defective Mortgage Loan in the related Mortgage Pool, the amount representing any principal adjustment in connection with any such replaced Mortgage Loan in the related Mortgage Pool with respect to the related Prepayment Period;
     (3) with respect to unscheduled recoveries allocable to principal of any Mortgage Loan in the related Mortgage Pool that was fully liquidated during the related Prepayment Period, the lesser of (a) the net Liquidation Proceeds allocable to principal and (b) the product of (i) the related Senior Prepayment Percentage for that date and (ii) the related remaining Stated Principal Balance of the related Mortgage Loan at the time of liquidation; and
     (4) any amounts described in clauses (1) through (3) above that remain unpaid with respect to the Certificate Group from prior Distribution Dates.

S-38


Table of Contents

    A “Scheduled Payment” with respect to a Mortgage Loan means the scheduled monthly payment on a Mortgage Loan on any Due Date allocable to principal or interest which, unless otherwise specified in the related Servicing Agreement, will give effect to any related debt service reduction and any related deficient valuation that is ordered by a court in bankruptcy and that has the effect of reducing the monthly payment due on such Mortgage Loan.
 
    Except as provided below, the “Senior Percentage” for each Mortgage Pool for any Distribution Date occurring prior to the Distribution Date in September 2013 is 100%. For any Distribution Date (i) occurring before the Distribution Date in September 2013 but in or after September 2009 on which the “Two Times Test” is satisfied or (ii) in or after September 2013, the related Senior Percentage will be the related “Pro Rata Senior Percentage.” For any Distribution Date occurring prior to September 2009 on which the Two Times Test is satisfied, the related Senior Percentage for each Mortgage Pool will be equal to the related Pro Rata Senior Percentage plus 50% of an amount equal to 100% minus the related Pro Rata Senior Percentage. With respect to any Distribution Date after the Senior Termination Date, the related Senior Percentage for such Mortgage Pool will be 0%. Since substantially all of the Mortgage Loans provide for payments solely of interest (and not scheduled principal) for the first five through ten years following origination, Certificateholders of the related Certificate Group are not expected to receive any significant payments of scheduled principal during the first five-year period and increasing, but limited payments of scheduled principal for the next five-year period, notwithstanding the calculation of the Senior Percentage above.
 
    The “Senior Termination Date” is the date on which the aggregate Class Principal Amount of the Senior Certificates related to a Mortgage Pool is reduced to zero.
 
    The “Two Times Test” will be satisfied on any Distribution Date if all the following conditions are met:
    the Aggregate Subordinate Percentage is at least two times the Aggregate Subordinate Percentage as of the Closing Date;
 
    the condition described in clause first of the definition of “Step-Down Test” (described below) is satisfied; and
 
    on or prior to the Distribution Date in August 2009, cumulative Realized Losses with respect to the Mortgage Loans do not exceed 20% of the aggregate Class Principal Amount of the Subordinate Certificates as of the Closing Date and on or after the Distribution Date in September 2009, cumulative Realized Losses with respect to the Mortgage Loans do not exceed 30% of the aggregate Class Principal Amount of the Subordinate Certificates as of the Closing Date.
    The “Aggregate Subordinate Percentage” for any Distribution Date is the percentage equivalent of a fraction, the numerator of which is the aggregate Class Principal Amount of the Subordinate Certificates immediately prior to that date, and the denominator of which is the Pool Balance for such Distribution Date.
 
    The “Pool Balance” for any Distribution Date will equal the aggregate of the Stated Principal Balances of the Mortgage Loans outstanding on the Due Date of the month preceding the month of that Distribution Date.

S-39


Table of Contents

    The “Pro Rata Senior Percentage” for each Distribution Date and each Mortgage Pool is the percentage equivalent of a fraction, the numerator of which is the aggregate Class Principal Amount of the class or classes of Senior Certificates of the related Certificate Group immediately prior to such Distribution Date, and the denominator of which is the aggregate Stated Principal Balance of all Mortgage Loans in that Mortgage Pool and for such Distribution Date.
 
    The Senior Prepayment Percentage for any Distribution Date occurring before the Distribution Date in September 2013 and any Mortgage Pool is 100%. Thereafter, the Senior Prepayment Percentage for any Mortgage Pool will be subject to gradual reduction as described in the following paragraphs. This disproportionate allocation of unscheduled payments of principal to the Senior Certificates of a Certificate Group will have the effect of accelerating the amortization of such Senior Certificates while, in the absence of Realized Losses, increasing the interest in the principal balance of the Mortgage Loans evidenced by the Subordinate Certificates. Increasing the interest of the Subordinate Certificates relative to that of the Senior Certificates of a Certificate Group is intended to preserve the availability of the subordination provided by the Subordinate Certificates.
 
    The “Senior Prepayment Percentage” for each Certificate Group and any Distribution Date occurring in or after September 2013, will be as follows:
    for any Distribution Date occurring in or after September 2013 but before September 2014, the related Senior Percentage plus 70% of the related Subordinate Percentage for that date;
 
    for any Distribution Date occurring in or after September 2014 but before September 2015, the related Senior Percentage plus 60% of the related Subordinate Percentage for that date;
 
    for any Distribution Date occurring in or after September 2015 but before September 2016, the related Senior Percentage plus 40% of the related Subordinate Percentage for that date;
 
    for any Distribution Date occurring in or after September 2016 but before September 2017, the related Senior Percentage plus 20% of the related Subordinate Percentage for that date; and
 
    for any Distribution Date occurring in September 2017 or thereafter, the related Senior Percentage for that date.
     Notwithstanding the preceding paragraphs, no decrease in the Senior Prepayment Percentage for any Certificate Group will occur as described above unless the Step-Down Test is satisfied on such Distribution Date.
    As to any Distribution Date, the “Step-Down Test” will be satisfied if both of the following conditions are met:
      first, the outstanding principal balance of all Mortgage Loans delinquent 60 days or more (including Mortgage Loans in foreclosure, REO property or bankruptcy status), averaged over the

S-40


Table of Contents

preceding six-month period, as a percentage of the aggregate Class Principal Amounts on such Distribution Date (without giving effect to any payments on such Distribution Date) of the Subordinate Certificates, does not equal or exceed 50%; and
     second, cumulative Realized Losses on the Mortgage Loans do not exceed:
    for each Distribution Date occurring in the period from September 2013 to August 2014, 30% of the aggregate Class Principal Amount of the Subordinate Certificates as of the Closing Date (the “Original Subordinate Class Principal Amount”);
 
    for each Distribution Date occurring in the period from September 2014 to August 2015, 35% of the Original Subordinate Class Principal Amount;
 
    for each Distribution Date occurring in the period from September 2015 to August 2016, 40% of the Original Subordinate Class Principal Amount;
 
    for each Distribution Date occurring in the period from September 2016 to August 2017, 45% of the Original Subordinate Class Principal Amount; and
 
    for the Distribution Date in September 2017 and thereafter, 50% of the Original Subordinate Class Principal Amount.
     Notwithstanding the preceding paragraphs, if on any Distribution Date on or after the Distribution Date in September 2009, the Two Times Test is satisfied, the Senior Prepayment Percentage for each Mortgage Pool will equal the related Senior Percentage. However, if, on any Distribution Date occurring on or after the Distribution Date in September 2013, the Pro Rata Senior Percentage for any Mortgage Pool exceeds the Pro Rata Senior Percentage on the Closing Date, the related Senior Prepayment Percentage for all Mortgage Pools for that date will once again equal 100%.
     If on any Distribution Date the allocation to the Senior Certificates then entitled to distributions of principal of related full and partial principal prepayments and other amounts in the percentage required above would reduce the sum of the Class Principal Amounts of those Certificates below zero, the distribution to the class or classes of Certificates of the related Senior Prepayment Percentage of those amounts for such Distribution Date will be limited to the percentage necessary to reduce the related Class Principal Amounts to zero.
     Subordinate Principal Distribution Amounts: Except as provided in the next paragraph, from the Available Distribution Amount remaining after the payment of interest and principal to the Senior Certificates and any Subordinate Certificate ranking in higher priority as described at “— Priority of Distributions,” each class of Subordinate Certificates will be entitled to receive on each Distribution Date, first, payments in respect of interest and second, its pro rata share of each Subordinate Principal Distribution Amount. Distributions of principal with respect to the Subordinate Certificates will be made on each Distribution Date sequentially to the classes of Subordinate Certificates in order of their numerical class designations, beginning with the Class B-1 Certificates, until each such class has received its pro rata share for that Distribution Date. Distributions to each such class’ share of the aggregate Subordinate Principal Distribution Amount will be made only after payments of interest and principal to each class ranking senior to such class, and interest to such class, have been paid. See “— Priority of Distributions.”

S-41


Table of Contents

     With respect to each class of Subordinate Certificates, if on any Distribution Date the sum of the Class Subordination Percentage of that class and the aggregate Class Subordination Percentages of all classes of Subordinate Certificates which have higher numerical class designations than that class is less than the Applicable Credit Support Percentage for that class on the date of issuance of the Certificates, no distribution of principal prepayments will be made to any such classes and the amount otherwise distributable to those classes in respect of principal prepayments will be allocated among the remaining classes of Subordinate Certificates, pro rata, based upon their respective Class Principal Amounts, and distributed in the order described above.
    The “Applicable Credit Support Percentage” for each class of Subordinate Certificates and any Distribution Date will equal the sum of the Class Subordination Percentages of that class and the aggregate Class Subordination Percentage of all other classes of Subordinate Certificates having higher numerical class designations than that class.
 
    The “Class Subordination Percentage” for any Distribution Date and each class of Subordinate Certificates will equal a fraction (expressed as a percentage), the numerator of which is the Class Principal Amount of that class immediately before that Distribution Date and the denominator of which is the aggregate Class Principal Amount of all classes of Certificates immediately before that Distribution Date.
     The approximate original Applicable Credit Support Percentages for the Subordinate Classes of Certificates on the date of issuance of such Certificates are expected to be as follows:
         
Class B-1
    4.25 %
Class B-2
    2.00 %
Class B-3
    1.25 %
Class B-4
    0.80 %
Class B-5
    0.50 %
Class B-6
    0.25 %
    The “Subordinate Principal Distribution Amount” for any Mortgage Pool and for each Distribution Date is equal to the sum of:
     (1) the product of (a) the related Subordinate Percentage and (b) the principal portion of each related Scheduled Payment on each Mortgage Loan in the related Mortgage Pool due during the related Due Period;
     (2) the product of (a) the related Subordinate Prepayment Percentage and (b) each of the following amounts: (i) the principal portion of each full and partial principal prepayment made by a borrower on a Mortgage Loan in the related Mortgage Pool during the related Prepayment Period, (ii) each other unscheduled collection, including Subsequent Recoveries, Insurance Proceeds and net Liquidation Proceeds (other than with respect to any Mortgage Loan in the related Mortgage Pool that was finally liquidated during the related Prepayment Period), representing or allocable to recoveries of principal of Mortgage Loans in the related Mortgage Pool received during the related Prepayment Period and (iii) the principal portion of the purchase price of each Mortgage Loan in the related Mortgage Pool that was purchased by the Seller or any other person pursuant to the Mortgage Loan Purchase Agreement due to a defect in documentation or a material breach of a representation or warranty with respect to such Mortgage Loan or, in the case of a permitted substitution of a Defective Mortgage Loan in the related Mortgage Pool, the amount representing any principal adjustment in connection with any such replaced Mortgage Loan in the related Mortgage Pool with respect to such Distribution Date;

S-42


Table of Contents

      (3) with respect to unscheduled recoveries allocable to principal of any Mortgage Loan in the related Mortgage Pool that was finally liquidated during the related Prepayment Period, the related net Liquidation Proceeds allocable to principal, to the extent not distributed pursuant to clause (3) of the definition of Senior Principal Distribution Amount); and
      (4) any amounts described in clauses (1) through (3) for any previous Distribution Date that remain unpaid;
     Minus the sum of:
      (A) if the aggregate Class Principal Amount of any Certificate Group has been reduced to zero, principal paid from the Available Distribution Amount from the related Mortgage Pool to the remaining Certificate Group, as described under “—Limited Cross-Collateralization”; and
      (B) the amounts paid from the Available Distribution Amount for an Overcollateralized Group to the Senior Certificates related to an Undercollateralized Group, as described under “— Limited Cross-Collateralization.”
    The “Subordinate Class Percentage” for each class of Subordinate Certificates for each Distribution Date is equal to the percentage obtained by dividing the Class Principal Amount of such class immediately prior to such Distribution Date by the aggregate Class Principal Amount of all classes of Subordinate Certificates immediately prior to such date.
 
    The “Subordinate Prepayment Percentage” for any Distribution Date and for any Mortgage Pool is the difference between 100% and the related Senior Prepayment Percentage for such Distribution Date.
 
    The “Subordinate Percentage” with respect to each Mortgage Pool and any Distribution Date will be equal to the difference between 100% and the related Senior Percentage for such Mortgage Pool on such Distribution Date.
Priority of Distributions
     On each Distribution Date, the Available Distribution Amount from the related Mortgage Pool (in the case of the Senior Certificates) and all Mortgage Pools in the aggregate (in the case of the Subordinate Certificates) will be allocated among the classes of Senior Certificates and Subordinate Certificates in the following order of priority:
      (1) Concurrently, to the payment of the Interest Distribution Amount and any accrued but unpaid Interest Shortfalls on each class of Senior Certificates thereof;
      (2) Concurrently, to the Senior Certificates from the Available Distribution Amount remaining in the related Mortgage Pool after application of priority (1) above, as follows:
      I. For Pool 1:
  (a)   to the Class 1-AR Certificates, the Senior Principal Distribution Amount for Pool 1, until their Class Principal Amount has been reduced to zero; and

S-43


Table of Contents

  (b)   pro rata, to the Class 1-A1 and Class 1-A2 Certificates, the Senior Principal Distribution Amount for Pool 1, until their respective Class Principal Amounts have been reduced to zero;
     II. For Pool 2:
  (a)   pro rata, to the Class 2-A1 and Class 2-A2 Certificates, the Senior Principal Distribution Amount for Pool 2, until their respective Class Principal Amounts have been reduced to zero.
     III. For Pool 3:
  (a)   pro rata, to the Class 3-A1 and Class 3-A2 Certificates, the Senior Principal Distribution Amount for Pool 3, until their respective Class Principal Amounts have been reduced to zero.
     (3) From the remaining Available Distribution Amount from the Mortgage Pools in the aggregate remaining after application of priorities (1) and (2) above, in the following order of priority:
        (a) to the Class B-1 Certificates, the payment of its applicable Interest Distribution Amount and any outstanding Interest Shortfalls;
        (b) to the Class B-1 Certificates, such class’ Subordinate Class Percentage of the aggregate Subordinate Principal Distribution Amount for each Mortgage Pool, until its Class Principal Amount has been reduced to zero;
        (c) to the Class B-2 Certificates, the payment of its applicable Interest Distribution Amount and any outstanding Interest Shortfalls;
        (d) to the Class B-2 Certificates, such class’ Subordinate Class Percentage of the aggregate Subordinate Principal Distribution Amount for each Mortgage Pool, until its Class Principal Amount has been reduced to zero;
        (e) to the Class B-3 Certificates, the payment of its applicable Interest Distribution Amount and any outstanding Interest Shortfalls;
        (f) to the Class B-3 Certificates, such class’ Subordinate Class Percentage of the aggregate Subordinate Principal Distribution Amount for each Mortgage Pool, until its Class Principal Amount has been reduced to zero;
        (g) to the Class B-4 Certificates, the payment of its applicable Interest Distribution Amount and any outstanding Interest Shortfalls;
        (h) to the Class B-4 Certificates, such class’ Subordinate Class Percentage of the aggregate Subordinate Principal Distribution Amount for each Mortgage Pool, until its Class Principal Amount has been reduced to zero;
        (i) to the Class B-5 Certificates, the payment of its applicable Interest Distribution Amount and any outstanding Interest Shortfalls;

S-44


Table of Contents

     (j) to the Class B-5 Certificates, such class’ Subordinate Class Percentage of the aggregate Subordinate Principal Distribution Amount for each Mortgage Pool, until its Class Principal Amount has been reduced to zero;
     (k) to the Class B-6 Certificates, the payment of its applicable Interest Distribution Amount and any outstanding Interest Shortfalls; and
     (l) to the Class B-6 Certificates, such class’ Subordinate Class Percentage of the aggregate Subordinate Principal Distribution Amount for each Mortgage Pool, until its Class Principal Amount has been reduced to zero; and
      (4) To the Class 1-AR Certificate, any remaining amount of the Available Distribution Amount from the Mortgage Pools in the aggregate.
     On each Distribution Date on and after the Credit Support Depletion Date, the Available Distribution Amount for the Mortgage Pools will be combined and distributed to the remaining classes of Senior Certificates, first, to pay the Interest Distribution Amount and any accrued but unpaid Interest Shortfalls; second, to pay principal on a pro rata basis; and third, to the Class 1-AR Certificate, any remaining Available Distribution Amount from such Mortgage Pool or Mortgage Pools. The “Credit Support Depletion Date” is the date on which the aggregate Class Principal Amount of the Subordinate Certificates has been reduced to zero.
Limited Cross-Collateralization
     The priority of distributions described above in “— Priority of Distributions” will be subject to change if a Mortgage Pool is either subject to rapid prepayments or disproportionately high Realized Losses, as described below.
     a. Cross-Collateralization Due to Rapid Prepayments in a Mortgage Pool. The priority of distributions will change on a Distribution Date in the case where a Mortgage Pool is experiencing rapid prepayments provided all the following conditions are met:
    the aggregate Class Principal Amount of a Certificate Group has been reduced to zero or will be reduced to zero after giving effect to distributions on such Distribution Date;
 
    there are still Subordinate Certificates Outstanding; and
 
    either (i) the Aggregate Subordinate Percentage on that date is less than 200% of the Aggregate Subordinate Percentage as of the Closing Date or (ii) the outstanding principal balance of the Mortgage Loans in a Mortgage Pool delinquent 60 days or more (including, for this purpose, loans in REO, foreclosure or bankruptcy status) averaged over the last six months, as a percentage of such Mortgage Pool’s applicable Pool Subordinate Amount, is greater than or equal to 50%.
     When all of these three conditions are satisfied, all principal received or advanced with respect to the Mortgage Loans in the Mortgage Pool or Mortgage Pools relating to a Certificate Group that has been paid in full, will be applied as a distribution of principal to the remaining Senior Certificates of the other Certificate Group or Certificate Groups (on a pro rata basis) rather than applied as a principal distribution to the Subordinate Certificates. Such principal would be distributed in the same priority as those Senior Certificates would receive other distributions of principal.

S-45


Table of Contents

     b. Cross-Collateralization Due to Disproportionate Realized Losses in a Mortgage Pool.
     Realized losses of a Mortgage Pool are allocated generally to the Subordinate Certificates and not just to the portion of the Subordinate Certificates representing an interest in the Mortgage Pool that incurred the loss. Therefore, if Realized Losses of any Mortgage Pool that are allocated to the Subordinate Certificates exceed the related Pool Subordinate Amount for that Mortgage Pool, the principal balance of the Mortgage Loans of that Mortgage Pool will be less than the principal balance of the related Certificate Group. That is, the principal balance of Mortgage Loans in that Mortgage Pool will be less than the Class Principal Amount of the Certificate Group being supported by that collateral and, therefore, the related Certificate Group is “undercollateralized.” In that situation, payments on the Mortgage Loans in the other Mortgage Pools will be used to make interest and then principal distributions to the Senior Certificates related to the undercollateralized Certificate Group to the extent described below.
     If, on any Distribution Date, the aggregate Class Principal Amount of any Certificate Group is greater than the aggregate Stated Principal Balance of the Mortgage Loans in the related Mortgage Pool (such Certificate Group, the “Undercollateralized Group” and the other Certificate Group or Certificate Groups, an “Overcollateralized Group”), then until the occurrence of the Credit Support Depletion Date, the priority of distributions described in this prospectus supplement under “— Priority of Distributions” will be altered as follows:
    the Available Distribution Amount for the Overcollateralized Group or Overcollateralized Groups, to the extent remaining following distributions of interest and principal to the related Senior Certificates of that Group or Groups will be paid in the following priority: (1) first, such amount, up to an amount for the Undercollateralized Group (the “Total Transfer Amount”) equal to the sum of the Interest Transfer Amount and the Principal Transfer Amount for the Undercollateralized Group will be distributed first to the Senior Certificates related to the Undercollateralized Group, in payment of accrued but unpaid interest, if any, and then to those Senior Certificates as principal, in the same order and priority as they would receive with respect to other distributions of principal to the extent required so that such Certificate Group will no longer qualify as an Undercollateralized Group; and (2) second, any remaining amount will be distributed pursuant to paragraph (3) under “— Priority of Distributions” in this prospectus supplement.
     On each Distribution Date, the “Interest Transfer Amount” for an Undercollateralized Group will equal one month’s interest on the applicable Principal Transfer Amount at such Mortgage Pool’s weighted average Net Mortgage Rate, plus any shortfall of interest on the Senior Certificates of such Undercollateralized Group from prior Distribution Dates.
     On each Distribution Date, the “Principal Transfer Amount” for an Undercollateralized Group will equal the excess of the aggregate Class Principal Amount of the Senior Certificates related to that Undercollateralized Group over the aggregate Stated Principal Balance of the Mortgage Loans in that Mortgage Pool.
     The payment of interest to the Certificates related to an Undercollateralized Group from the interest collected on the Overcollateralized Group or Overcollateralized Groups may cause a shortfall in the amount of principal and interest otherwise distributable to the Subordinate Certificates. In addition, after the aggregate principal balance of the Subordinate Certificates has been reduced to zero, this may cause a shortfall of principal that would be allocated to the Senior Certificates related to the Undercollateralized Group.

S-46


Table of Contents

Subordination of the Payment of the Subordinate Certificates
     The rights of the holders of the Subordinate Certificates to receive payments with respect to the Mortgage Loans will be subordinated to the rights of the holders of the related Senior Certificates and the rights of the holders of each class of Subordinate Certificates (other than the Class B-1 Certificates) to receive such payments will be further subordinated to the rights of the class or classes of Subordinate Certificates with lower numerical class designations, in each case only to the extent described in this prospectus supplement. The subordination of the Subordinate Certificates to the related Senior Certificates and the further subordination among the Subordinate Certificates is intended to provide the Certificateholders having higher relative payment priority with protection against Realized Losses.
Allocation of Realized Losses
     If a Realized Loss occurs on the Mortgage Loans, then, on each Distribution Date the principal portion of that Realized Loss will be allocated first, to reduce the Class Principal Amount of each class of Subordinate Certificates, in inverse order of priority, until the Class Principal Amount thereof has been reduced to zero (that is, such Realized Losses will be allocated to the Class B-6 Certificates while those Certificates are outstanding, then to the Class B-5 Certificates, and so forth) and second, to the Senior Certificates related to the Mortgage Pool sustaining such losses, on the basis of their respective Certificate Principal Amounts; provided, however, that the amount of losses calculated above that would otherwise reduce the Class Principal Amount of the Class 1-A1 Certificates will first reduce the Class Principal Amount of the Class 1-A2 Certificates until the Class Principal Amount of the Class 1-A2 Certificates has been reduced to zero, before reducing the Class Principal Amount of the Class 1-A1 Certificates; provided, further, that the amount of losses calculated above that would otherwise reduce the Class Principal Amount of the Class 2-A1 Certificates will first reduce the Class Principal Amount of the Class 2-A2 Certificates until the Class Principal Amount of the Class 2-A2 Certificates has been reduced to zero, before reducing the Class Principal Amount of the Class 2-A1 Certificates; and provided, further, that the amount of losses calculated above that would otherwise reduce the Class Principal Amount of the Class 3-A1 Certificates will first reduce the Class Principal Amount of the Class 3-A2 Certificates until the Class Principal Amount of the Class 3-A2 Certificates has been reduced to zero, before reducing the Class Principal Amount of the Class 3-A1 Certificates.
     The Class Principal Amount of the lowest ranking class of Subordinate Certificates then outstanding will also be reduced by the amount, if any, by which the total Certificate Principal Amount of all the Certificates on any Distribution Date (after giving effect to distributions of principal and allocation of Realized Losses on that date) exceeds the total Stated Principal Balance of the Mortgage Loans for the related Distribution Date (a “Subordinate Certificate Writedown Amount”).
    In general, a “Realized Loss” means (a) with respect to a Liquidated Mortgage Loan, the amount by which the remaining unpaid principal balance of that Mortgage Loan plus all accrued and unpaid interest thereon and any related expenses exceeds the amount of Liquidation Proceeds applied to the principal balance of that Mortgage Loan, or (b) the amount by which, in the event of bankruptcy of a borrower, a bankruptcy court reduces the secured debt to the value of the related Mortgaged Property (a “Deficient Valuation”). In determining whether a Realized Loss is a loss of principal or of interest, Liquidation Proceeds and other recoveries on a Mortgage Loan will be applied first to outstanding expenses incurred with respect to such Mortgage Loan, then to accrued, unpaid interest, and finally to principal.

