424B5 1 d432238_424b5.htm AMERIQUEST MORTGAGE SECURITIES INC

Prospectus Supplement dated February 9, 2006 (For use with Prospectus dated February 8, 2006)

$1,462,510,000 (Approximate)

Ameriquest Mortgage Securities Trust 2006-R1

Issuing Entity


Asset-Backed Pass-Through Certificates,

Series 2006-R1

Ameriquest Mortgage Securities Inc.

Depositor

Ameriquest Mortgage Company

Seller, Sponsor and Master Servicer

You should consider carefully the risk factors beginning on page S-12 in this prospectus supplement and page 1 in the prospectus.

The certificates will represent interests in the issuing entity, the assets of which consist primarily of a pool of one- to four-family adjustable-rate and fixed-rate, first lien and second lien residential mortgage loans. The certificates will not represent ownership interests in or obligations of any other entity.

This prospectus supplement may be used to offer and sell the certificates offered hereby only if accompanied by the prospectus.

The Class A and Mezzanine Certificates —

will represent senior or mezzanine interests in the trust and will receive distributions from the assets of the trust;

will receive monthly distributions commencing in March 2006;

 

will have credit enhancement in the form of excess interest, subordination and overcollateralization; and

will have the benefit of an interest rate swap agreement.

 

Class(1)

 

Original Certificate Principal Balance(2)

 

Price to Public

 

Underwriting Discount

 

Proceeds to the Depositor(3)

 

Class(1)

 

Original Certificate Principal Balance(2)

 

Price to Public

 

Underwriting Discount

 

Proceeds to the Depositor(3)

Class A-1

 

$

   975,411,000

 

100.0000

%

 

0.1200

%

 

99.8800

%

 

Class M-4

 

$

    24,750,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

Class A-2A

 

$

    83,530,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

 

Class M-5

 

$

    23,250,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

Class A-2B

 

$

    37,660,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

 

Class M-6

 

$

    21,000,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

Class A-2C

 

$

    38,500,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

 

Class M-7

 

$

    20,250,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

Class A-2D

 

$

    27,409,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

 

Class M-8

 

$

    15,000,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

Class M-1

 

$

    82,500,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

 

Class M-9

 

$

      9,000,000

 

99.4111

%

 

0.2500

%

 

99.1611

%

Class M-2

 

$

    63,000,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

 

Class M-10

 

$

    11,250,000

 

83.3201

%

 

0.2500

%

 

83.0701

%

Class M-3

 

$

    30,000,000

 

100.0000

%

 

0.2500

%

 

99.7500

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

________________

(1)

The pass-through rates on such classes will be based on one-month LIBOR plus the applicable margin, subject to certain caps as described in this prospectus supplement.

(2)

Approximate.

(3)

Before deducting expenses payable by the Depositor estimated to be approximately $800,000.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Offered Certificates or determined that this prospectus supplement or the prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offering. Any representation to the contrary is unlawful.

Merrill Lynch & Co.

RBS Greenwich Capital

 



 

Important Notice about Information presented in this Prospectus Supplement and the accompanying Prospectus

You should rely only on the information contained in this document. We have not authorized anyone to provide you with different information. You should not assume that the information in this prospectus supplement or the prospectus is accurate as of any date other than the date on the front of this document.

We provide information to you about the Class A and Mezzanine Certificates in two separate documents that progressively provide more detail:

the accompanying prospectus, which provides general information, some of which may not apply to this series of certificates; and

this prospectus supplement, which describes the specific terms of this series of certificates.

Ameriquest Mortgage Securities Inc. is located at 1100 Town & Country Road, Suite 1100, Orange, California 92868, Attention: Capital Markets, and its phone number is (714) 541-9960.

 



 

Table of Contents

Prospectus Supplement

 

SUMMARY OF PROSPECTUS SUPPLEMENT

RISK FACTORS

USE OF PROCEEDS

AFFILIATIONS, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

THE MORTGAGE POOL

THE ISSUING ENTITY

THE DEPOSITOR

THE ORIGINATOR

THE SELLER, SPONSOR AND MASTER SERVICER

THE TRUSTEE

THE INTEREST RATE SWAP PROVIDER

YIELD ON THE CERTIFICATES

DESCRIPTION OF THE CERTIFICATES

POOLING AND SERVICING AGREEMENT

FEDERAL INCOME TAX CONSEQUENCES

METHOD OF DISTRIBUTION

SECONDARY MARKET

LEGAL OPINIONS

RATINGS

LEGAL INVESTMENT

ERISA CONSIDERATIONS

ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES

ANNEX II ASSUMED MORTGAGE LOAN CHARACTERISTICS

ANNEX III COLLATERAL STATISTICS

ANNEX IV INTEREST RATE SWAP SCHEDULE

 

 



 

SUMMARY OF PROSPECTUS SUPPLEMENT

The following summary is a brief description of key aspects of the certificates offered by this prospectus supplement and does not contain all of the information that you should consider in making your investment decision. To understand all of the terms of the Class A and Mezzanine Certificates, read carefully this entire prospectus supplement and the entire accompanying prospectus. Annexes I, II, III and IV are incorporated as a part of this prospectus supplement. Capitalized terms used but not defined in this prospectus supplement have the meanings assigned to them in the prospectus. A glossary is included at the end of the prospectus.

Issuing Entity

Ameriquest Mortgage Securities Trust 2006-R1.

 

Title of Series

Ameriquest Mortgage Securities Inc., Asset-Backed Pass-Through Certificates, Series 2006-R1.

Cut-off Date

The close of business on February 1, 2006.

 

Closing Date

On or about February 23, 2006.

 

Depositor

Ameriquest Mortgage Securities Inc. (the “Depositor”), a direct wholly-owned subsidiary of Ameriquest Mortgage Company. The Depositor will deposit the mortgage loans into the trust. See “The Depositor” in the prospectus.

Originator, Seller, Sponsor and

 

Master Servicer

Ameriquest Mortgage Company (the “Originator,” the “Seller,” the “Sponsor” or the “Master Servicer,” as applicable), a Delaware corporation. See “The Originator” and “The Seller, Sponsor and Master Servicer” in this prospectus supplement.

Trustee and Custodian

Deutsche Bank National Trust Company (the “Trustee”), a national banking association, will be the Trustee of the trust, will perform administrative functions with respect to the certificates and will act as the custodian, initial paying agent and certificate registrar. See “The Trustee” in this prospectus supplement.

NIMS Insurer

One or more insurance companies (together, the “NIMS Insurer”) may issue a financial guaranty insurance policy covering certain payments to be made on net interest margin securities to be issued by a separate trust and secured by, among other things, all or a portion of the Class CE, Class P and/or Residual Certificates.

Distribution Dates

Distributions on the Certificates will be made on the 25th day of each month, or, if such day is not a business day, on the next succeeding business day, beginning in March 2006 (each, a “Distribution Date”).

Certificates

The classes of Certificates, their pass-through rates and initial certificate principal balances are shown or described in the table below.

 



Class

Initial Certificate

Principal Balance(1)

Pass-Through

Rate

Margin
(2)(%)   (3)(%)

Ratings

Fitch

Moody’s

S&P

Offered Certificates

A-1

$

      975,411,000

Variable(4)

0.205

0.410

AAA

Aaa

AAA

A-2A

$

        83,530,000

Variable(4)

0.080

0.160

AAA

Aaa

AAA

A-2B

$

37,660,000

Variable(4)

0.140

0.280

AAA

Aaa

AAA

A-2C

$

38,500,000

Variable(4)

0.190

0.380

AAA

Aaa

AAA

A-2D

$

27,409,000

Variable(4)

0.290

0.580

AAA

Aaa

AAA

M-1

$

82,500,000

Variable(4)

0.390

0.585

AA+

Aa1

AA+

M-2

$

63,000,000

Variable(4)

0.410

0.615

AA

Aa2

AA

M-3

$

30,000,000

Variable(4)

0.440

0.660

AA-

Aa3

AA-

M-4

$

24,750,000

Variable(4)

0.560

0.840

A+

A1

A+

M-5

$

23,250,000

Variable(4)

0.590

0.885

A

A2

A

M-6

$

21,000,000

Variable(4)

0.720

1.080

A-

A3

A-

M-7

$

20,250,000

Variable(4)

1.250

1.875

BBB+

Baa1

BBB+

M-8

$

15,000,000

Variable(4)

1.550

2.325

BBB

Baa2

BBB

M-9

$

9,000,000

Variable(4)

2.500

3.750

BBB

Baa3

BBB-

M-10

$

11,250,000

Variable(4)

2.500

3.750

BBB-

Ba1

BB+

Non-Offered Certificates(6)

M-11

$

15,000,000

Variable(4)

2.500

3.750

BB

Ba2

BB

CE

$

22,502,943 (5)

N/A

N/A

N/A

N/R

N/R

N/R

P

$

100

N/A

N/A

N/A

N/R

N/R

N/R

R

 

N/A

N/A

N/A

N/A

N/R

N/R

N/R

R-X

 

N/A

N/A

N/A

N/A

N/R

N/R

N/R

 

_______________

 

(1)

Approximate, subject to a variance of plus or minus 5%.

   

(2)

For the Interest Accrual Period for each Distribution Date on or prior to the Optional Termination Date.

   

(3)

For the Interest Accrual Period for each Distribution Date after the Optional Termination Date.

   

(4)

The pass-through rate on each class of Class A and Mezzanine Certificates will be based on one-month LIBOR plus the applicable margin set forth above, subject to the rate caps described in this prospectus supplement.

   

(5)

Represents approximately 1.50% of the aggregate principal balance of the Mortgage Loans as of the Cut-off Date and is approximately equal to the initial amount of overcollateralization required to be provided by the mortgage pool under the Pooling and Servicing Agreement.

   

(6)

May be offered through one or more private placements.

 

The Issuing Entity

The Depositor will establish a trust relating to the Series 2006-R1 certificates (the “Trust” or “Issuing Entity”) pursuant to a pooling and servicing agreement, dated as of the Cut-off Date (the “Pooling and Servicing Agreement”), among the Depositor, the Master Servicer and the Trustee. The Issuing Entity will issue twenty classes of certificates. The certificates will represent in the aggregate the entire beneficial ownership interest in the Trust. Distributions of interest and/or principal on the Class A and Mezzanine Certificates will be made only from payments received in connection with the mortgage loans held in the Trust and from amounts deposited into the Swap Account.

Designations

In this prospectus supplement, the following designations are used to refer to the specified classes of Certificates, all of which, are primarily backed by the Mortgage Loans held by the Trust.

Class A Certificates

Class A-1, Class A-2A, Class A-2B, Class A-2C and Class A-2D Certificates.

Mezzanine Certificates

Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8, Class M-9, Class M-10 and Class M-11 Certificates.

 



 

Subordinate Certificates

Mezzanine and Class CE Certificates.

Offered Certificates

Class A and Mezzanine Certificates (other than the Class M-11 Certificates).

Non-Offered Certificates

Class M-11, Class CE, Class P and Residual Certificates.

Group I Certificates

Class A-1 Certificates. The Group I Certificates will receive distributions primarily from amounts received from the Group I Mortgage Loans. The Group I Certificates may, as further described in this prospectus supplement, receive distributions from amounts received from the Group II Mortgage Loans, but only after distribution of such amounts are made to the Group II Certificates. See “Description of the Certificates—Interest Distributions” and “—Principal Distributions” in this prospectus supplement.

Group II Certificates

Class A-2A, Class A-2B, Class A-2C and Class A-2D Certificates. The Group II Certificates will receive distributions primarily from amounts received from the Group II Mortgage Loans. The Group II Certificates may, as further described in this prospectus supplement, receive distributions from amounts received from the Group I Mortgage Loans, but only after distribution of such amounts are made to the Group I Certificates. See “Description of the Certificates—Interest Distributions” and “—Principal Distributions” in this prospectus supplement.

Residual Certificates

Class R and Class R-X Certificates.

The Mortgage Loans

On the Closing Date, the Issuing Entity will acquire a pool of mortgage loans consisting of fixed-rate and adjustable-rate mortgage loans secured by first and second liens (the “Mortgage Loans”).

The Mortgage Loans will have been originated by the Originator.

For purposes of calculating interest and principal distributions on the certificates, the Mortgage Loans will be divided into two loan groups, designated as the “Group I Mortgage Loans” and the “Group II Mortgage Loans.” The Group I Mortgage Loans will consist of adjustable-rate and fixed-rate mortgage loans with principal balances at origination that conform to Freddie Mac loan limits. The Group II Mortgage Loans will consist of adjustable-rate and fixed-rate mortgage loans with principal balances at origination that may or may not conform to Freddie Mac or Fannie Mae loan limits.

References to percentages of the mortgage loans in this prospectus supplement are based on the Mortgage Loans with the aggregate scheduled principal balance of such mortgage loans as specified in the amortization schedule at the Cut-off Date after application of all amounts allocable to unscheduled payments of principal received prior to the Cut-off Date. Prior to the issuance of the certificates, some of the Mortgage Loans may be removed from the mortgage pool as a result of incomplete documentation or otherwise and any Mortgage Loans that prepay or default will be removed. Other mortgage loans may be included in the mortgage pool prior to the issuance of the Certificates. However, the removal and inclusion of such mortgage loans will not alter the aggregate principal balance of the Mortgage Loans, any statistic presented on a weighted average basis or any statistic based on a particular loan group or all of the Mortgage Loans by plus or minus 5%, although the range of mortgage rates, maturities or certain other characteristics of the Mortgage Loans may vary.

 



 

The Mortgage Loans included in Group I (the “Group I Mortgage Loans”) have the following approximate characteristics as of the Cut-off Date:

Number of Group I Mortgage Loans:

8,067

Aggregate Scheduled Principal Balance:

$1,258,594,398

Group I Mortgage Loans with prepayment charges:

58.26%

Fixed-rate Group I Mortgage Loans:

12.84%

Adjustable-rate Group I Mortgage Loans:

87.16%

Interest-only Group I Mortgage Loans:

13.79%

First lien Group I Mortgage Loans:

99.85%

Second lien Group I Mortgage Loans:

0.15%

Range of current mortgage rates:

5.750% - 13.990%

Weighted average current mortgage rate:

8.537%

Weighted average gross margin of the adjustable-rate Group I Mortgage Loans:

5.962%

Weighted average minimum mortgage rate of the adjustable-rate Group I Mortgage Loans:

8.599%

 

 

Weighted average maximum mortgage rate of the adjustable-rate Group I Mortgage Loans:

14.599%

Weighted average next adjustment date of the adjustable-rate Group I Mortgage Loans:

April 2008

Weighted average remaining term to maturity:

355 months

Range of principal balances as of the Cut-off Date:

$20,301 - $598,802

Average principal balance as of the Cut-off Date:

$156,018

Range of original loan-to-value ratios:

11.08% - 100.00%

Weighted average original loan-to-value ratio:

79.18%

Insured automated valuation model Group I Mortgage Loans:

23.04%

Geographic concentrations in excess of 5%:

Florida

California

New Jersey

New York

 

11.57%

9.03%

6.97%

6.89%

 

The Mortgage Loans included in Group II (the “Group II Mortgage Loans”) have the following approximate characteristics as of the Cut-off Date:

Number of Group II Mortgage Loans:

979

Aggregate Scheduled Principal Balance:

$241,418,645

Group II Mortgage Loans with prepayment charges:

54.29%

Fixed-rate Group II Mortgage Loans:

18.64%

Adjustable-rate Group II Mortgage Loans:

81.36%

Interest-only Group II Mortgage Loans:

30.20%

First lien Group II Mortgage Loans:

97.11%

Second lien Group II Mortgage Loans:

2.89%

Range of current mortgage rates:

5.550% - 12.600%

Weighted average current mortgage rate:

8.254%

Weighted average gross margin of the adjustable-rate Group II Mortgage Loans:

5.762%

Weighted average minimum mortgage rate of the adjustable-rate Group II Mortgage Loans:

8.311%

Weighted average maximum mortgage rate of the adjustable-rate Group II Mortgage Loans:

14.311%

Weighted average next adjustment date of the adjustable-rate Group II Mortgage Loans:

April 2008

Weighted average remaining term to maturity:

357 months

Range of principal balances as of the Cut-off Date:

$19,948 - $999,327

 

 



 

 

Average principal balance as of the Cut-off Date:

$246,597

Range of original loan-to-value ratios:

3.12% - 100.00%

Weighted average original loan-to-value ratio:

79.60%

Insured automated valuation model Group II Mortgage Loans:

9.83%

Geographic concentrations in excess of 5%:

California

New York

Florida

New Jersey

Massachusetts

 

23.99%

11.84%

10.14%

7.83%

5.57%

 

 

The mortgage rate on each adjustable-rate Mortgage Loan will adjust semi-annually on each adjustment date to equal the sum of six-month LIBOR and the related gross margin, subject to periodic and lifetime limitations. With respect to the adjustable-rate Mortgage Loans, the first adjustment date will occur only after an initial period of two, three or five years after origination.

Approximately 23.04% of the Group I Mortgage Loans and approximately 9.83% of the Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the related loan group as of the Cut-off Date, were originated using an insured automated valuation model (“Insured AVM”). Upon the liquidation of a related mortgaged property, if the Insured AVM is determined to have overstated the mortgaged property’s value as of the date originally made, the AVM Insurer is liable for the lesser of: (i) losses of principal and (ii) the amount by which the Insured AVM overstated the mortgaged property’s value at origination. St. Paul Travelers (the “AVM Insurer”) is the provider under the master policy for the Insured AVM. See “The Originator—Underwriting Standards of the Originator” in this prospectus supplement.