S-47


Table of Contents

    A “Liquidated Mortgage Loan” generally is a defaulted Mortgage Loan as to which the Mortgage Loan or related REO Property has been disposed of and all amounts expected to be recovered in respect of that Mortgage Loan have been received by the related Servicer.
     In the event that any amount is recovered in respect of principal of a Liquidated Mortgage Loan (after reimbursement of any unreimbursed advances or expenses of the Servicer), after any related Realized Loss has been allocated in reduction of the Class Principal Amount of a class of Certificates as described herein, such amount (a “Subsequent Recovery ”) will be distributed to the Certificates still outstanding, in accordance with the priorities described under “—Priority of Distributions,” and the Class Principal Amount of each class of Certificates then outstanding that has been reduced due to application of a Realized Loss will be increased, in order of seniority, by the amount of such Subsequent Recovery. Any Subsequent Recovery that is received during a Prepayment Period will be included as part of the Available Distribution Amount for the related Distribution Date. It is generally not anticipated that any such amounts will be recovered, or that any distributions in respect of Subsequent Recoveries will be made to the Subordinate Certificates prior to the Distribution Date in September 2013.
STATIC POOL INFORMATION
     Static pool information with respect to the Sponsor’s prior securitized pools during the period from September 1, 2002 to June 1, 2006, presented by mortgage pool, is available online at http://phx.corporate-ir.net/test/phoenix.zhtml?c=117494&p=irol-debt#. Access to this web address is unrestricted and free of charge. Information available at this web address is deemed to be part of this prospectus supplement, except to the extent provided under “Static Pool Information” in the accompanying prospectus.
     In addition, certain static pool data with respect to the delinquency, cumulative loss and prepayment data for Countrywide Home Loans is available online at http://www.countrywidedealsdata.com?CWDD=01200608. Access to this web address is unrestricted and free of charge. Information available at this web address will not be deemed to be part of this prospectus supplement, the prospectus or the registration statement for the Offered Certificates, except with respect to static pool information relating to those pools formed after January 1, 2006.
     Furthermore, certain static pool data with respect to the delinquency, cumulative loss and prepayment data for ABN AMRO Mortgage Group, Inc. is available online at http://www.etrustee.net/RegAB/vintage.aspx?pool_id=SEMT2006-1. Access to this web address is unrestricted and free of charge. ABN AMRO does not have loss data for periods prior to June 1, 2004, with respect to any mortgage loans of the same type as those included in the mortgage pool that were sold on a whole loan basis. Information regarding these mortgage loans was removed from ABN AMRO’s computer system and stored on back-up tapes, which may no longer be in ABN AMRO’s possession. Furthermore, because such information was generated and maintained on a variety of computer platforms, ABN AMRO would incur the substantial expense of developing a system to extract such information and to ensure that the information that is extracted reflects the data fields present in the static pool information. Therefore such information may not be obtained without unreasonable effort or expense and has been omitted pursuant to Section 1105(f) of Regulation AB. Information available at this web address will not be deemed to be part of this prospectus supplement, the prospectus or the registration statement for the certificates offered hereby, except with respect to static pool information relating to those pools formed after January 1, 2006.
     Various factors may affect the prepayment, delinquency and loss performance of the mortgage loans over time. The various mortgage pools for which performance information is shown at the above internet addresses had initial characteristics that differed, and may have differed in ways that were

S-48


Table of Contents

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 penalties. We do not make any representation, and you should not assume, that the performance information shown at the above internet addresses is in any way indicative of the performance of the Mortgage Loans to be held by the Issuing Entity. The Mortgage Loans will continue to be serviced in accordance with accepted servicing practices through charge-off, which we define as the ultimate liquidation of the loan or any REO acquired in respect of the loan. For purposes of Form 10-D reporting and other such reporting under the Securities Exchange Act, delinquency information on the Mortgage Loans will be provided through charge-off in thirty (30) day segments, measured as of the end of the month prior to the reporting month.
AFFILIATIONS AND RELATED TRANSACTIONS
     The Seller and Sponsor and the Depositor are both wholly owned subsidiaries of Redwood Trust, Inc. Bank of America, N.A. (Servicer of a portion of the Mortgage Loans) is an affiliate of Banc of America Securities LLC, one of the Underwriters. Countrywide Home Loans, Inc. (Originator of a portion of the Mortgage Loans and a transferor to the Seller), Countrywide Home Loans Servicing LP (Servicer of a portion of the Mortgage Loans) and Countrywide Securities Corporation (Underwriter), are all subsidiaries of Countrywide Financial Corporation. ABN AMRO Mortgage Group, Inc. is an Originator of the Mortgage Loans and a transferor to the Seller, as well as a Servicer of the certain of the Mortgage Loans.
     Wells Fargo serves or may have served within the past two years as loan file custodian for various mortgage loans owned by the Sponsor or an affiliate of the Sponsor and anticipates that one or more of those mortgage loans may be held by the Issuing Entity. The terms of the Custodial Agreement under which those services are provided by Wells Fargo are customary for the mortgage-backed securitization industry and provide for the delivery, receipt, review and safekeeping of mortgage loan files.
     There is not currently, and there was not during the past two years, any material business relationship, agreement, arrangement, transaction or understanding that is or was entered into outside the ordinary course of business or is or was on terms other than would be obtained in an arm’s length transaction with an unrelated third party, between (a) any of the Seller, the Sponsor, the Depositor and the Issuing Entity and (b) any of the Servicers, the Master Servicer, the Securities Administrator, the Custodian, the Trustee or any Originator of the Mortgage Loans.
MATERIAL LEGAL PROCEEDINGS
     At the Closing Date, other than litigation in the ordinary course of business involving foreclosures or other exercise of its rights as a creditor, there were no material pending proceedings to which any of the Sponsor, the Seller, the Depositor, the Trustee, the Issuing Entity, the Master Servicer, the Securities Administrator or any Servicer or Originator were a party or of which any of their property was subject, and the Depositor is not aware of any material pending legal proceedings known to be contemplated by governmental authorities against the Sponsor, the Seller, the Depositor, the Trustee, the Issuing Entity, the Master Servicer, the Securities Administrator or any Servicer or Originator.

S-49


Table of Contents

THE SPONSOR
     RWT Holdings, Inc. (“RWT Holdings” or the “Seller or “Sponsor), is a Delaware corporation and wholly-owned subsidiary of Redwood Trust, Inc. and is headquartered in Mill Valley, California. RWT Holdings has acquired residential mortgage loans, directly or indirectly, from mortgage loan originators or sellers since it was organized in February 1998. RWT Holdings been active as a sponsor in the securitization market since 2002.
     As of June 30, 2006, RWT Holdings has sponsored the securitization of approximately $ 22.2 billion of residential mortgage loans ($4,077,538,500 in 2002, $6,198,200,700 in 2003, $10,199,107,364 in 2004, $1,440,123,400 in 2005 and $296,241,100 in 2006). RWT Holdings buys residential mortgage loans under several loan purchase agreements from mortgage loan originators or sellers nationwide that meet its seller/servicer eligibility requirements. We refer you to “Loan Program—Qualifications of Sellers” in the prospectus for a general description of the characteristics used to determine eligibility of collateral sellers. Prior to acquiring the mortgage loans, RWT Holdings conducts a review of the related mortgage loan seller and of the mortgage loans. RWT Holdings has developed a quality control program to monitor the quality of loan underwriting at the time of acquisition and on an ongoing basis. All loans purchased will be subject to this quality control program. RWT Holdings in certain cases submits a sample of mortgage loans to a third party nationally recognized underwriting review for a compliance check of underwriting and review of income, asset and appraisal information. None of the Sponsor’s prior securitizations have defaulted and RWT Holdings has not experienced an early amortization triggering event in any of its prior securitizations.
     RWT Holdings acquires mortgage loans secured by first and second liens on one- to four- family residential properties. As a sponsor, RWT Holdings acquires mortgage loans in the secondary mortgage market and initiates their securitization by transferring the mortgage loans to the Depositor, which loans will ultimately be transferred to the Issuing Entity for the related securitization. On the Closing Date, RWT Holdings, as seller, will sell all of its interest in the mortgage loans to the Depositor. RWT Holdings works in coordination with the underwriters and rating agencies in structuring each securitization transaction. RWT Holdings does not currently service mortgage loans but rather contracts with third party servicers for servicing the mortgage loans that it acquires. Third party servicers are assessed based upon the servicing rating and the credit quality of the servicing institution, as well as for their systems and reporting capabilities, review of collection procedures and confirmation of servicers’ ability to provide detailed reporting on the performance of the securitization pool.
THE DEPOSITOR
     Sequoia Residential Funding, Inc. (the “Depositor), a Delaware corporation and indirect wholly-owned subsidiary of Redwood Trust, Inc., was organized in September 1999 and is headquartered in Mill Valley, California. The Depositor has been engaged since the end of 2001 in the securitization of mortgage loans of the types described in the accompanying prospectus. Since 2002, Sequoia Residential Funding, Inc. has been the Depositor on 31 securitization deals that have issued approximately $22.2 billion worth of residential mortgage-backed securities.
     The certificate of incorporation of the Depositor limits its activities to those necessary or convenient to carry out its securitization activities. The Depositor will have limited obligations with respect to a series of securities. The Depositor will obtain the Mortgage Loans from the Sponsor/Seller and on the Closing Date will assign all of its interest in the Mortgage Loans to the Issuing Entity for the benefit of Certificateholders. In addition, after the issuance of the certificates, the Depositor will have certain obligations with respect to such certificates, such as the repurchase of Mortgage Loans as to which

S-50


Table of Contents

there is defective or incomplete documentation or a breach of a representation or warranty, and may have certain approval or consent rights as described in this prospectus supplement.
ADDITIONAL INFORMATION
     The Depositor has filed the registration statement with the Securities and Exchange Commission (the “SEC”) (Registration No. 333-132123). The Depositor is also subject to some of the information requirements of the Exchange Act, and, accordingly, will file reports thereunder with the SEC. The registration statement and the exhibits thereto, and reports and other information filed by the Depositor under the Exchange Act can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, and at certain of its Regional Offices located as follows: Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office, 233 Broadway, New York, New York 10279 and electronically through the SEC’s Electronic Data Gathering, Analysis and Retrieval System at the SEC’s website (http://www.sec.gov).
     The description in this prospectus supplement of the Issuing Entity and the Mortgaged Properties is based upon the Mortgage Pools as expected to be constituted at the close of business on the Statistical Cut-off Date, as adjusted for the scheduled principal payments due on or before the Statistical Cut-off Date. Prior to the issuance of the Offered Certificates, Mortgage Loans may be removed from the assets of the Issuing Entity as a result of incomplete documentation or otherwise, if the Depositor deems that removal necessary or appropriate. A limited number of other Mortgage Loans may be added to the assets of the Issuing Entity prior to the issuance of the Offered Certificates. The Depositor believes that the information in this prospectus supplement will be substantially representative of the characteristics of the mortgage pool as it will be constituted at the time the Offered Certificates are issued although the range of Mortgage Rates and maturities and some other characteristics of the Mortgage Loans held by the Issuing Entity may vary.
     A current report on Form 8-K will be available to purchasers of the Offered Certificates and will be filed, together with the Pooling and Servicing Agreement, with the SEC after the initial issuance of the Offered Certificates. In the event a material number of Mortgage Loans are removed from or added to the assets of the Issuing Entity as described in the preceding paragraph, that removal or addition will be noted in the current report.
     Pursuant to the Pooling and Servicing Agreement, the Securities Administrator will prepare a monthly statement to Certificateholders containing the information described under “The Agreements — Certain Matters Under the Pooling and Servicing Agreement — Reports to Certificateholders.” The Securities Administrator may 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 mail by notifying the Securities Administrator at the following address: Wells Fargo Bank, N.A., P.O. Box 98, Columbia, Maryland 21046 (or for overnight deliveries at 9062 Old Annapolis Road, Columbia, Maryland 21045). 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.
     In addition, within a reasonable period of time after the end of each calendar year, the Securities Administrator will, upon request, prepare and deliver to each Certificateholder of record during the previous calendar year a statement containing information necessary to enable Certificateholders to

S-51


Table of Contents

prepare their tax returns. These statements will not have been examined and reported upon by an independent public accountant.
     See “Available Information” in the accompanying prospectus.
THE ORIGINATORS
Countrywide Underwriting Standards
     Approximately 52.62% of the Mortgage Loans were originated by Countrywide Home Loans, Inc. (“Countrywide Home Loans”), directly or through its correspondents. The information in this section has been provided by Countrywide Home Loans.
Note: Loan-to-Value Ratio as used in “Underwriting Standards” below has the following meaning:
     The “Loan-to-Value Ratio” of a mortgage loan at any given time is a fraction, expressed as a percentage, the numerator of which is the principal balance of the related mortgage loan at the date of determination and the denominator of which is
    in the case of a purchase, the lesser of the selling price of the mortgaged property or its appraised value at the time of sale or
 
    in the case of a refinance, the appraised value of the mortgaged property at the time of the refinance, except in the case of a mortgage loan underwritten pursuant to Countrywide Home Loans’ Streamlined Documentation Program as described under “—Underwriting Standards—General” below.
     With respect to mortgage loans originated pursuant to Countrywide Home Loans’ Streamlined Documentation Program,
    if the loan-to-value ratio at the time of the origination of the mortgage loan being refinanced was 80% or less and the loan amount of the new loan being originated is $650,000 or less, then the “Loan-to-Value Ratio” will be the ratio of the principal amount of the new mortgage loan being originated divided by the appraised value of the related mortgaged property at the time of the origination of the Mortgage Loan being refinanced, as reconfirmed by Countrywide Home Loans using an automated property valuation system; or
 
    if the loan-to-value ratio at the time of the origination of the mortgage loan being refinanced was greater than 80% or the loan amount of the new loan being originated is greater than $650,000, then the “Loan-to-Value Ratio” will be the ratio of the principal amount of the new mortgage loan being originated divided by the appraised value of the related mortgaged property as determined by an appraisal obtained by Countrywide Home Loans at the time of the origination of the new mortgage loan. See “—Underwriting Standards—General” below.
     No assurance can be given that the value of any mortgaged property has remained or will remain at the level that existed on the appraisal or sales date. If residential real estate values generally or in a particular geographic area decline, the Loan-to-Value Ratios might not be a reliable indicator of the rates of delinquencies, foreclosures and losses that could occur with respect to the mortgage loans.

S-52


Table of Contents

Underwriting Standards
General
     Countrywide Home Loans, Inc., a New York corporation (“Countrywide Home Loans”), has been originating mortgage loans since 1969. Countrywide Home Loans’ underwriting standards are applied in accordance with applicable federal and state laws and regulations.
     As part of its evaluation of potential borrowers, Countrywide Home Loans generally requires a description of income. If required by its underwriting guidelines, Countrywide Home Loans obtains employment verification providing current and historical income information and/or a telephonic employment confirmation. Such employment verification may be obtained, either through analysis of the prospective borrower’s recent pay stub and/or W-2 forms for the most recent two years, relevant portions of the most recent two years’ tax returns, or from the prospective borrower’s employer, wherein the employer reports the length of employment and current salary with that organization. Self-employed prospective borrowers generally are required to submit relevant portions of their federal tax returns for the past two years.
     In assessing a prospective borrower’s creditworthiness, Countrywide Home Loans may use FICO Credit Scores. “FICO Credit Scores” are statistical credit scores designed to assess a borrower’s creditworthiness and likelihood to default on a consumer obligation over a two-year period based on a borrower’s credit history. FICO Credit Scores were not developed to predict the likelihood of default on mortgage loans and, accordingly, may not be indicative of the ability of a borrower to repay its mortgage loan. FICO Credit Scores range from approximately 250 to approximately 900, with higher scores indicating an individual with a more favorable credit history compared to an individual with a lower score. Under Countrywide Home Loans’ underwriting guidelines, borrowers possessing higher FICO Credit Scores, which indicate a more favorable credit history and who give Countrywide Home Loans the right to obtain the tax returns they filed for the preceding two years, may be eligible for Countrywide Home Loans’ processing program (the “Preferred Processing Program”).
     Periodically the data used by Countrywide Home Loans to complete the underwriting analysis may be obtained by a third party, particularly for mortgage loans originated through a loan correspondent or mortgage broker. In those instances, the initial determination as to whether a mortgage loan complies with Countrywide Home Loans’ underwriting guidelines may be made by an independent company hired to perform underwriting services on behalf of Countrywide Home Loans, the loan correspondent or mortgage broker. In addition, Countrywide Home Loans may acquire mortgage loans from approved correspondent lenders under a program pursuant to which Countrywide Home Loans delegates to the correspondent the obligation to underwrite the mortgage loans to Countrywide Home Loans’ standards. Under these circumstances, the underwriting of a mortgage loan may not have been reviewed by Countrywide Home Loans before acquisition of the mortgage loan and the correspondent represents that Countrywide Home Loans’ underwriting standards have been met. After purchasing mortgage loans under those circumstances, Countrywide Home Loans conducts a quality control review of a sample of the mortgage loans. The number of loans reviewed in the quality control process varies based on a variety of factors, including Countrywide Home Loans’ prior experience with the correspondent lender and the results of the quality control review process itself.
     Countrywide Home Loans’ underwriting standards are applied by or on behalf of Countrywide Home Loans to evaluate the prospective borrower’s credit standing and repayment ability and the value and adequacy of the mortgaged property as collateral. Under those standards, a prospective borrower must generally demonstrate that the ratio of the borrower’s monthly housing expenses (including principal and interest on the proposed mortgage loan and, as applicable, the related monthly portion of property taxes,

S-53


Table of Contents

hazard insurance and mortgage insurance) to the borrower’s monthly gross income and the ratio of total monthly debt to the monthly gross income (the “debt-to-income” ratios) are within acceptable limits. If the prospective borrower has applied for an interest-only Six-Month LIBOR Loan, the interest component of the monthly mortgage expense is calculated based upon the initial interest rate plus 2%. If the prospective borrower has applied for a 3/1 Mortgage Loan or 3/27 Mortgage Loan and the Loan-to-Value Ratio is less than or equal to 75%, the interest component of the monthly mortgage expense is calculated based on the initial loan interest rate; if the Loan-to-Value Ratio exceeds 75%, the interest component of the monthly mortgage expense calculation is based on the initial loan interest rate plus 2%. If the prospective borrower has applied for a 5/1 Mortgage Loan, a 5/25 Mortgage Loan, a 7/1 Mortgage Loan, a 7/23 Mortgage Loan, a 10/1 Mortgage Loan or a 10/20 Mortgage Loan, the interest component of the monthly mortgage expense is calculated based on the initial loan interest rate. If the prospective borrower has applied for a Negative Amortization Loan, the interest component of the monthly housing expense calculation is based upon the greater of 4.25% and the fully indexed mortgage note rate at the time of loan application. The maximum acceptable debt-to-income ratio, which is determined on a loan-by-loan basis varies depending on a number of underwriting criteria, including the Loan-to-Value Ratio, loan purpose, loan amount and credit history of the borrower. In addition to meeting the debt-to-income ratio guidelines, each prospective borrower is required to have sufficient cash resources to pay the down payment and closing costs. Exceptions to Countrywide Home Loans’ underwriting guidelines may be made if compensating factors are demonstrated by a prospective borrower. Additionally, Countrywide Home Loans does permit its adjustable rate mortgage loans, hybrid adjustable rate mortgage loans and negative amortization mortgage loans to be assumed by a purchaser of the related mortgaged property, so long as the mortgage loan is in its adjustable rate period (except for a 3/1 Mortgage Loan, which may be assumed during the fixed rate period) and the related purchaser meets Countrywide Home Loans’ underwriting standards that are then in effect.
     Countrywide Home Loans may provide secondary financing to a borrower contemporaneously with the origination of a mortgage loan, subject to the following limitations: the Loan-to-Value Ratio of the senior (i.e., first) lien may not exceed 80% and the combined Loan-to-Value Ratio may not exceed 100%. Countrywide Home Loans’ underwriting guidelines do not prohibit or otherwise restrict a borrower from obtaining secondary financing from lenders other than Countrywide Home Loans, whether at origination of the mortgage loan or thereafter.
     The nature of the information that a borrower is required to disclose and whether the information is verified depends, in part, on the documentation program used in the origination process. In general under the Full Documentation Loan Program (the “Full Documentation Program”), each prospective borrower is required to complete an application which includes information with respect to the applicant’s assets, liabilities, income, credit history, employment history and other personal information. Self-employed individuals are generally required to submit their two most recent federal income tax returns. Under the Full Documentation Program, the underwriter verifies the information contained in the application relating to employment, income, assets and mortgages.
     A prospective borrower may be eligible for a loan approval process that limits or eliminates Countrywide Home Loans’ standard disclosure or verification requirements or both. Countrywide Home Loans offers the following documentation programs as alternatives to its Full Documentation Program: an Alternative Documentation Loan Program (the “Alternative Documentation Program”), a Reduced Documentation Loan Program (the “Reduced Documentation Program”), a CLUES Plus Documentation Loan Program (the “CLUES Plus Documentation Program”), a No Income/No Asset Documentation Loan Program (the “No Income/No Asset Documentation Program”), a Stated Income/Stated Asset Documentation Loan Program (the “Stated Income/Stated Asset Documentation Program”) and a Streamlined Documentation Loan Program (the “Streamlined Documentation Program”).

S-54


Table of Contents

     For all mortgage loans originated or acquired by Countrywide Home Loans, Countrywide Home Loans obtains a credit report relating to the applicant from a credit reporting company. The credit report typically contains information relating to such matters as credit history with local and national merchants and lenders, installment debt payments and any record of defaults, bankruptcy, dispossession, suits or judgments. All adverse information in the credit report is required to be explained by the prospective borrower to the satisfaction of the lending officer.
     Except with respect to the mortgage loans originated pursuant to its Streamlined Documentation Program, whose values were confirmed with a Fannie Mae proprietary automated valuation model, Countrywide Home Loans obtains appraisals from independent appraisers or appraisal services for properties that are to secure mortgage loans. The appraisers inspect and appraise the proposed mortgaged property and verify that the property is in acceptable condition. Following each appraisal, the appraiser prepares a report which includes a market data analysis based on recent sales of comparable homes in the area and, when deemed appropriate, a replacement cost analysis based on the current cost of constructing a similar home. All appraisals are required to conform to Fannie Mae or Freddie Mac appraisal standards then in effect.
     Countrywide Home Loans requires title insurance on all of its mortgage loans secured by first liens on real property. Countrywide Home Loans also requires that fire and extended coverage casualty insurance be maintained on the mortgaged property in an amount at least equal to the principal balance of the related single-family mortgage loan or the replacement cost of the mortgaged property, whichever is less.
     In addition to Countrywide Home Loans’ standard underwriting guidelines (the “Standard Underwriting Guidelines”), which are consistent in many respects with the guidelines applied to mortgage loans purchased by Fannie Mae and Freddie Mac, Countrywide Home Loans uses underwriting guidelines featuring expanded criteria (the “Expanded Underwriting Guidelines”). The Standard Underwriting Guidelines and the Expanded Underwriting Guidelines are described further under the next two headings.
Standard Underwriting Guidelines
     Countrywide Home Loans’ Standard Underwriting Guidelines for mortgage loans with non-conforming original principal balances generally allow Loan-to-Value Ratios at origination of up to 95% for purchase money or rate and term refinance mortgage loans with original principal balances of up to $400,000, up to 90% for mortgage loans with original principal balances of up to $650,000, up to 75% for mortgage loans with original principal balances of up to $1,000,000, up to 65% for mortgage loans with original principal balances of up to $1,500,000, and up to 60% for mortgage loans with original principal balances of up to $2,000,000.
     For cash-out refinance mortgage loans, Countrywide Home Loans’ Standard Underwriting Guidelines for mortgage loans with non-conforming original principal balances generally allow Loan-to-Value Ratios at origination of up to 75% and original principal balances ranging up to $650,000. The maximum “cash-out” amount permitted is $200,000 and is based in part on the original Loan-to-Value Ratio of the related mortgage loan. As used in this prospectus supplement, a refinance mortgage loan is classified as a cash-out refinance mortgage loan by Countrywide Home Loans if the borrower retains an amount greater than the lesser of 2% of the entire amount of the proceeds from the refinancing of the existing loan or $2,000.
     Countrywide Home Loans’ Standard Underwriting Guidelines for conforming balance mortgage loans generally allow Loan-to-Value Ratios at origination on owner occupied properties of up to 95% on

S-55


Table of Contents

1 unit properties with principal balances up to $417,000 ($625,500 in Alaska and Hawaii) and 2 unit properties with principal balances up to $533,850 ($800,775 in Alaska and Hawaii) and up to 80% on 3 unit properties with principal balances of up to $645,300 ($967,950 in Alaska and Hawaii) and 4 unit properties with principal balances of up to $801,950 ($1,202,925 in Alaska and Hawaii). On second homes, Countrywide Home Loans’ Standard Underwriting Guidelines for conforming balance mortgage loans generally allow Loan-to-Value Ratios at origination of up to 95% on 1 unit properties with principal balances up to $417,000 ($625,500 in Alaska and Hawaii). Countrywide Home Loans’ Standard Underwriting Guidelines for conforming balance mortgage loans generally allow Loan-to-Value Ratios at origination on investment properties of up to 90% on 1 unit properties with principal balances up to $417,000 ($625,500 in Alaska and Hawaii) and 2 unit properties with principal balances up to $533,850 ($800,775 in Alaska and Hawaii) and up to 75% on 3 unit properties with principal balances of up to $645,300 ($967,950 in Alaska and Hawaii) and 4 unit properties with principal balances of up to $801,950 ($1,202,925 in Alaska and Hawaii).
     Under its Standard Underwriting Guidelines, Countrywide Home Loans generally permits a debt-to-income ratio based on the borrower’s monthly housing expenses of up to 33% and a debt-to-income ratio based on the borrower’s total monthly debt of up to 38%.
     In connection with the Standard Underwriting Guidelines, Countrywide Home Loans originates or acquires mortgage loans under the Full Documentation Program, the Alternative Documentation Program, the Reduced Documentation Program, the CLUES Plus Documentation Program or the Streamlined Documentation Program.
     The Alternative Documentation Program permits a borrower to provide W-2 forms instead of tax returns covering the most recent two years, permits bank statements in lieu of verification of deposits and permits alternative methods of employment verification.
     Under the Reduced Documentation Program, some underwriting documentation concerning income, employment and asset verification is waived. Countrywide Home Loans obtains from a prospective borrower either a verification of deposit or bank statements for the two-month period immediately before the date of the mortgage loan application or verbal verification of employment. Since information relating to a prospective borrower’s income and employment is not verified, the borrower’s debt-to-income ratios are calculated based on the information provided by the borrower in the mortgage loan application. The maximum Loan-to-Value Ratio ranges up to 95%.
     The CLUES Plus Documentation Program permits the verification of employment by alternative means, if necessary, including verbal verification of employment or reviewing paycheck stubs covering the pay period immediately prior to the date of the mortgage loan application. To verify the borrower’s assets and the sufficiency of the borrower’s funds for closing, Countrywide Home Loans obtains deposit or bank account statements from each prospective borrower for the month immediately prior to the date of the mortgage loan application. Under the CLUES Plus Documentation Program, the maximum Loan-to-Value Ratio is 75% and property values may be based on appraisals comprising only interior and exterior inspections. Cash-out refinances and investor properties are not permitted under the CLUES Plus Documentation Program.
     The Streamlined Documentation Program is available for borrowers who are refinancing an existing mortgage loan that was originated or acquired by Countrywide Home Loans provided that, among other things, the mortgage loan has not been more than 30 days delinquent in payment during the previous twelve-month period. Under the Streamlined Documentation Program, appraisals are obtained only if the loan amount of the loan being refinanced had a Loan-to-Value Ratio at the time of origination in excess of 80% or if the loan amount of the new loan being originated is greater than $650,000. In

S-56


Table of Contents

addition, under the Streamlined Documentation Program, a credit report is obtained but only a limited credit review is conducted, no income or asset verification is required, and telephonic verification of employment is permitted. The maximum Loan-to-Value Ratio under the Streamlined Documentation Program ranges up to 95%.
Expanded Underwriting Guidelines
     Mortgage loans which are underwritten pursuant to the Expanded Underwriting Guidelines may have higher Loan-to-Value Ratios, higher loan amounts and different documentation requirements than those associated with the Standard Underwriting Guidelines. The Expanded Underwriting Guidelines also permit higher debt-to-income ratios than mortgage loans underwritten pursuant to the Standard Underwriting Guidelines.
     Countrywide Home Loans’ Expanded Underwriting Guidelines for mortgage loans with non-conforming original principal balances generally allow Loan-to-Value Ratios at origination of up to 95% for purchase money or rate and term refinance mortgage loans with original principal balances of up to $400,000, up to 90% for mortgage loans with original principal balances of up to $650,000, up to 80% for mortgage loans with original principal balances of up to $1,000,000, up to 75% for mortgage loans with original principal balances of up to $1,500,000 and up to 70% for mortgage loans with original principal balances of up to $3,000,000. Under certain circumstances, however, Countrywide Home Loans’ Expanded Underwriting Guidelines allow for Loan-to-Value Ratios of up to 100% for purchase money mortgage loans with original principal balances of up to $375,000.
     For cash-out refinance mortgage loans, Countrywide Home Loans’ Expanded Underwriting Guidelines for mortgage loans with non-conforming original principal balances generally allow Loan-to-Value Ratios at origination of up to 90% and original principal balances ranging up to $1,500,000. The maximum “cash-out” amount permitted is $400,000 and is based in part on the original Loan-to-Value Ratio of the related mortgage loan.
     Countrywide Home Loans’ Expanded Underwriting Guidelines for conforming balance mortgage loans generally allow Loan-to-Value Ratios at origination on owner occupied properties of up to 100% on 1 unit properties with principal balances up to $417,000 ($625,500 in Alaska and Hawaii) and 2 unit properties with principal balances up to $533,850 ($800,775 in Alaska and Hawaii) and up to 85% on 3 unit properties with principal balances of up to $645,300 ($967,950 in Alaska and Hawaii) and 4 unit properties with principal balances of up to $801,950 ($1,202,925 in Alaska and Hawaii). On second homes, Countrywide Home Loans’ Expanded Underwriting Guidelines for conforming balance mortgage loans generally allow Loan-to-Value Ratios at origination of up to 95% on 1 unit properties with principal balances up to $417,000 ($625,500 in Alaska and Hawaii). Countrywide Home Loans’ Expanded Underwriting Guidelines for conforming balance mortgage loans generally allow Loan-to-Value Ratios at origination on investment properties of up to 90% on 1 unit properties with principal balances up to $417,000 ($625,500 in Alaska and Hawaii) and 2 unit properties with principal balances up to $533,850 ($800,775 in Alaska and Hawaii) and up to 85% on 3 unit properties with principal balances of up to $645,300 ($967,950 in Alaska and Hawaii) and 4 unit properties with principal balances of up to $801,950 ($1,202,925 in Alaska and Hawaii).
     Under its Expanded Underwriting Guidelines, Countrywide Home Loans generally permits a debt-to-income ratio based on the borrower’s monthly housing expenses of up to 36% and a debt-to-income ratio based on the borrower’s total monthly debt of up to 40%; provided, however, that if the Loan-to-Value Ratio exceeds 80%, the maximum permitted debt-to-income ratios are 33% and 38%, respectively.