Approximately 13.79% of the Group I Mortgage Loans and approximately 30.20% of the Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the related loan group as of the Cut-off Date, require the mortgagors to make monthly payments only of accrued interest for the first five years following origination. After such interest-only period, the mortgagor’s monthly payment will be recalculated to cover both interest and principal so that the Mortgage Loan will amortize fully by its final payment date.

For additional information regarding the Mortgage Loans, see “The Mortgage Pool” in this prospectus supplement and Annex III.

The Certificates

The Offered Certificates will be sold by the Depositor to the Underwriters on the Closing Date.

The final scheduled Distribution Date for the Class A and Mezzanine Certificates will be the Distribution Date in March 2036. The final scheduled Distribution Date for the Class A and Mezzanine Certificates is one month following the maturity date for the latest maturing Mortgage Loan. The actual final Distribution Date for the Class A Certificates and Mezzanine Certificates may be earlier or later, and could be substantially earlier, than the final scheduled Distribution Date.

The Offered Certificates will initially be represented by one or more global certificates registered in the name of a nominee of The Depository Trust Company in minimum denominations of $100,000 and integral multiples of $1.00 in excess thereof. See “Description of the Securities—Book-Entry Certificates” in the prospectus.

The Class M-11, Class CE, Class P and Residual Certificates, which are being issued simultaneously with the Offered Certificates, are not offered by this prospectus supplement. Such certificates may be delivered to the Seller as partial consideration for the Mortgage Loans or alternatively, the Depositor may sell all or a portion of such certificates to one or more third-party investors in one or more private transactions.

 



 

Credit Enhancement

The credit enhancement provided for the benefit of the holders of the Class A and Mezzanine Certificates consists of excess interest, an interest rate swap agreement, subordination and overcollateralization, each as described below and under “Description of the Certificates—Credit Enhancement” and “—Overcollateralization Provisions” in this prospectus supplement.

Excess Interest. The Mortgage Loans bear interest each month in an amount that in the aggregate is expected to exceed the amount needed to distribute monthly interest on the Class A and Mezzanine Certificates and to pay certain fees and expenses of the Trust (including any Net Swap Payment and any Swap Termination Payment owed to the Interest Rate Swap Provider other than Swap Termination Payments resulting from a Swap Provider Trigger Event). Any excess interest from the Mortgage Loans each month will be available to absorb realized losses on the Mortgage Loans and to maintain or restore overcollateralization at required levels.

Subordination. The rights of the holders of the Mezzanine Certificates and the Class CE Certificates to receive distributions will be subordinated, to the extent described in this prospectus supplement, to the rights of the holders of the Class A Certificates.

In addition, the rights of the holders of Mezzanine Certificates with higher numerical class designations to receive distributions in respect of the Mortgage Loans will be subordinated to the rights of holders of Mezzanine Certificates with lower numerical class designations, and the rights of the holders of the Class CE Certificates to receive distributions in respect of the Mortgage Loans will be subordinated to the rights of the holders of the Mezzanine Certificates, in each case to the extent described under “Description of the Certificates—Allocation of Losses; Subordination” in this prospectus supplement.

Subordination is intended to enhance the likelihood of regular distributions on the more senior certificates in respect of interest and principal and to afford such certificates protection against realized losses on the Mortgage Loans.

Overcollateralization. The aggregate principal balance of the Mortgage Loans as of the Cut-off Date is expected to exceed the aggregate certificate principal balance of the Class A, Mezzanine and Class P Certificates on the Closing Date by an amount equal to the initial amount of overcollateralization required to be provided by the mortgage pool under the Pooling and Servicing Agreement. The amount of overcollateralization will be available to absorb realized losses on the Mortgage Loans. See “Description of the Certificates—Overcollateralization Provisions” in this prospectus supplement.

Allocation of Losses. On any Distribution Date, realized losses on the Mortgage Loans will first, reduce the excess interest and second, reduce the overcollateralization for such Distribution Date. If on any Distribution Date, the amount of overcollateralization is reduced to zero, any additional realized losses will be allocated to reduce the certificate principal balance of each class of Mezzanine Certificates in reverse numerical order until the certificate principal balance of each such class has been reduced to zero. The Pooling and Servicing Agreement does not permit the allocation of realized losses on the Mortgage Loans to the Class A or Class P Certificates. However, investors in the Class A Certificates should realize that under certain loss scenarios, there may not be enough principal and interest on the Mortgage Loans to distribute to the Class A Certificates all principal and interest amounts to which such certificates are then entitled. See “Description of the Certificates—Allocation of Losses; Subordination” in this prospectus supplement.

Once realized losses are allocated to the Mezzanine Certificates, such realized losses will not be reinstated (except in the case of subsequent recoveries) nor will such certificates accrue interest on any allocated realized loss amounts. However, the amount of any realized losses allocated to the Mezzanine Certificates may be distributed to the holders of those certificates according to the priorities set forth under “Description of the Certificates—Overcollateralization Provisions” and “Description of the Certificates—The Interest Rate Swap Agreement and the Swap Account” in this prospectus supplement.

Interest Rate Swap Agreement

The Trustee, on behalf of the Trust, will enter into an interest rate swap agreement (the “Interest Rate Swap Agreement”) with Deutsche Bank AG, New York Branch as swap provider (the “Interest Rate Swap Provider”). Under the Interest Rate Swap Agreement, on each Distribution Date, the Issuing Entity will be obligated to make a payment equal to the product of (x) the fixed rate of 4.978%, (y) the Base Calculation Amount for that Distribution Date multiplied by 250 and (z) a fraction, the numerator of which is 30 (or, for the first Distribution Date, 32) and the denominator of which is 360 and the Interest Rate Swap Provider will be obligated to make a payment equal to the product of (x) the floating rate of one-month LIBOR (as determined pursuant to the Interest Rate Swap Agreement), (y) the Base Calculation Amount for that Distribution Date multiplied by 250, and (z) a fraction, the numerator of which

 



is the actual number of days elapsed from the previous Distribution Date to but excluding the current Distribution Date (or, for the first Distribution Date, 30), and the denominator of which is 360. To the extent that the fixed rate payment exceeds the floating rate payment on any Distribution Date, amounts otherwise available to Certificateholders will be applied to make a net payment to the Interest Rate Swap Provider, and to the extent that the floating rate payment exceeds the fixed rate payment on any Distribution Date, the Interest Rate Swap Provider will make a net payment to the Trust (each, a “Net Swap Payment”) for deposit into a segregated trust account established on the Closing Date (the “Swap Account”) pursuant to a swap administration agreement, dated as of the Closing Date (the “Swap Administration Agreement”), as more fully described in this prospectus supplement.

Upon early termination of the Interest Rate Swap Agreement, the Trust or the Interest Rate Swap Provider may be liable to make a termination payment (the “Swap Termination Payment”) to the other party (regardless of which party caused the termination). The Swap Termination Payment will be computed in accordance with the procedures set forth in the Interest Rate Swap Agreement. In the event that the Trust is required to make a Swap Termination Payment, that payment will be paid on the related Distribution Date, and on any subsequent Distribution Dates until paid in full, generally prior to any distribution to Certificateholders. See “Description of the Certificates—The Interest Rate Swap Agreement and the Interest Rate Swap Provider” in this prospectus supplement.

Net Swap Payments and Swap Termination Payments (other than Swap Termination Payments resulting from a Swap Provider Trigger Event) payable by the Issuing Entity will be deducted from Available Funds before distributions to Certificateholders and will first be deposited into the Swap Account before payment to the Interest Rate Swap Provider.

Fees and Expenses

Before distributions are made on the Certificates, the following fees and expenses will be payable: (i) the Master Servicer will be paid a monthly fee (the “Servicing Fee”) equal to one-twelfth of 0.50% (the “Servicing Fee Rate”) and (ii) the Trustee will be paid a monthly fee (the “Trustee Fee”) equal to one-twelfth of 0.0014% (the “Trustee Fee Rate”), in each case, multiplied by the aggregate principal balance of the Mortgage Loans as of the first day of the related Due Period. The Servicing Fee will be payable from amounts on deposit in the Collection Account and the Trustee Fee will be payable from amounts on deposit in the Distribution Account.

For further information, see “Description of the Certificates—Fees and Expenses of the Trust” in this prospectus supplement.

Advances

The Master Servicer is required to advance delinquent payments of principal and interest on the Mortgage Loans, subject to the limitations described in this prospectus supplement. The Master Servicer is entitled to be reimbursed for such advances, and therefore such advances are not a form of credit enhancement. See “Description of the Certificates —Advances” in this prospectus supplement and “Distributions on the Securities—Advances by Master Servicer in Respect of Delinquencies on the Trust Fund Assets” in the prospectus.

Trigger Events

The occurrence of a Trigger Event, following the Stepdown Date, may have the effect of accelerating or decelerating the amortization of certain classes of Class A Certificates and Mezzanine Certificates and affecting the weighted average lives of such certificates. The Stepdown Date is the earlier to occur of (1) the first Distribution Date on which the aggregate certificate principal balance of the Class A Certificates has been reduced to zero and (2) the later of (x) the Distribution Date occurring in March 2009 and (y) the first Distribution Date on which the subordination available to the Class A Certificates has doubled. A Trigger Event will be in effect if delinquencies or losses on the mortgage loans exceed the levels set forth in the definition thereof.

See “Description of the Certificates—Principal Distributions,” “Definitions” and “Yield on the Certificates—Yield Sensitivity of the Mezzanine Certificates” in this prospectus supplement for additional information.

Repurchase or Substitution of Mortgage Loans for Breaches of Representations and Warranties

The Seller will make certain representations and warranties with respect to each Mortgage Loan at the time of origination or as of the Closing Date. Upon discovery of a breach of such representations and warranties that materially and adversely affects the interests of the Certificateholders, the Seller will be obligated to cure such breach, or otherwise repurchase or replace such Mortgage Loan. See

 



“Pooling and Servicing Agreement- Assignment and Substitution of the Mortgage Loans” in this prospectus supplement and “The Depositor’s Mortgage Loan Purchase ProgramRepresentations by or behalf of Mortgage Loan Sellers; Remedies for Breach of Representation” in the prospectus.

Optional Termination

The holders of the Class CE Certificates or the Master Servicer, in that order, may purchase all of the Mortgage Loans, together with any properties in respect thereof acquired on behalf of the Trust, and thereby effect termination and early retirement of the certificates, after the aggregate principal balance of the Mortgage Loans (and properties acquired in respect thereof) remaining in the Trust has been reduced to an amount less than 10% of the aggregate principal balance of the Mortgage Loans as of the Cut-off Date. If the holders of the Class CE Certificates and the Master Servicer fail to exercise their option, the NIMS Insurer, if any, may exercise that option. See “Pooling and Servicing Agreement—Termination” in this prospectus supplement and “Distributions on the Securities—Termination of the Trust Fund and Disposition of Trust Fund Assets” in the prospectus.

Federal Income Tax Consequences

One or more elections will be made to treat designated portions of the Trust (exclusive of the Interest Rate Swap Agreement, the Swap Account and the Net WAC Rate Carryover Reserve Account, as described more fully herein) as real estate mortgage investment conduits for federal income tax purposes. See “Federal Income Tax Consequences—REMICs” in the prospectus.

For further information regarding the federal income tax consequences of investing in the Class A and Mezzanine Certificates, see “Federal Income Tax Consequences” in this prospectus supplement and in the prospectus.

Ratings

It is a condition to the issuance of the certificates that the Class A and Mezzanine Certificates receive the ratings from Fitch Ratings (“Fitch”), Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. (“S&P”) set forth on the table on page 6.

A security rating does not address the frequency of prepayments on the Mortgage Loans, the receipt of any amounts from the Swap Account (with respect to Net WAC Rate Carryover Amounts), the Net WAC Rate Carryover Reserve Account or the corresponding effect on yield to investors. See “Yield on the Certificates” and “Ratings” in this prospectus supplement and “Yield and Maturity Considerations” in the prospectus.

Legal Investment

The Class A and Mezzanine Certificates will not constitute “mortgage related securities” for purposes of the Secondary Mortgage Market Enhancement Act of 1984 (“SMMEA”).

ERISA Considerations

The Class A and Mezzanine Certificates will not be eligible for purchase by an employee benefit plan or other retirement arrangement subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”). Each certificate owner of a Class A or Mezzanine Certificate or any interest therein will (i) be deemed to have represented, by virtue of its acquisition or holding of that certificate or interest therein, that it is not a plan investor or (ii) provide the Trustee with an opinion of counsel on which the Depositor, the Trustee and the Master Servicer may rely, that the purchase of a Class A or Mezzanine Certificate (a) is permissible under applicable law, (b) will not constitute or result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Code and (c) will not subject the Depositor, the Trustee or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement, which opinion of counsel will not be an expense of the Depositor, the Trustee or the Master Servicer. A fiduciary of such a plan or arrangement also must determine that the purchase of a certificate is consistent with its fiduciary duties under applicable law and does not result in a nonexempt prohibited transaction under applicable law.

See “ERISA Considerations” in this prospectus supplement and “Considerations for Benefit Plan Investors” in the prospectus.

 



 

RISK FACTORS

In addition to the matters described elsewhere in this prospectus supplement and the prospectus, prospective investors should carefully consider the following factors before deciding to invest in the Class A and Mezzanine Certificates.

The Originator’s Underwriting Standards Are Not as Stringent as Those of More Traditional Lenders, Which May Result in Losses Allocated to Certain Offered Certificates

The Originator’s underwriting standards are primarily intended to assess the applicant’s credit standing and ability to repay as well as the value and the adequacy of the mortgaged property as collateral for the mortgage loan. The Originator provides loans primarily to mortgagors who do not qualify for loans conforming to the underwriting standards of more traditional lenders but who generally have equity in their property and the apparent ability to repay. While the Originator’s primary considerations in underwriting a mortgage loan are the applicant’s credit standing and repayment ability, as well as the value and adequacy of the mortgaged property as collateral, the Originator also considers, among other things, the applicant’s credit history and debt service-to-income ratio, and the type and occupancy status of the mortgaged property. The Originator’s underwriting standards do not prohibit a mortgagor from obtaining secondary financing at the time of origination of the Originator’s first lien mortgage loan (or at any time thereafter), which secondary financing would reduce the equity the mortgagor would otherwise have in the related mortgaged property as indicated in the Originator’s loan-to-value ratio determination.

As a result of such underwriting standards, the Mortgage Loans are likely to experience rates of delinquency, foreclosure and bankruptcy that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner. To the extent the credit enhancement features described in this prospectus supplement are insufficient to cover such losses, holders of the related Certificates may suffer a loss on their investment.

Furthermore, changes in the values of mortgaged properties may have a greater effect on the delinquency, foreclosure, bankruptcy and loss experience of the Mortgage Loans than on mortgage loans originated in a more traditional manner. No assurance can be given that the values of the related mortgaged properties have remained or will remain at the levels in effect on the dates of origination of the related Mortgage Loans. See “The Mortgage Pool—Underwriting Standards of the Originator” in this prospectus supplement.

Certain Mortgage Loans Have High Loan-to-Value Ratios (in the Case of First Liens) or Combined Loan-to-Value Ratios (in the Case of Second Liens) Which May Present a Greater Risk of Loss Relating to Such Mortgage Loans

Mortgage loans with a loan-to-value ratio or combined loan-to-value ratio of greater than 80.00% may present a greater risk of loss than mortgage loans with loan-to-value ratios or combined loan-to-value ratios of 80.00% or below. Approximately 51.07% of the Group I Mortgage Loans and approximately 53.36% of the Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the related loan group as of the Cut-off Date, had a loan-to-value ratio or combined loan-to-value ratio at origination in excess of 80.00% and are not covered by any primary mortgage insurance. No Mortgage Loan had a loan-to-value ratio or combined loan-to-value ratio exceeding 100.00% at origination. An overall decline in the residential real estate market, a rise in interest rates over a period of time and the general condition of a mortgaged property, as well as other factors, may have the effect of reducing the value of such mortgaged property from the appraised value at the time the Mortgage Loan was originated. If there is a reduction in value of the mortgaged property, the loan-to-value ratio or combined loan-to-value ratio may increase over what it was at the time of origination. Such an increase may reduce the likelihood of liquidation or other proceeds being sufficient to satisfy the Mortgage Loan. There can be no assurance that the loan-to-value ratio or combined loan-to-value ratio of any Mortgage Loan determined at any time after origination is less than or equal to its original loan-to-value ratio or combined loan-to-value ratio. Additionally, the Originator’s determination of the value of a mortgaged property used in the calculation of the loan-to-value ratios or combined loan-to-value ratios of the Mortgage Loans may differ from the appraised value of such mortgaged property or the actual value of such mortgaged property. See “The Mortgage Pool—General” in this prospectus supplement.

Most of the Mortgage Loans Are Newly Originated and Have Little, if any, Payment History

None of the Mortgage Loans are delinquent in their monthly payments as of the Cut-off Date. Investors should note, however, that certain of the Mortgage Loans will have a first payment date occurring after the Cut-off Date and, therefore, such Mortgage Loans could not have been delinquent in any monthly payment as of the Cut-off Date. However, certain of the Mortgage

 



Loans have been delinquent in the past. See “Historical Delinquency of the Mortgage Loans,” “Historical Delinquency of the Group I Mortgage Loans,” and “Historical Delinquency of the Group II Mortgage Loans,” in Annex III of this prospectus supplement.

Second Lien Loans Have a Greater Risk of Loss

Approximately 0.15% of the Group I Mortgage Loans and approximately 2.89% of the Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the related loan group as of the Cut-off Date, are secured by second liens on the related mortgaged properties. The proceeds from any liquidation, insurance or condemnation proceedings will be available to satisfy the outstanding balance of such Mortgage Loans only to the extent that the claims of the related senior mortgages have been satisfied in full, including any related foreclosure costs. In circumstances when it has been determined to be uneconomical to foreclose on the mortgaged property, the Master Servicer may write off the entire balance of such Mortgage Loan as a bad debt. The foregoing considerations will be particularly applicable to Mortgage Loans secured by second liens that have high combined loan-to-value ratios because it is comparatively more likely that the Master Servicer would determine foreclosure to be uneconomical in the case of such Mortgage Loans. In addition, the rate of default of second lien Mortgage Loans may be greater than that of Mortgage Loans secured by first liens on comparable properties.