S-57


Table of Contents

     In connection with the Expanded Underwriting Guidelines, Countrywide Home Loans originates or acquires mortgage loans under the Full Documentation Program, the Alternative Documentation Program, the Reduced Documentation Loan Program, the No Income/No Asset Documentation Program and the Stated Income/Stated Asset Documentation Program. Neither the No Income/No Asset Documentation Program nor the Stated Income/Stated Asset Documentation Program is available under the Standard Underwriting Guidelines.
     The same documentation and verification requirements apply to mortgage loans documented under the Alternative Documentation Program regardless of whether the loan has been underwritten under the Expanded Underwriting Guidelines or the Standard Underwriting Guidelines. However, under the Alternative Documentation Program, mortgage loans that have been underwritten pursuant to the Expanded Underwriting Guidelines may have higher loan balances and Loan-to-Value Ratios than those permitted under the Standard Underwriting Guidelines.
     Similarly, the same documentation and verification requirements apply to mortgage loans documented under the Reduced Documentation Program regardless of whether the loan has been underwritten under the Expanded Underwriting Guidelines or the Standard Underwriting Guidelines. However, under the Reduced Documentation Program, higher loan balances and Loan-to-Value Ratios are permitted for mortgage loans underwritten pursuant to the Expanded Underwriting Guidelines than those permitted under the Standard Underwriting Guidelines. The maximum Loan-to-Value Ratio, including secondary financing, ranges up to 90%. The borrower is not required to disclose any income information for some mortgage loans originated under the Reduced Documentation Program, and accordingly debt-to-income ratios are not calculated or included in the underwriting analysis. The maximum Loan-to-Value Ratio, including secondary financing, for those mortgage loans ranges up to 85%.
     Under the No Income/No Asset Documentation Program, no documentation relating to a prospective borrower’s income, employment or assets is required and therefore debt-to-income ratios are not calculated or included in the underwriting analysis, or if the documentation or calculations are included in a mortgage loan file, they are not taken into account for purposes of the underwriting analysis. This program is limited to borrowers with excellent credit histories. Under the No Income/No Asset Documentation Program, the maximum Loan-to-Value Ratio, including secondary financing, ranges up to 95%. Mortgage loans originated under the No Income/No Asset Documentation Program are generally eligible for sale to Fannie Mae or Freddie Mac.
     Under the Stated Income/Stated Asset Documentation Program, the mortgage loan application is reviewed to determine that the stated income is reasonable for the borrower’s employment and that the stated assets are consistent with the borrower’s income. The Stated Income/Stated Asset Documentation Program permits maximum Loan-to-Value Ratios up to 90%. Mortgage loans originated under the Stated Income/Stated Asset Documentation Program are generally eligible for sale to Fannie Mae or Freddie Mac.
AAMG Underwriting Standards
     ABN AMRO Mortgage Group, Inc. is referred to in this prospectus supplement as AAMG. The principal executive offices of AAMG are located at 6300 InterFirst Drive, Ann Arbor, Michigan 48108. AAMG is a Delaware corporation, a wholly owned operating subsidiary LaSalle Bank Midwest National Association and an indirect subsidiary corporation of LaSalle Bank Corporation.
AAMG

S-58


Table of Contents

AAMG originates mortgage loans consisting primarily of first-lien and junior lien, conforming and non-conforming, conventional and non-conventional, fixed or adjustable rate mortgage loans. AAMG has been an originator of mortgage loans since 1999 and has originated mortgage loans of the type backing the certificates offered hereby since 1999.
     The following table describes the size, composition and growth of the mortgage loan types within AAMG’s residential mortgage loan origination portfolio over the past three years and as of June 30, 2006, which are included in the assets of the Issuing Entity. The amounts are based on original principal balances.
                                                                 
    December 31, 2003     December 31, 2004     December 31, 2005     June 30, 2006  
            Total Dollar             Total Dollar             Total Dollar             Total Dollar  
            Amount of             Amount of             Amount of             Amount of  
Loan Type   Number     Loan Portfolio     Number     Loan Portfolio     Number     Loan Portfolio     Number     Loan Portfolio  
Jumbo Arms
    10,304     $ 5,258,185,628       4,002     $ 2,102,801,440       7,724     $ 4,298,642,111       1,283     $ 804,906,171  
 
                                                               
Alt A Arms
    0     $ 0       0     $ 0       1,092     $ 450,975,179       597     $ 264,964,407  
 
                                                               
Total
    10,304     $ 5,258,185,628       4,002     $ 2,102,801,440       8,816     $ 4,749,617,290       1,880     $ 1,069,870,578  
     The mortgage loans have been originated generally in accordance with underwriting criteria acceptable to AAMG, which are referred to as the Underwriting Criteria and are discussed more fully below.
     AAMG originates residential mortgage loans through its various retail bank branches. The mortgage loans are processed and underwritten through one of its operation centers. AAMG also originates loans through its network of mortgage loan brokers and correspondents, who, after processing the mortgage loans, submit such mortgage loans to AAMG for approval and funding. AAMG also has an e-commerce website where potential borrowers can submit their applications electronically, and AAMG’s operation staff underwrites and approves the loans based, in part, on any other additional information requested.
     AAMG’s Underwriting Criteria are intended to evaluate the prospective mortgagor’s credit standing and repayment ability, and the value and adequacy of the proposed mortgaged property as collateral. AAMG requires each prospective mortgagor to complete an application which includes information about the applicant’s assets, liabilities, income, credit history, employment history and other related items, and furnish an authorization to obtain a credit report which summarizes the mortgagor’s credit history.
     As part of the underwriting process, AAMG may use automated underwriting systems that have been developed by Fannie Mae, Freddie Mac or the Federal Housing Administration. These systems evaluate all aspects of the borrower’s credit profile, including credit pattern, not only looking at the borrower’s repayment history but also use of credit. The system evaluates the borrower’s savings pattern and ability to repay the debt. It also looks at the loan-to-value ratio and the loan program the borrower has requested.
     In order to establish the prospective mortgagor’s ability to make timely payments, unless otherwise waived as described below, AAMG requires evidence regarding the mortgagor’s employment, income and assets, and amount of deposits made to financial institutions where the mortgagor maintains demand or savings accounts. A potential borrower is generally required to submit documentation verifying employment for the most recent two years. Required documentation could include pay stubs, W-2 forms, personal tax returns, business tax returns and financial statements as well as personal or other bank statements evidencing sufficient funds to close. In addition, a prospective borrower’s monthly debt

S-59


Table of Contents

as compared to his/her monthly gross income, i.e., the “debt-to-income” ratios, must generally be within the limits set forth in the Underwriting Criteria. Such debt-to-income ratio may be limited based on several underwriting criteria and may vary based on compensating factors.
     In determining the adequacy of the property as collateral, at least one independent appraisal is generally made of each property considered for financing. The appraiser may be required to inspect the property and verify that it is in good condition and that construction, if new, has been completed. Alternatively, the appraisal may be conducted by comparing values of similar properties in an automated system or electronic database, inspecting the exterior of the property or another method described in the Underwriting Criteria. The appraisal is based on the appraiser’s judgment of values, giving appropriate weight to both the market value of comparable homes and the cost of replacing the property. The Underwriting Criteria require that the underwriters be satisfied that the value of the property being financed supports the outstanding loan balance, and provides sufficient value to mitigate the effects of adverse shifts in real estate values. In the case of a refinance, if the loan is currently being serviced by AAMG and the borrower intends to only reduce the interest rate or loan term, no additional property valuation may be required. However, if the borrower is requesting additional money exceeding the lesser of 2% or $2,000, a new property valuation is required.
     Other than loans that are insured by the Federal Housing Administration or partially guaranteed by the Veterans Administration and unless otherwise specified, any first lien mortgage loan with a loan-to-value ratio that at origination is at least 80.01% or higher is required to have mortgage insurance. AAMG also requires that property insurance be maintained in accordance with the Underwriting Criteria for that loan. AAMG may also require flood or other hazard insurance as set forth in their Underwriting Criteria.
     AAMG may originate mortgage loans under a limited mortgage documentation program. However, the mortgagors of these types of loans must have a good credit history and be financially capable of making a larger cash down payment in a purchase, or be willing to finance less of the appraised value in a refinancing than would otherwise be required by AAMG. Currently, the Underwriting Criteria provide that under this type of program only conventional mortgage loans with specified loan-to-value ratios qualify. If the mortgage loan qualifies, AAMG may waive some of its documentation requirements, including eliminating verification of assets, income and employment for the prospective mortgagor.
     For conventional loans, AAMG has a reduced documentation program under which a prospective borrower’s income or assets are not fully documented. AAMG also has a “no ratio” loan program under which the borrower’s assets are fully disclosed and verified, but neither the amount nor the source of the borrower’s income is disclosed, and the credit approval process for such a loan does not rely on qualifying ratios. Under the “no documentation” program, verification of a borrower’s income and assets is completely removed from the processing of the loan file. The credit approval process for a “no documentation” loan relies entirely on the borrower’s credit report and the value of the mortgaged property.
     For government loans, AAMG underwrites FHA/VA loans in compliance with endorsement and guarantee requirements of the Department of HUD and Veterans Affairs. This incorporates both credit and collateral guidelines of these respective agencies.
     AAMG is not aware of any legal proceedings pending against AAMG or against any of its property, including any proceedings known to be contemplated by governmental authorities, that are likely to materially affect the holders of the securities issued.

S-60


Table of Contents

THE MASTER SERVICER AND THE SERVICERS
     Countrywide Home Loans Servicing LP and ABN AMRO Mortgage Group, Inc. will be responsible for servicing approximately 52.62% and 34.72% of the Mortgage Loans, respectively. The remainder of the Mortgage Loans will initially be serviced by various mortgage servicing institutions (together with Countrywide Home Loans Servicing LP and ABN AMRO Mortgage Group, Inc., the “Servicers” and each, a “Servicer”), each of which will service less than 10% of the Mortgage Loans. The Servicers will initially have primary responsibility for servicing the Mortgage Loans, including, but not limited to, all collection, advancing and loan-level reporting obligations, maintenance of escrow accounts, maintenance of insurance and enforcement of foreclosure proceedings with respect to the Mortgage Loans and related Mortgaged Properties. The Master Servicer will supervise the activities of the Servicers.
Wells Fargo Bank, N.A.
     Wells Fargo Bank, National Association (“Wells Fargo Bank”) will act as Master Servicer and Securities Administrator under the Pooling and Servicing Agreement. Wells Fargo Bank is a national banking association and a wholly-owned subsidiary of Wells Fargo & Company. A diversified financial services company with approximately $482 billion in assets, 23 million customers and 153,000+ employees, Wells Fargo & Company is a U.S. bank holding company, providing banking, insurance, trust, mortgage and consumer finance services throughout the United States and internationally. Wells Fargo Bank provides retail and commercial banking services and corporate trust, custody, securities lending, securities transfer, cash management, investment management and other financial and fiduciary services. The Depositor, the Sponsor, the Seller and the Servicers may maintain banking and other commercial relationships with Wells Fargo Bank and its affiliates.
     Wells Fargo Bank maintains principal corporate trust offices located at 9062 Old Annapolis Road, Columbia, Maryland 21045-1951 (among other locations) and its office for certificate transfer services is located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479.
     Wells Fargo Bank serves or may have served within the past two years as loan file custodian for various mortgage loans owned by the Sponsor or an affiliate of the Sponsor and anticipates that one or more of those mortgage loans may be included in the assets of the Issuing Entity. The terms of the Custodial Agreement under which those services are provided by Wells Fargo Bank are customary for the mortgage-backed securitization industry and provide for the delivery, receipt, review and safekeeping of mortgage loan files.
     Wells Fargo Bank serves or has served within the past two years as warehouse master servicer for various mortgage loans owned by the Sponsor or an affiliate of the Sponsor and anticipates that one or more of those mortgage loans may be included in the assets of the Issuing Entity. The terms of the warehouse master servicing agreement under which those services are provided by Wells Fargo Bank are customary for the mortgage-backed securitization industry.
     Wells Fargo Bank acts as Master Servicer pursuant to the Pooling and Servicing Agreement. The Master Servicer is responsible for the aggregation of monthly servicer reports and remittances and for the oversight of the performance of the servicers under the terms of their respective underlying servicing agreements. In particular, the Master Servicer independently calculates monthly loan balances based on servicer data, compares its results to servicer loan-level reports and reconciles any discrepancies with the servicers. The Master Servicer also reviews the servicing of defaulted loans for compliance with the terms of the Pooling and Servicing Agreement. In addition, upon the occurrence of certain servicer events of default under the terms of any underlying servicing agreement, the Master Servicer may be

S-61


Table of Contents

required to enforce certain remedies on behalf of the trust against such defaulting servicer. As of June 30, 2006, Wells Fargo Bank was acting as Master Servicer for approximately 1,253 series of residential mortgage-backed securities with an aggregate outstanding principal balance of approximately $651,189,990,090.
     Under the terms of the Pooling and Servicing Agreement, Wells Fargo Bank also is responsible for Securities Administration, which includes pool performance calculations, distribution calculations and the preparation of monthly distribution reports. As Securities Administrator, Wells Fargo Bank is responsible for the preparation and filing of all REMIC tax returns on behalf of the Issuing Entity and the preparation of monthly reports on Form 10-D, periodic reports on Form 8-K and annual reports on Form 10-K that are required to be filed with the Securities and Exchange Commission on behalf of the Issuing Entity. Wells Fargo Bank has been engaged in the business of Securities Administration since June 30, 1995. As of June 30, 2006, Wells Fargo Bank was acting as Securities Administrator with respect to more than $894,773,136,436 of outstanding residential mortgage-backed securities.
Countrywide Home Loans Servicing LP
     Countrywide will be responsible for servicing approximately 52.62% of the Mortgage Loans. The Servicer will initially have primary responsibility for servicing the Mortgage Loans, including, but not limited to, all collection, advancing and loan-level reporting obligations, maintenance of escrow accounts, maintenance of insurance and enforcement of foreclosure proceedings with respect to the Mortgage Loans and related mortgaged properties.
     The principal executive offices of Countrywide Home Loans Servicing LP (“Countrywide Servicing”) are located at 7105 Corporate Drive, Plano, Texas 75024. Countrywide Servicing is a Texas limited partnership directly owned by Countrywide GP, Inc. and Countrywide LP, Inc., each a Nevada corporation and a direct wholly owned subsidiary of Countrywide Home Loans. Countrywide GP, Inc. owns a 0.1% interest in Countrywide Servicing and is the general partner. Countrywide LP, Inc. owns a 99.9% interest in Countrywide Servicing and is a limited partner.
     Countrywide Home Loans established Countrywide Servicing in February 2000 to service mortgage loans originated by Countrywide Home Loans that would otherwise have been serviced by Countrywide Home Loans. In January and February 2001, Countrywide Home Loans transferred to Countrywide Servicing all of its rights and obligations relating to mortgage loans serviced on behalf of Fannie Mae and Freddie Mac, respectively. In October 2001, Countrywide Home Loans transferred to Countrywide Servicing all of its rights and obligations relating to the bulk of its non-agency loan servicing portfolio (other than the servicing of home equity lines of credit), including with respect to those mortgage loans (other than home equity lines of credit) formerly serviced by Countrywide Home Loans and securitized by certain of its affiliates. While Countrywide Home Loans expects to continue to directly service a portion of its loan portfolio, it is expected that the servicing rights for most newly originated Countrywide Home Loans mortgage loans will be transferred to Countrywide Servicing upon sale or securitization of the related mortgage loans. Countrywide Servicing is engaged in the business of servicing mortgage loans and will not originate or acquire loans, an activity that will continue to be performed by Countrywide Home Loans. In addition to acquiring mortgage servicing rights from Countrywide Home Loans, it is expected that Countrywide Servicing will service mortgage loans for non-Countrywide Home Loans affiliated parties as well as subservice mortgage loans on behalf of other master servicers.
     In connection with the establishment of Countrywide Servicing, certain employees of Countrywide Home Loans became employees of Countrywide Servicing. Countrywide Servicing has

S-62


Table of Contents

engaged Countrywide Home Loans as a subservicer to perform certain loan servicing activities on its behalf.
     Countrywide Servicing is an approved mortgage loan servicer for Fannie Mae, Freddie Mac, Ginnie Mae, HUD and VA and is licensed to service mortgage loans in those states where a license is required. Its loan servicing activities are guaranteed by Countrywide Financial and Countrywide Home Loans (when required by the owner of the mortgage loans).
Countrywide Home Loans
     Countrywide Home Loans, Inc. is a New York corporation (“Countrywide Home Loans” and a direct wholly owned subsidiary of Countrywide Financial Corporation, a Delaware corporation (“Countrywide Financial”). The principal executive offices of Countrywide Home Loans are located at 4500 Park Granada, Calabasas, California 91302. Countrywide Home Loans is engaged primarily in the mortgage banking business, and as part of that business, originates, purchases, sells and services mortgage loans. Countrywide Home Loans originates mortgage loans through a retail branch system and through mortgage loan brokers and correspondents nationwide. Mortgage loans originated by Countrywide Home Loans are principally first-lien, fixed or adjustable rate mortgage loans secured by single-family residences.
     Except as otherwise indicated, reference in the remainder of this prospectus supplement to “Countrywide Home Loans” should be read to include Countrywide Home Loans and its consolidated subsidiaries, including Countrywide Servicing. Countrywide Home Loans services substantially all of the mortgage loans it originates or acquires. In addition, Countrywide Home Loans has purchased in bulk the rights to service mortgage loans originated by other lenders. Countrywide Home Loans has in the past and may in the future sell to mortgage bankers and other institutions a portion of its portfolio of loan servicing rights. As of December 31, 2002, December 31, 2003, December 31, 2004, December 31, 2005 and June 30, 2006, Countrywide Home Loans provided servicing for mortgage loans with an aggregate principal balance of approximately $452.405 billion, $644.855 billion, $838.322 billion, $1,111.090 billion and $1,196.720 billion, respectively, substantially all of which were being serviced for unaffiliated persons.
Mortgage Loan Production
     The following table sets forth, by number and dollar amount of mortgage loans, Countrywide Home Loans’ residential mortgage loan production for the periods indicated.

S-63


Table of Contents

                                                 
    Consolidated Mortgage Loan Production
    Ten Months                                   Six Months
    Ended   Years Ended   Ended
    December 31,   December 31,   June 30,
    2001   2002   2003   2004   2005   2006
    (Dollars in millions, except average loan amount)
Conventional Conforming Loans
                                               
Number of Loans
    504,975       999,448       1,517,743       846,395       809,630       353,101  
Volume of Loans
  $ 76,432     $ 150,110     $ 235,868     $ 138,845     $ 167,675     $ 69,363  
Percent of Total Dollar Volume
    61.7 %     59.6 %     54.2 %     38.2 %     34.1 %     31.5 %
Conventional Non-conforming Loans
                                               
Number of Loans
    137,593       277,626       554,571       509,711       826,178       322,108  
Volume of Loans
  $ 22,209     $ 61,627     $ 136,664     $ 140,580     $ 225,217     $ 100,537  
Percent of Total Dollar Volume
    17.9 %     24.5 %     31.4 %     38.7 %     45.9 %     45.7 %
FHA/VA Loans
                                               
Number of Loans
    118,734       157,626       196,063       105,562       80,528       43,381  
Volume of Loans
  $ 14,109     $ 19,093     $ 24,402     $ 13,247     $ 10,712     $ 6,192  
Percent of Total Dollar Volume
    11.4 %     7.6 %     5.6 %     3.6 %     2.2 %     2.8 %
Prime Home Equity Loans
                                               
Number of Loans
    164,503       316,049       453,817       587,046       683,887       348,542  
Volume of Loans
  $ 5,639     $ 11,650     $ 18,103     $ 30,893     $ 42,706     $ 23,524  
Percent of Total Dollar Volume
    4.5 %     4.6 %     4.2 %     8.5 %     8.7 %     10.7 %
Nonprime Mortgage Loans
                                               
Number of Loans
    43,359       63,195       124,205       250,030       278,112       127,162  
Volume of Loans
  $ 5,580     $ 9,421     $ 19,827     $ 39,441     $ 44,637     $ 20,411  
Percent of Total Dollar Volume
    4.5 %     3.7 %     4.6 %     11.0 %     9.1 %     9.3 %
Total Loans
                                               
Number of Loans
    969,164       1,813,944       2,846,399       2,298,744       2,678,335       1,194,294  
Volume of Loans
  $ 123,969     $ 251,901     $ 434,864     $ 363,006     $ 490,947     $ 220,027  
Average Loan Amount
  $ 128,000     $ 139,000     $ 153,000     $ 158,000     $ 183,000     $ 184,000  
Non-Purchase Transactions(1)
    63 %     66 %     72 %     51 %     53 %     54 %
Adjustable-Rate Loans(1)
    12 %     14 %     21 %     52 %     52 %     49 %
 
(1)   Percentage of total mortgage loan production (excluding commercial real estate loans) based on dollar volume.
Loan Servicing
     Countrywide Servicing has established standard policies for the servicing and collection of mortgages. Servicing includes, but is not limited to:
    collecting, aggregating and remitting mortgage loan payments;
 
    accounting for principal and interest;
 
    holding escrow (impound) funds for payment of taxes and insurance;
 
    making inspections as required of the mortgaged properties;
 
    preparation of tax related information in connection with the mortgage loans;
 
    supervision of delinquent mortgage loans;
 
    loss mitigation efforts;
 
    foreclosure proceedings and, if applicable, the disposition of mortgaged properties; and
 
    generally administering the mortgage loans, for which it receives servicing fees.

S-64


Table of Contents

     Billing statements with respect to mortgage loans are mailed monthly by Countrywide Servicing. The statement details all debits and credits and specifies the payment due. Notice of changes in the applicable loan rate are provided by Countrywide Servicing to the mortgagor with these statements.
Collection Procedures
     When a mortgagor fails to make a payment on a mortgage loan, Countrywide Servicing attempts to cause the deficiency to be cured by corresponding with the mortgagor. In most cases, deficiencies are cured promptly. Pursuant to Countrywide Servicing’s servicing procedures, Countrywide Servicing generally mails to the mortgagor a notice of intent to foreclose after the loan becomes 61 days past due (three payments due but not received) and, generally within 59 days thereafter, if the loan remains delinquent, institutes appropriate legal action to foreclose on the mortgaged property. Foreclosure proceedings may be terminated if the delinquency is cured. Mortgage loans to borrowers in bankruptcy proceedings may be restructured in accordance with law and with a view to maximizing recovery of the loans, including any deficiencies.
     Once foreclosure is initiated by Countrywide Servicing, a foreclosure tracking system is used to monitor the progress of the proceedings. The system includes state-specific parameters to monitor whether proceedings are progressing within the time frame typical for the state in which the mortgaged property is located. During the foreclosure proceeding, Countrywide Servicing determines the amount of the foreclosure bid and whether to liquidate the mortgage loan.
     If foreclosed, the mortgaged property is sold at a public or private sale and may be purchased by Countrywide Servicing. After foreclosure, Countrywide Servicing may liquidate the mortgaged property and charge-off the loan balance which was not recovered through liquidation proceeds.
     Servicing and charge-off policies and collection practices with respect to mortgage loans may change over time in accordance with, among other things, Countrywide Servicing’s business judgment, changes in the servicing portfolio and applicable laws and regulations.
ABN AMRO Mortgage Group, Inc.
     ABN AMRO Mortgage Group, Inc. is referred to in this prospectus supplement as AAMG. The principal executive offices of AAMG are located at 6300 InterFirst Drive, Ann Arbor, Michigan 48108. AAMG is a Delaware corporation, a wholly owned operating subsidiary LaSalle Bank Midwest National Association and an indirect subsidiary corporation of LaSalle Bank Corporation.
     In 1999, Standard Federal Bank, F.S.B. (a predecessor of LaSalle Bank Midwest National Association) contributed all of its operations related to 1-4 unit residential mortgage loan originations consisting primarily of first lien loans and its servicing assets to AAMG, which was formed to consolidate all of the 1-4 unit residential mortgage banking operations of Standard Federal Bank, F.S.B. and its affiliates into one entity. Before this contribution, AAMG did not hold or service any 1-4 unit residential loans in a loan or servicing portfolio. After this contribution, AAMG began to originate, directly or indirectly, and service 1-4 unit residential mortgage loans in its loan and servicing portfolio and in 2003, AAMG began to originate, directly or indirectly, and service closed-end mortgage loans secured by junior liens on the related 1-4 unit residential mortgaged property. On October 5, 2001, Standard Federal Bank, F.S.B. was merged with Michigan National Bank and the combined entity was initially named Standard Federal Bank National Association, which name was subsequently changed to LaSalle Bank Midwest National Association. At that time the 1-4 unit residential mortgage loan assets of Michigan National Bank were consolidated with the assets of Standard Federal Bank. However, the servicing of these assets

S-65


Table of Contents

remained with an unaffiliated servicer who had contracted to service the loans for Michigan National Bank prior to the merger.
     Since 1999, AAMG has serviced mortgage loans secured by first liens on the related 1-4 unit residential mortgaged property, and since 2003 it has serviced closed-end mortgage loans secured by junior liens on the related 1-4 unit residential mortgaged property. The servicing is performed both on a securitized basis for Fannie Mae, Freddie Mac, and Ginnie Mae pool investors and other investors, and also on a whole loan basis for Fannie Mae, Freddie Mac and other investors, including AAMG and its affiliates. The majority of first mortgage loans serviced by AAMG are written on Fannie Mae/Freddie Mac uniform instruments or on forms approved for use by HUD or VA. However, some of the first mortgage loans serviced are written on documents drafted by the originators, including affiliates, of the mortgage loans. Junior mortgage loans are written on instruments drafted or otherwise adopted for use by AAMG. All such first and junior mortgage loans are serviced in accordance with Fannie Mae, Freddie Mac, Ginnie Mae, FHA, or VA requirements, as applicable, unless mortgage documents and investor guidelines require different servicing procedures in the related servicing agreement.
     The following table describes the size, composition and growth of the mortgage loan types within AAMG’s residential mortgage loan servicing portfolio over the past three years and as of June 30, 2006, which are included in the assets of the Issuing Entity. The amounts are based on original principal balances.
                                                                 
    December 31, 2003   December 31, 2004   December 31, 2005   June 30, 2006
            Total Dollar Amount of           Total Dollar Amount of           Total Dollar Amount of           Total Dollar Amount of
Loan Type   Number   Loan Portfolio   Number   Loan Portfolio   Number   Loan Portfolio   Number   Loan Portfolio
Alt A Arms
    0     $ 0.00       0     $ 0.00       858     $ 340,467,223       1,500     $ 549,358,330  
Jumbo Arms
    12,453     $ 6,038,252,020       10,314     $ 5,037,453,222       13,709     $ 7,033,600,990       12,961     $ 6,683,625,109  
Total
    12,453     $ 6,038,252,020       10,314     $ 5,037,453,222       14,567     $ 7,374,068,213       14,461     $ 7,232,983,439  
     AAMG will provide each mortgagor with either coupon books or periodic transaction statements for the purpose of making timely payments as required by the mortgage loan documents. These billing practices are suspended for mortgagors who elect to make mortgage payments each month via an automated payment method. In any event, if payments are not made when due in accordance with the mortgage instruments, late charges are assessed on the next business day following expiration of any grace period allowed in the mortgage documents for making payments. Notices of late charge assessments are mailed to each mortgagor on the same business day that late charges are assessed.
     Also, for mortgagors who have experienced payment problems in the past, a collection letter is generally sent prior to the expiration of any grace period. Contact by phone is then attempted with such mortgagors. If mortgagors’ payments are more than 30 days past due, AAMG utilizes a collection campaign of letters and attempted phone call contacts designed to ascertain the causes for the delinquency, impress on mortgagors the seriousness of the matter and inform the mortgagors of the loss mitigation options that may be available to the mortgagors. It is AAMG’s practice to monitor bankruptcy proceedings and respond as required under applicable law. AAMG may, in some cases, assign foreclosures and bankruptcy matters to outside counsel.
     AAMG in its capacity as servicer will service the related mortgage loans, including administering delinquencies, losses, bankruptcies and recoveries, in accordance with the related servicing agreement.
     AAMG is not aware of any material changes in its servicing policies and procedures that would have a material impact on the performance of the mortgage loans nor does AAMG believe its financial condition would materially affect its ability to service the mortgage loans.

S-66


Table of Contents

     During the past three (3) calendar years and through the current date, ABN AMRO has made all advances that it was required to make under any servicing agreement to which it was a party as a servicer or subservicer.
     As of the date hereof, with respect to the Mortgage Loans, ABN AMRO has not engaged any subcontractors that are “participating in the servicing function” as contemplated under Item 1122 of Regulation AB.
     Within the past three (3) years, ABN AMRO as servicer has not been terminated for cause as servicer in a residential mortgage loan securitization, either due to a servicing default or to application of a servicing performance test or trigger.
ADMINISTRATION OF THE ISSUING ENTITY
Servicing and Administrative Responsibilities
     The Servicers, the Master Servicer, the Depositor, the Securities Administrator, the Trustee and the Custodian will have the following responsibilities with respect to the Issuing Entity:
     Servicers. Performing the servicing functions with respect to the Mortgage Loans and the Mortgaged Properties in accordance with the provisions of the applicable Servicing Agreement, including, but not limited to:
    collecting monthly remittances of principal and interest on the Mortgage Loans from the related borrowers, depositing such amounts in the Collection Account, and delivering all amounts on deposit in the Collection Account to the Securities Administrator for deposit in the Certificate Distribution Account on the Servicer Remittance Date;
 
    collecting amounts in respect of taxes and insurance from the related borrowers, depositing such amounts in the related escrow account, and paying such amounts to the related taxing authorities and insurance providers, as applicable;
 
    making advances with respect to delinquent payments of principal and interest on the Mortgage Loans, to the extent the Servicer believes such advances will be recoverable;
 
    paying, as servicing advances, customary costs and expenses incurred in the performance by the Servicer of its servicing obligations, including, but not limited to, the cost of (a) the preservation, restoration and protection of the Mortgaged Property, (b) taxes, assessments and other charges which are or may become a lien upon the Mortgaged Property or (c) borrower-paid primary mortgage insurance policy premiums and fire and hazard insurance coverage, to the extent not paid by the borrower;
 
    providing monthly loan-level reports to the Master Servicer and the Securities Administrator;
 
    maintaining certain insurance policies relating to the Mortgage Loans; and
 
    initiating and enforcing foreclosure proceedings.
     We refer you to “The Agreements —Mortgage Loan Servicing.”

S-67


Table of Contents

     Master Servicer. Performing the master servicing functions in accordance with the provisions of the Pooling and Servicing Agreement, including but not limited to:
    monitoring the Servicers’ performance and enforcing the Servicers’ obligations under the Servicing Agreements; provided, however, that the Master Servicer will not be responsible for the supervision of the activities of the Servicer related to resolution of defaulted Mortgage Loans, including collections, modifications, foreclosure and disposition or management of REO property;
 
    gathering the monthly loan-level reports delivered by the Servicers and providing a comprehensive loan-level report to the Securities Administrator with respect to the Mortgage Loans;
 
    terminating the rights and obligations of any Servicer, if in the Master Servicer’s judgment it determines that such Servicer should be terminated in accordance with the Servicing Agreements, giving notice thereof to the Trustee and the Rating Agencies and taking such other action as it deems appropriate;
 
    upon the termination of a Servicer, appointing a successor Servicer or servicing the related Mortgage Loans itself, as provided in the Pooling and Servicing Agreement; and
 
    upon the failure of a Servicer to make Advances with respect to a Mortgage Loan, making those Monthly Advances, to the extent provided in the Pooling and Servicing Agreement.
     We refer you to “The Agreements —Mortgage Loan Servicing.”
     Securities Administrator. Performing the Securities Administrator functions in accordance with the provisions of the Pooling and Servicing Agreement, including but not limited to:
    acting as authentication agent, calculation agent, paying agent and certificate registrar with respect to the Certificates;
 
    collecting monthly remittances from the Master Servicer and the Servicers for deposit in the Certificate Distribution Account and distributing all amounts on deposit in the Certificate Distribution Account to the Certificateholders, in accordance with the priorities described under “Descriptions of the Certificates —Priority of Distributions” on each Distribution Date;
 
    preparing and distributing to Certificateholders the monthly Distribution Date statement based on Mortgage Loan data provided by the Servicer and the Master Servicer;
 
    preparing periodic reports with the SEC on behalf of the Issuing Entity with respect to the Certificates;
 
    preparing and distributing annual investor reports necessary to enable Certificateholders to prepare their tax returns; and
 
    preparing and filing annual federal and (if required) state tax returns on behalf of the Issuing Entity.
     We refer you to “The Agreements — Administration,” “— Reports to Certificateholders below.

S-68


Table of Contents

     Trustee. Performing certain administrative functions with respect to the Certificates, in accordance with the provisions of the Pooling and Servicing Agreement, including but not limited to:
    after an Event of Default has occurred of which a responsible officer of the Trustee has actual knowledge, giving written notice thereof to the Master Servicer and the Rating Agencies; and
 
    after an Event of Default has occurred of which a responsible officer of the Trustee has actual knowledge, until a successor Master Servicer is appointed, acting as successor Master Servicer in the event the Master Servicer resigns or is removed by the Trustee.
     We refer you to “The Agreements —Certain Matters Under the Pooling and Servicing Agreement—Duties of the Trustee and the Securities Administrator” below.
     Depositor. Filing periodic reports with the SEC on behalf of the Issuing Entity with respect to the Certificates.
     Custodian. Performing the custodial functions in accordance with the provisions of the Custodial Agreement, including but not limited to:
    holding and maintaining the Mortgage Loan documents related to the applicable Mortgage Loans in a fire-resistant facility intended for the safekeeping of such Mortgage Loan files on behalf of the Issuing Entity.
     We refer you to “The Agreements—The Custodial Agreement” in the prospectus.
Trust Accounts
     All amounts in respect of principal and interest received from the borrowers or other recoveries in respect of the Mortgage Loans will, at all times before distribution thereof to the Certificateholders, be deposited in the Collection Accounts and the Certificate Distribution Account (together, the “Trust Accounts”), which are accounts established in the name of the Trustee (or the Securities Administrator, on behalf of the Trustee). Funds on deposit in the Trust Accounts may be invested by the party responsible for such Trust Account as described below. The Trust Accounts will be established by the applicable parties listed below, and any investment income earned on each Trust Account will be retained or distributed as follows:
         
Trust Account:   Responsible Party:   Application of any Investment Earnings:
Collection Accounts
  Servicers   Any income earned will be paid as compensation to the related Servicer, as set forth under “The Agreements — Fees and Expenses of the Issuing Entity,” and will not be available for distribution to Certificateholders.
 
       
Certificate
Distribution
Account
  Securities
Administrator
  Any investment earnings will be paid as compensation to the Securities Administrator, as set forth under “The Agreements — Fees and Expenses of the Issuing Entity,” and will not be available for distribution to Certificateholders.

S-69


Table of Contents

     If funds deposited in a Collection Account or the Certificate Distribution Account are invested by the responsible party identified in the table above, the amount of any losses incurred in respect of any such investments will be deposited in the related Trust Account by such responsible party out of its own funds, without any right of reimbursement therefor.
Example of Distributions
     The following sets forth an example of collection of payments from borrowers on the Mortgage Loans, transfer of amounts among the Trust Accounts and distributions on the Certificates for the Distribution Date in October 2006:
         
September 2 through October 1
  Due Period:   Payments due during the related Due Period (September 2 through October 1) from borrowers will be deposited in each Servicer’s Collection Account as received and will include scheduled principal payments due during the related Due Period and interest accrued on the ending scheduled balance from the prior Due Period.
 
       
September 1 through September 30
  Prepayment Period for partial and full prepayments received from borrowers:   Partial principal prepayments received by any Servicer and principal prepayments in full received by any Servicer during the related Prepayment Period (September 1 through September 30) will be deposited into such Servicer’s Collection Account for remittance to the Securities Administrator on the Servicer Remittance Date.
 
       
September 29
  Record Date:   Distributions will be made to Certificateholders of record for each class of Certificates as of the close of business on the last Business Day of the month immediately before the month of the related Distribution Date.
 
       
October 18
  Servicer Remittance
Date:
  Each Servicer will remit collections and recoveries in respect of the Mortgage Loans to the Securities Administrator for deposit into the Certificate Distribution Account on or prior to the 18th day of each month, or if the 18th day is not a Business Day, on the next preceding Business Day, as specified in the related Servicing Agreement.
 
       
October 20
  Distribution Date:   On the 20th day of each month (or if the 20th day is not a Business Day, the next Business Day), the Securities Administrator will make distributions to Certificateholders from amounts on deposit in the Certificate Distribution Account.
     Succeeding months follow the same pattern.

S-70


Table of Contents

THE AGREEMENTS
General
     The following summary describes certain terms of the Pooling and Servicing Agreement, the Mortgage Loan Purchase Agreement, the Servicing Agreements and the Custodial Agreement (collectively, the “Agreements”). The summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the Agreements. The following summary supplements, and to the extent inconsistent with, replaces, the description of the general terms and provisions of the Agreements under the heading “The Agreements” in the accompanying prospectus.
     The Certificates will be issued pursuant to a pooling and servicing agreement, dated as of August 1, 2006 (the “Pooling and Servicing Agreement), among the Depositor, Wells Fargo Bank, N.A., in the capacities of master servicer (in such capacity, the “Master Servicer”) and securities administrator (in such capacity, the “Securities Administrator”) and HSBC Bank USA, National Association, as trustee (the “Trustee”). Reference is made to the accompanying prospectus for important information in addition to that set forth herein regarding the terms and conditions of the Pooling and Servicing Agreement and the Offered Certificates. Offered Certificates in certificated form will be transferable and exchangeable at the corporate trust office of the Securities Administrator, which will serve as certificate registrar and paying agent.
Assignment of the Mortgage Loans
     Under the Mortgage Loan Purchase Agreement, the Seller will sell the Mortgage Loans to the Depositor. The Seller will make certain representations, warranties and covenants relating to, among other things, certain characteristics of the Mortgage Loans. Subject to the limitations described below, the Seller will be obligated as described herein to purchase or substitute a similar mortgage loan for any Mortgage Loan as to which there exists deficient documentation or as to which there has been an uncured breach of any such representation or warranty relating to the characteristics of the Mortgage Loan that materially and adversely affects the value of such Mortgage Loan or the interests of the Certificateholders in such Mortgage Loan (a “Defective Mortgage Loan”). See “Loan Program — Representations by Sellers; Repurchases” in the accompanying prospectus.
     Pursuant to the Pooling and Servicing Agreement, on the Closing Date the Depositor will sell, transfer, assign, set over and otherwise convey without recourse to the Issuing Entity all of its rights to the Mortgage Loans and its rights under the Mortgage Loan Purchase Agreement (including the right to enforce the Seller’s purchase obligation). The obligations of the Seller with respect to the Certificates are limited to the Seller’s obligation to purchase or substitute for Defective Mortgage Loans.
     In connection with such transfer and assignment of the Mortgage Loans, pursuant to a custodial agreement (the “Custodial Agreement) dated as of August 1, 2006, among the Seller, the Depositor, the Trustee and the Custodian, the Depositor will deliver or cause to be delivered to Wells Fargo Bank, N.A., as custodian (in such capacity, the “Custodian”), on behalf of the Trustee, among other things, the original promissory note (the “Mortgage Note”) (and any modification or amendment thereto) endorsed in blank without recourse, the original instrument creating a first lien on the related Mortgaged Property (the “Mortgage”), with evidence of recording indicated thereon, an assignment in recordable form of the mortgage, the title policy with respect to the related Mortgaged Property and, if applicable, all recorded intervening assignments of the Mortgage and any riders or modifications to such Mortgage Note and Mortgage (except for any such document other than Mortgage Notes not available on the Closing Date, which will be delivered to the Custodian, on behalf of the Trustee as soon as the same is available to the Depositor) (collectively, the “Mortgage File”). Assignments of the Mortgage Loans to the Trustee (or its

S-71


Table of Contents

nominee) will be recorded in the appropriate public office for real property records, except in states where, in the opinion of counsel, such recording is not required to protect the Trustee’s interest in the Mortgage Loans against the claim of any subsequent transferee or any successor to or creditor of the Depositor.
     Pursuant to the Custodial Agreement, the Custodian will review the related Mortgage File within 270 days of the Closing Date (or promptly after the Custodian’s receipt of any document permitted to be delivered after the Closing Date) and will hold such Mortgage Files in trust for the benefit of the Certificateholders. If at the end of such 270-day period, any document in a Mortgage File is found to be missing or defective in a material respect and the Seller does not cure such omission or defect within 180 days after its receipt of notice from the Custodian, then the Seller is obligated to purchase the related Defective Mortgage Loan from the Issuing Entity at a price equal to the sum of (a) 100% of the Stated Principal Balance thereof, (b) unpaid accrued interest thereon from the Due Date to which interest was last paid by the borrower to the Due Date immediately preceding the repurchase and (c) any unreimbursed Monthly Advances and servicing advances not included in clauses (a) and (b) above. Rather than purchase the Defective Mortgage Loan as provided above, the Seller may remove such Mortgage Loan (a “Deleted Mortgage Loan”) from the Issuing Entity and substitute in its place one or more Mortgage Loans of like kind (such loan a “Replacement Mortgage Loan”); provided, however, that such substitution is permitted only within two years after the Closing Date and may not be made unless an opinion of counsel is provided to the effect that such substitution would not disqualify the REMIC elections or result in the imposition of a REMIC-related prohibited transaction tax under the Internal Revenue Code of 1986, as amended (the “Code”).
     Any Replacement Mortgage Loan generally will, on the date of substitution, among other characteristics set forth in the Mortgage Loan Purchase Agreement:
    have an outstanding principal balance, after deduction of all Scheduled Payments due in the month of substitution, not in excess (and not less than 90%) of the Stated Principal Balance of the Deleted Mortgage Loan (the amount of any shortfall to be deposited in the Certificate Distribution Account by the Seller not later than the succeeding determination date and held for distribution to the Certificateholders on the related Distribution Date);
 
    have a maximum Mortgage Rate not less than (and not more than two percentage points greater than) the maximum Mortgage Rate of the Deleted Mortgage Loan;
 
    have a gross margin not less than that of the Deleted Mortgage Loan and, if Mortgage Loans equal to 1% or more of the Cut-off Date Principal Balance have become Deleted Mortgage Loans, not more than two percentage points more than that of the Deleted Mortgage Loan;
 
    have a Loan-to-Value ratio not higher than that of the Deleted Mortgage Loan;
 
    have a remaining term to maturity not greater than (and not more than one year less than) that of the Mortgage Loan;
 
    not permit conversion of the related Mortgage Rate to a permanent fixed Mortgage Rate;
 
    have the same or higher credit score;
 
    have an initial interest adjustment date no earlier than five months before (and no later than five months after) the initial interest adjustment date of the Mortgage Loan;

S-72


Table of Contents

    be a “qualified replacement mortgage” within the meaning of Section 860G(a)(4) of the Code; and
 
    comply with all of the representations and warranties set forth in the Mortgage Loan Purchase Agreement.
     This cure, repurchase or substitution obligation constitutes the sole remedy available to the Certificateholders or the Trustee for omission of, or a material defect in, a Mortgage File.
     See “Loan Program — Representations by Sellers; Repurchases” in the accompanying prospectus.
     Each transfer of the Mortgage Loans from the Seller to the Depositor and from the Depositor to the Trustee will be intended to be a sale of the Mortgage Loans and will be reflected as such in the Mortgage Loan Purchase Agreement and the Pooling and Servicing Agreement, respectively. However, in the event of insolvency of either the Seller or the Depositor, a trustee in bankruptcy or a receiver or creditor of the insolvent party could attempt to recharacterize the sale of the Mortgage Loans by the insolvent party as a financing secured by a pledge of the Mortgage Loans. In the event that a court were to recharacterize the sale of the Mortgage Loans by either the Seller or the Depositor as a financing, each of the Depositor, as transferee of the Mortgage Loans from the Seller, and the Trustee will have a security interest in the Mortgage Loans transferred to it. The Trustee’s security interest will be perfected by delivery of the Mortgage Notes to the Custodian.
Representations and Warranties
     In the Mortgage Loan Purchase Agreement, pursuant to which the Depositor purchased the Mortgage Loans from the Seller, the Seller made certain representations and warranties to the Depositor concerning the Mortgage Loans. The Trustee will be assigned all right, title and interest in the Mortgage Loan Purchase Agreement insofar as they relate to such representations and warranties made by the Seller. Such representations and warranties will include the representations and warranties set forth under “The Agreements—Representations and Warranties” in the prospectus. The Seller will be obligated to repurchase (or, within the period provided in the Pooling and Servicing Agreement, to substitute a Replacement Mortgage Loan for) any Mortgage Loan as to which there exists an uncured breach of certain of its representations and warranties, which breach materially and adversely affects the value of, or interest of the Certificateholders in, the Mortgage Loan.
Mortgage Loan Servicing
     Each Servicer will service the Mortgage Loans pursuant to existing servicing agreements, one between the Servicer and the Seller and another between the Servicer and the transferor to the Seller (each referred to as a “Servicing Agreement ”). The rights of the Seller under the Servicing Agreements will be assigned to the Depositor, and the Depositor, in turn, will assign such rights (with certain exceptions referred to below) to the Trustee for the benefit of Certificateholders. Any further transfer of servicing to one or more successor Servicers will be subject to the conditions set forth in the Pooling and Servicing Agreement and the Servicing Agreements, as applicable.
     The Servicers will have primary responsibility for servicing the Mortgage Loans, including, but not limited to, all collection, advancing and loan-level reporting obligations, maintenance of custodial and escrow accounts, maintenance of insurance and enforcement of foreclosure proceedings with respect to the Mortgage Loans and the Mortgaged Properties, in accordance with the provisions of the related Servicing Agreement.

S-73


Table of Contents

     Under the Servicing Agreements, the Master Servicer has the authority to terminate the Servicer for certain events of default which indicate that either a Servicer is not performing, or is unable to perform, its duties and obligations under the related Servicing Agreement. If the Master Servicer terminates any Servicer, the Master Servicer will be required to appoint a successor Servicer as provided in the Pooling and Servicing Agreement.
     See “The Agreements — Certain Matters Regarding the Servicer and the Depositor” and — Events of Default; Rights Upon Event of Default” in the accompanying prospectus.
     The Master Servicer will not be ultimately responsible for the performance of the servicing activities by any Servicer, except as described under “— Advances” below. In addition, the Master Servicer will not be responsible for the supervision of the activities of any Servicer related to the resolution of defaulted Mortgage Loans, including collections, modifications, foreclosure and disposition or management of REO property. If a Servicer fails to fulfill its obligations under the related Servicing Agreement, the Master Servicer will be obligated to terminate such Servicer and, within 90 days of such termination, appoint a successor Servicer that satisfies the eligibility requirements set forth in the related Servicing Agreement.
     The Servicers generally may not transfer the servicing to a successor Servicer without the consent of the Trustee and the Master Servicer. The Pooling and Servicing Agreement requires that, in the case of transfers to a successor Servicer, each Rating Agency confirm in writing that such transfer of servicing will not result in a qualification, withdrawal or downgrade of the then-current ratings of any of the Certificates.
     Waiver or Modification of Mortgage Loan Terms. The Servicers will make reasonable efforts to collect all payments called for under the Mortgage Loans and will, consistent with the Servicing Agreement and any primary mortgage insurance policy, follow such collection procedures as are customary with respect to Mortgage Loans that are comparable to the Mortgage Loans. Consistent with the above, the Servicers may, in their discretion, (i) waive any assumption fee, late payment or other charge in connection with a Mortgage Loan and (ii) to the extent not consistent with the coverage of such Mortgage Loan by a primary mortgage insurance policy, arrange with a borrower a schedule for the liquidation of delinquencies. The Depositor’s prior approval or consent will be required for certain servicing activities such as modification of the terms of any Mortgage Loan and the sale of any defaulted Mortgage Loan or REO Property.
     Collection Account. Servicing functions to be performed by the Servicers under the Servicing Agreement include collection and remittance of principal and interest payments, administration of mortgage escrow accounts, collection of certain insurance claims and, if necessary, foreclosure. The Servicers may contract with subservicers to perform some or all of the Servicers’ servicing duties, but the Servicers will not thereby be released from their obligations under their respective Servicing Agreement. When used herein with respect to servicing obligations, the term Servicer includes a subservicer.
     Pursuant to the Servicing Agreements, each Servicer will deposit collections on the Mortgage Loans into the Collection Account established by it. The Collection Account is required to be kept segregated from operating accounts of each Servicer and to meet the eligibility criteria set forth in the Servicing Agreements. The Servicing Agreements in most cases provide for the investment of amounts on deposit in the Collection Account. Any interest or other income earned on deposited amounts will be for the benefit of the related Servicer. Any losses resulting from such investments are required to be reimbursed to the Collection Account by the related Servicer out of its own funds.

S-74


Table of Contents

     On or before the Closing Date, the Securities Administrator, on behalf of the Trustee, will establish the Certificate Distribution Account into which the Servicers will remit all amounts required to be deposited therein (net of the Servicers’ servicing compensation) on the Servicer Remittance Date specified in the applicable Servicing Agreement. Generally, the Servicers will determine the amount of Monthly Advances for the related Due Period on or before the related determination date, and will furnish to the Master Servicer information with respect to loan level remittance data for such month’s remittance on the reporting date specified in the applicable Servicing Agreement.
     Prepayment Interest Shortfalls. When a borrower prepays a Mortgage Loan in full between Due Dates, the borrower is required to pay interest on the amount prepaid only to the date of prepayment and not thereafter. Principal prepayments by borrowers received by the Servicer during the related Prepayment Period for a Distribution Date will be distributed to Certificateholders on the related Distribution Date. Thus, less than one month’s interest may have been collected on Mortgage Loans that have been prepaid in full with respect to any Distribution Date. Pursuant to the Servicing Agreements, either (i) the related servicing fee for any month will be reduced (but not below zero) by the amount of any Prepayment Interest Shortfall or (ii) the Servicers will be required to make payments in respect of Prepayment Interest Shortfalls from their own funds with respect to the Mortgage Loans. The Master Servicer is obligated to reduce a portion of its Master Servicing Fee for the related Distribution Date to the extent necessary to fund any Prepayment Interest Shortfalls required to be paid but not paid by any Servicer. The amount of interest available to be paid to Certificateholders will be reduced by any uncompensated Prepayment Interest Shortfalls.
     Advances. Subject to the limitations described in the following paragraph, the Servicers will be required to advance prior to each Distribution Date, from their own funds, or funds in the Collection Account that are not otherwise required to be remitted to the Certificate Distribution Account for such Distribution Date, an amount equal to the Scheduled Payment of interest at the related Mortgage Rate (less the applicable servicing fee rate) and scheduled principal payment on each Mortgage Loan which were due on the related Due Date and which were not received prior to the related determination date (any such advance, a “Monthly Advance”). The Master Servicer will be obligated to make any required Monthly Advance if a Servicer fails in its obligation to do so, to the extent provided in the pooling and the Servicing Agreement and the applicable Servicing Agreement.
     Monthly Advances are intended to maintain a regular flow of scheduled interest and principal payments on the Certificates rather than to guarantee or insure against losses. Each Servicers is obligated to make Monthly Advances with respect to delinquent payments of interest and principal on each Mortgage Loan serviced by it, to the extent that such Monthly Advances are, in its reasonable judgment, recoverable from future payments and collections or insurance payments or proceeds of liquidation of the related Mortgage Loans. Any failure by a Servicer to make a Monthly Advance as required under the applicable Servicing Agreement will constitute a default thereunder, in which case the Master Servicer will be required, as successor Servicer, to make a Monthly Advance in accordance with the terms of the Pooling and Servicing Agreement; provided, however, that in no event will the Master Servicer be required to make a Monthly Advance that is not, in its reasonable judgment, recoverable from future payments and collections or insurance payments or proceeds of liquidation of the related Mortgage Loans. If a Servicer determines on any determination date to make a Monthly Advance, such Monthly Advance will be included with the payment to Certificateholders on the related Distribution Date. Any failure by the Master Servicer to make a Monthly Advance as required under the Pooling and Servicing Agreement will constitute a Master Servicer default thereunder, in which case the Trustee or the successor Master Servicer will be obligated to make such Monthly Advance.
     Servicing Compensation and Payment of Expenses. Each Servicer will be entitled to receive, from interest actually collected on each Mortgage Loan serviced by it, a servicing fee (the “Servicing Fee”),

S-75


Table of Contents

equal to the product of (1) the principal balance of such Mortgage Loans as of the first day of the related Due Period and (2) a per annum rate (the “Servicing Fee Rate ”) ranging from approximately 0.250% to 0.375% annually. As of the Statistical Cut-off Date, the weighted average Sevicing Fee Rate is approximately 0.2934% per annum. The Servicers are also entitled to receive, to the extent provided in the applicable Servicing Agreement, additional compensation in the form of prepayment premiums and any interest or other income earned on funds it has deposited in the Collection Account pending remittance to the Master Servicer, as well as late charges and certain fees paid by borrowers and, in certain cases, REO management fees.
     As compensation for its services, the Master Servicer will be paid a monthly fee (the “Master Servicing Fee”) with respect to each Mortgage Loan, calculated as 0.0075% per annum (the “Master Servicing Fee Rate”) of the Stated Principal Balance of each Mortgage Loan as of the first day of the related Due Period.
     The amounts of the Master Servicing Fee and the Servicers’ servicing fees are subject to adjustment with respect to prepaid Mortgage Loans, as described above under “— Prepayment Interest Shortfalls.”
     Evidence as to Compliance. The Servicing Agreements will require each Servicer to deliver to the Securities Administrator and the Master Servicer, on or before the date in each year specified in the applicable Servicing Agreement, and, if required, file with the SEC as part of a Report on Form 10-K filed on behalf of each trust, the following documents:
    a report on its assessment of compliance during the preceding calendar year with all applicable servicing criteria set forth in relevant SEC regulations with respect to asset-backed securities transactions taken as a whole involving the Servicer that are backed by the same types of assets as those backing the offered securities, as well as similar reports on assessment of compliance received from certain other parties participating in the servicing function as required by relevant SEC regulations;
 
    with respect to each assessment report described in the immediately preceding bullet point, a report by a registered public accounting firm that attests to, and reports on, the assessment made by the asserting party, as set forth in relevant SEC regulations; and
 
    a statement of compliance from the Servicer, and similar statements from certain other parties involved in servicing the Mortgage Loans as required by relevant SEC regulations, signed by an authorized officer, to the effect that: (a) a review of the Servicer’s activities during the reporting period and of its performance under the applicable Servicing Agreement has been made under such officer’s supervision; and (b) to the best of such officer’s knowledge, based on such review, the Servicer has fulfilled all of its obligations under the Servicing Agreement in all materials respects throughout the reporting period or, if there has been a failure to fulfill any such obligation in any material respect, specifying each such failure known to such officer and the nature and status thereof.
     The Custodial Agreement provides that the Custodian will certify to the Depositor, the Trustee, the Servicers and the Master Servicer that all information prepared by it and provided to the Master Servicer, the Servicers or the Securities Administrator relating to the Mortgage Loans serviced by the Servicer is accurate and complete in all material respects as of the last day of the period covered by that report and that generally the Custodian is in compliance with its obligations to report to the Master Servicer, the Servicers and the Securities Administrator and is in compliance with its obligations under the Custodial Agreement. The Pooling and Servicing Agreement will provide that each year the Master