Simultaneous Second Lien Risk

With respect to approximately 0.09% of the Group I Mortgage Loans and approximately 1.13% of the Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the related loan group as of the Cut-off Date, at the time of origination of the first lien Mortgage Loan, the Originator also originated a second lien mortgage loan which will not be included in the Trust. The weighted average loan-to-value ratio at origination of the first-liens on such Mortgage Loans is approximately 80.00% and the weighted average combined loan-to-value ratio at origination of such Mortgage Loans (including the second lien) is approximately 100.00%.

With respect to any Mortgage Loans originated with a simultaneous second lien, foreclosure frequency may be increased relative to Mortgage Loans that were originated without a simultaneous second lien because the mortgagors on Mortgage Loans with a simultaneous second lien have less equity in the mortgaged property than is shown in the loan-to-value ratios set forth in this prospectus supplement. Investors should also note that any mortgagor may obtain secondary financing at any time subsequent to the date of origination of their mortgage loan from the Originator or from any other lender.

Interest-Only Mortgage Loans

Approximately 13.79% of the Group I Mortgage Loans and approximately 30.20% of the Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the related loan group as of the Cut-off Date, require the mortgagors to make monthly payments only of accrued interest for the first five years following origination. After such interest-only period, the mortgagor’s monthly payment will be recalculated to cover both interest and principal so that the Mortgage Loan will amortize fully prior to its final payment date. Interest-only mortgage loans have been originated in significant volume only recently. As a result, the long-term performance characteristics of these loans are largely unknown. The interest-only feature may reduce the likelihood of prepayment during the interest-only period due to the smaller monthly payments relative to a fully-amortizing mortgage loan. If the monthly payment increases, the related mortgagor may not be able to pay the increased amount and may default or may refinance the related mortgage loan to avoid the higher payment. In addition, due to the lack of amortization the borrower may not be able to refinance because of insufficient equity in the property. Because no principal payments may be made on such mortgage loans for an extended period following origination, if the mortgagor defaults, the unpaid principal balance of the related Mortgage Loan will be greater than otherwise would be the case, increasing the risk of loss in that situation. In addition, the Class A and Mezzanine Certificates will receive smaller principal payments during the interest-only period than they would have received if the related mortgagors were required to make monthly payments of interest and principal for the entire lives of such Mortgage Loans.

Investors should consider the fact that interest-only mortgage loans reduce the monthly payment required by mortgagors during the interest-only period and consequently, the monthly housing expense used to qualify mortgagors. As a result, interest-only mortgage loans may allow some mortgagors to qualify for a mortgage loan who would not otherwise qualify for a fully amortizing loan or may allow them to qualify for a larger mortgage loan than otherwise would be the case.

 



 

Risks Associated With Mortgage Loans Secured by Manufactured Homes

Approximately 0.03% of the Group I Mortgage Loans and approximately 0.07% of the Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the related loan group as of the Cut-off Date, are secured by a lien on real estate to which a manufactured home has been permanently attached. Under the laws of most states, a manufactured home that has been permanently attached to its site becomes subject to real estate title and recording laws. The Seller has recorded or caused to be recorded a real estate mortgage or deed of trust where the related manufactured home is located in order to perfect a security interest in each manufactured home securing a mortgage loan to be conveyed to the trust. If, however, the manufactured home is deemed not permanently attached to the real estate, under the laws of most states, it will be considered personal property and perfection of a security interest in such manufactured home is effected, depending on applicable state law, either by noting the security interest on the certificate of title for the manufactured home or by filing a financing statement under the Uniform Commercial Code of the state where the manufactured home is located. Consequently, if a determination is made that the manufactured home is considered personal property, other parties could obtain an interest in the manufactured home which is prior to the security interest retained by the trust. For further information regarding the primary risk to holders of mortgage loans secured by manufactured homes, see “Legal Aspects of Mortgage Assets - Manufactured Housing Contracts” in the prospectus.

Geographic Concentration Risk

The charts entitled “Geographic Distribution” for the Mortgage Loans presented in Annex III list geographic concentrations of the Group I Mortgage Loans and the Group II Mortgage Loans, respectively, by state. Because of the relative geographic concentration of the mortgaged properties within certain states, losses on the Mortgage Loans may be higher than would be the case if the mortgaged properties were more geographically diversified. For example, some of the mortgaged properties may be more susceptible to certain types of special hazards, such as earthquakes, hurricanes, floods, mudslides, wildfires and other natural disasters and major civil disturbances, than residential properties located in other parts of the country.

In addition, the conditions below will have a disproportionate impact on the Mortgage Loans in general:

Economic conditions in states with high concentrations of Mortgage Loans may affect the ability of mortgagors to repay their loans on time even if such conditions do not affect real property values.

Declines in the residential real estate markets in states with high concentrations of Mortgage Loans may reduce the value of properties located in those states, which would result in an increase in loan-to-value ratios.

Any increase in the market value of properties located in states with high concentrations of Mortgage Loans would reduce loan-to-value ratios and could, therefore, make alternative sources of financing available to mortgagors at lower interest rates, which could result in an increased rate of prepayment of the Mortgage Loans.

Hurricanes May Pose Special Risks

At the end of August 2005 and September 2005, Hurricane Katrina and Hurricane Rita, respectively, caused catastrophic damage to areas in the Gulf Coast region of the United States. The Seller will represent and warrant as of the Closing Date that each mortgaged property is free of material damage and in good repair (including Mortgage Loans that are secured by properties in the states of Texas, Louisiana, Mississippi and Alabama that are located in a FEMA Individual Assistance designated area as a result of Hurricane Katrina or Hurricane Rita). In the event of a breach of that representation and warranty that materially and adversely affects the value of such Mortgage Loan, the Seller will be obligated to repurchase or substitute for the related Mortgage Loan. Any such repurchase would have the effect of increasing the rate of principal payment on the Class A and Mezzanine Certificates. Any damage to a mortgaged property that secures a Mortgage Loan in the Trust occurring after the Closing Date as a result of any other casualty event (including, but not limited to, other hurricanes) will not cause a breach of this representation and warranty.

The full economic impact of Hurricane Katrina and Hurricane Rita is uncertain but may affect the ability of borrowers to make payments on their mortgage loans. We have no way to determine the particular nature of such economic effects, how long any of these effects may last, or how these effects may impact the performance of the Mortgage Loans. Any impact of these events on the performance of the Mortgage Loans may increase the amount of losses borne by the holders of the Class A or Mezzanine Certificates or impact the weighted average lives of the Class A or Mezzanine Certificates.

 



 

Violation of Various Federal and State 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 the Originator. 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 the Mortgage Loans.

The Mortgage Loans are also subject to federal laws, including:

the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to the mortgagors regarding the terms of the 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;

the Fair Credit Reporting Act, which regulates the use and reporting of information related to the mortgagor’s credit experience;

the Depository Institutions Deregulation and Monetary Control Act of 1980, which preempts certain state usury laws; and

the Alternative Mortgage Transaction Parity Act of 1982, which preempts certain state lending laws which regulate alternative mortgage transactions.

Violations of certain provisions of these federal and state laws may limit the ability of the Master Servicer to collect all or part of the principal of or interest on the Mortgage Loans and in addition could subject the Trust to damages and administrative enforcement and could result in the mortgagors rescinding such Mortgage Loans whether held by the Trust or subsequent holders of the Mortgage Loans.

The Seller will represent that each Mortgage Loan at the time of origination, was in compliance with applicable federal, state and local laws and regulations. In the event of a breach of such representation, the Seller will be obligated to cure such breach or repurchase or replace the affected Mortgage Loan in the manner described in the prospectus. If the Seller is unable or otherwise fails to satisfy such obligations, the yield on the Class A and Mezzanine Certificates may be materially and adversely affected.

High Cost Loans

The Seller will represent that none of the Mortgage Loans will be “High Cost Loans” within the meaning of the Home Ownership and Equity Protection Act of 1994 (the “Homeownership Act”) and none of the Mortgage Loans will be high cost loans under any state or local law, ordinance or regulation similar to the Homeownership Act. See “Legal Aspects of Mortgage Assets—Anti-Deficiency Legislation and Other Limitations on Lenders” in the prospectus.

In addition to the Homeownership Act, a number of legislative proposals have been introduced at the federal, state and municipal level that are designed to discourage predatory lending practices. Some states have enacted, or may enact, laws or regulations that prohibit inclusion of some provisions in mortgage loans that have mortgage rates or origination costs in excess of prescribed levels, and require that mortgagors be given certain disclosures prior to the consummation of such mortgage loans. In some cases, state law may impose requirements and restrictions greater than those in the Homeownership Act. The Originator’s failure to comply with these laws could subject the Trust, and other assignees of the Mortgage Loans, to monetary penalties and could result in the mortgagors rescinding such Mortgage Loans whether held by the Trust or subsequent holders of the 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 include numerous participants within the secondary mortgage market, including some securitization trusts.

Under the anti-predatory lending laws of some states, the borrower is required to meet a net tangible benefits test in connection with the origination of the related mortgage loan. 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 an originator reasonably believed that the test was

 



satisfied. Any determination by a court that a Mortgage Loan does not meet the test will result in a violation of the state anti-predatory lending law, in which case the Seller will be required to purchase such Mortgage Loan from the Trust.

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

Substantial delays could be encountered in connection with the liquidation of delinquent Mortgage Loans. Further, reimbursement of advances made on a Mortgage Loan and liquidation expenses such as legal fees, real estate taxes and maintenance and preservation expenses may reduce the portion of liquidation proceeds distributable to you. If a mortgaged property fails to provide adequate security for the Mortgage Loan, you will incur a loss on your investment if the credit enhancements are insufficient to cover the loss.

The Difference Between the Pass-Through Rates on the Class A and Mezzanine Certificates and the Mortgage Rates on the Mortgage Loans May Affect the Yields on such Certificates

Each class of Class A and Mezzanine Certificates accrues interest at a pass-through rate based on a one-month LIBOR index plus a specified margin, but such pass-through rate is subject to a limit. The limit on the pass-through rate for each class of Class A Certificates is based on the weighted average of the mortgage rates of the Mortgage Loans in the related loan group, net of certain fees and expenses of the Trust (including any Net Swap Payment and any Swap Termination Payment owed to the Interest Rate Swap Provider other than Swap Termination Payments resulting from a Swap Provider Trigger Event). The limit on the pass-through rate for each class of Mezzanine Certificates is based on the weighted average (weighted on the basis of the results of subtracting from the aggregate principal balance of each loan group the current certificate principal balance of the related Class A Certificates) of (i) the limit on the Group I Certificates and (ii) the limit on the Group II Certificates. The adjustable-rate Mortgage Loans have mortgage rates that adjust based on a six-month LIBOR index, have periodic and lifetime limitations on adjustments to their mortgage rates, and have the first adjustment to their mortgage rates two, three or five years after the origination thereof. The fixed-rate Mortgage Loans have mortgage rates that do not adjust. As a result of the limits on the pass-through rates on the Class A and Mezzanine Certificates, such certificates may accrue less interest than they would accrue if their pass-through rates were based solely on the one-month LIBOR index plus the specified margin.

A variety of factors could limit the pass-through rates and adversely affect the yields to maturity on the Class A and Mezzanine Certificates. Some of these factors are described below.

The pass-through rates for the Class A and Mezzanine Certificates may adjust monthly while the mortgage rates on the adjustable-rate Mortgage Loans adjust less frequently and the mortgage rates on the fixed-rate Mortgage Loans do not adjust at all. Furthermore, all of the adjustable-rate Mortgage Loans will have the first adjustment to their mortgage rates two, three or five years after their origination. Consequently, the limits on the pass-through rates on the Class A and Mezzanine Certificates may prevent any increases in the pass-through rate on one or more classes of such certificates for extended periods in a rising interest rate environment.

If prepayments, defaults and liquidations occur more rapidly on the applicable Mortgage Loans with relatively higher mortgage rates than on the Mortgage Loans with relatively lower mortgage rates, the pass-through rate on one or more classes of Class A and Mezzanine Certificates is more likely to be limited.

The mortgage rates on the adjustable-rate Mortgage Loans may respond to different economic and market factors than does one-month LIBOR. It is possible that the mortgage rates on the adjustable-rate Mortgage Loans may decline while the pass-through rates on the Class A and Mezzanine Certificates are stable or rising. It is also possible that the mortgage rates on the adjustable-rate Mortgage Loans and the pass-through rates on the Class A and Mezzanine Certificates may both decline or increase during the same period, but that the pass-through rates on the Class A and Mezzanine Certificates may decline more slowly or increase more rapidly.

If the pass-through rate on any class of Class A or Mezzanine Certificates is limited for any Distribution Date, the resulting basis risk shortfalls may be recovered by the holders of the certificates on the same Distribution Date or on future Distribution Dates, to the extent that on such Distribution Date or future Distribution Dates there are any available funds remaining after certain other distributions on the Class A and Mezzanine Certificates and the payment of certain fees and expenses of the Trust (including any Net Swap Payment and any Swap Termination Payment owed to the Interest Rate Swap Provider other than Swap Termination Payments

 



resulting from a Swap Provider Trigger Event). The ratings on the Class A and Mezzanine Certificates will not address the likelihood of any recovery of basis risk shortfalls by holders of the Class A and Mezzanine Certificates.

Amounts used to pay such shortfalls on the Class A and Mezzanine Certificates may be supplemented by the Interest Rate Swap Agreement to the extent that the floating rate payment by the Interest Rate Swap Provider exceeds the fixed rate payment by the Trust on any Distribution Date and such amount is available in the priority described in this prospectus supplement. However, the amount received from the Interest Rate Swap Provider under the Interest Rate Swap Agreement may be insufficient to pay the holders of the applicable certificates the full amount of interest which they would have received absent the limitations of the rate cap.

Risk Relating to Distribution Priority of the Group II Certificates

As set forth in this prospectus supplement under “Description of the Certificates—Principal Distributions,” principal distributions on the classes of Group II Certificates will be made in a sequential manner. The weighted average lives of the classes of Group II Certificates receiving principal distributions later will be longer than would be the case if distributions of principal were to be allocated on a pro rata basis among such classes of Group II Certificates. In addition, as a result of a sequential allocation of principal, the holders of the classes of Group II Certificates receiving principal distributions later will have a greater risk of losses on the related mortgage loans, adversely affecting the yields to maturity on such certificates. See “Description of the Certificates— Principal Distributions” for more information.

The Rate and Timing of Principal Distributions on the Class A and Mezzanine Certificates Will Be Affected by Prepayment Speeds

The rate and timing of distributions allocable to principal on the Class A and Mezzanine Certificates will depend, in general, on the rate and timing of principal payments (including prepayments and collections upon defaults, liquidations and repurchases) on the Mortgage Loans and the allocation thereof to distribute principal on such certificates as described under “Description of the Certificates—Principal Distributions” in this prospectus supplement. As is the case with asset-backed pass-through certificates generally, the Class A and Mezzanine Certificates are subject to substantial inherent cash-flow uncertainties because the Mortgage Loans may be prepaid at any time.

With respect to approximately 58.26% of the Group I Mortgage Loans and approximately 54.29% of the Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the related loan group as of the Cut-off Date, a mortgagor principal prepayment may subject the related mortgagor to a prepayment charge, subject to certain limitations in the related mortgage note and limitations upon collection in the Pooling and Servicing Agreement. Generally, each such Mortgage Loan provides for payment of a prepayment charge on certain prepayments made within a defined period set forth in the related mortgage note (generally within the first three years but possibly as short as one year from the date of origination of such mortgage loan). A prepayment charge may or may not act as a deterrent to prepayment of the related Mortgage Loan.

The rate of prepayments on the Mortgage Loans will be sensitive to prevailing interest rates. Generally, when prevailing interest rates are increasing, prepayment rates on mortgage loans tend to decrease. A decrease in the prepayment rates on the Mortgage Loans will result in a reduced rate of principal distributions to investors in the Class A and Mezzanine Certificates at a time when reinvestment at such higher prevailing rates would be desirable. Conversely, when prevailing interest rates are declining, prepayment rates on mortgage loans tend to increase. An increase in the prepayment rates on the Mortgage Loans will result in a greater rate of principal distributions to investors in the Class A and Mezzanine Certificates at a time when reinvestment at comparable yields may not be possible. Furthermore, because the mortgage rates for the adjustable-rate Mortgage Loans are based on six-month LIBOR plus a fixed percentage amount, such rates could be higher than prevailing market interest rates at the time of adjustment, and this may result in an increase in the rate of prepayments on such Mortgage Loans after such adjustment.

The Seller may be required to repurchase Mortgage Loans from the Trust in the event certain breaches of representations and warranties have not been cured. In addition, the NIMS Insurer, if any, or the Master Servicer may purchase Mortgage Loans 90 days or more delinquent, subject to the conditions set forth in the Pooling and Servicing Agreement. The Seller anticipates selling all or a portion of the Class CE, Class P or Residual Certificates to one or more unaffiliated parties in one or more private transactions. As part of such sale, the Master Servicer will agree, upon the direction of such purchaser, to exercise its purchase right with respect to Mortgage Loans 90 days or more delinquent, subject to the conditions set forth in the Pooling and Servicing Agreement. These purchases will have the same effect on the holders of the Class A and Mezzanine Certificates as a prepayment of those Mortgage Loans.