S-76


Table of Contents

Servicer will certify to the Trustee that for the prior calendar year, the Master Servicer has performed and fulfilled its duties, responsibilities and obligations under the Pooling and Servicing Agreement in all material respects throughout that year, or, if there has been a default in the fulfillment of any such duties, responsibilities or obligations, specifying each such default known to the Master Servicer and the nature and status thereof, and the Master Servicer has received from the Servicer an annual certificate of compliance and a copy of the Servicer’s annual audit report, in each case to the extent required under the Servicing Agreement, or, if any such certificate or report has not been received by the Master Servicer, the Master Servicer is using its best reasonable efforts to obtain such certificate or report.
     The Pooling and Servicing Agreement will also provide that each year during which the Master Servicer directly services any of the Mortgage Loans, as Servicer, a firm of independent accountants will furnish a statement to the Trustee to the effect that such firm has examined certain documents and records relating to the servicing of Mortgage Loans similar to the Mortgage Loans by the Master Servicer and that, on the basis of such examination, such firm is of the opinion that the servicing has been conducted in accordance with the terms of the Pooling and Servicing Agreement, except for (1) exceptions as the firm believes to be immaterial and (2) any other exceptions set forth in such statement.
     Events of Default. Events of default under the Servicing Agreements include (i) any failure of the Servicers to remit to the Certificate Distribution Account any required payment which continues unremedied for a specified period after the giving of written notice of such failure to the Servicer; (ii) any failure by the Servicers to make a Monthly Advance as required under the applicable Servicing Agreement, unless cured as specified therein; (iii) any failure by the Servicers duly to observe or perform in any material respect any of its other covenants or agreements in the Servicing Agreement which continues unremedied for a specified period after the giving of written notice of such failure to such Servicer; and (iv) certain events of insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding and certain actions by or on behalf of the Servicer indicating its insolvency, reorganization or inability to pay its obligations.
     If a Servicer is in default in its obligations under the Servicing Agreement, the Master Servicer may, at its option, terminate the defaulting Servicer and either appoint a successor Servicer in accordance with the Servicing Agreement and the Pooling and Servicing Agreement or succeed to the responsibilities of the terminated Servicer.
     In the event of a default by a Servicer under its Servicing Agreement, the Master Servicer will have the right to remove the Servicer and will exercise that right if it considers such removal to be in the best interest of the Certificateholders. In the event that the Master Servicer removes a Servicer, the Master Servicer will, in accordance with the Pooling and Servicing Agreement, act as successor servicer under the related Servicing Agreement or will appoint a successor servicer reasonably acceptable to the Depositor and the Trustee. In connection with the removal of a Servicer, the Master Servicer will be entitled to be reimbursed from the assets of the Issuing Entity for all of its reasonable costs associated with the termination of the Servicer and the transfer of servicing to a successor servicer.
     Limitation on Liability of the Servicers and Others. Each Servicing Agreement provides that neither the related Servicer nor any of the officers, employees or agents of the related Servicer will be under any liability to the trust for any action taken, or for refraining from taking any action, in good faith pursuant to the Servicing Agreement, or for errors in judgment. The Servicing Agreement further provides, however, that such provision will not protect the related Servicer or any such person against any breach of warranties or representations made by the Servicer in the applicable Servicing Agreement, or the failure of the related Servicer to perform its obligations in compliance with any standard of care set forth in the applicable Servicing Agreement, or any liability which would otherwise be imposed by reason of any breach of the terms and conditions of the applicable Servicing Agreement.

S-77


Table of Contents

     Resignation of Servicers. A Servicer may not resign from its obligations and duties under the applicable Servicing Agreement or assign or transfer its rights, duties or obligations except (i) upon a determination that its duties thereunder are no longer permissible under applicable law, (ii) in certain cases, upon the sale of substantially all of its assets or (iii) upon a sale of its servicing rights with respect to the Mortgage Loans with the prior written consent of the Depositor, which consent may not be unreasonably withheld. No such resignation will become effective until the Master Servicer or a successor servicer approved by it has assumed the Servicer’s obligations and duties under such Servicing Agreement.
     Any person into which a Servicer may be merged or consolidated, any person resulting from any merger or consolidation which a Servicer is a party, any person succeeding to the business of such Servicer or any person to whom a Servicer assigns or transfers its duties and obligations, will be the successor of such Servicer under the related Servicing Agreement.
     Amendment of the Servicing Agreements. Each Servicing Agreement may generally be amended by written agreement between the related Servicer and the Trustee, as acknowledged by the Master Servicer, without notice to or consent of the Certificateholders.
Custody of the Mortgage Files
     The Servicers will generally not have responsibility for custody of the Mortgage Loan documents described under “— Assignment of Mortgage Loans” above. The Custodian will hold the related Mortgage Loan documents on behalf of the Trustee pursuant to the Custodial Agreement between the Custodian and the Trustee. The Mortgage Loan documents related to a Mortgage Loan will be held together in an individual file separate from other mortgage loan files held by the Custodian for other transactions or investors. The Custodian will maintain the Mortgage Loan documents in a fire-resistant facility intended for the safekeeping of mortgage loan files. The Master Servicer will pay the fees of the Custodian.
     Wells Fargo. Wells Fargo is acting as Custodian of the Mortgage Files pursuant to the Custodial Agreement. In that capacity, Wells Fargo is responsible to hold and safeguard the related Mortgage Notes and other contents of the Mortgage Files on behalf of the Trustee and the Certificateholders. Wells Fargo maintains each Mortgage File is a separate file folder marked with a unique bar code to assure loan-level file integrity and to assist in inventory management. Files are segregated by transaction or investor. Wells Fargo has been engaged in the mortgage document custody business for more than 25 years. Wells Fargo maintains document custody facilities in its Minneapolis, Minnesota headquarters and in three regional offices located in Richfield, Minnesota, Irvine, California, and Salt Lake City, Utah. As of June 30, 2006, Wells Fargo maintains mortgage custody vaults in each of those locations with an aggregate capacity of over eleven million files.
Optional Redemption of the Certificates
     The holder of the Class LT-R Certificate, which may include the Depositor, has the option to redeem the Certificates, in whole but not in part, on any Distribution Date on or after which the then aggregate outstanding principal balance of the Mortgage Loans is equal to or less than 10% of the aggregate principal balance of the Mortgage Loans as of the Cut-off Date.
     If the holder of the Class LT-R Certificate elects to redeem the Certificates it will deliver notice of such election to the Trustee and the Securities Administrator together with an undertaking to deposit the Redemption Price into the Distribution Account on or prior to the redemption date. In addition, if the holder of the Class LT-R Certificate does not exercise its option to own or resell the Certificates as

S-78


Table of Contents

provided below, the holder of the Class LT-R Certificate must cause each REMIC to adopt a plan of liquidation that meets the requirements of Section 860F(a)(4) of the Code. The “Redemption Price” must equal 100% of the then aggregate outstanding Class Principal Amount of all the Certificates, plus accrued interest thereon through the end of the Accrual Period immediately preceding the related Distribution Date (excluding the amount of any unpaid Net WAC Shortfalls). There will be no redemption premium in connection with such a redemption.
     At the option of the holder of the Class LT-R Certificate, such optional redemption of the Certificates can be effected without retiring the Certificates, so that the Holder of the Class LT-R Certificate has the ability to own or resell the Certificates. Upon a redemption with retirement of the Certificates, the assets of the Issuing Entity will be liquidated and the Issuing Entity will terminate. The payment on the final Distribution Date in connection with the redemption of the Certificates will be in lieu of the payment otherwise required to be made on such Distribution Date in respect of the Certificates.
Certain Matters Under the Pooling and Servicing Agreement
     Duties of the Trustee and the Securities Administrator. The Trustee will be required to perform only those duties specifically required of it under the Pooling and Servicing Agreement unless an Event of Default has occurred, in which case the Trustee may take such additional actions as described below under “ — Events of Default under the Pooling and Servicing Agreement.” Upon receipt of the various Certificates, statements, reports or other instruments required to be furnished to it, each of the Trustee and the Securities Administrator will be required to examine them to determine whether they are in the form required by the Pooling and Servicing Agreement; however, neither the Trustee nor the Securities Administrator will be responsible for the accuracy or content of any documents furnished to such party by any other party. The Securities Administrator will not be required to verify or recompute any mortgage loan data received from the Servicers or the Master Servicer, but will be entitled to rely conclusively on such information
     Neither the Trustee nor the Securities Administrator will have any liability arising out of or in connection with the Pooling and Servicing Agreement, except that such party may be held liable for its own negligent action or failure to act, or for its own willful misconduct; provided, however, that neither the Trustee nor the Securities Administrator will be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Certificateholders in an Event of Default, and the Trustee will not be deemed to have notice of any Event of Default unless an officer of the Trustee has actual knowledge of the Event of Default or written notice of an Event of Default is received by the Trustee at its corporate trust office. See “ — Events of Default Under the Pooling and Servicing Agreement” below. Neither the Trustee nor the Securities Administrator is required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under the Pooling and Servicing Agreement, or in the exercise of any of its rights or powers, if it has reasonable grounds for believing that repayment of those funds or adequate indemnity against risk or liability is not reasonably assured to it.
     The Trustee will have no duties under the Pooling and Servicing Agreement with respect to any claim or notice it may receive or which may be alleged to have been delivered to or served upon it by the parties as a consequence of the assignment of any Mortgage Loan under the Pooling and Servicing Agreement. None of the provisions in the Pooling and Servicing Agreement will in any event require the Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Master Servicer. The Trustee will not be responsible for any act or omission of the Master Servicer, the Securities Administrator, the Depositor or any other party.

S-79


Table of Contents

     Neither the Trustee nor the Securities Administrator will be responsible for (a) any recording or filing of any agreement or of any financing statement or continuation statement evidencing a security interest, or to see to the maintenance of any such recording or filing which may have been made, or the validity, priority, perfection or sufficiency of the security for the Certificates, (b) the payment of any insurance related to the Certificates or the Mortgage Loans or (c) the payment or discharge of any tax, assessment, or other governmental charge or any lien or encumbrance of any kind owing with respect to, assessed or levied against, any part of the Issuing Entity’s assets, other than from funds available in any Trust Account. The Trustee is not responsible for the validity of the Pooling and Servicing Agreement or the Certificates or the validity, priority, perfection or sufficiency of the security for the Certificates.
     Events of Default Under the Pooling and Servicing Agreement. An “Event of Default” under the Pooling and Servicing Agreement will generally consist of:
    After receipt of notice from the Trustee, any failure of the Master Servicer to make any Monthly Advances when such Monthly Advances are due, which failure continues unremedied for a period of one Business Day; or
 
    Any failure by the Master Servicer to furnish the Securities Administrator the Mortgage Loan data sufficient to prepare the monthly statements to Certificateholders which failure continues unremedied for a period of one Business Day after the giving of written notice of such failure by the Trustee, the Securities Administrator or Certificateholders evidencing not less than 25% of the Class Principal Amount of each class of Certificates affected thereby; or
 
    Any failure on the part of the Master Servicer duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Master Servicer contained in the Pooling and Servicing Agreement, which failure continues unremedied for a period of 30 days after the giving of written notice of such failure by the Trustee, the Securities Administrator, or by Certificateholders evidencing more than 50% of the aggregate voting rights of the Certificates; or
 
    Any impermissible dissolution, disposition of all or substantially all assets, or consolidation or merger on the part of the Master Servicer that does not meet the criteria specified in the Pooling and Servicing Agreement; or
 
    Any breach of a representation or warranty set forth in the Pooling and Servicing Agreement that materially and adversely affects the interests of the Certificateholders, which breach continues 30 days after the giving of written notice by the Trustee, the Securities Administrator or Certificateholders evidencing more than 50% of the aggregate voting rights of the Certificates; or
 
    Any sale, pledge or assignment of the rights, or any delegation of the duties of, the Master Servicer under the Pooling and Servicing Agreement, in any manner not permitted thereunder and without the prior written consent of the Trustee and Certificateholders evidencing more than 50% of the aggregate voting rights of the Certificates; or
 
    Certain events in insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings and certain actions by the Master Servicer indicating its insolvency, reorganization or inability to pay its obligations.
     So long as an Event of Default remains unremedied under the Pooling and Servicing Agreement, the Trustee may terminate the Master Servicer, whereupon the Trustee, unless a successor Master

S-80


Table of Contents

Servicer is appointed, will succeed to all responsibilities, duties and liabilities of the Master Servicer under the Pooling and Servicing Agreement and will be entitled to reasonable servicing compensation not to exceed the Master Servicing Fee, together with other servicing compensation in the form of assumption fees, late payment charges or otherwise as provided in the Pooling and Servicing Agreement.
     During the continuance of an event of default under the Pooling and Servicing Agreement, the Trustee may, and must if directed to do so by Certificateholders having more than 50% of the Class Principal Amount applicable to each class of Certificates affected thereby, terminate the Master Servicer and either appoint a successor Master Servicer in accordance with the Pooling and Servicing Agreement or succeed to the responsibilities of the Master Servicer. However, the Trustee will not be under any obligation to pursue any remedy or to exercise any of the trusts or powers if the Trustee reasonably believes it may not obtain compensation or reimbursement for any expenses and liabilities that may be incurred by the Trustee by taking such action. Also, the Trustee may decline to follow the direction if the Trustee determines that the action or proceeding so directed may not lawfully be taken or would be unjustly prejudicial to the non-assenting Certificateholders.
     No Certificateholder, solely by virtue of that holder’s status as a Certificateholder, will have any right under the Pooling and Servicing Agreement to institute any proceeding with respect to the Pooling and Servicing Agreement, unless that Certificateholder previously has given to the Trustee written notice of default and unless the holders of Certificates evidencing not less than 25% of the Class Principal Amount of each class of Certificates affected thereby have made a written request upon the Trustee to institute a proceeding in its own name as Trustee thereunder, have not given the Trustee any direction inconsistent with such request, and have offered to the Trustee reasonable indemnity, and the Trustee for the number of days specified in the Pooling and Servicing Agreement has neglected or refused to institute such a proceeding.
     Expenses and Indemnities of the Trustee and the Securities Administrator. Each of the Trustee and the Securities Administrator will be entitled to reimbursement of all reasonable expenses, disbursements and advances incurred or made by such party in accordance with the Pooling and Servicing Agreement, except for expenses, disbursements and advances incurred by such party in the routine administration of its duties under the Pooling and Servicing Agreement and except for any expenses arising from its negligence or willful misconduct. The Trustee and the Securities Administrator will also be entitled to indemnification from the Issuing Entity for any loss, liability or expense incurred, arising out of, or in connection with, the acceptance or performance of their duties under the Pooling and Servicing Agreement (and, in the case of the Trustee, in connection with the Custodial Agreement), including the costs and expenses of defending themselves against any claim in connection with the exercise or performance of any of its powers or duties under the Pooling and Servicing Agreement (and, in the case of the Trustee, in connection with the Custodial Agreement).
     Each of the Trustee, the Securities Administrator and the Master Servicer will be entitled to reimbursement for its expenses and indemnification amounts as described above from the Available Funds, prior to distribution of any amounts to Certificateholders, provided that such reimbursable amounts will not exceed $300,000 (to be paid to such parties collectively) in the aggregate per year from the Closing Date to the first anniversary of the Closing Date and for each subsequent anniversary year thereafter, but the such parties may seek reimbursement for any unreimbursed amounts in subsequent anniversary years.
     Resignation of Trustee and Securities Administrator. Each of the Trustee and the Securities Administrator may, upon written notice to the other party and to the Depositor and the Master Servicer, resign at any time, in which event the Depositor will appoint a successor trustee or successor securities administrator. If no successor trustee or successor securities administrator has been appointed and has

S-81


Table of Contents

accepted the appointment within 30 days after the notice of resignation is given by the Trustee or the Securities Administrator, the resigning party may petition any court of competent jurisdiction for appointment of a successor trustee or successor securities administrator. In the case of any such resignation by the Securities Administrator, if no successor securities administrator has been appointed and has accepted appointment within 60 days after the Securities Administrator ceases to be the Securities Administrator, then the Trustee will perform the duties of the Securities Administrator pursuant to the Pooling and Servicing Agreement. The Trustee will notify the Rating Agencies of any change of Securities Administrator.
     Each of the Trustee and the Securities Administrator may be removed at any time by the Depositor if such party ceases to be eligible to continue to act as Trustee under the Pooling and Servicing Agreement or becomes incapable of acting, or is adjudged bankrupt or insolvent, or a receiver of the Trustee or the Securities Administrator is appointed, or if the continued use of the Trustee or Securities Administrator would result in a downgrading of the rating by any Rating Agency of any class of Certificates with a rating. The Trustee may be removed if a tax is imposed or threatened with respect to the Issuing Entity by any state in which the Trustee or the assets of the Issuing Entity are located The Securities Administrator may be removed if it fails to make distributions to Certificateholders, which failure continues unremedied for a period of one Business Day after the giving of written notice by the Trustee or the Depositor.
     Any resignation or removal of the Trustee or the Securities Administrator, as applicable, and appointment of a successor trustee or successor securities administrator will become effective upon acceptance of appointment by the successor trustee or the successor securities administrator, as applicable, whereupon the predecessor Trustee or predecessor Securities Administrator, as applicable, will mail notice of the succession of such Trustee or Securities Administrator, as applicable, hereunder to all Certificateholders and to any Rating Agency. The expenses of such mailing will be borne by the Master Servicer.
     The predecessor Trustee will be required to assign to the successor trustee its interest under all Mortgage Loan files, and will be required to assign and pay over to the successor trustee all of the assets of the Issuing Entity, together with all necessary instruments of transfer and assignment or other documents properly executed necessary to effect that transfer. In addition, the Depositor and the predecessor Trustee or predecessor Securities Administrator will execute and deliver such other instruments and do such other things as may reasonably be required to more fully and certainly vest and confirm in the successor trustee or successor securities administrator, as applicable, all such rights, powers, duties and obligations.
     Amendment of the Pooling and Servicing Agreement. The Pooling and Servicing Agreement may be amended by the parties to the Pooling and Servicing Agreement, without notice to or consent of the Certificateholders:
    to cure any ambiguity or mistake;
 
    to conform to the provisions of the prospectus supplement and prospectus, to correct any defective provisions or to supplement any provision;
 
    to add any other provisions with respect to matters or questions arising under the Pooling and Servicing Agreement; or
 
    to comply with any requirements imposed by the Code;

S-82


Table of Contents

     provided, that (a) no such amendment may adversely affect the status of any REMIC and (b) any amendment under clause (3) above must not adversely affect in any material respect the interests of any Certificateholders. Any amendment pursuant to clause (3) of the preceding sentence will be deemed not to adversely affect in any material respect the interests of any Certificateholder if the Trustee receives written confirmation from each Rating Agency that the amendment will not cause such Rating Agency to reduce its then current ratings assigned to the Certificates.
     The Pooling and Servicing Agreement may also be amended by the parties thereto, with the consent of Certificateholders evidencing not less than 66-2/3% of the Class Principal Amount (or Percentage Interest) of each class of Certificates affected thereby for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Pooling and Servicing Agreement or of modifying in any manner the rights of the Certificateholders; provided, that (a) no such amendment may adversely affect the status of any REMIC and (b) no amendment may reduce in any manner the amount of, or delay the timing of, payments received on Mortgage Loans which are required to be distributed on any certificate, without the consent of the holder of such certificate or reduce the percentage required to consent to the amendment without the consent of the Certificateholders of 100% of the Class Principal Amount (or Percentage Interest) of each class of Certificates affected by this amendment.
Reports to Certificateholders
     On each Distribution Date, the Securities Administrator will make available to each Certificateholder and will forward to the Rating Agencies a statement (based on information received from each Servicer) generally setting forth, among other things:
    the amount of the distributions, separately identified, with respect to each class of Certificates;
 
    the amount of the distributions set forth in the first clause above allocable to principal, separately identifying the aggregate amount of any principal prepayments or other unscheduled recoveries of principal included in that amount;
 
    the amount of the distributions set forth in the first clause above allocable to interest and how it was calculated;
 
    the amount of any unpaid Net Interest Shortfall and the related accrued interest thereon, with respect to each class of Certificates;
 
    the Class Principal Amount of each class of Certificates after giving effect to the distribution of principal on that Distribution Date;
 
    the aggregate Stated Principal Balance of the Mortgage Loans, and the weighted average of the net Mortgage Rates of the Mortgage Loans at the end of the related Prepayment Period;
 
    the Stated Principal Balance of the Mortgage Loans whose Mortgage Rates adjust on the basis of the One-Year LIBOR index and any other the applicable index at the end of the related Prepayment Period;
 
    the Senior Percentage and the Subordinate Percentage for the following Distribution Date;

S-83


Table of Contents

    the Senior Prepayment Percentage and Subordinate Prepayment Percentage for the following Distribution Date;
 
    the amount of the Master Servicing Fee and the Servicing Fee paid to or retained by the Master Servicer and by the Servicer, respectively;
 
    the amount of Monthly Advances for the related Due Period;
 
    the number and aggregate principal balance of the Mortgage Loans that were (A) delinquent (exclusive of Mortgage Loans in foreclosure) using the MBS method (1) 30 to 59 days, (2) 60 to 89 days and (3) 90 or more days, (B) in foreclosure and delinquent (1) 30 to 59 days, (2) 60 to 89 days and (3) 90 or more days and (C) in bankruptcy as of the close of business on the last day of the calendar month preceding that Distribution Date;
 
    for any Mortgage Loan as to which the related Mortgaged Property was an REO property during the preceding calendar month, the loan number, the principal balance of that Mortgage Loan as of the close of business on the last day of the related Due Period and the date of acquisition of the REO property;
 
    the total number and principal balance of any REO properties as of the close of business on the last day of the preceding Due Period;
 
    the amount of Realized Losses incurred during the preceding calendar month;
 
    the cumulative amount of Realized Losses incurred since the Closing Date; and
 
    the Certificate Interest Rate for each class of Certificates for that Distribution Date.
Voting Rights
     The Class 1-AR Certificates will be allocated 1% of all voting rights and the other classes of Certificates will be allocated 99% of all voting rights under the Pooling and Servicing Agreement. Voting rights will be allocated among the classes of Certificates in proportion to their respective Class Principal Amounts and among Certificates of such class in proportion to their percentage interests. The “Percentage Interest ” of a Certificate will be a fraction, expressed as a percentage, the numerator of which is that Certificate’s Certificate Principal Amount, and the denominator of which is the applicable Class Principal Amount.
The Trustee
     HSBC Bank USA, National Association, a national banking association organized and existing under the laws of the United States of America, will be named trustee under the Pooling and Servicing Agreement. The trustee will perform administrative functions on behalf of the trust and for the benefit of the certificateholders pursuant to the terms of the Pooling and Servicing Agreement. The trustee’s offices for notices under the Pooling and Servicing Agreement are located at 452 Fifth Avenue, New York, New York 10018, and its telephone number is (212) 525-1367.
     As of June 30, 2006, HSBC Bank USA, National Association is acting as Trustee for approximately 400 asset-backed securities transactions involving similar pool assets to those found in this transaction.

S-84


Table of Contents

     As compensation for its services, the Trustee will be paid a fixed annual fee of $3,500 by the Master Servicer from its Master Servicing Fee. The Trustee will be entitled to reimbursement for certain expenses and other amounts prior to payment of any amounts to Certificateholders.
The Securities Administrator
     Wells Fargo Bank, N.A., a national banking association organized and existing under the laws of the United States of America will act as Securities Administrator, for so long as it is Master Servicer. The Securities Administrator’s “corporate trust office” for purposes of presentment and surrender of the Certificates for final payment thereon is Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479, Attn: Sequoia Mortgage Trust 2006-1.
     Under the terms of the Pooling and Servicing Agreement, Wells Fargo Bank is responsible for securities administration, which includes pool performance calculations, distribution calculations and the preparation of monthly distribution reports. As Securities Administrator, Wells Fargo is responsible for the preparation of all tax returns on behalf of the Issuing Entity and the preparation of monthly reports on Form 10-D, current reports on Form 8-K and annual reports on Form 10-K that are required to be filed with the SEC on behalf of the Issuing Entity. Wells Fargo has been engaged in the business of securities administration since June 30, 1995. As of June 30, 2006, Wells Fargo was acting as Securities Administrator with respect to more than $894,773,136,436 of outstanding residential mortgage-backed securities.
     The Securities Administrator may be removed or may resign under the circumstances set forth in the Pooling and Servicing Agreement.
The Issuing Entity
     Sequoia Mortgage Trust 2006-1 (the “Issuing Entity”) is a common law trust formed under the laws of the State of New York by a Pooling and Servicing Agreement, dated as of August 1, 2006 . The Issuing Entity was formed for the sole purpose of issuing the Certificates. The Depositor is the settlor and sole beneficiary of the Issuing Entity. The Depositor is a limited purpose finance corporation the capital stock of which is wholly owned by Redwood Trust, Inc., a Maryland corporation. None of the Depositor, Redwood Trust, or any of their respective affiliates has guaranteed or is otherwise obligated with respect to payment of the Certificates and no person or entity other than the Issuing Entity is obligated to pay the Certificates, except as specifically set forth in this prospectus supplement.
     On the Closing Date, the assets held by the Issuing Entity will be the only assets of the Issuing Entity. The Issuing Entity will not have any liabilities as of the Closing Date, other than as provided in the Pooling and Servicing Agreement. The fiscal year end of the Issuing Entity will be December 31 of each year.
     The Issuing Entity will not have any employees, officers or directors. The Trustee, the Depositor, the Master Servicer, the Securities Administrator, the Servicers and the Custodian will act on behalf of the Issuing Entity, and may only perform those actions on behalf of the Issuing Entity that are specified in the Pooling and Servicing Agreement, the Servicing Agreement or the Custodial Agreements, as set forth in this prospectus supplement.
     The Trustee and the Securities Administrator, on behalf of the Issuing Entity, is only permitted to take such actions as are specifically provided in the Pooling and Servicing Agreement. Under the Pooling and Servicing Agreement, neither the Trustee nor the Securities Administrator on behalf of the Issuing Entity will have the power to issue additional Certificates representing interests in the Issuing Entity,

S-85


Table of Contents

borrow money on behalf of the Issuing Entity or make loans from the assets of the Issuing Entity to any person or entity, without the amendment of the Pooling and Servicing Agreement by Certificateholders and the other parties thereto as described under “— Certain Matters Under the Pooling and Servicing Agreement — Amendment of the Pooling and Servicing Agreement.”
     If the assets of the Issuing Entity are insufficient to pay the Certificateholders all principal and interest owed, holders of some or all classes of Certificateholders will not receive all of their expected payments of interest and principal and will suffer a loss. The risk of loss to holders of Subordinate Certificates is greater than to holders of Senior Certificates. See “Risk Factors — Risks Related to Potential Inadequacy of Credit Enhancement” in this prospectus supplement. The Issuing Entity, as a common law trust, is not eligible to be a debtor in a bankruptcy proceeding. In the event of a bankruptcy of the Seller, the Depositor or the related Originator, it is not anticipated that the Issuing Entity would become part of the bankruptcy estate or subject to the bankruptcy control of a third party.
Fees and Expenses of the Issuing Entity
     In consideration of their duties on behalf of the Issuing Entity, the Servicers, the Master Servicer, the Securities Administrator and the Trustee will receive from the assets of the Issuing Entity certain fees as set forth in the following table:
             
    Frequency       How and When
Fee Payable to:   of Payment:   Amount of Fee:   Fee Is Payable:
Servicers
  Monthly   A monthly fee paid to each Servicer from amounts that would otherwise be distributed to Certificateholders in respect of interest, calculated on the outstanding principal balance of each Mortgage Loan, at the applicable Servicing Fee Rate, plus, all income earned on amounts on deposit in the Collection Account:   Withdrawn from the related Collection Account in respect of each Mortgage Loan serviced by that Servicer before distribution of any amounts to Certificateholders.
 
           
Master Servicer
  Monthly   A monthly fee paid to the Master Servicer, from amounts that would otherwise be distributed to Certificateholders in respect of interest, calculated at a rate of 0.0075% per annum on the outstanding principal balance of the Mortgage Loans.   Retained by the Master Servicer from the Certificate Distribution Account before distribution of any amounts to Certificateholders.
 
           
Securities
administrator
  Monthly   A monthly fee paid to the Securities Administrator, from the Master Servicing Fee.   Paid by the Master Servicer from the Master Servicing Fee.
 
           
 
  Monthly   All investment earnings on amounts on deposit in the Certificate Distribution Account.   Retained by the Securities Administrator from the Certificate Distribution Account before distribution of any amounts to Certificateholders.

S-86


Table of Contents

             
    Frequency       How and When
Fee Payable to:   of Payment:   Amount of Fee:   Fee Is Payable:
Trustee
  Monthly   A fixed annual fee of $3,500.   Paid by the Master Servicer from the Master Servicing Fee pursuant to a separate agreement between the Trustee and the Master Servicer.
 
           
Custodian
  Monthly   A monthly fee paid to the Custodian, from the Master Servicing Fee.   Paid by the Master Servicer from the Master Servicing Fee.
     The Custodian’s fees set forth in the table above may not be increased without amendment of the Custodial Agreement. The servicing fees set forth in the table above may not be increased without amendment of the Servicing Agreement as described under “ — Servicing — Amendment of the Servicing Agreements” above. None of the other fees set forth in the table above may be changed without amendment of the Pooling and Servicing Agreement as described under “The Agreements — Certain Matters Under the Pooling and Servicing Agreement — Amendment of the Pooling and Servicing Agreement” above.
     Expenses of the Servicers, the Master Servicer, the Securities Administrator and the Trustee will be reimbursed before distributions are made on the Certificates. Expenses of the Trustee and the Securities Administrator will be reimbursed up to $300,000 annually (to be paid to such parties collectively) before distributions of interest and principal are made on the Certificates, as described under “— Expenses and Indemnities of the Trustee and the Securities Administrator” above.
YIELD, PREPAYMENT AND WEIGHTED AVERAGE LIFE
Yield Considerations
     The yields to maturity (or to early termination) of the Offered Certificates will be affected by the rate of principal payments (including prepayments, which may include amounts received by virtue of purchase, condemnation, insurance or foreclosure) on the Mortgage Loans in the related Mortgage Pool. Yields will also be affected by the extent to which Mortgage Loans in the related Mortgage Pool bearing higher Mortgage Rates prepay at a more rapid rate than Mortgage Loans with lower Mortgage Rates, the amount and timing of borrower delinquencies and defaults resulting in Realized Losses, the purchase price for the Offered Certificates and other factors.
     As described in this prospectus supplement, the Certificate Interest Rate of each Class of the Group 1 Certificates, Group 2 Certificates, Group 3 Certificates and Subordinate Certificates will be based on the Pool 1 Net WAC, the Pool 2 Net WAC, the Pool 3 Net WAC or the Subordinate Net WAC, respectively. If prepayments on Mortgage Loans in the related Mortgage Pool (in the case of the Senior Certificates) or in any Mortgage Pool (in the case of the Subordinate Certificates) bearing higher Mortgage Rates occur at a more rapid rate than prepayments on the related Mortgage Loans bearing lower Mortgage Rates, the weighted average Net Mortgage Rates of the related Mortgage Loans will be reduced, and accordingly, the Certificate Interest Rate of the related Certificates will also be reduced.

S-87


Table of Contents

     Principal prepayments may be influenced by a variety of economic, geographic, demographic, social, tax, legal and other factors. As of the Statistical Cut-off Date, approximately 84.46% of the Pool 1 Mortgage Loans, all of the Pool 2 Mortgage Loans, and approximately 81.50% of the Pool 3 Mortgage Loans may be voluntarily prepaid in full or in part without the payment of any penalty or premium. In general, if prevailing interest rates fall below the interest rates on the Mortgage Loans, the Mortgage Loans are likely to be subject to higher prepayments than if prevailing rates remain at or above the interest rates on the Mortgage Loans. Conversely, if prevailing interest rates rise above the interest rates on the Mortgage Loans, the rate of prepayment would be expected to decrease. Other factors affecting prepayment of the Mortgage Loans include such factors as changes in borrowers’ housing needs, job transfers, unemployment, borrowers’ net equity in the Mortgaged Properties, changes in the value of the Mortgaged Properties, mortgage market interest rates and servicing decisions. The Mortgage Loans generally have due-on-sale clauses.
     As of the Statistical Cut-off Date, approximately 4.59%, 95.16% and 0.26% of the Mortgage Loans are Six-Month LIBOR Loans, One-Year LIBOR Loans and One-Year CMT Loans, respectively. Increases and decreases in the Mortgage Rate on a Mortgage Loan will be limited (except in the case of the first rate adjustment) by the maximum Mortgage Rate, the minimum Mortgage Rate and the Periodic Cap, if any, and will be based on the applicable index in effect on the applicable date prior to the related interest rate adjustment date plus the applicable gross margin. The applicable index may not rise and fall consistently with Mortgage Rates. As a result, the Mortgage Rates on the Mortgage Loans at any time may not equal the prevailing mortgage interest rates for similar adjustable rate loans, and accordingly the prepayment rate may be lower or higher than would otherwise be anticipated. Moreover, some borrowers who prefer the certainty provided by fixed rate mortgage loans may, nevertheless, obtain adjustable rate Mortgage Loans at a time when they regard the mortgage interest rates (and, therefore, the payments) on fixed rate Mortgage Loans as unacceptably high. These borrowers may be induced to refinance adjustable rate loans when the mortgage interest rates and monthly payments on comparable fixed rate mortgage loans decline to levels which these borrowers regard as acceptable, even though such mortgage interest rates and monthly payments may be significantly higher than the current mortgage interest rates and monthly payments on the borrowers’ adjustable rate mortgage loans. The ability to refinance a Mortgage Loan will depend on a number of factors prevailing at the time refinancing is desired, including, without limitation, real estate values, the borrower’s financial situation, prevailing mortgage interest rates, the borrower’s equity in the related Mortgaged Property, tax laws and prevailing general economic conditions.
     The rate of principal payments on the Mortgage Loans will also be affected by the amortization schedules of the Mortgage Loans, the rate and timing of prepayments thereon, liquidations of defaulted Mortgage Loans and purchases of Mortgage Loans due to certain breaches of representations and warranties or defective documentation. The timing of changes in the rate of prepayments, liquidations and purchases of the related Mortgage Loans may, and the timing of Realized Losses will, significantly affect the yield to an investor, even if the average rate of principal payments experienced over time is consistent with an investor’s expectation. Because the rate and timing of principal payments on the Mortgage Loans will depend on future events and on a variety of factors, no assurance can be given as to such rate or the timing of principal payments on the Offered Certificates. In general, the earlier a prepayment of principal of the related Mortgage Loans, the greater the effect on an investor’s yield. The effect on an investor’s yield of principal payments occurring at a rate higher (or lower) than the rate anticipated by the investor during the period immediately following the issuance of the Certificates may not be offset by a subsequent like decrease (or increase) in the rate of principal payments.
     From time to time, areas of the United States may be affected by flooding, severe storms, tornadoes, hurricanes, landslides, wildfires, earthquakes or other natural disasters. Under the Mortgage Loan Purchase Agreement, the Seller will represent and warrant that as of the Closing Date each

S-88


Table of Contents

Mortgaged Property was free of material damage. In the event of an uncured breach of this representation and warranty that materially and adversely affects the interests of Certificateholders, the Seller will be required to repurchase the affected Mortgage Loan or substitute another mortgage loan therefor. If any damage caused by flooding, storms, wildfires, landslides or earthquakes (or other cause) occurs after the Closing Date, the Seller will not have any repurchase obligation. In addition, the standard hazard policies covering the Mortgaged Properties generally do not cover damage caused by earthquakes, flooding and landslides, and earthquake, flood or landslide insurance may not have been obtained with respect to such Mortgaged Properties. As a consequence, Realized Losses could result. To the extent that the insurance proceeds received with respect to any damaged Mortgaged Properties are not applied to the restoration thereof, the proceeds will be used to prepay the related Mortgage Loans in whole or in part. Any purchases or repayments of the Mortgage Loans may reduce the weighted average lives of the Offered Certificates and will reduce the yields on the Offered Certificates to the extent they are purchased at a premium.
     Prepayments, liquidations and purchases of the Mortgage Loans will result in distributions to Certificateholders of principal amounts that would otherwise be distributed over the remaining terms of such Mortgage Loans. The rate of defaults on the Mortgage Loans will also affect the rate and timing of principal payments on the Mortgage Loans. In general, defaults on Mortgage Loans are expected to occur with greater frequency in their early years.
     As described herein, approximately 59.49%, 12.41% and 12.76% of the Mortgage Loans provide for only monthly interest payments for the first five, seven and ten years, respectively, following origination. Other considerations aside, due to such characteristics, borrowers may be disinclined to prepay the Mortgage Loans during such interest-only period. In addition, because no principal is due on the Mortgage Loans during the initial five-, seven- or ten- year period, the Certificates will amortize at a slower rate during such period than would otherwise be the case. Thereafter, when the monthly payments on the Mortgage Loans are recalculated on the basis of a level payment amortization schedule for the remaining term of such Mortgage Loan, as described herein, principal payments on the Certificates are expected to increase correspondingly, and, in any case, at a faster rate than if payments on the Mortgage Loans were calculated on the basis of a 30 or 40 year amortization schedule. Notwithstanding the foregoing, no assurance can be given as to any prepayment rate on the Mortgage Loans.
     As described under “Description of the Certificates — Distributions of Principal” herein, scheduled and unscheduled principal payments on the Mortgage Loans in a Mortgage Pool will generally be allocated disproportionately to the Senior Certificates of the related Certificate Group during the first ten years following the Closing Date (except as described herein) or if certain conditions are met. Such allocation will initially accelerate the amortization of the Senior Certificates.
     The yields on the Offered Certificates may also be adversely affected by Net Prepayment Interest Shortfalls. The Certificate Interest Rates and the yields on each class of Offered Certificates will be affected by the Mortgage Rates of the Mortgage Loans in the related Mortgage Pool from time to time, as described under “Risk Factors — Your Yield May Be Affected by Changes in Interest Rates.” No prediction can be made as to future levels of Six-Month LIBOR, One-Year LIBOR or One-Year CMT, or as to the timing of any changes therein.
     The yields to investors in the Offered Certificates may be significantly affected by the exercise by the holder of the Class LT-R Certificate of the option to redeem the Certificates, as described herein. See “Description of the Certificates — Optional Redemption of the Certificates.” If the purchaser of a Certificate offered at a discount from its initial principal amount calculates its anticipated yield to maturity (or early termination) based on an assumed rate of payment of principal that is faster than that actually experienced on the related Mortgage Loans, the actual yield may be lower than that so calculated.

S-89


Table of Contents

     If the purchaser of a Certificate offered at a premium calculates its anticipated yield based on an assumed rate of payment of principal that is slower than that actually experienced on the related Mortgage Loans, the actual yield may be lower than that so calculated. The effective yield to holders of the Offered Certificates will be lower than the yield otherwise produced by the applicable Certificate Interest Rate and the related purchase price because monthly distributions will not be payable to such holders until the 20th day of the month (or the immediately following Business Day if such day is not a Business Day) following the month in which interest accrues on the Mortgage Loans (without any additional distribution of interest or earnings thereon in respect of such delay).
Subordination of the Offered Subordinate Certificates
     On each Distribution Date, the holders of classes of Certificates having a relatively higher priority of distribution will have a preferential right to receive amounts of interest and principal due them on such Distribution Date before any distributions are made on any class of Certificates subordinate to such higher ranking class. As a result, the yields to maturity and the aggregate amount of distributions on the Class B-1, Class B-2 and Class B-3 Certificates will be more sensitive than the yields of higher ranking Certificates to the rate of delinquencies and defaults on the Mortgage Loans.
     As more fully described herein, the principal portion of Realized Losses on the Mortgage Loans will be allocated first to the lower ranking class of Subordinate Certificates, then to the higher ranking class of Subordinate Certificates, in inverse order of priority, until the Class Principal Amount of each such class has been reduced to zero, before any such Realized Losses will be allocated to the Senior Certificates. In addition, if the Mortgage Loans in Pool 1 experience losses after the aggregate Class Principal Amount of the Subordinate Certificates has been reduced to zero, then the portion of any Realized Losses allocable to the Class 1-A1 Certificates will first be allocated to the Class 1-A2 Certificates until the Class Principal Amount of the Class 1-A2 Certificates has been reduced to zero; if the Mortgage Loans in Pool 2 experience losses after the aggregate Class Principal Amount of the Subordinate Certificates has been reduced to zero, then the portion of any Realized Losses allocable to the Class 2-A1 Certificates will first be allocated to the Class 2-A2 Certificates until the Class Principal Amount of the Class 2-A2 Certificates has been reduced to zero; and if the Mortgage Loans in Pool 3 experience losses after the aggregate Class Principal Amount of the Subordinate Certificates has been reduced to zero, then the portion of any Realized Losses allocable to the Class 3-A1 Certificates will first be allocated to the Class 3-A2 Certificates until the Class Principal Amount of the Class 3-A2 Certificates has been reduced to zero. The interest portion of Realized Losses on the Mortgage Loans will reduce the amount available for distribution on the related Distribution Date to the lowest ranking related class outstanding on such date.
Weighted Average Life
     Weighted average life refers to the average amount of time that will elapse from the date of issuance of a security to the date of distribution to the investor of each dollar distributed in net reduction of principal of such security. The weighted average lives of the Offered Certificates will be influenced by, among other things, the rate at which principal of the related Mortgage Loans is paid, which may be in the form of scheduled amortization, prepayments or liquidations.
     For a discussion of the factors which may influence the rate of payments (including prepayments) of the Mortgage Loans, see “Risk Factors — Prepayments are Unpredictable and Affect Yield” in the accompanying prospectus.
     Prepayments of mortgage loans are commonly measured relative to a prepayment standard or model. The model used in this prospectus supplement for the Mortgage Loans is a Constant Prepayment

S-90


Table of Contents

Rate (“CPR”). CPR represents an assumed constant rate of prepayment each month, relative to the then outstanding principal balance of a pool of mortgage loans, for the life of such mortgage loans.
     CPR does not purport to be either a historical description of the prepayment experience of any pool of Mortgage Loans or a prediction of the anticipated rate of prepayment of any pool of Mortgage Loans, including the Mortgage Loans.
     The following tables were prepared on the basis of the following assumptions (collectively, the “Structuring Assumptions”): (i) distributions in respect of the Certificates are received in cash on the 20th day of each month commencing in September 2006, (ii) the Mortgage Loans prepay at the indicated percentages of CPR, (iii) no defaults or delinquencies occur in the payment by borrowers of principal and interest on the Mortgage Loans, and no shortfalls are incurred due to the application of the Relief Act, (iv) the Seller is not required to purchase or substitute for any Mortgage Loan, (v) scheduled monthly payments on the Mortgage Loans are received on the first day of each month commencing in September 2006 and are computed prior to giving effect to any prepayments received in the prior month, (vi) prepayments are allocated as described herein without giving effect to loss and delinquency tests, (vii) prepayments represent voluntary prepayments in full of individual Mortgage Loans and are received on the last day of each month, commencing in August 2006 and include 30 days’ interest, (viii) the scheduled monthly payment for each Mortgage Loan has been calculated based on the assumed mortgage loan characteristics described in item (xiv) below such that each such Mortgage Loan will amortize in amounts sufficient to repay the principal balance of such assumed mortgage loan by its remaining term to maturity (taking into account any interest-only period), (ix) interest accrues on each class of Certificates at the applicable Certificate Interest Rate described under “Description of the Certificates — Distributions of Interest” in this prospectus supplement, (x) the initial Class Principal Amount of each class of Certificates is as described in this prospectus supplement, (xi) Six-Month LIBOR is equal to 5.473%, One-Year LIBOR is equal to 5.501% and One-Year CMT is equal to 5.118% at all times; (xii) no exercise of any optional redemption will occur, (xiii) the Closing Date of the sale of the Offered Certificates is August 30, 2006; and (xiv) the Mortgage Loans in each Mortgage Pool are aggregated into assumed mortgage loans having the following characteristics:

S-91


Table of Contents

     
Assumed Mortgage Loan Characteristics
                                                                                                                 
                                            Original                                                        
                    Current   Original   Remaining   Interest-                                                   Rate    
            Current   Net   Term to   Term to   Only           Minimum   Maximum           Initial   Next Rate   Adjustment    
    Principal   Mortgage   Mortgage   Maturity   Maturity   Term   Gross   Mortgage   Mortgage   Periodic Rate   Periodic   Adjustment   Frequency    
Group   Balance($)   Rate(%)   Rate(%)   (Months)   (Months)   (Months)   Margin (%)   Rate(%)   Rate(%)   Cap (%)   Rate Cap (%)   Period (Months)   (Months)   Index
1
    449,583.22       6.3750000000       6.1175000000       360       360       0       2.2500000000       2.2500000000       11.3750000000       2.0000000000       5.0000000000       60       12     1 YR LIBOR
1
    475,788.17       5.1250000000       4.7425000000       360       354       0       2.2500000000       2.2500000000       10.1250000000       2.0000000000       5.0000000000       54       12     1 YR LIBOR
1
    1,141,758.03       6.4046720149       6.0380600124       360       357       0       2.2500000000       2.2500000000       11.4046720149       2.0000000000       5.0000000000       57       12     1 YR LIBOR
1
    3,621,386.09       5.6186172696       5.3141259934       360       358       0       2.2500000000       2.2500000000       10.6186172696       2.0000000000       5.0000000000       58       12     1 YR LIBOR
1
    3,931,388.20       6.2710889842       5.9145928704       360       359       0       2.2500000000       2.2500000000       11.2710889842       2.0000000000       5.0000000000       59       12     1 YR LIBOR
1
    4,314,846.98       6.5458635331       6.2489646852       360       360       0       2.2500000000       2.2500000000       11.5458635331       2.0000000000       5.0000000000       60       12     1 YR LIBOR
1
    10,199,850.00       6.3802084099       6.1227084099       360       360       120       2.2500000000       2.2500000000       11.3802084099       2.0000000000       5.0000000000       60       12     1 YR LIBOR
1
    6,870,263.00       6.5135959679       6.2560959679       360       360       60       2.2500000000       2.2500000000       11.5135959679       2.0000000000       5.0000000000       60       12     1 YR LIBOR
1
    999,999.00       6.6250000000       6.3675000000       360       360       120       2.2500000000       2.2500000000       11.6250000000       2.0000000000       5.0000000000       60       12     1 YR LIBOR
1
    4,682,000.00       6.4490068347       6.1915068347       360       360       60       2.2500000000       2.2500000000       11.4490068347       2.0000000000       5.0000000000       60       12     1 YR LIBOR
1
    540,000.00       5.1250000000       4.8675000000       360       360       120       2.2500000000       2.2500000000       10.1250000000       2.0000000000       5.0000000000       60       12     1 YR LIBOR
1
    2,000,000.00       6.7500000000       6.4925000000       360       359       60       2.2500000000       2.2500000000       11.7500000000       2.0000000000       5.0000000000       59       12     1 YR LIBOR
1
    2,905,883.77       6.5073507659       6.2498507659       360       360       60       2.2500000000       2.2500000000       11.5073507659       2.0000000000       5.0000000000       60       12     1 YR LIBOR
1
    987,500.00       5.6281645570       5.3706645570       360       359       120       2.2500000000       2.2500000000       10.6281645570       2.0000000000       5.0000000000       59       12     1 YR LIBOR
1
    6,531,580.00       6.5565445114       6.2990445114       360       360       120       2.2500000000       2.2500000000       11.5565445114       2.0000000000       5.0000000000       60       12     1 YR LIBOR
1
    749,811.89       4.7500000000       4.3675000000       360       346       60       2.2500000000       2.2500000000       9.7500000000       2.0000000000       5.0000000000       46       12     1 YR LIBOR
1
    599,000.00       4.9641068447       4.5816068447       360       349       60       2.2500000000       2.2500000000       9.9641068447       2.0000000000       5.0000000000       49       12     1 YR LIBOR
1
    343,000.00       5.0000000000       4.6175000000       360       350       60       2.2500000000       2.2500000000       10.0000000000       2.0000000000       5.0000000000       50       12     1 YR LIBOR
1
    1,156,000.00       7.0000000000       6.7425000000       360       352       60       2.2500000000       2.2500000000       12.0000000000       2.0000000000       5.0000000000       52       12     1 YR LIBOR
1
    163,999.84       4.7500000000       4.3675000000       360       353       60       2.2500000000       2.2500000000       9.7500000000       2.0000000000       5.0000000000       53       12     1 YR LIBOR
1
    498,050.00       6.5000000000       6.1175000000       360       355       60       2.2500000000       2.2500000000       11.5000000000       2.0000000000       5.0000000000       55       12     1 YR LIBOR
1
    3,467,300.00       6.2130331959       5.8485587489       360       357       60       2.2500000000       2.2500000000       11.2130331959       2.0000000000       5.0000000000       57       12     1 YR LIBOR
1
    8,373,761.67       6.1250997910       5.7775363000       360       358       60       2.2500000000       2.2500000000       11.1250997910       2.0000000000       5.0000000000       58       12     1 YR LIBOR
1
    32,646,158.50       6.4872408120       6.1761891839       360       359       60       2.2500000000       2.2500000000       11.4872408120       2.0000000000       5.0000000000       59       12     1 YR LIBOR
1
    80,263,548.86       6.5185479554       6.2464834362       360       360       60       2.2500000000       2.2500000000       11.5185479554       2.0000000000       5.0000000000       60       12     1 YR LIBOR
1
    880,000.00       6.5000000000       6.2425000000       480       476       120       2.2500000000       2.2500000000       11.5000000000       1.0000000000       5.0000000000       56       6     6 MO LIBOR
1
    2,673,000.00       6.0069210625       5.7494210625       480       474       120       2.2500000000       2.2500000000       11.0069210625       1.0000000000       5.0000000000       54       6     6 MO LIBOR
1
    248,000.00       6.7500000000       6.4925000000       480       475       120       2.2500000000       2.2500000000       11.7500000000       1.0000000000       5.0000000000       55       6     6 MO LIBOR
1
    635,000.00       6.8750000000       6.6175000000       480       480       120       2.2500000000       2.2500000000       11.8750000000       1.0000000000       5.0000000000       60       6     6 MO LIBOR
1
    2,994,350.00       6.2769716299       6.0194716299       480       474       120       2.2500000000       2.2500000000       11.2769716299       1.0000000000       5.0000000000       54       6     6 MO LIBOR
1
    7,105,150.00       6.3312940262       6.0737940262       480       475       120       2.2500000000       2.2500000000       11.3312940262       1.0000000000       5.0000000000       55       6     6 MO LIBOR
1
    8,758,200.00       6.3531604668       6.0956604668       480       476       120       2.2500000000       2.2500000000       11.3531604668       1.0000000000       5.0000000000       56       6     6 MO LIBOR
1
    3,584,650.00       6.4318378363       6.1743378363       480       477       120       2.2500000000       2.2500000000       11.4318378363       1.0000000000       5.0000000000       57       6     6 MO LIBOR
1
    965,500.00       6.1999611600       5.9424611600       480       478       120       2.2500000000       2.2500000000       11.1999611600       1.0000000000       5.0000000000       58       6     6 MO LIBOR
1
    3,508,000.00       6.5446479475       6.2871479475       480       479       120       2.2500000000       2.2500000000       11.5446479475       1.0000000000       5.0000000000       59       6     6 MO LIBOR
1
    3,623,900.00       6.7529008803       6.4954008803       480       480       120       2.2500000000       2.2500000000       11.7529008803       1.0000000000       5.0000000000       60       6     6 MO LIBOR
2
    86,402.26       5.7500000000       5.3675000000       360       351       0       2.2500000000       2.2500000000       10.7500000000       2.0000000000       5.0000000000       75       12     1 YR LIBOR
2
    1,167,516.99       6.2500000000       5.9314931737       360       356       0       2.2500000000       2.2500000000       11.2500000000       2.0000000000       5.0000000000       80       12     1 YR LIBOR
2
    7,374,589.77       6.1388067582       5.7563067582       360       357       0       2.2500000000       2.2500000000       11.1388067582       2.0000000000       5.0000000000       81       12     1 YR LIBOR
2
    11,785,115.41       6.1477027698       5.7729036694       360       358       0       2.2500000000       2.2500000000       11.1477027698       2.0000000000       5.0000000000       82       12     1 YR LIBOR
2
    6,085,578.36       6.3699716934       5.9874716934       360       359       0       2.2500000000       2.2500000000       11.3699716934       2.0000000000       5.0000000000       83       12     1 YR LIBOR
2
    352,000.00       5.0000000000       4.6175000000       360       350       84       2.2500000000       2.2500000000       10.0000000000       2.0000000000       5.0000000000       74       12     1 YR LIBOR
2
    1,140,699.95       6.1235206287       5.8660206287       360       353       84       2.2500000000       2.2500000000       11.1235206287       2.0000000000       5.0000000000       77       12     1 YR LIBOR
2
    2,624,720.88       6.2958620194       5.9961184381       360       354       84       2.2500000000       2.2500000000       11.2958620194       2.0000000000       5.0000000000       78       12     1 YR LIBOR
2
    3,473,329.06       6.0611094058       5.7676208778       360       355       84       2.2500000000       2.2500000000       11.0611094058       2.0000000000       5.0000000000       79       12     1 YR LIBOR
2
    9,024,660.54       6.0495385544       5.7294886281       360       356       84       2.2500000000       2.2500000000       11.0495385544       2.0000000000       5.0000000000       80       12     1 YR LIBOR
2
    19,851,132.17       6.2795941452       5.9258655627       360       357       84       2.2500000000       2.2500000000       11.2795941452       2.0000000000       5.0000000000       81       12     1 YR LIBOR
2
    14,312,747.64       6.3303267335       5.9559477547       360       358       84       2.2500000000       2.2500000000       11.3303267335       2.0000000000       5.0000000000       82       12     1 YR LIBOR
2
    22,036,722.09       6.4932662280       6.1350801144       360       359       84       2.2500000000       2.2500000000       11.4932662280       2.0000000000       5.0000000000       83       12     1 YR LIBOR
2
    21,779,250.00       6.4536252970       6.0807947645       360       360       84       2.2500000000       2.2500000000       11.4536252970       2.0000000000       5.0000000000       84       12     1 YR LIBOR
3
    533,245.43       6.0000000000       5.6175000000       360       357       0       2.7500000000       2.7500000000       11.0000000000       2.0000000000       2.0000000000       57       12     1 YR CMT
3
    1,416,971.34       5.9806209595       5.5981209595       360       358       0       2.7500000000       2.7500000000       10.9806209595       2.0000000000       2.0000000000       58       12     1 YR CMT
3
    6,658,149.42       6.2578512796       6.0003512796       360       360       0       2.2500000000       2.2500000000       11.2578512796       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    1,584,242.63       6.5735941620       6.3160941620       360       360       0       2.2500000000       2.2500000000       11.5735941620       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    1,603,500.00       6.2641877144       6.0066877144       360       360       0       2.2500000000       2.2500000000       11.2641877144       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    764,120.03       5.2500000000       4.8675000000       360       347       0       2.2500000000       2.2500000000       10.2500000000       2.0000000000       5.0000000000       47       12     1 YR LIBOR
3
    138,943.16       6.3750000000       5.9925000000       360       352       0       2.2500000000       2.2500000000       11.3750000000       2.0000000000       5.0000000000       52       12     1 YR LIBOR
3
    957,008.32       5.5510922948       5.1685922948       360       353       0       2.2500000000       2.2500000000       10.5510922948       2.0000000000       5.0000000000       53       12     1 YR LIBOR
3
    636,129.17       6.0000000000       5.6175000000       360       354       0       2.2500000000       2.2500000000       11.0000000000       2.0000000000       5.0000000000       54       12     1 YR LIBOR