 



 

The holders of the Class CE Certificates, the Master Servicer or the NIMS Insurer, if any, may purchase all of the Mortgage Loans when the aggregate principal balance of the Mortgage Loans (and properties acquired in respect thereof) is less than 10% of the aggregate principal balance of the Mortgage Loans as of the Cut-off Date.

The Yields to Maturity on the Class A and Mezzanine Certificates Will Depend on a Variety of Factors

The yield to maturity on each class of Class A and Mezzanine Certificates will depend, in general, on (i) the applicable pass-through rate thereon from time to time; (ii) the applicable purchase price; (iii) the rate and timing of principal payments (including prepayments and collections upon defaults, liquidations and repurchases) and the allocation thereof to reduce the certificate principal balance of such certificates; (iv) the rate, timing and severity of realized losses on the Mortgage Loans; (v) adjustments to the mortgage rates on the adjustable-rate Mortgage Loans; (vi) the amount of excess interest generated by the Mortgage Loans; (vii) the allocation to the Class A and Mezzanine Certificates of some types of interest shortfalls and (viii) payments due from the Trust in relationship to payments received from the Interest Rate Swap Provider under the Interest Rate Swap Agreement.

In general, if the Class A and Mezzanine Certificates are purchased at a premium and principal distributions thereon occur at a rate faster than anticipated at the time of purchase, the investor’s actual yield to maturity will be lower than that assumed at the time of purchase. Conversely, if the Class A and Mezzanine Certificates are purchased at a discount and principal distributions thereon occur at a rate slower than that anticipated at the time of purchase, the investor’s actual yield to maturity will be lower than that originally assumed.

As a result of the absorption of realized losses on the Mortgage Loans by excess interest and overcollateralization, each as described in this prospectus supplement, liquidations of defaulted Mortgage Loans, whether or not realized losses are allocated to the Mezzanine Certificates upon such liquidations, will result in an earlier return of principal to the Class A and Mezzanine Certificates and will influence the yields on such certificates in a manner similar to the manner in which principal prepayments on the Mortgage Loans will influence the yields on the Class A and Mezzanine Certificates. The overcollateralization provisions are intended to result in an accelerated rate of principal distributions to holders of the Class A and Mezzanine Certificates at any time that the overcollateralization provided by the mortgage pool falls below the required level.

Potential Inadequacy of Credit Enhancement for the Class A and Mezzanine Certificates

The credit enhancement features described in this prospectus supplement are intended to increase the likelihood that holders of the Class A and Mezzanine Certificates will receive regular distributions of interest and principal. If delinquencies or defaults occur on the Mortgage Loans, neither the Master Servicer nor any other entity will advance scheduled monthly payments of interest and principal on delinquent or defaulted Mortgage Loans if such advances are deemed non-recoverable. If substantial losses occur as a result of defaults and delinquent payments on the Mortgage Loans, holders of the Offered Certificates may suffer losses.

With respect to those Mortgage Loans insured by the AVM Insurer, although the values of such mortgaged properties are insured by the AVM Insurer, recovery is dependent on establishing the actual value of the applicable mortgaged property at the time the related mortgage loan was originated. Because a substantial amount of time may have passed since the date of origination of the applicable mortgage loan, it may be difficult to establish the actual value of the related mortgaged property retrospectively.

Interest Generated by the Mortgage Loans May Be Insufficient to Maintain or Restore Overcollateralization

The Mortgage Loans are expected to generate more interest than is needed to distribute interest owed on the Class A and Mezzanine Certificates and to pay certain fees and expenses of the Trust (including any Net Swap Payment owed to the Interest Rate Swap Provider). Any remaining interest generated by the Mortgage Loans will first be used to absorb losses that occur on the Mortgage Loans and will then be used to maintain or restore overcollateralization. We cannot assure you, however, that enough excess interest will be generated to maintain or restore the required level of overcollateralization. The factors described below will affect the amount of excess interest that the Mortgage Loans will generate.

Each time a Mortgage Loan is prepaid in full, liquidated, written off or repurchased, excess interest may be reduced because the Mortgage Loan will no longer be outstanding and generating interest or, in the case of a partial prepayment, will be generating less interest.

 



 

If the rates of delinquencies, defaults or losses on the Mortgage Loans are higher than expected, excess interest will be reduced by the amount necessary to compensate for any shortfalls in cash available to make required distributions on the Class A and Mezzanine Certificates.

The adjustable-rate Mortgage Loans have mortgage rates that adjust less frequently than, and on the basis of an index that is different from, the index used to determine the pass-through rates on the Class A and Mezzanine Certificates, and the fixed-rate Mortgage Loans have mortgage rates that do not adjust. As a result, the pass-through rates on the related Class A and Mezzanine Certificates may increase relative to mortgage rates on the applicable Mortgage Loans, requiring that a greater portion of the interest generated by those Mortgage Loans be applied to cover interest on the related Class A and Mezzanine Certificates.

There are Various Risks Associated With the Mezzanine Certificates

The weighted average lives of, and the yields to maturity on, the Mezzanine Certificates will be progressively more sensitive, in increasing order of their numerical class designations, to the rate and timing of mortgagor defaults and the severity of ensuing losses on the Mortgage Loans. If the actual rate and severity of losses on the Mortgage Loans is higher than those assumed by an investor in such certificates, the actual yield to maturity of such certificate may be lower than the yield anticipated by such holder. The timing of losses on the Mortgage Loans will also affect an investor’s yield to maturity, even if the rate of defaults and severity of losses over the life of the mortgage pool are consistent with an investor’s expectations. In general, the earlier a loss occurs, the greater the effect on an investor’s yield to maturity. Realized losses on the Mortgage Loans, to the extent they exceed the amount of excess interest and overcollateralization following distributions of principal on the related Distribution Date, will reduce the certificate principal balance of the class of Mezzanine Certificates then outstanding with the highest numerical class designation. As a result of these reductions, less interest will accrue on these classes of certificates than would be the case if those losses were not so allocated. Once a realized loss is allocated to a Mezzanine Certificate, such written down amount will not be reinstated (except in the case of subsequent recoveries) and will not accrue interest. However, the amount of any realized losses allocated to the Mezzanine Certificates may be distributed to the holders of such certificates according to the priorities set forth under “Description of the Certificates—Overcollateralization Provisions” and “Description of the Certificates—The Interest Rate Swap Agreement and the Swap Account” in this prospectus supplement.

Unless the aggregate certificate principal balance of the Class A Certificates has been reduced to zero, the Mezzanine Certificates will not be entitled to any principal distributions until at least the Distribution Date in March 2009 or a later date as provided in this prospectus supplement or during any period in which delinquencies or realized losses on the Mortgage Loans exceed certain levels described under “Description of the Certificates—Principal Distributions” in this prospectus supplement. As a result, the weighted average lives of such certificates will be longer than would be the case if distributions of principal were allocated among all of the certificates at the same time. As a result of the longer weighted average lives of such certificates, the holders of such certificates have a greater risk of suffering a loss on their investments. Further, because such certificates might not receive any principal if certain delinquency levels described under “Description of the Certificates—Principal Distributions” in this prospectus supplement are exceeded, it is possible for such certificates to receive no principal distributions on a particular Distribution Date even if no losses have occurred on the mortgage pool.

In addition, the multiple class structure of the Mezzanine Certificates causes the yield of such classes to be particularly sensitive to changes in the rates of prepayment on the Mortgage Loans. Because distributions of principal will be made to the holders of the Mezzanine Certificates according to the priorities described in this prospectus supplement, the yield to maturity on such classes of certificates will be sensitive to the rates of prepayment on the Mortgage Loans experienced both before and after the commencement of principal distributions on such classes. The yield to maturity on the Mezzanine Certificates will also be extremely sensitive to losses due to defaults on the Mortgage Loans (and the timing thereof), to the extent such losses are not covered by excess interest otherwise distributable to the Class CE Certificates or a class of Mezzanine Certificates with a higher numerical class designation. Furthermore, as described in this prospectus supplement, the timing of receipt of principal and interest by the Mezzanine Certificates may be adversely affected by losses even if such classes of certificates do not ultimately bear such loss.

Prepayment Interest Shortfalls and Relief Act Shortfalls

When a Mortgage Loan is prepaid, the mortgagor is charged interest on the amount prepaid only up to (but not including) the date on which the prepayment is made, rather than for an entire month. This may result in a shortfall in interest collections available for distribution on the next Distribution Date. The Master Servicer is required to cover a portion of the shortfall in interest collections

 



that are attributable to prepayments, but only up to the amount of the Master Servicer’s servicing fee for the related period. In addition, certain shortfalls in interest collections arising from the application of the Servicemembers Civil Relief Act and similar state laws (the “Relief Act”) will not be covered by the Master Servicer.

On any Distribution Date, any shortfalls resulting from the application of the Relief Act and any prepayment interest shortfalls to the extent not covered by compensating interest paid by the Master Servicer, in each case regardless of which loan group experienced the shortfall, will first, reduce the interest accrued on the Class CE Certificates, and thereafter, will reduce the monthly interest distributable amounts with respect to the Class A and Mezzanine Certificates, on a pro rata basis based on the respective amounts of interest accrued on such certificates for such Distribution Date. The holders of the Class A and Mezzanine Certificates will not be entitled to reimbursement for any such interest shortfalls. If these shortfalls are allocated to the Class A and Mezzanine Certificates, the amount of interest distributed to those certificates will be reduced, adversely affecting the yield on your investment.

Reimbursement of Advances by the Master Servicer Could Delay Distributions on the Certificates

Under the Pooling and Servicing Agreement, the Master Servicer will make cash advances to cover delinquent payments of principal and interest on the Mortgage Loans to the extent it reasonably believes that the cash advances are recoverable from future payments on the Mortgage Loans. The Master Servicer may make such advances from amounts held for future distribution. In addition, the Master Servicer may withdraw from the collection account funds that were not included in Available Funds for the preceding Distribution Date to reimburse itself for advances previously made. Any such amounts withdrawn by the Master Servicer in reimbursement of advances previously made are generally required to be replaced by the Master Servicer on or before the next Distribution Date, subject to subsequent withdrawal. To the extent that the Master Servicer is unable to replace any amounts withdrawn in reimbursement of advances previously made, there could be a delay in distributions on the Class A and Mezzanine Certificates. Furthermore, the Master Servicer’s right to reimburse itself for advances previously made from funds held for future distribution could lead to amounts required to be restored to the collection account by the Master Servicer that are higher, and potentially substantially higher, than one month’s advance obligation.

The Offered Certificates are Obligations of the Trust Only

The Offered Certificates will not represent an ownership interest in or obligation of the Depositor, the Master Servicer, the Seller, the Originator, the Trustee or any of their respective affiliates. Neither the Offered Certificates nor the underlying Mortgage Loans will be guaranteed or insured by any governmental agency or instrumentality, or by the Depositor, the Master Servicer, the Seller, the Originator, the Trustee or any of their respective affiliates. Proceeds of the assets included in the Trust will be the sole source of distributions on the Class A and Mezzanine Certificates, and there will be no recourse to the Depositor, the Master Servicer, the Seller, the Originator, the Trustee or any other entity in the event that such proceeds are insufficient or otherwise unavailable to make all distributions provided for under the Offered Certificates.

The Interest Rate Swap Agreement and the Interest Rate Swap Provider

Any amounts received from the Interest Rate Swap Provider under the Interest Rate Swap Agreement will be applied as described in this prospectus supplement to pay interest shortfalls and basis risk shortfalls, maintain overcollateralization and cover losses. However, no amounts will be payable by the Interest Rate Swap Provider unless the floating amount owed by the Interest Rate Swap Provider on a Distribution Date exceeds the fixed amount owed to the Interest Rate Swap Provider on such Distribution Date. This will not occur except in periods when one-month LIBOR (as determined pursuant to the Interest Rate Swap Agreement) exceeds 4.978%. No assurance can be made that any amounts will be received under the Interest Rate Swap Agreement, or that any such amounts that are received will be sufficient to maintain required overcollateralization or to cover interest shortfalls, basis risk shortfalls and losses on the Mortgage Loans. Any net payment payable to the Interest Rate Swap Provider under the terms of the Interest Rate Swap Agreement will reduce amounts available for distribution to Certificateholders, and may reduce the Pass-Through Rates of the certificates. If the rate of prepayments on the Mortgage Loans is faster than anticipated, the schedule on which payments due under the Interest Rate Swap Agreement are calculated may exceed the aggregate principal balance of the Mortgage Loans, thereby increasing the relative proportion of interest collections on the Mortgage Loans that must be applied to make net payments to the Interest Rate Swap Provider. The combination of a rapid rate of prepayment and low prevailing interest rates could adversely affect the yields on the Class A and Mezzanine Certificates. In addition, any termination payment payable to the Interest Rate Swap Provider (other than Swap Termination Payments resulting from a Swap Provider Trigger Event) will reduce amounts available for distribution to Certificateholders.

 



 

Upon early termination of the Interest Rate Swap Agreement, the Trust or the Interest Rate Swap Provider may be liable to make a Swap Termination Payment to the other party (regardless of which party caused the termination). The Swap Termination Payment will be computed in accordance with the procedures set forth in the Interest Rate Swap Agreement. In the event that the Trust is required to make a Swap Termination Payment, that payment will be paid on the related Distribution Date, and on any subsequent Distribution Dates until paid in full, generally prior to distributions to Certificateholders. This feature may result in losses on the Certificates. Due to the priority of the applications of the Available Funds, the Mezzanine Certificates will bear the effects of any shortfalls resulting from a Net Swap Payment or Swap Termination Payment by the Trust before such effects are borne by the Class A Certificates and one or more classes of Mezzanine Certificates may suffer a loss as a result of such payment. Investors should note that the level of one-month LIBOR as of February 7, 2006 is approximately 4.570% which means the Issuing Entity will make a Net Swap Payment to the Interest Rate Swap Provider unless and until one-month LIBOR equals approximately 4.978%.

To the extent that distributions on the Class A and Mezzanine Certificates depend in part on payments to be received by the Trust under the Interest Rate Swap Agreement, the ability of the Trustee to make such distributions on such certificates will be subject to the credit risk of the Interest Rate Swap Provider. The credit ratings of the Interest Rate Swap Provider as of the date of this prospectus supplement are lower than the ratings assigned to the Class A Certificates. See “The Interest Rate Swap Provider” in this prospectus supplement.

The Liquidity of Your Certificates May Be Limited

Neither Merrill Lynch, Pierce, Fenner & Smith Incorporated nor Greenwich Capital Markets, Inc. (together, the “Underwriters”) has any obligation to make a secondary market in the classes of Offered Certificates. There is therefore no assurance that a secondary market will develop or, if it develops, that it will continue. 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 markets for asset-backed securities have experienced periods of illiquidity and can be expected to do so in the future. Illiquidity can have a severely adverse effect on the prices of securities 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.

The Ratings on the Certificates Could Be Reduced or Withdrawn

Each rating agency rating the Class A and Mezzanine Certificates may change or withdraw its initial ratings at any time in the future if, in its sole judgment, circumstances warrant a change. No person is obligated to maintain the ratings at their initial levels. If a rating agency reduces or withdraws its rating on one or more classes of the Class A or Mezzanine Certificates, the liquidity and market value of the affected certificates is likely to be reduced.

Rights of the NIMS Insurer May Negatively Impact the Class A and Mezzanine Certificates

One or more insurance companies (together, the “NIMS Insurer”) may issue a financial guaranty insurance policy covering certain payments to be made on net interest margin securities to be issued by a separate trust. Such net interest margin securities will not be backed by any of the Mortgage Loans or other assets of the Trust but will be secured by, among other things, all or a portion of the Class CE, Class P and/or Residual Certificates. The issuance of such net interest margin securities will not affect distributions on the Certificates. Pursuant to the terms of the Pooling and Servicing Agreement, unless there exists a continuance of any failure by the NIMS Insurer, if any, to make a required payment under the policy insuring the net interest margin securities (such event, a “NIMS Insurer Default”), the NIMS Insurer, if any, will be entitled to exercise, among others, the following rights of the holders of the Class A and Mezzanine Certificates, without the consent of such holders, and the holders of the Class A and Mezzanine Certificates may exercise such rights only with the prior written consent of the NIMS Insurer, if any: (i) the right to provide notices of Master Servicer defaults and the right to direct the Trustee to terminate the rights and obligations of the Master Servicer under the Pooling and Servicing Agreement in the event of a default by the Master Servicer; (ii) the right to remove the Trustee or any co-trustee or custodian pursuant to the Pooling and Servicing Agreement; and (iii) the right to direct the Trustee to make investigations and take actions pursuant to the Pooling and Servicing Agreement. In addition, unless a NIMS Insurer Default exists, such NIMS Insurer’s consent will be required prior to, among other things, (i) the removal and replacement of the Master Servicer, any successor master servicer or the Trustee, (ii) the appointment or termination of any subservicer or co-trustee or (iii) any amendment to the Pooling and Servicing Agreement. The NIMS Insurer, if any, will not have any claim against the Mortgage Loans.

 



 

Investors in the Class A and Mezzanine Certificates should note that:

any insurance policy issued by the NIMS Insurer, if any, will not cover, and will not benefit, in any manner whatsoever, the Class A or Mezzanine Certificates;

the rights to be granted to the NIMS Insurer, if any, are extensive;

the interests of the NIMS Insurer, if any, may be inconsistent with, and adverse to, the interests of the holders of the Class A and Mezzanine Certificates and the NIMS Insurer, if any, has no obligation or duty to consider the interests of the Class A and Mezzanine Certificates in connection with the exercise or non-exercise of such NIMS Insurer’s rights;

such NIMS Insurer’s, if any, exercise of the rights and consents set forth above may negatively affect the Class A and Mezzanine Certificates and the existence of such NIMS Insurer’s, if any, rights, whether or not exercised, may adversely affect the liquidity of the Class A and Mezzanine Certificates relative to other asset-backed certificates backed by comparable mortgage loans and with comparable payment priorities and ratings; and

there may be more than one series of notes insured by the NIMS Insurer and the NIMS Insurer will have the rights set forth herein so long as any such series of notes remain outstanding.

Environmental Risks

Federal, state and local laws and regulations impose a wide range of requirements on activities that may affect the environment, health and safety. In certain circumstances, these laws and regulations impose obligations on owners or operators of residential properties such as those that secure the mortgage loans. Failure to comply with these laws and regulations can result in fines and penalties that could be assessed against the Trust as owner of the related property.

In some states, a lien on the property due to contamination has priority over the lien of an existing mortgage. Further, a mortgage lender may be held liable as an “owner” or “operator” for costs associated with the release of petroleum from an underground storage tank under certain circumstances. If the Trust is considered the owner or operator of a property, it may suffer losses as a result of any liability imposed for environmental hazards on the property.

Terrorist Attacks and Military Action Could Adversely Affect the Yield on your Certificates

The terrorist attacks in the United States on September 11, 2001 suggest that there is an increased likelihood of future terrorist activity in the United States. In addition, current political and military tensions in the Middle East have resulted in a significant deployment of United States military personnel in the region. Investors should consider the possible effects of past and possible future terrorist attacks and any resulting military response by the United States on the delinquency, default and prepayment experience of the Mortgage Loans. In accordance with the servicing standard set forth in the Pooling and Servicing Agreement, the Master Servicer may defer, reduce or forgive payments and delay foreclosure proceedings in respect of Mortgage Loans to mortgagors affected in some way by such past and possible future events.

In addition, the current deployment of United States military personnel in the Middle East and the activation of a substantial number of United States military reservists and members of the National Guard may significantly increase the proportion of Mortgage Loans whose mortgage rates are reduced by the application of the Relief Act and similar state laws. See “Legal Aspects of Mortgage Assets—Servicemembers Civil Relief Act” in the prospectus. Certain shortfalls in interest collections arising from the application of the Relief Act or any state law providing for similar relief will not be covered by the Master Servicer, any subservicer or any bond guaranty insurance policy.

Legal Actions and Regulatory Actions are Pending Against the Sponsor

Because the nature of the sub-prime mortgage lending and servicing business involves the collection of numerous accounts, the validity of liens and compliance with state and federal lending laws, sub-prime lenders and servicers, including the Sponsor, are subject to numerous claims, legal actions and other matters regarding regulatory compliance (collectively, “Actions”) in the ordinary course of their businesses. These Actions may include lawsuits styled as class actions alleging violations of various federal and state consumer protection laws. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to

 



such Actions, and an adverse judgment in one or more Actions may have a significant adverse financial effect on the Sponsor, the Sponsor believes that the aggregate amount of liabilities arising from such Actions will not result in monetary damages which will have a material adverse effect on the financial condition or results of the Sponsor. For further information, please see “The Seller, Sponsor and Master Servicer—Legal Actions are Pending Against the Sponsor” and “—Regulatory Matters Concerning the Sponsor” in this prospectus supplement.

Suitability of the Class A and Mezzanine Certificates as Investments

The Class A and Mezzanine Certificates are not suitable investments for any investor that requires a regular or predictable schedule of monthly payments or payment on any specific date. The Class A and Mezzanine Certificates are complex investments that should be considered only by investors who, either alone or with their financial, tax and legal advisors, have the expertise to analyze the prepayment, reinvestment, default and market risk, the tax consequences of an investment and the interaction of these factors.

USE OF PROCEEDS

The Seller will sell the Mortgage Loans to the Depositor and the Depositor will convey the Mortgage Loans to the Trust in exchange for and concurrently with the delivery of the Certificates. Net proceeds, after deduction of expenses, equal to approximately $1,457,392,369 from the sale of the Offered Certificates will be applied by the Depositor to the purchase of the Mortgage Loans from the Seller. These net proceeds, together with delivery of the Class M-11, Class CE, Class P and Residual Certificates (or the proceeds from the private placement thereof) will represent the Purchase Price to be paid by the Depositor to the Seller for the Mortgage Loans. The Seller will have acquired the Mortgage Loans prior to the sale of the Mortgage Loans to the Depositor.

AFFILIATIONS, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Ameriquest Mortgage Securities Inc. (the “Depositor”) is a Delaware corporation and is a direct wholly-owned subsidiary of Ameriquest Mortgage Company.

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 and either the Sponsor and the Depositor.

The Underwriters or their affiliates have ongoing banking relationships with affiliates of the Depositor. Approximately 0.1078% of the proceeds received from the sale of the Offered Certificates will be used by the Depositor to satisfy obligations under financing facilities in place with affiliates of the Underwriters with respect to some of the Mortgage Loans.

THE MORTGAGE POOL

The statistical information presented in this prospectus supplement relates to the Mortgage Loans as of the Cut-off Date. References to percentages of the Mortgage Loans in this prospectus supplement are based on the aggregate scheduled principal balance of such Mortgage Loans as specified in the amortization schedule at the Cut-off Date after application of all amounts allocable to unscheduled payments of principal received prior to the Cut-off Date. Prior to the issuance of the Certificates, some Mortgage Loans may be removed from the mortgage pool as a result of incomplete documentation or otherwise and any Mortgage Loans that prepay or default will be removed. Other mortgage loans may be included in the mortgage pool prior to the issuance of the Certificates. However, the removal and inclusion of such mortgage loans will not alter the aggregate principal balance of the Mortgage Loans, any statistic presented on a weighted average basis or any statistic based on a particular loan group or all of the Mortgage Loans by plus or minus 5%, although the range of mortgage rates, maturities or certain other characteristics of the Mortgage Loans may vary.

If any material pool characteristic of the Mortgage Loans on the Closing Date differs by more than 5% or more from the description of the Mortgage Loans in this prospectus supplement, the Depositor will file updated pool characteristics by Form 8-K within four days following the Closing Date.

 



 

General

The mortgage loans delivered to the Trust on the Closing Date (the “Mortgage Loans”) will consist of conventional, one- to four-family, adjustable-rate and fixed-rate mortgage loans. The Depositor will purchase the Mortgage Loans from the Seller pursuant to the Mortgage Loan Purchase Agreement, to be dated as of the date of this prospectus supplement (the “Mortgage Loan Purchase Agreement”), between the Seller and the Depositor. Pursuant to the Pooling and Servicing Agreement, to be dated as of the Cut-off Date (the “Pooling and Servicing Agreement”), among the Depositor, the Master Servicer and the Trustee, the Depositor will cause the Mortgage Loans to be assigned to the Trustee for the benefit of the certificateholders.

The Group I Mortgage Loans and the Group II Mortgage Loans are expected to have an aggregate principal balance as of the Cut-off Date of approximately $1,258,594,398 and $241,418,645, respectively.

The Mortgage Loans will be secured by mortgages or deeds of trust or other similar security instruments creating first or second liens on residential properties (the “Mortgaged Properties”) consisting of attached, detached or semi-detached one- to four-family dwelling units, individual condominium units or individual units in planned unit developments and manufactured housing. The Mortgage Loans will have original terms to maturity of not greater than 30 years from the date on which the first payment was due on each Mortgage Loan. Approximately 0.15% of the Group I Mortgage Loans and approximately 2.89% of the Group II Mortgage Loans are secured by second liens, in each case by aggregate scheduled principal balance of the related loan group as of the Cut-off Date.

Each adjustable-rate Mortgage Loan will accrue interest at the adjustable-rate calculated as specified under the terms of the related mortgage note and each fixed-rate Mortgage Loan will have a Mortgage Rate that is fixed for the life of such Mortgage (each such rate, a “Mortgage Rate”).

All of the Mortgage Loans were originated by Ameriquest Mortgage Company. The Mortgage Loans were selected by the Seller and the Depositor using criteria established by the Seller and the Depositor in consultation with other parties.

The adjustable-rate Mortgage Loans will provide for semi-annual adjustment to the Mortgage Rate thereon and for corresponding adjustments to the monthly payment amount due thereon, in each case on each adjustment date applicable thereto (each such date, an “Adjustment Date”); provided, that the first adjustment for approximately 66.70% of the adjustable-rate Group I Mortgage Loans and approximately 71.69% of the adjustable-rate Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the adjustable-rate Mortgage Loans in the related loan group as of the Cut-off Date, will occur after an initial period of two years after origination, the first adjustment for approximately 32.39% of the adjustable-rate Group I Mortgage Loans and approximately 26.58% of the adjustable-rate Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the adjustable-rate Mortgage Loans in the related loan group as of the Cut-off Date, will occur after an initial period of three years after origination, and the first adjustment for approximately 0.91% of the adjustable-rate Group I Mortgage Loans and approximately 1.73% of the adjustable-rate Group II Mortgage Loans, in each case by aggregate scheduled principal balance of the adjustable-rate Mortgage Loans in the related loan group as of the Cut-off Date, will occur after an initial period of five years after origination. On each Adjustment Date for each adjustable-rate Mortgage Loan, the Mortgage Rate thereon will be adjusted (subject to rounding) to equal the sum of the applicable Index (as defined below) and a fixed percentage amount (the “Gross Margin”). The Mortgage Rate on substantially all adjustable-rate Mortgage Loans will not decrease on the first related Adjustment Date, will not increase by more than 2.000% per annum (with respect to adjustable-rate Mortgage Loans with a fixed initial period of two or three years) or 6.000% per annum (with respect to adjustable-rate Mortgage Loans with a fixed initial period of five years) on the first related Adjustment Date (the “Initial Periodic Rate Cap”) and will not increase or decrease by more than 1.000% per annum on any Adjustment Date thereafter (the “Periodic Rate Cap”). Each Mortgage Rate on each adjustable-rate Mortgage Loan will not exceed a specified maximum Mortgage Rate over the life of such Mortgage Loan (the “Maximum Mortgage Rate”) or be less than a specified minimum Mortgage Rate over the life of such Mortgage Loan (the “Minimum Mortgage Rate”). Effective with the first monthly payment due on each adjustable-rate Mortgage Loan after each related Adjustment Date, the monthly payment amount will be adjusted to an amount that will amortize fully the outstanding principal balance of the related Mortgage Loan over its remaining term, and pay interest at the Mortgage Rate as so adjusted. Due to the application of the Periodic Rate Caps and the Maximum Mortgage Rates, the Mortgage Rate on each such adjustable-rate Mortgage Loan, as adjusted on any related Adjustment Date, may be less than the sum of the Index and the related Gross Margin, rounded as described herein. None of the adjustable-rate Mortgage Loans permits the related mortgagor to convert the adjustable Mortgage Rate thereon to a fixed Mortgage Rate.

The Mortgage Loans will have scheduled monthly payments due on the first day of the month (with respect to each Mortgage Loan, a “Due Date”). Each Mortgage Loan will contain a customary “due-on-sale” clause which provides that (subject to state and

 



federal restrictions) the Mortgage Loan must be repaid at the time of sale of the related mortgaged property or with the consent of the holder of the mortgage note assumed by a creditworthy purchaser of the related mortgaged property.

None of the Mortgage Loans will be buydown mortgage loans. A buydown mortgage loan consists of monthly payments made by the mortgagor during the buy-down period that will be less than the scheduled monthly payments on the mortgage loan, the resulting difference to be made up from: (i) funds contributed by the seller of the mortgaged property or another source and placed in the buy-down account; (ii) if the funds are contributed on a present value basis, investment earnings on the funds; or (iii) additional funds to be contributed over time by the mortgagor’s employer or another source.

The Originator provides loans primarily to borrowers who do not qualify for loans conforming to the underwriting standards of more traditional lenders but who generally have equity in their property and the apparent ability to repay. While the Originator’s primary consideration in underwriting a mortgage loan are the applicant’s credit standing and repayment ability as well as the value and adequacy of the mortgaged property as collateral, the Originator also considers, among other things, the applicant’s credit history, debt service-to-income ratio, and the type and occupancy status of the mortgaged property. As a result of such underwriting standards, the Mortgage Loans are likely to experience rates of delinquency, foreclosure and bankruptcy that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner. See “Risk Factors”, “-Underwriting Standards of the Originator” and Annex II of this prospectus supplement.

For purposes of calculating interest and principal distributions on the Class A Certificates, the Mortgage Loans will be divided into two loan groups, designated as the “Group I Mortgage Loans” and the “Group II Mortgage Loans.” The Group I Mortgage Loans will consist of adjustable-rate and fixed-rate mortgage loans with principal balances at origination that conform to Freddie Mac loan limits and the Group II Mortgage Loans will consist of adjustable-rate and fixed-rate mortgage loans with principal balances at origination that may or may not conform to Freddie Mac or Fannie Mae loan limits. As of the Closing Date, the loan limits of Freddie Mac and Fannie Mae are as follows:

 

Maximum Original Loan Amount

Number of Units

Continental United States or
Puerto Rico

Alaska, Guam, Hawaii or

Virgin Islands

1

$417,000

$625,500

2

$533,850

$800,775

3

$645,300

$967,950

4

$801,950

$1,202,925

Approximately 58.26% of the Group I Mortgage Loans and approximately 54.29% of the Group II Mortgage Loans, in each case by aggregate scheduled principal balances of the related loan group as of the Cut-off Date, provide for payment by the mortgagor of a prepayment charge on certain principal prepayments, subject to certain limitations in the related mortgage note and limitations upon collection in the Pooling and Servicing Agreement. Generally, each such Mortgage Loan provides for payment of a prepayment charge on certain prepayments made within a defined period set forth in the related Mortgage Note (generally within the first three years but possibly as short as one year from the date of origination of such Mortgage Loan). The amount of the prepayment charge is as provided in the related Mortgage Note. The holders of the Class P Certificates will be entitled to all prepayment charges received on the Mortgage Loans in each loan group, and such amounts will not be available for distribution on the other classes of Certificates. Under certain instances, as described under the terms of the Pooling and Servicing Agreement, the Master Servicer may waive the payment of any otherwise applicable prepayment charge. Investors should conduct their own analysis of the effect, if any, that the prepayment charges, and decisions by the Master Servicer with respect to the waiver thereof, may have on the prepayment performance of the Mortgage Loans. The Depositor makes no representation as to the effect that the prepayment charges, and decisions by the Master Servicer with respect to the waiver thereof, may have on the prepayment performance of the Mortgage Loans. As of July 1, 2003, the Alternative Mortgage Parity Act of 1982 (the “Parity Act”), which regulates the ability of the Originator to impose prepayment charges, was amended, and as a result, the Originator will be required to comply with state and local laws in originating mortgage loans with prepayment charge provisions with respect to loans originated on or after July 1, 2003. However, the ruling of the Office of Thrift Supervision (the “OTS”) does not retroactively affect loans originated before July 1, 2003. See “Legal Aspects of Mortgage Assets—Enforceability of Certain Provisions—Prepayment Charges” in the prospectus.

Mortgage Loan Statistics

The Group I Mortgage Loans consist of 8,067 adjustable-rate and fixed-rate Mortgage Loans having an aggregate principal balance as of the Cut-off Date of approximately $1,258,594,398, after application of scheduled payments due on or before the Cut-off

 



Date whether or not received and application of all unscheduled payments of principal received prior to the Cut-off Date, and subject to a permitted variance of plus or minus 5%. None of the Group I Mortgage Loans had a first Due Date prior to August 1, 2005 or after March 1, 2006, or will have a remaining term to stated maturity of less than 114 months or greater than 360 months as of the Cut-off Date. The latest maturity date of any Group I Mortgage Loan is February 1, 2036. The Group I Mortgage Loans are expected to have the characteristics set forth in Annex III of this prospectus supplement as of the Cut-off Date (the sum in any column may not equal the total indicated due to rounding).

The Group II Mortgage Loans consist of 979 adjustable-rate and fixed-rate Mortgage Loans having an aggregate principal balance as of the Cut-off Date of approximately $241,418,645, after application of scheduled payments due on or before the Cut-off Date whether or not received and application of all unscheduled payments of principal received prior to the Cut-off Date, and subject to a permitted variance of plus or minus 5%. None of the Group II Mortgage Loans had a first Due Date prior to July 1, 2005 or after March 1, 2006, or will have a remaining term to stated maturity of less than 116 months or greater than 360 months as of the Cut-off Date. The latest maturity date of any Group II Mortgage Loan is February 1, 2036. The Group II Mortgage Loans are expected to have the characteristics set forth in Annex III of this prospectus supplement as of the Cut-off Date (the sum in any column may not equal the total indicated due to rounding).

The Depositor believes that the information set forth in this prospectus supplement and in Annex III with respect to the Mortgage Loans will be representative of the characteristics of the mortgage pool as it will be constituted at the time the Certificates are issued, although the range of mortgage rates and maturities and certain other characteristics of the Mortgage Loans may vary. The characteristics of the final mortgage pool will not differ materially from the information provided herein.

Unless otherwise noted, all statistical percentages or weighted averages set forth in this prospectus supplement are measured as a percentage of the aggregate scheduled principal balance of the Mortgage Loans in the related loan group as of the Cut-off Date.