S-92


Table of Contents

                                                                                                                 
                                            Original                                                        
                    Current   Original   Remaining   Interest-                                                   Rate    
            Current   Net   Term to   Term to   Only           Minimum   Maximum           Initial   Next Rate   Adjustment    
    Principal   Mortgage   Mortgage   Maturity   Maturity   Term   Gross   Mortgage   Mortgage   Periodic Rate   Periodic   Adjustment   Frequency    
Group   Balance($)   Rate(%)   Rate(%)   (Months)   (Months)   (Months)   Margin (%)   Rate(%)   Rate(%)   Cap (%)   Rate Cap (%)   Period (Months)   (Months)   Index
3
    636,931.92       6.2500000000       5.8675000000       360       355       0       2.2500000000       2.2500000000       11.2500000000       2.0000000000       5.0000000000       55       12     1 YR LIBOR
3
    3,027,743.22       5.8029499675       5.4506238452       360       356       0       2.2500000000       2.2500000000       10.8029499675       2.0000000000       5.0000000000       56       12     1 YR LIBOR
3
    8,410,399.42       5.9885744982       5.6233613759       360       357       0       2.2500000000       2.2500000000       10.9885744982       2.0000000000       5.0000000000       57       12     1 YR LIBOR
3
    11,450,161.76       5.9502519509       5.5942360394       360       358       0       2.2500000000       2.2500000000       10.9502519509       2.0000000000       5.0000000000       58       12     1 YR LIBOR
3
    10,535,625.65       6.1201166225       5.7640733207       360       359       0       2.2500000000       2.2500000000       11.1201166225       2.0000000000       5.0000000000       59       12     1 YR LIBOR
3
    28,157,884.18       6.1764995585       5.8951137084       360       360       0       2.2500000000       2.2500000000       11.1764995585       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    1,212,650.00       5.9675607141       5.7100607141       360       359       120       2.2500000000       2.2500000000       10.9675607141       2.0000000000       5.0000000000       59       12     1 YR LIBOR
3
    13,526,700.00       6.2484438185       5.9909438185       360       360       120       2.2500000000       2.2500000000       11.2484438185       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    1,070,000.00       6.2500000000       5.9925000000       360       358       60       2.2500000000       2.2500000000       11.2500000000       2.0000000000       5.0000000000       58       12     1 YR LIBOR
3
    807,200.00       6.3750000000       6.1175000000       360       359       60       2.2500000000       2.2500000000       11.3750000000       2.0000000000       5.0000000000       59       12     1 YR LIBOR
3
    36,890,566.57       6.1694025736       5.9119025736       360       360       60       2.2500000000       2.2500000000       11.1694025736       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    1,155,200.00       6.2500000000       5.9925000000       360       360       120       2.2500000000       2.2500000000       11.2500000000       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    734,900.00       6.0000000000       5.7425000000       360       358       60       2.2500000000       2.2500000000       11.0000000000       2.0000000000       5.0000000000       58       12     1 YR LIBOR
3
    7,038,119.00       6.2986059734       6.0411059734       360       360       60       2.2500000000       2.2500000000       11.2986059734       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    1,000,000.00       6.2500000000       5.9925000000       360       360       60       2.2500000000       2.2500000000       11.2500000000       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    599,195.00       6.0000000000       5.7425000000       360       360       120       2.2500000000       2.2500000000       11.0000000000       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    5,365,837.12       6.2009591227       5.9434591227       360       360       60       2.2500000000       2.2500000000       11.2009591227       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    26,526,580.10       6.2203159107       5.9628159107       360       360       120       2.2500000000       2.2500000000       11.2203159107       2.0000000000       5.0000000000       60       12     1 YR LIBOR
3
    399,200.00       5.5000000000       5.1175000000       360       349       60       2.2500000000       2.2500000000       10.5000000000       2.0000000000       5.0000000000       49       12     1 YR LIBOR
3
    760,223.28       5.4386315985       5.0561315985       360       350       60       2.2500000000       2.2500000000       10.4386315985       2.0000000000       5.0000000000       50       12     1 YR LIBOR
3
    573,900.00       5.6806717198       5.2981717198       360       351       60       2.2500000000       2.2500000000       10.6806717198       2.0000000000       5.0000000000       51       12     1 YR LIBOR
3
    768,700.00       6.7264862755       6.4162186158       360       352       60       2.2500000000       2.2500000000       11.7264862755       2.0000000000       5.0000000000       52       12     1 YR LIBOR
3
    948,500.00       5.8750000000       5.4925000000       360       354       60       2.2500000000       2.2500000000       10.8750000000       2.0000000000       5.0000000000       54       12     1 YR LIBOR
3
    281,400.00       5.8750000000       5.4925000000       360       355       60       2.2500000000       2.2500000000       10.8750000000       2.0000000000       5.0000000000       55       12     1 YR LIBOR
3
    1,088,950.00       6.1540417375       5.7715417375       360       356       60       2.2500000000       2.2500000000       11.1540417375       2.0000000000       5.0000000000       56       12     1 YR LIBOR
3
    17,489,356.39       6.0165956738       5.6340956738       360       357       60       2.2500000000       2.2500000000       11.0165956738       2.0000000000       5.0000000000       57       12     1 YR LIBOR
3
    27,625,332.41       6.1013832423       5.7293299106       360       358       60       2.2500000000       2.2500000000       11.1013832423       2.0000000000       5.0000000000       58       12     1 YR LIBOR
3
    47,867,173.41       6.1918906383       5.8633690982       360       359       60       2.2500000000       2.2500000000       11.1918906383       2.0000000000       5.0000000000       59       12     1 YR LIBOR
3
    158,023,352.60       6.3360518044       6.0686962990       360       360       60       2.2500000000       2.2500000000       11.3360518044       2.0000000000       5.0000000000       60       12     1 YR LIBOR

S-93


Table of Contents

     The actual characteristics and the performance of the Mortgage Loans will differ from the assumptions used in constructing the tables set forth below, which are hypothetical in nature and are provided only to give a general sense of how the principal cash flows might behave under varying prepayment scenarios. For example, it is not expected that the Mortgage Loans will prepay at a constant rate until maturity, that all of the Mortgage Loans will prepay at the same rate or that there will be no defaults or delinquencies on the Mortgage Loans. Moreover, the diverse remaining terms to maturity and the Mortgage Rates of the Mortgage Loans could produce slower or faster principal distributions than indicated in the tables at the various percentages of CPR specified, even if the weighted average remaining term to maturity and weighted average Mortgage Rate of the Mortgage Loans are assumed. Any difference between such assumptions and the actual characteristics and performance of the Mortgage Loans, or actual prepayment or loss experience, will cause the percentages of initial Class Principal Amounts outstanding over time and the weighted average lives of the Offered Certificates to differ (which difference could be material) from the corresponding information in the tables for each indicated percentage of CPR.
     Subject to the foregoing discussion and assumptions, the following tables indicate the weighted average lives of the Offered Certificates (other than the Class 1-AR Certificates) and set forth the percentages of the initial Class Principal Amounts of such Offered Certificates that would be outstanding after each of the Distribution Dates shown at various percentages of CPR.
     The weighted average life of an Offered Certificate is determined by (1) multiplying the net reduction, if any, of the applicable Class Principal Amount by the number of years from the date of issuance of the Offered Certificate to the related Distribution Date, (2) adding the results and (3) dividing the sum by the aggregate of the net reductions of Class Principal Amount described in (1) above.

S-94


Table of Contents

Percentage of Initial Class Principal Amount of the Offered Certificates
Outstanding at the Following Percentages of CPR
                                                         
    Class 1-A1 and Class 1-A2 Certificates
Distribution Date   0%   10%   20%   25%   30%   40%   50%
Initial Percentage
    100       100       100       100       100       100       100  
August 2007
    100       89       79       74       69       58       48  
August 2008
    100       80       62       54       47       34       23  
August 2009
    100       72       49       40       32       20       11  
August 2010
    100       64       39       30       22       12       5  
August 2011
    100       57       31       22       16       7       3  
August 2012
    98       50       25       17       11       4       1  
August 2013
    97       45       19       12       8       2       1  
August 2014
    96       40       15       9       5       1       *  
August 2015
    95       35       12       7       4       1       *  
August 2016
    94       31       10       5       2       1       *  
August 2017
    92       27       8       4       2       *       *  
August 2018
    90       24       6       3       1       *       *  
August 2019
    88       21       5       2       1       *       *  
August 2020
    85       19       4       1       1       *       *  
August 2021
    83       16       3       1       *       *       *  
August 2022
    80       14       2       1       *       *       *  
August 2023
    77       12       2       1       *       *       *  
August 2024
    74       11       1       *       *       *       *  
August 2025
    71       9       1       *       *       *       *  
August 2026
    67       8       1       *       *       *       *  
August 2027
    63       7       1       *       *       *       *  
August 2028
    59       6       *       *       *       *       *  
August 2029
    54       5       *       *       *       *       *  
August 2030
    49       4       *       *       *       *       *  
August 2031
    44       3       *       *       *       *       *  
August 2032
    38       2       *       *       *       *       *  
August 2033
    31       2       *       *       *       *       *  
August 2034
    25       1       *       *       *       *       *  
August 2035
    17       1       *       *       *       *       *  
August 2036
    10       *       *       *       *       *       *  
August 2037
    9       *       *       *       *       *       0  
August 2038
    8       *       *       *       *       *       0  
August 2039
    7       *       *       *       *       *       0  
August 2040
    6       *       *       *       *       *       0  
August 2041
    6       *       *       *       *       *       0  
August 2042
    4       *       *       *       *       *       0  
August 2043
    3       *       *       *       *       *       0  
August 2044
    2       *       *       *       *       *       0  
August 2045
    1       *       *       *       *       0       0  
August 2046
    0       0       0       0       0       0       0  
 
                                                       
Weighted Average Life in Years to maturity
    22.72       8.06       4.24       3.32       2.69       1.87       1.38  
 
*   Indicates a value between 0.0% and 0.5%.

S-95


Table of Contents

Percentage of Initial Class Principal Amount of the Offered Certificates
Outstanding at the Following Percentages of CPR
                                                         
    Class 2-A1 and Class 2-A2 Certificates
Distribution Date   0%   10%   20%   25%   30%   40%   50%
Initial Percentage
    100       100       100       100       100       100       100  
August 2007
    100       89       79       74       68       58       48  
August 2008
    99       80       62       54       46       34       23  
August 2009
    99       71       49       40       32       19       11  
August 2010
    99       63       39       30       22       12       5  
August 2011
    99       56       31       22       15       7       3  
August 2012
    98       50       25       17       11       4       1  
August 2013
    98       45       20       12       8       2       1  
August 2014
    96       39       15       9       5       1       *  
August 2015
    94       35       12       7       4       1       *  
August 2016
    92       31       9       5       2       1       *  
August 2017
    90       27       7       4       2       *       *  
August 2018
    88       24       6       3       1       *       *  
August 2019
    86       21       4       2       1       *       *  
August 2020
    83       18       3       1       1       *       *  
August 2021
    80       16       3       1       *       *       *  
August 2022
    77       14       2       1       *       *       *  
August 2023
    74       12       2       1       *       *       *  
August 2024
    71       10       1       *       *       *       *  
August 2025
    67       9       1       *       *       *       *  
August 2026
    63       7       1       *       *       *       *  
August 2027
    58       6       1       *       *       *       *  
August 2028
    53       5       *       *       *       *       *  
August 2029
    48       4       *       *       *       *       *  
August 2030
    43       3       *       *       *       *       *  
August 2031
    37       3       *       *       *       *       *  
August 2032
    30       2       *       *       *       *       *  
August 2033
    23       1       *       *       *       *       *  
August 2034
    16       1       *       *       *       *       *  
August 2035
    7       *       *       *       *       *       *  
August 2036
    0       0       0       0       0       0       0  
 
                                                       
Weighted Average Life in Years to maturity
    21.20       7.92       4.21       3.31       2.68       1.87       1.37  
 
*   Indicates a value between 0.0% and 0.5%.

S-96


Table of Contents

Percentage of Initial Class Principal Amount of the Offered Certificates
Outstanding at the Following Percentages of CPR
                                                         
    Class 3-A1 and Class 3-A2 Certificates
Distribution Date   0%   10%   20%   25%   30%   40%   50%
Initial Percentage
    100       100       100       100       100       100       100  
August 2007
    100       89       79       74       69       58       48  
August 2008
    100       80       62       54       47       34       23  
August 2009
    99       71       49       40       32       19       11  
August 2010
    99       63       39       30       22       12       5  
August 2011
    99       57       31       22       16       7       3  
August 2012
    98       50       24       16       11       4       1  
August 2013
    96       44       19       12       7       2       1  
August 2014
    95       39       15       9       5       1       *  
August 2015
    93       35       12       7       4       1       *  
August 2016
    92       31       9       5       2       1       *  
August 2017
    90       27       7       4       2       *       *  
August 2018
    87       24       6       3       1       *       *  
August 2019
    85       21       4       2       1       *       *  
August 2020
    83       18       3       1       1       *       *  
August 2021
    80       16       3       1       *       *       *  
August 2022
    77       14       2       1       *       *       *  
August 2023
    74       12       2       1       *       *       *  
August 2024
    70       10       1       *       *       *       *  
August 2025
    67       9       1       *       *       *       *  
August 2026
    62       7       1       *       *       *       *  
August 2027
    58       6       1       *       *       *       *  
August 2028
    53       5       *       *       *       *       *  
August 2029
    48       4       *       *       *       *       *  
August 2030
    43       3       *       *       *       *       *  
August 2031
    37       3       *       *       *       *       *  
August 2032
    31       2       *       *       *       *       *  
August 2033
    24       1       *       *       *       *       *  
August 2034
    16       1       *       *       *       *       *  
August 2035
    8       *       *       *       *       *       *  
August 2036
    0       0       0       0       0       0       0  
     
Weighted Average Life in Years to maturity
    21.15       7.90       4.21       3.30       2.67       1.87       1.37  
 
*   Indicates a value between 0.0% and 0.5%

S-97


Table of Contents

Percentage of Initial Class Principal Amount of the Offered Certificates
Outstanding at the Following Percentages of CPR
                                                         
    Class B-1, Class B-2 and Class B-3 Certificates
Distribution Date   0%   10%   20%   25%   30%   40%   50%
Initial Percentage
    100       100       100       100       100       100       100  
August 2007
    100       100       100       100       100       100       100  
August 2008
    100       100       100       100       100       86       73  
August 2009
    99       99       99       91       83       67       52  
August 2010
    99       99       82       68       58       40       26  
August 2011
    99       99       66       51       41       24       13  
August 2012
    98       98       52       38       28       14       6  
August 2013
    97       93       41       28       19       8       3  
August 2014
    95       82       32       21       13       5       2  
August 2015
    94       73       26       15       9       3       1  
August 2016
    92       64       20       11       6       2       *  
August 2017
    90       57       16       8       4       1       *  
August 2018
    88       50       12       6       3       1       *  
August 2019
    86       44       10       4       2       *       *  
August 2020
    83       38       7       3       1       *       *  
August 2021
    81       33       6       2       1       *       *  
August 2022
    78       29       4       2       1       *       *  
August 2023
    75       25       3       1       *       *       *  
August 2024
    71       21       3       1       *       *       *  
August 2025
    68       18       2       1       *       *       *  
August 2026
    64       16       1       *       *       *       *  
August 2027
    59       13       1       *       *       *       *  
August 2028
    55       11       1       *       *       *       *  
August 2029
    50       9       1       *       *       *       *  
August 2030
    45       7       *       *       *       *       *  
August 2031
    39       6       *       *       *       *       *  
August 2032
    33       4       *       *       *       *       *  
August 2033
    26       3       *       *       *       *       *  
August 2034
    18       2       *       *       *       *       *  
August 2035
    11       1       *       *       *       *       *  
August 2036
    3       *       *       *       *       *       0  
August 2037
    3       *       *       *       *       *       0  
August 2038
    3       *       *       *       *       *       0  
August 2039
    2       *       *       *       *       *       0  
August 2040
    2       *       *       *       *       *       0  
August 2041
    2       *       *       *       *       *       0  
August 2042
    1       *       *       *       *       *       0  
August 2043
    1       *       *       *       *       0       0  
August 2044
    1       *       *       *       *       0       0  
August 2045
    *       *       *       *       *       0       0  
August 2046
    0       0       0       0       0       0       0  
     
Weighted Average Life in Years to maturity
    21.61       13.46       7.37       6.05       5.20       4.02       3.24  
 
*   Indicates a value between 0.0% and 0.5%

S-98


Table of Contents

USE OF PROCEEDS
          The net proceeds from the sale of the Offered Certificates will be applied by the Depositor to pay for the acquisition of the Mortgage Loans from the Seller. See “Use of Proceeds” in the accompanying prospectus and “Method of Distribution” in this prospectus supplement.
FEDERAL INCOME TAX CONSEQUENCES
          For federal income tax purposes the Issuing Entity will comprise multiple REMICs in a tiered structure. Elections will be made to treat each such REMIC as a REMIC for federal income tax purposes. The Certificates, other than the Class 1-AR Certificates, will represent ownership of one or more regular interests, the Class 1-AR Certificate will represent ownership of the sole residual interest in the upper-tier REMIC, and the Class LT-R Certificate will represent ownership of the sole residual interest in each remaining REMIC. All prospective investors should review the discussion under “Federal Income Tax Consequences” in the accompanying prospectus.
          The regular interests may be treated as having been issued with original issue discount. The prepayment assumption that will be used for purposes of computing original issue discount, if any, for federal income tax purposes is a CPR of 25%. No representation is made that the Mortgage Loans will, in fact, prepay at this rate or any other rate.
          Under federal income tax law, a Certificateholder, beneficial owner, financial intermediary or other recipient of a payment on behalf of a beneficial owner may be subject to backup withholding at a rate generally equal to the fourth lowest rate of income tax then in effect. See “Federal Income Tax Consequences — Backup Withholding” in the accompanying prospectus for a general discussion of the mechanics of backup withholding.
Special Considerations with respect to the Class 1-AR Certificates
          Special tax considerations apply to an investment in the Class 1-AR Certificates. In certain circumstances, the Class 1-AR Certificates can produce a significantly less favorable after-tax return for a beneficial owner than would be the case if (i) the Class 1-AR Certificates were taxable as a debt instrument, or (ii) no portion of taxable income allocated to the Class 1-AR Certificates were “excess inclusion” income. See “Federal Income Tax Consequences —REMIC Securities—Taxation of Holders of Residual Interest Securities” in the prospectus.
          Under applicable Treasury regulations, if a Class 1-AR Certificate is a “noneconomic residual interest,” as described in the prospectus, the transfer of a Class 1-AR Certificate to a U.S. Person will be disregarded for all federal tax purposes unless no significant purpose of the transfer was to impede the assessment of collection of tax. The prospectus describes a safe harbor set out under existing regulations under which certain transfers of the Class 1-AR Certificates would be presumed not to have a significant purpose of impeding the assessment or collection of tax. See “Federal Income Tax Consequences — REMIC Securities — Taxation of Holders of Residual Interest Securities — Restrictions on Ownership and Transfer of Residual Interest Securities” in the prospectus. Under final regulations issued by the Treasury Department on July 19, 2002 (the “Final Regulations”) a transfer of a noneconomic residual interest will not qualify under this safe harbor unless either (a) the present value of the anticipated tax liabilities associated with holding the residual interest does not exceed the present value of the sum of (i) any consideration given to the transferee to acquire the interest, (ii) expected future distributions on the interest, and (iii) any anticipated tax savings associated with holding the interest as the REMIC generates

S-99


Table of Contents

losses, or (b) the transfer is to certain domestic taxable corporations with sufficient amounts of both gross and net assets where an agreement is made that all future transfers will be to taxable domestic corporations in transactions that qualify for one of the “safe harbor” provisions. Part (b) of this safe harbor is not available if the facts and circumstances known to the transferor reasonably indicate that the taxes associated with the non-economic residual interest will not be paid. In addition, under the Final Regulations, the safe harbor applies only if the transferee represents that income from the Class 1-AR Certificate will not be attributed to a foreign permanent establishment or fixed base of the transferee or another U.S. taxpayer. The Final Regulations apply to transfers of non-economic residual interests on or after August 19, 2002, and thus will apply to transfers of the Class 1-AR Certificates. The Final Regulations contain additional detail regarding their application, and prospective investors in the Class 1-AR Certificates are encouraged to consult their own tax advisors regarding the application of the Final Regulations to a transfer of the Class 1-AR Certificates.
Tax Return Disclosure Requirements
          Recent legislation and Treasury Department pronouncements directed at abusive tax shelter activity appear to apply to transactions not conventionally regarded as tax shelters. Taxpayers are required to report certain information on Internal Revenue Service Form 8886 if they participate in a “reportable transaction” (as defined under Section 6011 of the Code). Pursuant to recent legislation, a penalty in the amount of $10,000 in the case of a natural person and $50,000 in any other case is imposed on any taxpayer that fails to file timely an information return with the IRS with respect to a “reportable transaction.” The rules defining “reportable transactions” are complex and include, among other categories of transactions, transactions that result in certain losses that exceed threshold amounts. Holders of Certificates are encouraged to consult their own tax advisers regarding any possible disclosure obligations in light of their particular circumstances.
ERISA MATTERS
          The Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and Section 4975 of the Code impose requirements on certain employee benefit plans — and on certain other retirement plans and arrangements, including individual retirement accounts and annuities, Keogh plans and collective investment funds and separate accounts in which plans, accounts or arrangements are invested — and on persons who are fiduciaries with respect to these types of plans and arrangements (together, “Plans”).
          ERISA prohibits “parties in interest” with respect to a Plan from engaging in certain transactions involving the Plan and its assets unless a statutory, regulatory or administrative exemption applies to the transaction. Section 4975 of the Code imposes certain excise taxes on prohibited transactions involving plans described under that section; ERISA authorizes the imposition of civil penalties for prohibited transactions involving plans not covered under Section 4975 of the Code. Any Plan fiduciary which proposes to cause a Plan to acquire any of the Offered Certificates should consult with its counsel with respect to the potential consequences under ERISA and the Code of the Plan’s acquisition and ownership of such Certificates. See “ERISA Considerations” in the accompanying prospectus.
          Certain employee benefit plans, including governmental plans and certain church plans, are not subject to ERISA’s requirements. Accordingly, assets of those plans may be invested in the Offered Certificates without regard to the ERISA considerations described in this prospectus supplement and in the accompanying prospectus, subject to the provisions of other applicable federal and state law. Any such plan which is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code may nonetheless be subject to the prohibited transaction rules set forth in Section 503 of the Code.

S-100


Table of Contents

          Investments by Plans that are subject to ERISA are subject to ERISA’s general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that a Plan’s investments be made in accordance with the documents governing the Plan. A fiduciary which decides to invest the assets of a Plan in the Offered Certificates should consider, among other factors, the extreme sensitivity of the investments to the rate of principal payments (including prepayments) on the Mortgage Loans.
          The U.S. Department of Labor has granted to NationsBank Corporation (predecessor in interest to Bank of America Corporation, an affiliate of Banc of America Securities LLC) and to Countrywide Securities Corporation Prohibited Transaction Exemption (“PTE”) 93-31 (58 Fed. Reg. 28620 (1993)) and PTE 2000-55 (65 Fed. Reg. 67,774 (2000)), respectively, as most recently amended and restated by PTE 2002-41 (an administrative exemption), which exempts from the application of the prohibited transaction rules transactions relating to:
    the acquisition, holding and sale by Plans of certain securities issued by a trust with respect to which Banc of America Securities LLC and Countrywide Securities Corporation or any of their affiliates is the sole underwriter or the manager or co-manager of the underwriting syndicate, and
 
    the servicing, operation and management of such trusts,
provided that the general conditions and certain other requirements set forth in the exemption are satisfied.
          Among the conditions which must be satisfied for the exemption to apply are:
    The acquisition of the Offered Certificates by a Plan is on terms (including the price for the Certificates) that are at least as favorable to the Plan as they would be in an arm’s length transaction with an unrelated party.
 
    The Offered Certificates acquired by the Plan have received a rating at the time of such acquisition that is one of the four highest generic rating categories from a rating agency identified in the exemption, such as S&P, Fitch Ratings or Moody’s Investors Service, Inc.
 
    The Trustee must not be an affiliate of any other member of the “restricted group” (defined below in the second following paragraph), other than the Underwriters.
 
    The sum of all payments made to and retained by the Underwriters in connection with the distribution of the Offered Certificates represents not more than reasonable compensation for Underwriting the Offered Certificates; the sum of all payments made to and retained by the Seller and the Depositor pursuant to the assignment of the trust assets to the Issuing Entity represents not more than the fair market value of such assets; the sum of all payments made to and retained by any Servicer represents not more than reasonable compensation for the Servicer’s services under the related Servicing Agreement and reimbursements of such person’s reasonable expenses in connection therewith.
 
    The Plan investing in the Offered Certificates is an “accredited investor” as defined in Rule 501(a)(1) of Regulation D of the SEC under the Securities Act of 1933.
          The Issuing Entity must also meet each of the requirements listed below:

S-101


Table of Contents

    Assets of the Issuing Entity must consist solely of assets of the type that have been included in other investment pools.
 
    Certificates representing beneficial ownership in such other investment pools must have been rated in one of the four highest generic rating categories by a rating agency for at least one year prior to the Plan’s acquisition of Offered Certificates.
 