FICO Scores

“FICO Scores” are statistical credit scores obtained by many mortgage lenders in connection with the loan application to help assess a mortgagor’s creditworthiness. FICO Scores are generated by models developed by a third party and are made available to lenders through three national credit bureaus. The models were derived by analyzing data on consumers in order to establish patterns which are believed to be indicative of the mortgagor’s probability of default. The FICO Score is based on a mortgagor’s historical credit data, including, among other things, payment history, delinquencies on accounts, levels of outstanding indebtedness, length of credit history, types of credit, and bankruptcy experience. FICO Scores range from approximately 250 to approximately 900, with higher scores indicating an individual with a more favorable credit history compared to an individual with a lower score. However, a FICO Score purports only to be a measurement of the relative degree of risk a mortgagor represents to a lender, i.e., that a mortgagor with a higher score is statistically expected to be less likely to default in payment than a mortgagor with a lower score. In addition, it should be noted that FICO Scores were developed to indicate a level of default probability over a two-year period which does not correspond to the life of a mortgage loan. Furthermore, FICO Scores were not developed specifically for use in connection with mortgage loans, but for consumer loans in general. Therefore, a FICO Score does not take into consideration the effect of mortgage loan characteristics on the probability of repayment by the mortgagor. The FICO Scores set forth in the tables in Annex III to this prospectus supplement were obtained at the time of origination of the Mortgage Loans. None of the Seller, the Originator, the Master Servicer, the Trustee, the Underwriters or the Depositor makes any representations or warranties as to the actual performance of any Mortgage Loan or that a particular FICO Score should be relied upon as a basis for an expectation that the mortgagor will repay the Mortgage Loan according to its terms.

The Index

The Index for each adjustable-rate Mortgage Loan will be set forth in the related Mortgage Note. The “Index” is the average of interbank offered rates for six-month U.S. dollar deposits in the London market based on quotations of major banks, and most recently available as of a day specified in the related mortgage note as published in the Western Edition of The Wall Street Journal (“Six-Month LIBOR”). If the Index becomes unpublished or is otherwise unavailable, the Master Servicer will select an alternative index which is based upon comparable information.

 



 

THE ISSUING ENTITY

Ameriquest Mortgage Securities Trust 2006-R1, the “Issuing Entity” or the “Trust”, will be a New York common law trust established pursuant to the Pooling and Servicing Agreement. The Trust will not own any assets other than the Mortgage Loans and the other assets described under “The Pooling and Servicing Agreement” in this prospectus supplement. The Trust will not have any liabilities other than those incurred in connection with the Pooling and Servicing Agreement and any related agreement. The Trust will not have any directors, officers, or other employees. No equity contribution will be made to the Trust by the Sponsor, the Depositor or any other party, and the Trust will not have any other capital. The fiscal year end of the Trust will be December 31. The Trust will act through the Trustee and the Master Servicer.

THE DEPOSITOR

Ameriquest Mortgage Securities Inc., the Depositor, is a Delaware corporation incorporated on December 23, 1999 as a wholly-owned subsidiary of Ameriquest Mortgage Company. The Depositor was organized for the purpose of serving as a private secondary mortgage market conduit. The Depositor maintains its principal office at 1100 Town & Country Road, Orange, California 92868. Its telephone number is (714) 541-9960.

The Depositor does not have, nor is it expected in the future to have, any significant assets. There will be no further obligations of the Depositor subsequent to the issuance of the Certificates.

THE ORIGINATOR

All of the Mortgage Loans were originated by Ameriquest Mortgage Company (the “Originator”). The Originator provided the information in the following paragraphs. The Originator has been originating mortgage loans since 1979.

The following table summarizes Ameriquest’s retail originated one- to four-family residential mortgage loan origination and whole loan sales and securitization activity for the periods shown below. Origination and sales activity may include mortgage loans originated by Ameriquest’s affiliate Town & Country Credit Corporation and AMC Mortgage Services, Inc. (in its former capacity as Bedford Home Loans, Inc.) or purchased by Ameriquest from other loan originators.

Retail Originations

 

Year Ended December 31,

 

Nine Months Ending

September 30,

 

2002

2003

2004

 

2005

 

(Dollars in Thousands)

Originations

$ 10,107,718

$ 20,554,463

$35,438,393

 

$       24,017,749

Whole Loan Sales

And Securitizations

$  9,942,525

$ 21,019,463

$32,601,896

 

$       24,477,777

 

Underwriting Standards of the Originator

All of the Mortgage Loans acquired by the Seller were originated in accordance with guidelines (the “Underwriting Guidelines”) established by the Originator as described below and with one of the following income documentation types: “Full Documentation,” “Limited Documentation” or “Stated Income.” The Underwriting Guidelines are primarily intended to evaluate: (1) the applicant’s credit standing and repayment ability and (2) the value and adequacy of the mortgaged property as collateral. On a case-by-case basis, the Originator may determine that, based upon compensating factors, a loan applicant, not strictly qualifying under one of the Risk Categories described below, warrants an exception to the requirements set forth in the Underwriting Guidelines. Compensating factors may include, but are not limited to, loan-to-value ratio, debt-to-income ratio, good credit history, stable employment history, length at current employment and time in residence at the applicant’s current address. It is expected that a substantial number of the Mortgage Loans to be included in the mortgage pool will represent such underwriting exceptions.

The Underwriting Guidelines are less stringent than the standards generally acceptable to more traditional lenders with regard to: (1) the applicant’s credit standing and repayment ability and (2) the property offered as collateral. Applicants who qualify under the Underwriting Guidelines generally have payment histories and debt ratios which would not satisfy the underwriting guidelines of

 



more traditional lenders and may have a record of major derogatory credit items such as outstanding judgments or prior bankruptcies. The Underwriting Guidelines establish the maximum permitted loan-to-value ratio for each loan type based upon these and other risk factors.

All of the Mortgage Loans originated by the Originator are based on loan application packages submitted directly or indirectly by a loan applicant to the Originator. Each loan application package has an application completed by the applicant that includes information with respect to the applicant’s liabilities, income, credit history and employment history, as well as certain other personal information. The Originator also obtains (or the broker submits) a credit report on each applicant from a credit reporting company. The credit report typically contains the reported information relating to such matters as credit history with local and national merchants and lenders, installment debt payments and reported records of default, bankruptcy, repossession and judgments. If applicable, the loan application package must also generally include a letter from the applicant explaining all late payments on mortgage debt and, generally, consumer (i.e. non-mortgage) debt.

During the underwriting process, the Originator reviews and verifies the loan applicant’s sources of income (except under the Stated Income and Limited Documentation types, under which programs, such information may not be independently verified), calculates the amount of income from all such sources indicated on the loan application, reviews the credit history of the applicant, calculates the debt-to-income ratio to determine the applicant’s ability to repay the loan, and reviews the mortgaged property for compliance with the Underwriting Guidelines. The Underwriting Guidelines are applied in accordance with a procedure which complies with applicable federal and state laws and regulations and requires either (A) (i) an appraisal of the mortgaged property which conforms to the Uniform Standards of Professional Appraisal Practice and are generally on forms similar to those acceptable to Fannie Mae and Freddie Mac and (ii) a review of such appraisal, which review may be conducted by a representative of the Originator or a fee appraiser and may include a desk review of the original appraisal or a drive-by review appraisal of the mortgaged property or (B) an insured automated valuation model. The Underwriting Guidelines permit loans with loan-to-value ratios at origination of up to 95%, subject to certain Risk Category limitations (as further described in that section). The maximum allowable loan-to-value ratio varies based upon the income documentation, property type, creditworthiness, debt service-to-income ratio of the applicant and the overall risks associated with the loan decision. Under the Underwriting Guidelines, the maximum loan-to-value ratio, including any second deeds of trust subordinate to the Originator’s first deed of trust, is 100%.

 

A.

Income Documentation Types

Approximately 69.16%, 16.35% and 14.49% of the Mortgage Loans were originated under the Full Documentation, Limited Documentation and Stated Income documentation programs, respectively, each as further described below.

Full Documentation. The Full Documentation residential loan program is generally based upon current year to date income documentation as well as income documentation for the previous 24 months (i.e., tax returns and/or W-2 forms) or bank statements for the previous 24 months. The documentation required is specific to the applicant’s sources of income. The applicant’s employment and/or business licenses are generally verified.

Limited Documentation. The Limited Documentation residential loan program is generally based on bank statements from the past twelve months supported by additional documentation provided by the applicant or current year to date documentation. The applicant’s employment and/or business licenses are generally verified.

Stated Income. The Stated Income residential loan program requires the applicant’s employment and income sources to be stated on the application. The applicant’s income as stated must be reasonable for the related occupation in the loan underwriter’s discretion. However, the applicant’s income as stated on the application is not independently verified.

 

B.

Property Requirements

Properties that are to secure mortgage loans have a valuation obtained by either: (1) an appraisal performed by a qualified and licensed appraiser who is an independent appraiser who is in good standing with the Originator’s in-house appraisal department or (2) subject to the Originator’s Underwriting Guidelines, an insured automated valuation model. Generally, properties below average standards in condition and repair are not acceptable as security for mortgage loans under the Underwriting Guidelines. Each appraisal includes a market data analysis based on recent sales of comparable homes in the area and, where deemed appropriate, replacement cost analysis based on the current cost of constructing a similar home. Every independent appraisal is reviewed by a representative of the Originator or a fee appraiser before the mortgage loan is funded. The Originator requires that all mortgage loans have title

 



insurance. The Originator also requires that fire and extended coverage casualty insurance be maintained on the property in an amount equal to the lesser of the principal balance of the mortgage loan or the replacement cost of the property.

Approximately 23.04% of the Group I Mortgage Loans and approximately 9.83% of the Group II Mortgage Loans were originated using an insured automated valuation model (“Insured AVM”). If the proposed loan meets certain underwriting criteria of the Originator, it will be screened for Insured AVM acceptability.

The following table outlines the general underwriting criteria for Insured AVM acceptability:

Condition

Qualification Criteria

Lien Type:

Loan Type:

Credit Grades:

Maximum LTV:

Maximum CLTV:

Minimum FICO:

Maximum Loan Amount:

 

Property Type:

 

 

 

 

 

 

Property Location:

AVM Confidence Score:

First-Lien

Refinance

B and higher

90%

100%

550

$249,999 – when credit score is 550-619

$499,999 – when credit score is 620 and above

Single Family

Single Family-Attached

Planned Unit Development

Planned Unit Development –Attached

Condominium

No Mobile/Manufactured Housing

No 2-4 Family Units

No rural

Medium or High

 

Upon the liquidation of the mortgaged property, if the Insured AVM is determined to have overstated the mortgaged property’s value as of the date originally made, the AVM Insurer is liable for the lesser of: (i) losses of principal and (ii) the amount by which the Insured AVM overstated the mortgaged property’s value at origination. St. Paul Travelers (the “AVM Insurer”) is the provider under the master policy for the Insured AVM.

Any dwelling unit built on a permanent chassis (including mobile homes) and attached to a permanent foundation system is a “manufactured home” for purposes of the Originator’s guidelines. Any of the following factors would make a manufactured home ineligible under the Originator’s guidelines: manufactured homes located in a mobile home park or on leasehold land; manufactured homes not built in accordance with HUD guidelines; manufactured homes with additions; manufactured homes not classified as real property; single wide mobile homes; and manufactured homes located in the following states: Delaware, Hawaii, Iowa, Maryland, New Jersey, New York, North Dakota, Oklahoma, Pennsylvania, Rhode Island and Texas. Other factory-built housing, such as modular, prefabricated, panelized, or sectional housing is not considered a “manufactured home” under the Originator’s guidelines.

 

C.

Risk Categories

Under the Underwriting Guidelines, various Risk Categories are used to grade the likelihood that the mortgagor will satisfy the repayment conditions of the mortgage loan. These Risk Categories establish the maximum permitted loan-to-value ratio and loan amount, given the occupancy status of the mortgaged property and the mortgagor’s credit history and debt ratio. In general, higher credit risk mortgage loans are graded in Risk Categories which permit higher debt ratios and more (or more recent) major derogatory credit items such as outstanding judgments or prior bankruptcies; however, the Underwriting Guidelines establish lower maximum loan-to-value ratios and lower maximum loan amounts for loans graded in such Risk Categories.

 



 

The Underwriting Guidelines have the following Risk Categories and criteria for grading the potential likelihood that an applicant will satisfy the repayment obligations of a mortgage loan:

Risk Categories (1)

Mortgage History

(Last 12 Months)

no lates

1 x 30

3 x 30

1 x 60

1 x 90

1 x 120

FICO Score

Credit Grade

710+

8A

4A

2A

A

C

C

680 - 709

7A

4A

2A

A

C

C

660 - 679

6A

3A

2A

A

C

C

640 - 659

5A

3A

2A

A

C

C

620 - 639

4A

2A

A

A

C

C

600 - 619

3A

2A

A

B

C

C

580 - 599

2A

A

A

B

C

D

550 - 579

A

A

A

B

C

D

520 - 549

B

B

B

C

D

D

500 - 519

C

C

C

D

D

D

Bankruptcy or Foreclosure

8A - 3A: 36 months

2A - A: 24 months

B: 12 months

C: Not current

D: Dismissed/discharged prior to closing

Maximum Debt Ratio

8A – D: 55%

 

 

 

(1)

Interest-only loans may be subject to additional and differing requirements, including: a maximum debt ratio of 50%; no non-owner occupied properties; no rural properties; no bankruptcies in the last 36 months; a maximum LTV ratio of 90%; a minimum FICO score of 600; and a minimum credit risk of 3A.

 

 

 



 

Loan-to-Value Limits (1)(2)

 

LTV Limits

Credit Grade

Limit

7A - 8A

95%

A - 6A

90%

C – B

80%

D

65%

Loan Size

Limit

$0-$59,999

80%*

$60,000-$79,999

90%

$80,000-$417,000

95%

$417,001-$750,000

90%

$750,001 and up

85%

Occupancy

Limit

Non-Owner

90%

Owner Occupied

95%

Second Home

85%

Property Type

Limit

SFR

95%

PUD

95%

2-4 Units

90%

Condo

95%

Document Type

Limit

Full Documentation

95%

Limited Documentation

90%

Stated Income

90%

*Loan amounts of $0-$59,999 are for Michigan only

 

 

(1)

The maximum LTV referenced is for mortgagors providing Full Documentation or Limited Documentation. Reductions to LTV are as follows: 5% for properties located in rural locations and 5% for debt ratios in excess of 50%. In addition, borrowers may, in certain circumstances, be able to increase their credit grade by 5% by providing 2 or 6 months of reserves.

 

(2)

Under the 80/20 Purchase Program, a first and second lien are closed simultaneously to allow applicants to borrow up to 100% combined CLTV.

 

THE SELLER, SPONSOR AND MASTER SERVICER

Ameriquest Mortgage Company provided the information set forth in the following paragraphs.

Ameriquest Mortgage Company (sometimes referred to herein as “Ameriquest,” the “Seller,” the “Sponsor,” the “Originator” or the “Master Servicer”), a Delaware corporation, is a specialty finance company engaged in the business of originating, purchasing and selling retail and wholesale sub-prime mortgage loans secured by one- to four-family residences. Ameriquest’s mortgage business was begun in 1979 as a savings and loan association and later as a federal savings bank. In 1994 Ameriquest ceased depository operations to focus entirely on its mortgage banking business. In May 1997, Ameriquest sold its wholesale operations and reorganized its retail lending and servicing operations under the name of “Ameriquest Mortgage Company” (the “Reorganization”). In January of 2000, Ameriquest recommenced wholesale lending as a separate division (a.k.a. Argent Mortgage Company, L.L.C.) while continuing its retail and servicing operations. As of January 1, 2003, the wholesale lending division of Ameriquest reorganized its business as a wholly owned subsidiary of Ameriquest under the name of Argent Mortgage Company, L.L.C. Argent Mortgage Company, L.L.C. is currently an affiliate of Ameriquest but is no longer a subsidiary of Ameriquest. Effective as of the close of business on December 31, 2004, the loan servicing division of Ameriquest was transferred to an affiliate, AMC Mortgage Services, Inc. (formerly known as Bedford Home Loans, Inc.). Currently, AMC Mortgage Services, Inc. acts as a sub-servicer for Ameriquest and originates retail loans.

Securitization of mortgage loans originated by the Sponsor or its affiliates is an integral part of the Sponsor’s management of its capital. Since 2000, the Sponsor has engaged in securitizations of mortgage loans originated by the Sponsor or its affiliates through the Depositor. The Sponsor has been engaged in securitizations of mortgage loans through other depositors since 1996.

 



 

The following table shows, for each of the most recent three years, the aggregate principal balance of all mortgage loans originated by the Sponsor and its affiliates and the portion of those mortgage loans securitized during that year.

Origination and Securitization of Mortgage Loans

 

At December 31,

Nine Months Ended September 30

 

2002

2003

2004

2005

 

(Dollar Amounts in thousands)

 

Aggregate Principal Balance of Mortgage Loans Originated by Sponsor and its affiliates

$14,940,669

$41,694,619

$82,757,745

$62,803,473

% of Mortgage Loans Securitized

51.8%

68.9%

60.4%

59.2%

 

With respect to 11 of the 85 securitizations of the Depositor or its affiliate, Argent Securities Inc. (“ARSI”) since 2000, a trigger event has occurred with respect to the loss and delinquency experience of the mortgage loans included in the related trust, resulting in a sequential distribution of principal to the related offered certificates, from the certificate with the highest credit rating to the one with the lowest rating.

Pursuant to the Pooling and Servicing Agreement, Ameriquest will serve as the Master Servicer for the Mortgage Loans. Ameriquest is approved as a seller/servicer for Fannie Mae and Freddie Mac and as a non-supervised mortgagee by the U.S. Department of Housing and Urban Development. As of September 30, 2005, Ameriquest had 285 retail offices (consisting of 38 loan origination centers located in California and 247 loan origination centers located throughout the rest of the United States).

Lending Activities and Loan Sales. Ameriquest Mortgage Company currently originates real estate loans through its network of retail branches. Ameriquest also participates in secondary market activities by originating and selling mortgage loans while continuing to service the majority of the loans sold. In other cases Ameriquest’s whole loan sale agreements provide for the transfer of servicing rights.

Ameriquest’s primary lending activity is funding loans to enable mortgagors to purchase or refinance residential real property, which loans are secured by first or second liens on the related real property. Ameriquest’s single-family real estate loans are predominantly “conventional” mortgage loans, meaning that they are not insured by the Federal Housing Administration or partially guaranteed by the U.S. Department of Veterans Affairs.

Loan Servicing. Ameriquest services all of the mortgage loans it or any affiliate originates which are portfolio retained and continues to service a majority of its and its affiliates loans that have been sold to investors. Servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, and supervising foreclosure in the event of unremedied defaults. Ameriquest’s servicing activities are audited periodically by applicable regulatory authorities. Certain financial records of Ameriquest relating to its loan servicing activities are reviewed annually as part of the audit of Ameriquest’s financial statements conducted by its independent accountants.

Collection Procedures; Delinquency and Loss Experience. When a mortgagor fails to make a required payment on a residential mortgage loan, Ameriquest attempts to cause the deficiency to be cured by corresponding or making telephone contact with the mortgagor. Pursuant to Ameriquest’s customary procedures for residential mortgage loans serviced by it for its own account, Ameriquest generally mails a notice of intent to foreclose to the mortgagor within ten days after the loan has become 31 days past due (two payments due but not received) and upon expiration of the notice of intent to foreclose, generally one month thereafter, if the loan remains delinquent, typically institutes appropriate legal action to foreclose on the property securing the loan. If foreclosed, the property is sold at a public or private sale. Ameriquest, in its capacity as Master Servicer, typically enters a bid based upon an analysis of the property value, estimated marketing and carrying costs and presence of junior liens, which may be equal to or less than the full amount owed. In the event the property is acquired at the foreclosure sale by Ameriquest, as Master Servicer, it is placed on the market for sale through local real estate brokers experienced in the sale of similar properties.

 



 

Ameriquest Residential Loan Servicing Portfolio—Retail Originations

The following table sets forth the delinquency and loss experience at the dates indicated for residential (one- to four-family) retail first lien mortgage loans serviced by Ameriquest that were originated or purchased by Ameriquest’s retail division (including loans originated or purchased by Ameriquest prior to the Reorganization) either directly, or through Ameriquest’s affiliates, Town & Country Credit Corporation and AMC Mortgage Services, Inc. (in its former capacity as Bedford Home Loans, Inc.):

 

At December 31,

At September 30,

 

2002

2003

2004

2005

 

(Dollars in Thousands)

Total Outstanding Principal Balance

$  14,858,277

$  26,163,721

$  39,725,751

$    43,910,370

Number of Loans

       127,716

       198,902

       267,604

         296,778

DELINQUENCY

 

 

 

 

Period of Delinquency:

 

 

 

 

31-60 Days

 

 

 

 

Principal Balance

$       242,400

$       368,227

$       598,542

$       745,141

Number of Loans

            2,455

            3,348

            4,994

             5,865

Delinquency as a Percentage of Total Outstanding Principal Balance

 

            1.63%

 

               1.41%

 

             1.51%

 

               1.70%

Delinquency as a Percentage

of Number of Loans

 

            1.92%

 

               1.68%

 

             1.87%

 

               1.98%

61-90 Days

 

 

 

 

Principal Balance

$       138,666

$       183,342

$       331,491

$       350,074

Number of Loans

            1,382

            1,714

            2,757

             2,816

Delinquency as a Percentage of Total Outstanding Principal Balance

 

            0.93%

 

               0.70%

 

             0.83%

 

               0.80%

Delinquency as a Percentage

of Number of Loans

 

            1.08%

 

               0.86%

 

             1.03%

 

               0.95%

91 Days or More

 

 

 

 

Principal Balance

$       661,405

$    1,013,144

$    1,464,824

$    1,547,867

Number of Loans

            7,059

            9,869

          12,919

           13,078

Delinquency as a Percentage of Total Outstanding Principal Balance

 

            4.45%

 

               3.87%

 

             3.69%

 

               3.53%

Delinquency as a Percentage

of Number of Loans

 

            5.53%

 

               4.96%

 

             4.83%

 

               4.41%

Total Delinquencies:

 

 

 

 

Principal Balance

$    1,042,471

$    1,564,713

$    2,392,587

$    2,643,082

Number of Loans

          10,896

          14,931

          20,670

           21,759

Delinquency as a Percentage of Total Outstanding Principal Balance

 

            7.02%

 

               5.98%

 

             6.02%

 

               6.02%

Delinquency as a Percentage

of Number of Loans

 

            8.53%

 

               7.51%

 

             7.72%

 

               7.33%

FORECLOSURES PENDING(1)

 

 

 

 

Principal Balance

$       486,159

$       661,027

$    1,122,392

$    1,180,446

Number of Loans

            5,085

            6,474

            9,804

             9,859

Foreclosures Pending as a Percentage of Total Outstanding Principal Balance

 

            3.27%

 

               2.53%

 

             2.83%

 

               2.69%

Foreclosures Pending as a Percentage of Number of Loans

 

            3.98%

 

               3.25%

 

             3.66%

 

               3.32%

NET LOAN LOSSES for the

Period (2)

 

$         82,293

 

$       105,463

 

$       151,988

 

$     $133,510

NET LOAN LOSSES as a Percentage of Total

Outstanding Principal Balance

 

            0.72%

 

               0.52%

 

             0.43%

 

               0.42%

 

 

(1)

Includes mortgage loans which are in foreclosure but as to which title to the mortgaged property has not been acquired, at the end of the period indicated. Foreclosures pending are included in the delinquencies set forth above.

   

(2)

The net loan loss for any such loan is equal to the difference between (a) the principal balance plus accrued interest through the date of liquidation plus all liquidation expenses related to such loan and (b) all amounts received in connection with the liquidation of such loan.

 

 

Ameriquest Residential Loan Servicing Portfolio—Wholesale Originations

The following table sets forth the delinquency and loss experience at the dates indicated for residential (one- to four-family) wholesale first lien mortgage loans serviced by Ameriquest that were originated or purchased by Ameriquest, either directly, or through Argent Mortgage Company, L.L.C. and Olympus Mortgage Company:

 

 



 

 

 

At December 31,

At September 30,

 

2002

2003

2004

2005

 

(Dollars in Thousands)

Total Outstanding Principal Balance

$     5,121,238

$    23,468,319

$  40,606,293

$    32,090,158

Number of Loans

            29,461

         136,667

       238,319

         185,787

DELINQUENCY

 

 

 

 

Period of Delinquency:

 

 

 

 

31-60 Days

 

 

 

 

Principal Balance

$          35,854

$       200,587

$       513,072

$       447,834

Number of Loans

                205

             1,253

            3,412

             3,178

Delinquency as a Percentage of Total Outstanding Principal Balance

 

            0.70%

 

                  0.85%

 

                  1.26%

  .40%

Delinquency as a Percentage

of Number of Loans

 

            0.70%

 

                  0.92%

 

                  1.43%

 

                  1.71%

61-90 Days

 

 

 

 

Principal Balance

$          22,697

$          88,940

$       272,164

$       234,109

Number of Loans

                129

                556

            1,789

             1,598

Delinquency as a Percentage of Total Outstanding Principal Balance

 

  .44%

 

                  0.38%

 

                  0.67%

 

                  0.73%

Delinquency as a Percentage

of Number of Loans

 

  .44%

 

                  0.41%

 

                  0.75%

 

                  0.86%

91 Days or More

 

 

 

 

Principal Balance

$          40,441

$       290,745

$    1,011,432

$     1,006,525

Number of Loans

                229

             1,775

            7,032

             7,228

Delinquency as a Percentage of Total Outstanding Principal Balance

 

  .79%

 

                  1.24%

 

                  2.49%

 

                  3.14%

Delinquency as a Percentage

of Number of Loans

 

  .78%

 

                  1.30%

 

                  2.95%

 

                  3.92%

Total Delinquencies:

 

 

 

 

Principal Balance

$          98,992

$       580,272

$    1,796,668

$     1,688,468

Number of Loans

                563

             3,584

          12,233

            12,064

Delinquency as a Percentage of Total Outstanding Principal Balance

 

            1.93%

 

                  2.47%

 

                  4.42%

 

                  5.26%

Delinquency as a Percentage

of Number of Loans

 

            1.91%

 

                  2.62%

 

                  5.13%

 

                  6.49%

FORECLOSURES PENDING(1)

 

 

 

 

Principal Balance

$          27,577

$       161,615

$       788,469

$       788,089

Number of Loans

                150

             1,006

            5,453

             5,642

Foreclosures Pending as a Percentage of Total Outstanding Principal Balance

 

            0.54%

 

                  0.69%

 

                  1.94%

  .46%

Foreclosures Pending as a Percentage of Number of Loans

 

            0.51%

 

                  0.74%

 

                  2.29%

 

                  3.04%

NET LOAN LOSSES for the

Period (2)

 

$              259

 

$           7,935

 

$        47,076

 

$       $84,924

NET LOAN LOSSES as a Percentage of Total Outstanding Principal Balance

 

            0.01%

 

                  0.06%

 

                  0.14%

 

                  0.32%

 

 

(1)

Includes mortgage loans which are in foreclosure but as to which title to the mortgaged property has not been acquired. Foreclosures pending are included in the delinquencies set forth above.

   

(2)

The net loan loss for any such loan is equal to the difference between (a) the principal balance plus accrued interest through the date of liquidation plus all liquidation expenses related to such loan and (b) all amounts received in connection with the liquidation of such loan.

 

 

 



 

As of September 30, 2005, 2,854 one- to four-family residential properties relating to loans in Ameriquest’s retail servicing portfolio and 1,879 one- to four-family residential property relating to loans in Ameriquest’s wholesale servicing portfolio had been acquired through foreclosure or deed in lieu of foreclosure and were not liquidated.

The delinquency and loss experience percentages set forth above in the immediately preceding tables are calculated on the basis of the total mortgage loans serviced as of the end of the periods indicated. However, because the total outstanding principal balance of retail residential loans serviced by Ameriquest has increased from $14,858,277,354 at December 31, 2002 to approximately $43,910,370,440 at September 30, 2005 and the total outstanding principal balance of wholesale residential loans serviced by Ameriquest has increased from $5,121,238,268 at December 31, 2002 to approximately $32,090,158,048 at September 30, 2005, the total outstanding principal balance of all loans serviced as of the end of any indicated period includes many loans that will not have been outstanding long enough to give rise to some or all of the indicated periods of delinquency. In the absence of such substantial and continual additions of newly originated loans to the total amount of loans serviced, the percentages indicated above would be higher and could be substantially higher. The actual delinquency percentages with respect to the Mortgage Loans may be expected to be substantially higher than the delinquency percentages indicated above because the composition of the Mortgage Loans will not change.

There can be no assurance that the delinquency and loss experience of the Mortgage Loans will correspond to the loss experience of Ameriquest’s servicing portfolio set forth in the foregoing tables. The statistics shown above represent the delinquency and loss experience for Ameriquest’s total servicing portfolio only for the periods presented, whereas the aggregate delinquency and loss experience on the Mortgage Loans will depend on the results obtained over the life of the Trust. Ameriquest’s servicing portfolio includes mortgage loans with payment and other characteristics that are not representative of the payment and other characteristics of the Mortgage Loans. A substantial number of the Mortgage Loans may also have been originated based on underwriting guidelines that are less stringent than those generally applicable to the servicing portfolio reflected in the foregoing table due to changes in the underwriting standards used by the Sponsor or its affiliates from time to time. If the residential real estate market should experience an overall decline in property values, the actual rates of delinquencies, foreclosures and losses could be higher than those previously experienced by Ameriquest. In addition, adverse economic conditions (which may or may not affect real property values) may affect the timely payment by mortgagors of scheduled payments of principal and interest on the Mortgage Loans and, accordingly, the actual rates of delinquencies, foreclosures and losses with respect to the Mortgage Loans.

Ameriquest Loan Servicing Portfolio— Static Pool Information

Static pool information regarding delinquencies, cumulative losses and prepayments for securitized pools serviced by Ameriquest for the last five years can be obtained from the following website: http://www.amcinvestors.com/amsi/. With respect to information regarding prior securitized pools of the Sponsor that do not include the currently offered pool, information regarding prior securitized pools that were established before January 1, 2006 and with respect to information regarding the currently offered pool, information about the pool for period before January 1, 2006, is not deemed to be a part of this prospectus supplement or the Depositor’s registration statement.

Ameriquest Loan Servicing Portfolio— Advances

Ameriquest, in its capacity as master servicer in connection with securitizations of the Depositor or its affiliate Argent Securities Inc., where it has substantially identical advancing obligations for this transaction, has complied with and fulfilled all of its advancing obligations for all such transactions for the past three years.

Legal Actions are Pending Against the Sponsor

In the year 2000, three plaintiffs filed separate actions in California Superior Court against the Sponsor, including claims under California Code Sections 17200 and 17500, alleging that the Sponsor engaged in unfair business practices in connection with the origination of its mortgage loans. These cases were consolidated in 2001. The complaints sought damages for fraud, restitution and injunctive relief. The claims for fraud and damages were subsequently dismissed on the Sponsor’s motion for summary judgment.

On March 7, 2003, the California Superior Court certified a class including all persons (a) who had obtained a mortgage loan from the Sponsor in California during the period from October 1996 to the present or in any of 32 other states during the period from April 1998 to the present and (b) whose mortgage loan contains or contained terms that differ from those set forth in the Good Faith

 



Estimate (“GFE”) of costs and fees provided to the borrower pursuant to the Real Estate Settlement Procedures Act at the time of the loan application with respect to any of the following: (1) the GFE referred to a fixed rate mortgage loan and the borrower received an adjustable-rate mortgage loan; (2) the GFE contained a lower interest rate than the actual mortgage loan interest rate; (3) the GFE contained lower origination or discount fees than actual fees; (4) the GFE did not provide for any prepayment charges and the mortgage loan obtained contained provisions for prepayment charges; or (5) the mortgage loan obtained did not include monthly payments for property taxes and insurance, and the GFE did not disclose this fact. In August 2003, the California Court of Appeals modified the class as certified by the trial court by reducing the number of states involved from 33 to four, which states are Alabama, Alaska, California and Texas. The settlement was approved by the court on June 24, 2005, and the payout of claims commenced in January 2006.

Regulatory Matters Concerning the Sponsor

On January 23, 2006, ACC Capital Holdings Corporation (“ACCCHC”), the parent company of the Sponsor and its retail lending affiliates, AMC Mortgage Services, Inc. (formerly known as Bedford Home Loans, Inc.) and Town and Country Credit Corp. (collectively, the “Affiliates”) announced that it had entered into a settlement agreement with forty-nine states and the District of Columbia (the “States”). The settlement was reached after representatives of the financial regulatory agencies and/or attorney general’s offices of many of the States raised concerns relating to the lending policies of the Affiliates, for the appropriateness of discount points charged prior to February 2003; the accuracy of appraisal valuations; stated income loans and oral statements to borrowers relating to loan terms and disclosures. ACCCHC has agreed on behalf of itself and the Affiliates to supplement several of its business practices and to submit itself to independent monitoring. Under the terms of the settlement agreement, ACCCHC agreed to pay $295 million toward restitution to borrowers and $30 million to cover the States’ legal costs and other expenses. In June 2005, ACCCHC recorded a provision of $325 million in its financial statements to reflect the expected settlement.

THE TRUSTEE

General

Deutsche Bank National Trust Company (“DBNTC”) will act as Trustee. DBNTC is a national banking association which has an office in Santa Ana, California. DBNTC has previously been appointed to the role of trustee for numerous mortgage-backed transactions in which residential mortgages comprised the asset pool and has significant experience in this area. As Trustee, DBNTC will be calculating certain items and reporting as set forth in the Pooling and Servicing Agreement. DBNTC has acted as calculation agent in numerous mortgage-backed transactions since 1991. DBNTC also will act as a custodian of the mortgage files pursuant to the Pooling and Servicing Agreement. DBNTC has performed this custodial role in numerous mortgage-backed transactions since 1991. DBNTC will maintain the mortgage files in secure, fire-resistant facilities. DBNTC will not physically segregate the mortgage files from other mortgage files in DBNTC’s custody but they will be kept in shared facilities. However, DBNTC’s proprietary document tracking system will show the location within DBNTC’s facilities of each mortgage file and will show that the mortgage loan documents are held by the Trustee on behalf of the trust. DBNTC has no pending legal proceedings that would materially affect its ability to perform its duties as Trustee on behalf of the holders of the Certificates or as custodian. DBNTC may perform certain of its obligations through one or more third party vendors. However, DBNTC shall remain liable for the duties and obligations required of it under the Pooling and Servicing Agreement.

DBNTC is providing the information in the foregoing paragraph at the depositor’s request in order to assist the depositor with the preparation of its disclosure documents to be filed with the SEC pursuant to Regulation AB. Otherwise, DBNTC has not participated in the preparation of such disclosure documents and assumes no responsibility or liability for their contents.

The Trustee will have the following duties under the Pooling and Servicing Agreement: (i) to authenticate and deliver the Certificates; (ii) to maintain a certificate register; (iii) to calculate and make the required distributions to certificateholders on each Distribution Date; (iv) to prepare and make available to certificateholders the monthly distribution reports and any other reports required to be delivered by the Trustee under the Pooling and Servicing Agreement; (v) to act as successor master servicer, or to appoint a successor master servicer; (vi) to perform tax administration services for the Trust as specified in the Pooling and Servicing Agreement and (vii) to communicate with investors and Rating Agencies with respect to the Certificates as specified in the Pooling and Servicing Agreement.

In addition, the Trustee will act as custodian for the Trust pursuant to the Pooling and Servicing Agreement. The Trustee will hold the mortgage notes, mortgages and other legal documents in the mortgage files for the benefit of the certificateholders. The

 



Trustee will review each mortgage file and deliver a certification that each such mortgage file has been received in accordance with the criteria specified in the Pooling and Servicing Agreement.