    Certificates evidencing beneficial ownership in such other investment pools must have been purchased by investors other than Plans for at least one year prior to any Plan’s acquisition of Offered Certificates.
          Moreover, the exemption provides relief from certain self-dealing/conflict of interest prohibited transactions that may occur when the Plan fiduciary causes a Plan to acquire indebtedness of a trust holding receivables as to which the fiduciary (or its affiliate) is an obligor provided, among other requirements, that:
    in the case of an acquisition in connection with the initial issuance of Certificates, at least 50% of each class of Certificates in which Plans have invested and at least 50% of the aggregate interests in the trust is acquired by persons independent of the restricted group;
 
    such fiduciary (or its affiliate) is an obligor with respect to not more than 5% of the fair market value of the obligations contained in the trust;
 
    the Plan’s investment in Offered Certificates of any class does not exceed 25% of all of the Certificates of that class outstanding at the time of the acquisition; and
 
    immediately after the acquisition, no more than 25% of the assets of any Plan with respect to which such person is a fiduciary are invested in securities representing indebtedness of one or more issuers containing assets sold or serviced by the same entity.
This relief does not apply to Plans sponsored by members of the “restricted group” consisting of the Depositor, the Master Servicer, any Servicer, the Trustee, any indemnitor or any obligor with respect to Mortgage Loans included in the assets of the Issuing Entity constituting more than 5% of the aggregate unamortized principal balance of the assets of the Issuing Entity, or any affiliate of these parties.
          It is expected that the exemption will apply to the acquisition and holding by Plans of the Offered Certificates (except for the Class 1-AR Certificate) and that all conditions of the exemption other than those within the control of the investors will be met.
          The rating of a class of Offered Certificates may change. If a class of Offered Certificates no longer has a rating of at least “BBB-,” Certificates of that class will no longer be eligible for relief under the exemption (although a Plan that had purchased the Certificate when it had an investment-grade rating would not be required by the exemption to dispose of it). However, certain insurance company general accounts may be eligible to purchase Offered Certificates pursuant to Sections I and III of Prohibited Transaction Class Exemption (“PTCE”) 95-60.
          BECAUSE THE CHARACTERISTICS OF THE CLASS 1-AR CERTIFICATE MAY NOT MEET THE REQUIREMENTS OF THE EXEMPTION DISCUSSED ABOVE OR ANY OTHER ISSUED EXEMPTION UNDER ERISA INCLUDING PTCE 83-1, THE PURCHASE AND HOLDING OF THE CLASS 1-AR CERTIFICATE BY A PLAN OR BY INDIVIDUAL RETIREMENT ACCOUNTS OR OTHER PLANS SUBJECT TO SECTION 4975 OF THE CODE MAY RESULT IN

S-102


Table of Contents

PROHIBITED TRANSACTIONS OR THE IMPOSITION OF EXCISE TAXES OR CIVIL PENALTIES. CONSEQUENTLY, THE INITIAL ACQUISITION AND TRANSFER OF THE CLASS 1-AR CERTIFICATE WILL NOT BE REGISTERED BY THE SECURITIES ADMINISTRATOR UNLESS THE SECURITIES ADMINISTRATOR ON BEHALF OF THE TRUSTEE RECEIVES:
    a representation from the acquiror or transferee of the Class 1-AR Certificate to the effect that the transferee is not an employee benefit plan subject to section 406 of ERISA or a plan or arrangement subject to section 4975 of the Code, nor a person acting on behalf of any such plan or arrangement nor using the assets of any such plan or arrangement to effect such transfer, or
 
    if the purchaser is an insurance company, a representation that the purchaser is an insurance company which is purchasing the Class 1-AR Certificate with funds contained in an “insurance company general account” (as such term is defined in Section V(e) of PTCE 95-60) and that the purchase and holding of the Class 1-AR Certificate are covered under Sections I and III of PTCE 95-60 or
 
    an Opinion of Counsel satisfactory to the certificate registrar to the effect that the purchase and holding of such a Certificate by the acquiror or transferee will not constitute or result in prohibited transactions under Title I of ERISA or Section 4975 of the Code and will not subject the certificate registrar, the Trustee, the Master Servicer, the Depositor or the Securities Administrator to any obligation in addition to those undertaken in the Pooling and Servicing Agreement.
          Prospective Plan investors should consult with their legal advisors concerning the impact of ERISA and the Code, the applicability of the exemption described above and PTCE 83-1 described in the prospectus, and the potential consequences in their specific circumstances prior to making an investment in the Offered Certificates. Moreover, each Plan fiduciary should determine whether under the general fiduciary standards of investment prudence and diversification, an investment in the Offered Certificates is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan’s investment portfolio.
METHOD OF DISTRIBUTION
          Subject to the terms and conditions set forth in the Underwriting Agreement among the Seller, the Depositor and Banc of America Securities LLC and Countrywide Securities Corporation (together, the “Underwriters”), the Depositor has agreed to sell to the Underwriters, and the Underwriters have agreed to purchase from the Depositor, the initial Class Principal Amount of each class of Offered Certificates, as set forth below. Distribution of the Offered Certificates will be made by the Underwriters from time to time in negotiated transactions or otherwise at varying prices to be determined at the time of sale. In connection with the sale of the Offered Certificates, the Underwriters may be deemed to have received compensation from the Depositor in the form of underwriting discounts.

S-103


Table of Contents

         
    Banc of   Countrywide Securities
Class   America Securities LLC   Corporation
1-A1
       
1-A2
       
1-AR
       
2-A1
       
2-A2
       
3-A1
       
3-A2
       
B-1
       
B-2
       
B-3
       
          The Underwriters intend to make a secondary market in the Offered Certificates, but have no obligation to do so. There can be no assurance that a secondary market for the Offered Certificates will develop or, if it does develop, that it will continue or that it will provide Certificateholders with a sufficient level of liquidity of investment. The Offered Certificates will not be listed on any national securities exchange.
          The Depositor and the Seller have agreed to indemnify the Underwriters against, or make contributions to the Underwriters with respect to, certain liabilities, including liabilities under the Securities Act of 1933, as amended.
          Expenses incurred by the Depositor in connection with this offering are expected to be approximately $[          ].
          Banc of America Securities LLC, one of the Underwriters, is an affiliate of Bank of America, N.A. (Servicer of a portion of the Mortgage Loans). Countrywide Securities Corporation, one of the Underwriters, is an affiliate of Countrywide Home Loans, Inc. (Originator of a portion of the Mortgage Loans) and Countrywide Home Loans Servicing LP (Servicer of a portion of the Mortgage Loans).
LEGAL MATTERS
          The validity of the Certificates will be passed upon for the Depositor by Tobin & Tobin, a professional corporation, San Francisco, California. Certain tax matters will be passed upon for the Depositor by Chapman and Cutler LLP, San Francisco, California. McKee Nelson LLP, Washington, D.C., will act as counsel for the Underwriters.
RATINGS
          It is a condition of the issuance of the Offered Certificates that they receive ratings from Fitch Inc. (“Fitch Rating”) and Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. (“S&P” and collectively with Fitch Rating and S&P, the “Rating Agencies””) not lower than the ratings indicated under “Initial Certificate Ratings” in the table on page S-1.
          The ratings assigned to mortgage pass-through Certificates address the likelihood of the receipt of all payments on the Mortgage Loans by the related Certificateholders under the agreements pursuant to which such Certificates are issued. Such ratings take into consideration the credit quality of the related mortgage loans, including any credit support providers, structural and legal aspects associated with such Certificates, and the extent to which the payment stream on the trust assets is adequate to make the

S-104


Table of Contents

payments required by such Certificates. Ratings on such Certificates do not, however, constitute a statement regarding frequency of prepayments of the Mortgage Loans.
          The ratings do not address the possibility that as a result of principal prepayments, the yield on the Offered Certificates may be lower than anticipated.
          The ratings assigned to the Offered Certificates should be evaluated independently from similar ratings on other types of securities. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the Rating Agencies.
          The Depositor has not requested a rating of the Offered Certificates by any rating agency other than the Rating Agencies; there can be no assurance, however, as to whether any other rating agency will rate the Offered Certificates or, if it does, what rating would be assigned by such other rating agency. The rating assigned by such other rating agency to the Offered Certificates could be lower than the respective ratings assigned by the Rating Agencies.
          There will be no arrangement to have the ratings monitored while the Certificates are outstanding.

S-105


Table of Contents

INDEX OF CERTAIN DEFINITIONS
     
Accrual Period
  S-35
Aggregate Cut-off Date Balance
  S-24
Aggregate Subordinate Percentage
  S-40
Agreements
  S-72
Alternative Documentation Program
  S-55
Applicable Credit Support Percentage
  S-42
Apportioned Principal Balance
  S-36
Available Distribution Amount
  S-34
Beneficial Owner
  S-29
Book-Entry Certificates
  S-29
Business Day
  S-28
Certificate Distribution Account
  S-33
Certificate Distribution Amount
  S-33
Certificate Group
  S-28
Certificate Interest Rate
  S-37
Certificate Principal Amount
  S-35
Certificateholder
  S-29
Class Principal Amount
  S-35
Class Subordination Percentage
  S-43
Clearstream Luxembourg
  S-29
Clearstream Luxembourg Participants
  S-31
Closing Date
  S-24
CLUES Plus Documentation Program
  S-55
Code
  S-73
Collection Account
  S-33
Countrywide Home Loans
  S-53
CPR
  S-92
Credit Support Depletion Date
  S-46
Current Interest
  S-35
Custodial Agreement
  S-72
Custodian
  S-72
Cut-off Date
  S-23
Defective Mortgage Loan
  S-72
Deficient Valuation
  S-48
Definitive Certificates
  S-29
Deleted Mortgage Loan
  S-73
Depositor
  S-51
Distribution Date
  S-28
DTC
  S-29
Due Date
  S-25
Due Period
  S-36
Effective Loan-to-Value Ratio
  S-26
ERISA
  S-101
Euroclear
  S-29
Euroclear Operator
  S-31
Euroclear Participants
  S-31
European Depositaries
  S-29
Event of Default
  S-81
Expanded Underwriting Guidelines
  S-56
Expense Rate
  S-38
FICO Credit Scores
  S-54
Final Regulations
  S-100
Financial Intermediary
  S-30
Fitch Rating
  S-105
Full Documentation Program
  S-55
Group 1 Certificates
  S-28
Group 2 Certificates
  S-28
Group 3 Certificates
  S-28
Insurance Proceeds
  S-34
Interest Distribution Amount
  S-35
Interest Shortfall
  S-37
Interest Transfer Amount
  S-47
Issuing Entity
  S-86
Liquidated Mortgage Loan
  S-48
Liquidation Proceeds
  S-34
Loan-to-Value Ratio
  S-26, S-53
Master Servicer
  S-72
Master Servicing Fee
  S-77
Master Servicing Fee Rate
  S-77
Monthly Advance
  S-76
Mortgage
  S-72
Mortgage File
  S-73
Mortgage Loan Purchase Agreement
  S-25
Mortgage Loans
  S-24
Mortgage Pool
  S-24
Mortgage Rate
  S-38
Mortgaged Property
  S-24
Net Interest Shortfall
  S-36
Net Mortgage Rate
  S-38
Net Prepayment Interest Shortfalls
  S-36
No Income/No Asset Documentation Program
  S-55
Offered Certificates
  S-27
Original Subordinate Class Principal Amount
  S-41
Originators
  S-24
Overcollateralized Group
  S-47

I-1


Table of Contents

     
Participant
  S-30
Percentage Interest
  S-85
Periodic Cap
  S-26
Plans
  S-101
Pool 1
  S-24
Pool 1 Net WAC
  S-37
Pool 1 Subordinate Amount
  S-37
Pool 2
  S-24
Pool 2 Net WAC
  S-37
Pool 2 Subordinate Amount
  S-37
Pool 3
  S-24
Pool 3 Net WAC
  S-37
Pool 3 Subordinate Amount
  S-37
Pool Balance
  S-40
Pool Percentage
  S-35
Pool Subordinate Amount
  S-37
Pooling and Servicing Agreement
  S-72
Preferred Processing Program
  S-54
Prepayment Interest Shortfall
  S-36
Prepayment Period
  S-34
Principal Transfer Amount
  S-47
Privately-Offered Certificates
  S-27
Pro Rata Senior Percentage
  S-40
PTCE
  S-103
PTE
  S-102
Rating Agencies
  S-105
Realized Loss
  S-48
Record Date
  S-29
Reduced Documentation Program
  S-55
Relevant Depositary
  S-29
Relief Act
  S-36
Relief Act Reduction
  S-36
Replacement Mortgage Loan
  S-73
Rules
  S-30
S&P
  S-105
Scheduled Payment
  S-39
Securities Administrator
  S-72
Seller
  S-50
Senior Certificates
  S-27
Senior Percentage
  S-39
Senior Prepayment Percentage
  S-40
Senior Principal Distribution Amount
  S-38
Senior Termination Date
  S-40
Servicer Remittance Date
  S-33
Servicers
  S-62
Servicing Agreement
  S-74
Servicing Fee
  S-77
Servicing Fee Rate
  S-77
Sponsor
  S-50
Standard Underwriting Guidelines
  S-56
Stated Income/Stated Asset Documentation Program
  S-55
Stated Principal Balance
  S-38
Step-Down Test
  S-41
Streamlined Documentation Program
  S-55
Structuring Assumptions
  S-92
Subordinate Certificate Writedown Amount
  S-48
Subordinate Certificates
  S-27
Subordinate Class Percentage
  S-44
Subordinate Classes
  S-27
Subordinate Net WAC
  S-38
Subordinate Percentage
  S-44
Subordinate Prepayment Percentage
  S-44
Subordinate Principal Distribution Amount
  S-43
Subsequent Recovery
  S-48
Terms and Conditions
  S-32
Total Transfer Amount
  S-47
Trust Accounts
  S-70
Trustee
  S-72
Two Times Test
  S-40
Undercollateralized Group
  S-47
Underwriters
  S-104

I-1


Table of Contents

ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
          Except in certain limited circumstances, the globally offered Sequoia Mortgage Trust 2006-1 Mortgage Pass-Through Certificates (the “Global Certificates”) will be available only in book-entry form. Investors in the Global Certificates may hold such Global Certificates through any of DTC, Clearstream Luxembourg or Euroclear. The Global Certificates will be tradeable as home market instruments in both the European and U.S. domestic markets. Initial settlement and all secondary trades will settle in same-day funds.
          Secondary market trading between investors holding Global Certificates through Clearstream Luxembourg and Euroclear will be conducted in the ordinary way in accordance with their normal rules and operating procedures and in accordance with conventional eurocertificate practice (i.e., seven calendar day settlement).
          Secondary market trading between investors holding Global Certificates through DTC will be conducted according to the rules and procedures applicable to U.S. corporate debt obligations and prior collateralized mortgage certificate issues.
          Secondary cross-market trading between Clearstream Luxembourg or Euroclear and DTC Participants holding Certificates will be effected on a delivery-against-payment basis through the respective Depositaries of Clearstream Luxembourg and Euroclear (in such capacity) and as DTC Participants.
          A holder that is not a United States person (as described below) of Global Certificates will be subject to U.S. withholding taxes unless such holders meet certain requirements and deliver appropriate U.S. tax documents to the securities clearing organizations or their participants.
Initial Settlement
          All Global Certificates will be held in book-entry form by DTC in the name of Cede & Co. as nominee of DTC. Investors’ interests in the Global Certificates will be represented through financial institutions acting on their behalf as direct and indirect Participants in DTC. As a result, Clearstream Luxembourg and Euroclear will hold positions on behalf of their participants through their respective Relevant Depositaries, which in turn will hold such positions in accounts as DTC Participants.
          Investors electing to hold their Global Certificates through DTC will follow the settlement practices applicable to prior mortgage pass-through certificate issues. Investor securities custody accounts will be credited with their holdings against payment in same-day funds on the settlement date.
          Investors electing to hold their Global Certificates through Clearstream Luxembourg or Euroclear accounts will follow the settlement procedures applicable to conventional eurocertificates, except that there will be no temporary global certificate and no “lock-up” or restricted period. Global Certificates will be credited to the securities custody accounts on the settlement date against payment in same-day funds.
Secondary Market Trading
          Since the purchaser determines the place of delivery, it is important to establish at the time of the trade where both the purchaser’s and seller’s accounts are located to ensure that settlement can be made on the desired value date.

S-A-1


Table of Contents

          Trading Between DTC Participants. Secondary market trading between DTC Participants will be settled using the procedures applicable to prior collateralized mortgage certificate issues in same-day funds.
          Trading Between Clearstream Luxembourg and/or Euroclear Participants. Secondary market trading between Clearstream Luxembourg Participants or Euroclear Participants will be settled using the procedures applicable to conventional eurocertificates in same-day funds.
          Trading Between DTC Seller and Clearstream Luxembourg or Euroclear Purchaser. When Global Certificates are to be transferred from the account of a DTC Participant to the account of a Clearstream Luxembourg Participant or a Euroclear Participant, the purchaser will send instructions to Clearstream I-1 Luxembourg or Euroclear through a Clearstream Luxembourg Participant or Euroclear Participant at least one business day prior to settlement. Clearstream Luxembourg or Euroclear will instruct the respective Relevant Depositary, as the case may be, to receive the Global Certificates against payment. Payment will include interest accrued on the Global Certificates from and including the last coupon Distribution Date to and excluding the settlement date, on the basis of either the actual number of days in such accrual period and a year assumed to consist of 360 days or a 360-day year of twelve 30-day months as applicable to the related class of Global Certificates. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. Payment will then be made by the respective Relevant Depositary of the DTC Participant’s account against delivery of the Global Certificates. After settlement has been completed, the Global Certificates will be credited to the respective clearing system and by the clearing system, in accordance with its usual procedures, to the Clearstream Luxembourg Participant’s or Euroclear Participant’s account. The securities credit will appear the next day (European time) and the cash debt will be back-valued to, and the interest on the Global Certificates will accrue from, the value date (which would be the preceding day when settlement occurred in New York). If settlement is not completed on the intended value date (i.e., the trade fails), the Clearstream Luxembourg or Euroclear cash debt will be valued instead as of the actual settlement date.
          Clearstream Luxembourg Participants and Euroclear Participants will need to make available to the respective clearing systems the funds necessary to process same-day funds settlement. The most direct means of doing so is to preposition funds for settlement, either from cash on hand or existing lines of credit, as they would for any settlement occurring within Clearstream Luxembourg or Euroclear. Under this approach, they may take on credit exposure to Clearstream Luxembourg or Euroclear until the Global Certificates are credited to their accounts one day later.
          As an alternative, if Clearstream Luxembourg or Euroclear has extended a line of credit to them, Clearstream Luxembourg Participants or Euroclear Participants can elect not to preposition funds and allow that credit line to be drawn upon the finance settlement. Under this procedure, Clearstream Luxembourg Participants or Euroclear Participants purchasing Global Certificates would incur overdraft charges for one day, assuming they cleared the overdraft when the Global Certificates were credited to their accounts. However, interest on the Global Certificates would accrue from the value date. Therefore, in many cases the investment income on the Global Certificates earned during that one-day period may substantially reduce or offset the amount of such overdraft charges, although this result will depend on each Clearstream Luxembourg Participant’s or Euroclear Participant’s particular cost of funds.
          Since the settlement is taking place during New York business hours, DTC Participants can employ their usual procedures for sending Global Certificates to the respective European Depositary for the benefit of Clearstream Luxembourg Participants or Euroclear Participants. The sale proceeds will be available to the DTC seller on the settlement date. Thus, to the DTC Participants a cross-market transaction will settle no differently than a trade between two DTC Participants.

S-A-2


Table of Contents

          Trading between Clearstream Luxembourg or Euroclear Seller and DTC Purchaser. Due to time zone differences in their favor, Clearstream Luxembourg Participants and Euroclear Participants may employ their customary procedures for transactions in which Global Certificates are to be transferred by the respective clearing system, through the respective Relevant Depositary, to a DTC Participant. The seller will send instructions to Clearstream Luxembourg or Euroclear through a Clearstream Luxembourg Participant or Euroclear Participant at least one business day prior to settlement. In these cases Clearstream Luxembourg or Euroclear will instruct the respective Relevant Depositary, as appropriate, to deliver the Global Certificates to the DTC Participant’s account against payment. Payment will include interest accrued on the Global Certificates from and including the last coupon payment to and excluding the settlement date on the basis of either the actual number of days in such accrual period and a year assumed to consist of 360 days or a 360-day year of twelve 30-day months as applicable to the related class of Global Certificates. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. The payment will then be reflected in the account of the Clearstream Luxembourg Participant or Euroclear Participant the following day, and receipt of the cash proceeds in the Clearstream Luxembourg Participant’s or Euroclear Participant’s account would be back-valued to the value date (which would be the preceding day, I-2 when settlement occurred in New York). Should the Clearstream Luxembourg Participant or Euroclear Participant have a line of credit with its respective clearing system and elect to be in debt in anticipation of receipt of the sale proceeds in its account, the back-valuation will extinguish any overdraft incurred over that one day period. If settlement is not completed on the intended value date (i.e., the trade fails), receipt of the cash proceeds in the Clearstream Luxembourg Participant’s or Euroclear Participant’s account would instead be valued as of the actual settlement date.
          Finally, day traders that use Clearstream Luxembourg or Euroclear and that purchase Global Certificates from DTC Participants for delivery to Clearstream Luxembourg Participants or Euroclear Participants should note that these trades would automatically fail on the sale side unless affirmative action were taken. At least three techniques should be readily available to eliminate this potential problem:
     (a) borrowing through Clearstream Luxembourg or Euroclear for one day (until the purchase side of the day trade is reflected in their Clearstream Luxembourg or Euroclear accounts) in accordance with the clearing system’s customary procedures;
     (b) borrowing the Global Certificates in the U.S. from a DTC Participant no later than one day prior to the settlement, which would give the Global Certificates sufficient time to be reflected in their Clearstream Luxembourg or Euroclear account in order to settle the sale side of the trade; or
     (c) staggering the value dates for the buy and sell sides of the trade so that the value date for the purchase from the DTC Participant is at least one day prior to the value date for the sale to the Clearstream Luxembourg or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
          A holder that is not a “United States person” within the meaning of Section 7701(a)(30) of the Internal Revenue Code of 1986 holding a book-entry certificate through Clearstream, Euroclear or DTC may be subject to U.S. withholding tax at a rate of 30% unless such holder provides certain documentation to the Trustee or to the U.S. entity required to withhold tax (the “U.S. withholding agent”) establishing an exemption from withholding. A holder that is not a United States person may be subject to 30% withholding unless:
          I. the Securities Administrator, on behalf of the Trustee or the U.S. withholding agent receives a statement —

S-A-3


Table of Contents

     (a) from the holder on Internal Revenue Service (“IRS”) Form W-8BEN (or any successor form) that —
     (i) is signed by the certificateholder under penalty of perjury,
     (ii) certifies that such owner is not a United States person, and (iii) provides the name and address of the certificateholder, or
     (b) from a securities clearing organization, a bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business that —
     (i) is signed under penalties of perjury by an authorized representative of the financial institution,
     (ii) states that the financial institution has received an IRS Form W-8BEN (or any successor form) from the certificateholder or that another financial institution acting on behalf of the certificateholder has received such IRS Form W-8BEN (or any successor form),
     (iii) provides the name and address of the certificateholder, and
     (iv) attaches the IRS Form W-8BEN (or any successor form) provided by the certificateholder;
          II. the holder claims an exemption or reduced rate based on a treaty and provides a properly executed IRS Form W-8BEN (or any successor form) to the Securities Administrator or the U.S. withholding agent;
          III. the holder claims an exemption stating that the income is effectively connected to a U.S. trade or business and provides a properly executed IRS Form W-8ECI (or any successor form) to the Securities Administrator or the U.S. withholding agent; or
          IV. the holder is a “nonwithholding partnership” and provides a properly executed IRS Form W-8IMY (or any successor form) with all necessary attachments to the Trustee or the U.S. withholding agent. Certain pass-through entities that have entered into agreements with the Internal Revenue Service (for example “qualified intermediaries”) may be subject to different documentation requirements; it is recommended that such holders consult with their tax advisors when purchasing the Certificates.
          A holder holding book-entry certificates through Clearstream or Euroclear provides the forms and statements referred to above by submitting them to the person through which he holds an interest in the book-entry certificates, which is the clearing agency, in the case of persons holding directly on the books of the clearing agency. Under certain circumstances a Form W-8BEN, if furnished with a taxpayer identification number, (“TIN”), will remain in effect until the status of the beneficial owner changes, or a change in circumstances makes any information on the form incorrect. A Form W-8BEN, if furnished without a TIN, and a Form W-8ECI will remain in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect.
          In addition, all holders holding book-entry certificates through Clearstream, Euroclear or DTC may be subject to backup withholding unless the holder:
          I. provides a properly executed IRS Form W-8BEN, Form W-8ECI or Form W-8IMY(or any successor forms) if that person is not a United States person;

S-A-4


Table of Contents

          II. provides a properly executed IRS Form W-9 (or any substitute form) if that person is a United States person; or
          III. is a corporation, within the meaning of Section 7701(a) of the Internal Revenue Code of 1986, or otherwise establishes that it is a recipient exempt from United States backup withholding.
          This summary does not deal with all aspects of federal income tax withholding or backup withholding that may be relevant to investors that are not “United States persons” within the meaning of Section 7701(a)(30) of the Internal Revenue Code. Such investors are advised to consult their own tax advisors for specific tax advice concerning their holding and disposing of the book-entry certificates.
          The term “United States person” means (1) a citizen or resident of the United States, (2) a corporation or partnership organized in or under the laws of the United States or any state or the District of Columbia (other than a partnership that is not treated as a United States person under any applicable Treasury regulations), (3) an estate the income of which is includible in gross income for United States tax purposes, regardless of its source, or (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have authority to control all substantial decisions of the trust. Notwithstanding the preceding sentence, to the extent provided in regulations, certain trusts in existence on August 20, 1996 and treated as United States persons prior to such date that elect to continue to be so treated also will be considered United States persons.

S-A-5


Table of Contents

ANNEX B
Certain Characteristics of the Mortgage Loans
          The Mortgage Loans are expected to have the following approximate aggregate characteristics as of the Statistical Cut-off Date. Prior to the issuance of the Certificates, Mortgage Loans may be removed from any Mortgage Pool as a result of incomplete documentation or otherwise, if the Depositor deems such removal necessary or appropriate.
          Set forth below is a description of certain additional characteristics of the Mortgage Loans as of the Statistical Cut-off Date (except as otherwise indicated). All percentages of the Mortgage Loans are approximate percentages by total Stated Principal Balance of the applicable Mortgage Loans (or the related Mortgage Pool) as of the Statistical Cut-off Date (except as otherwise indicated). Unless otherwise specified, all Stated Principal Balances of the Mortgage Loans are as of the Statistical Cut-off Date. In some instances, percentages may not add to 100% due to rounding.

S-B-1


Table of Contents

Original Stated Principal Balance(1) – All Loans
                                                                         
                                    Percent of                            
                            Aggregate     Aggregate             Weighted     Weighted     Weighted  
                    Number of     Principal     Principal     Average     Average     Average     Average  
Original     Mortgage     Balance     Balance     Principal     Credit     Mortgage     Original  
Stated Principal Balances ($)     Loans     Outstanding   Outstanding     Balance   Score     Rate     LTV  
50,000.01
          100,000.00       6     $ 425,131.49       0.06 %   $ 70,855.25       743       6.315 %     63.09 %
100,000.01
          150,000.00       17       2,249,896.40       0.30       132,346.85       715       6.379       67.48  
150,000.01
          200,000.00       39       6,862,525.17       0.90       175,962.18       731       6.261       72.00  
200,000.01
          250,000.00       40       8,965,106.50       1.18       224,127.66       719       6.450       72.17  
250,000.01
          300,000.00       29       7,944,166.99       1.04       273,936.79       725       6.298       74.29  
300,000.01
          350,000.00       30       9,701,217.74       1.27       323,373.92