The principal compensation to be paid to the Trustee in respect of its obligations under the Pooling and Servicing Agreement will be equal to any interest or other income earned on funds held in the distribution account as provided in the Pooling and Servicing Agreement and the Trustee Fee. The Trustee Fee is payable monthly and accrues at the Trustee Fee Rate of 0.0014% per annum on the aggregate principal balance of the Mortgage Loans.

THE INTEREST RATE SWAP PROVIDER

Deutsche Bank AG, New York Branch (the “Branch”) was established in 1978 and is licensed by the New York Superintendent of Banks. Its office is currently located at 60 Wall Street, New York, NY 10005-2858. The Branch is examined by the New York State Banking Department and is subject to the banking laws and regulations applicable to a foreign bank that operates a New York branch. The Branch is also examined by the Federal Reserve Bank of New York. The long-term senior debt of the Branch has been assigned a rating of AA- (outlook stable) by Standard & Poor’s, Aa3 (outlook stable) by Moody’s Investors Services and AA- (outlook stable) by Fitch Ratings.

YIELD ON THE CERTIFICATES

Certain Shortfalls in Collections of Interest

When a principal prepayment in full is made on a Mortgage Loan, the mortgagor is charged interest only for the period from the Due Date of the preceding monthly payment up to (but not including) the date of such prepayment, instead of for a full month. When a partial principal prepayment is made on a Mortgage Loan, the mortgagor is not charged interest on the amount of such prepayment for the month in which such prepayment is made. With respect to any Determination Date and each Mortgage Loan as to which a voluntary principal prepayment in full was applied during the portion of the related Prepayment Period occurring in the month preceding the month of such Determination Date, the “Prepayment Interest Shortfall” is an amount equal to the interest at the applicable Mortgage Rate (net of the Servicing Fee) on the amount of such principal prepayment for the number of days from the day after the last date on which interest was collected from the related mortgagor through the last day of such preceding calendar month. In addition, the application of the Relief Act to any Mortgage Loan will adversely affect, for an indeterminate period of time, the ability of the Master Servicer to collect full amounts of interest on such Mortgage Loan. See “Legal Aspects of Mortgage Assets—Servicemembers Civil Relief Act” in the prospectus.

The Master Servicer is obligated to pay from its own funds Prepayment Interest Shortfalls, but only to the extent of its aggregate Servicing Fee for the related Due Period. See “Pooling and Servicing Agreement—Servicing and Other Compensation and Payment of Expenses” herein. Accordingly, the effect of (i) any Prepayment Interest Shortfall that exceeds any payments made by the Master Servicer from its own funds in respect thereof or (ii) any shortfalls resulting from the application of the Relief Act, will be to reduce the aggregate amount of interest that is distributed to certificateholders. Any such shortfalls will be allocated among the Certificates as provided under “Description of the Certificates—Interest Distributions” and “—Overcollateralization Provisions” herein. If these shortfalls are allocated to the Class A and Mezzanine Certificates the amount of interest distributed to those Certificates will be reduced, adversely affecting the yield on your investment. The holders of the Class A and Mezzanine Certificates will not be entitled to reimbursement for any such interest shortfalls.

General Prepayment and Default Considerations

The yield to maturity on the Class A and Mezzanine Certificates will be sensitive to defaults on the Mortgage Loans. If a purchaser of a Class A or Mezzanine Certificate calculates its anticipated yield based on an assumed rate of default and amount of losses that is lower than the default rate and amount of losses actually incurred, its actual yield to maturity may be lower than that so calculated. In general, the earlier a loss occurs, the greater the effect on an investor’s yield to maturity. There can be no assurance as to the delinquency, foreclosure or loss experience with respect to the Mortgage Loans. Because the Mortgage Loans were underwritten in accordance with standards less stringent than those of more traditional lenders with regard to a mortgagor’s credit standing and repayment ability, the risk of delinquencies with respect to, and losses on, the Mortgage Loans will be greater than that of mortgage loans underwritten in accordance with the underwriting standards of more traditional lenders.

 



 

The rate of principal distributions on the Class A and Mezzanine Certificates, the aggregate amount of distributions on the Class A and Mezzanine Certificates and the yield to maturity on the Class A and Mezzanine Certificates will be related to the rate and timing of payments of principal on the applicable Mortgage Loans. The rate of principal payments on the adjustable-rate Mortgage Loans will in turn be affected by the amortization schedules for such Mortgage Loans as they change from time to time to accommodate changes in the Mortgage Rates and by the rate of principal prepayments thereon (including for this purpose, payments resulting from refinancings, liquidations of the Mortgage Loans due to defaults, casualties, condemnations and repurchases, whether optional or required, by the Seller or the Master Servicer, as the case may be). The Mortgage Loans generally may be prepaid by the mortgagors at any time; however, a mortgagor principal prepayment may subject that mortgagor to a prepayment charge as described under “The Mortgage Pool—General” herein. Furthermore, the interest-only feature of the interest-only Mortgage Loans may reduce the perceived benefits of refinancing to take advantage of lower market interest rates or to avoid adjustments in the related Mortgage Rates. However, as a Mortgage Loan with such a feature nears the end of its interest-only period, the mortgagor may be more likely to refinance the Mortgage Loan, even if market interest rates are only slightly less than the related Mortgage Rate in order to avoid the increase in the monthly payments to amortize the Mortgage Loan over its remaining life.

Prepayments, liquidations and repurchases of the Mortgage Loans will result in distributions in respect of principal to the holders of the class or classes of Class A and Mezzanine Certificates then entitled to receive such distributions that otherwise would be distributed over the remaining terms of the Mortgage Loans. See “Yield and Maturity Considerations” in the prospectus. Since the rates of payment of principal on the Mortgage Loans will depend on future events and a variety of factors (as described more fully herein and in the prospectus under “Yield and Maturity Considerations”), no assurance can be given as to the rate of principal prepayments on the Mortgage Loans. The extent to which the yield to maturity on any class of Class A or Mezzanine Certificates may vary from the anticipated yield will depend upon the degree to which such Certificates are purchased at a discount or premium and the degree to which the timing of distributions thereon is sensitive to prepayments on the Mortgage Loans. Further, an investor should consider, in the case of any Class A or Mezzanine Certificate purchased at a discount, the risk that a slower than anticipated rate of principal payments on the Mortgage Loans could result in an actual yield to such investor that is lower than the anticipated yield and, in the case of any Class A or Mezzanine Certificate purchased at a premium, the risk that a faster than anticipated rate of principal payments could result in an actual yield to such investor that is lower than the anticipated yield.

The rate of payments (including prepayments) on pools of mortgage loans is influenced by a variety of economic, geographic, social and other factors, including changes in mortgagors’ housing needs, job transfers, unemployment, mortgagors’ net equity in the mortgaged properties and servicing decisions. If prevailing mortgage rates fall significantly below the Mortgage Rates on the Mortgage Loans, the rate of prepayment (and refinancing) would be expected to increase. Conversely, if prevailing mortgage rates rise significantly above the Mortgage Rates on the Mortgage Loans, the rate of prepayment on the Mortgage Loans would be expected to decrease. The adjustable-rate Mortgage Loans may be subject to greater rates of prepayment as they approach their initial Adjustment Dates even if market interest rates are only slightly higher or lower than their Mortgage Rates as mortgagors seek to avoid changes in their monthly payments. In addition, the existence of the applicable Periodic Rate Cap, Maximum Mortgage Rate and Minimum Mortgage Rate on the adjustable-rate Mortgage Loans may affect the likelihood of prepayments resulting from refinancings. Moreover, the Group I Mortgage Loans (which have principal balances at origination that conform to Freddie Mac loan limits) may experience prepayment behavior that differs from that experienced by the Group II Mortgage Loans (which have principal balances at origination that may or may not conform to Freddie Mac and Fannie Mae loan limits). There can be no certainty as to the rate of prepayments on the Mortgage Loans during any period or over the life of the Certificates. See “Yield and Maturity Considerations” in the prospectus.

The prepayment experience of any Mortgage Loans secured by second liens will likely differ from that on Mortgage Loans secured by first liens. The smaller principal balances of second lien mortgage loans relative to the principal balances of first lien mortgage loans may reduce the perceived benefits of refinancing. In addition, the reduced equity in the related mortgaged property due to the existence of a second lien mortgage loan may reduce the opportunities for refinancing. The reduced opportunity for refinancing may result in a greater rate of default and will likely result in a greater severity of loss following default. On the other hand, many borrowers do not view second lien mortgage loans as permanent financing and may be more inclined to prepay those mortgage loans as a result. We cannot assure you as to the prepayment experience of any of the Mortgage Loans, including those secured by second liens.

Because principal distributions are made to certain classes of Class A and Mezzanine Certificates before other such classes, holders of classes of Class A and Mezzanine Certificates having a later priority of payment bear a greater risk of losses (because such Certificates will represent an increasing percentage interest in the Trust during the period prior to the commencement of distributions of principal thereon) than holders of classes having earlier priorities for distribution of principal. As described under “Description of

 



the Certificates—Principal Distributions” herein, prior to the Stepdown Date, all principal payments on the Mortgage Loans will be allocated to the Class A Certificates. Thereafter, as further described herein, during certain periods, subject to certain delinquency and loss triggers described herein, all principal payments on the Mortgage Loans will be allocated to the Class A and Mezzanine Certificates in the priorities described under “Description of the Certificates—Principal Distributions” in this prospectus supplement.

In general, defaults on mortgage loans may occur with greater frequency in their early years. In addition, default rates may be higher for mortgage loans used to refinance an existing mortgage loan. In the event of a mortgagor’s default on a Mortgage Loan, there can be no assurance that recourse will be available beyond the specific mortgaged property pledged as security for repayment. See “The Mortgage Pool—Underwriting Standards of the Originator” herein.

Special Yield Considerations

The Mortgage Rates on the adjustable-rate Mortgage Loans adjust semi-annually based upon the Index after an initial period of two, three or five years after origination and the fixed-rate Mortgage Loans do not adjust at all. The Pass-Through Rates on the Class A and Mezzanine Certificates may adjust monthly based upon One-Month LIBOR as described under “Description of the Certificates—Calculation of One-Month LIBOR” herein, subject to the related Net WAC Pass-Through Rate. As a result, increases in the Pass-Through Rates on the Class A and Mezzanine Certificates may be limited for extended periods in a rising interest rate environment. The interest due on the related Mortgage Loans during any Due Period, net of the expenses of the Trust (including any Net Swap Payment and any Swap Termination Payment owed to the Interest Rate Swap Provider other than Swap Termination Payments resulting from a Swap Provider Trigger Event), may not equal the amount of interest that would accrue at One-Month LIBOR plus the applicable margin on the Class A and Mezzanine Certificates during the related Interest Accrual Period. In addition, the Index and One-Month LIBOR may respond differently to economic and market factors. Thus, it is possible, for example, that if both One-Month LIBOR and the Index rise during the same period, One-Month LIBOR may rise more rapidly than the Index or may rise higher than the Index, potentially resulting in the application of the related Net WAC Pass-Through Rate on one or more classes of the Class A and Mezzanine Certificates which would adversely affect the yield to maturity on such Certificates. In addition, the Net WAC Pass-Through Rate for a class of Certificates will be reduced by the prepayment of the related Mortgage Loans with relatively higher Mortgage Rates.

If the pass-through rate on any class of Class A or Mezzanine Certificates is limited by the Net WAC Pass-Through Rate for any Distribution Date, the resulting basis risk shortfalls may be recovered by the holders of such Certificates on such Distribution Date or on future Distribution Dates, to the extent that on such Distribution Date or future Distribution Dates there are any available funds remaining after certain other distributions on the Class A and Mezzanine Certificates and the payment of certain fees and expenses of the Trust (including any Net Swap Payments or Swap Termination Payments owed to the Interest Rate Swap Provider other than Swap Termination Payments resulting from a Swap Provider Trigger Event). The ratings on the Class A and Mezzanine Certificates do not address the likelihood of the recovery of any basis risk shortfalls by holders of the Class A or Mezzanine Certificates.

As described under “Description of the Certificates—Allocation of Losses; Subordination” herein, amounts otherwise distributable to holders of the Mezzanine Certificates may be made available to protect the holders of the Class A Certificates against interruptions in distributions due to certain mortgagor delinquencies, to the extent not covered by Advances. Such delinquencies may affect the yield to investors on the Mezzanine Certificates and, even if subsequently cured, will affect the timing of the receipt of distributions by the holders of the Mezzanine Certificates. In addition, the rate of delinquencies or losses will affect the rate of principal payments on each class of Mezzanine Certificates. See “Description of the Certificates—Principal Distributions” herein.

Weighted Average Lives

Weighted average life refers to the average amount of time that will elapse from the date of issuance of a security until each dollar of principal of such security will be repaid to the investor. The weighted average lives of the Class A and Mezzanine Certificates will be influenced by the rate at which principal on the Mortgage Loans is paid, which may be in the form of scheduled payments or prepayments (including repurchases by the Seller, or purchases by the Master Servicer and prepayments of principal by the mortgagor as well as amounts received by virtue of condemnation, insurance or foreclosure with respect to the Mortgage Loans), and the timing thereof.

Prepayments of mortgage loans are commonly measured relative to a prepayment standard or model. The models used with respect to the Mortgage Loans (the “Prepayment Assumption”) assume:

 



 

 

(i)

In the case of the fixed-rate Mortgage Loans, 100% of the Fixed-Rate Vector. The “Fixed-Rate Vector” means a constant prepayment rate (“CPR”) of 2% per annum of the then unpaid principal balance of such Mortgage Loans in the first month of the life of such Mortgage Loans and an additional 2% per annum in each month thereafter until the 10th month, and then beginning in the 10th month and in each month thereafter during the life of such Mortgage Loans, a CPR of 20% per annum.

 

(ii)

In the case of the adjustable-rate Mortgage Loans, 100% of the Adjustable-Rate Vector. The “Adjustable-Rate Vector” means (a) a constant prepayment rate (“CPR”) of 5% per annum of the then unpaid principal balance of such Mortgage Loans in the first month of the life of such Mortgage Loans and an additional 2% per annum in each month thereafter until the 12th month, and then beginning in the 12th month and in each month thereafter until the 23rd month, a CPR of 27% per annum, (b) beginning in the 24th month and in each month thereafter until the 27th month, a CPR of 60% per annum and (c) beginning in the 28th month and in each month thereafter during the life of such Mortgage Loans, a CPR of 30% per annum. However, the prepayment rate will not exceed 85% CPR per annum in any period for any percentage of the Adjustable-Rate Vector.

CPR is a prepayment assumption that represents a constant assumed rate of prepayment each month relative to the then outstanding principal balance of a pool of mortgage loans for the life of such mortgage loans. The model does not purport to be either an historical description of the prepayment experience of any pool of mortgage loans or a prediction of the anticipated rate of prepayment of any mortgage loans, including the Mortgage Loans to be included in the Trust. Each of the Prepayment Scenarios in the table below assumes the respective percentages of the applicable prepayment vector indicated for such scenario.

The tables entitled “Percent of Original Certificate Principal Balance Outstanding” were prepared on the basis of the following assumptions (the “Modeling Assumptions”):

(i)            the Mortgage Loans have the characteristics set forth in the table entitled “Assumed Mortgage Loan Characteristics” in Annex II of this prospectus supplement;

(ii)           distributions on the Class A and Mezzanine Certificates are made on the 25th day of each month, commencing in the month after the month of the Cut-off Date and the pass-through rates for the Class A and Mezzanine Certificates are determined as set forth herein;

(iii)          the prepayment rates are the percentages of the respective Prepayment Assumption set forth in the table entitled “Prepayment Scenarios”

(iv)          no defaults or delinquencies occur in the payment by mortgagors of principal and interest on the Mortgage Loans and no shortfalls in collection of interest are incurred;

(v)           none of the Seller, the Originator, the Master Servicer, the NIMS Insurer, if any, or any other person purchases from the Trust any Mortgage Loan pursuant to any obligation or option under the Pooling and Servicing Agreement, except as indicated in the footnotes in the tables below;

(vi)          scheduled monthly payments on the Mortgage Loans are received on the first day of each month commencing in the month after the month of the Cut-off Date, and are computed prior to giving effect to any prepayments received in the prior month (except for the interest-only Mortgage Loans during the initial interest-only period);

(vii)         voluntary principal prepayments representing payment in full of individual Mortgage Loans are received on the last day of each month commencing in the month of the Cut-off Date, and include 30 days’ interest thereon;

(viii)        the scheduled monthly payment for each Mortgage Loan is calculated based on its principal balance, Mortgage Rate and remaining term to stated maturity such that the Mortgage Loan will amortize in amounts sufficient to repay the remaining principal balance of such Mortgage Loan by its remaining term to stated maturity;

 

(ix)

the Certificates are purchased on February 23, 2006;

 

 



 

(x)           with respect to the adjustable-rate Mortgage Loans, the Index remains constant at 4.889% per annum, and the Mortgage Rate on each such Mortgage Loan is adjusted on the next Adjustment Date (and on subsequent Adjustment Dates if necessary) to equal the Index plus the applicable Gross Margin, subject to the applicable Initial Periodic Rate Cap, Periodic Rate Cap, Maximum Mortgage Rate and Minimum Mortgage Rate and in cases where the minimum mortgage rate for any adjustable-rate Mortgage Loan is lower than its applicable margin, the applicable margin is used as its minimum mortgage rate;

 

(xi)

One-Month LIBOR remains constant at 4.614% per annum;

(xii)         the monthly payment on each adjustable-rate Mortgage Loan (and for each interest-only Mortgage Loan following its initial interest-only period) is adjusted on the Due Date immediately following the next Adjustment Date (and on subsequent Adjustment Dates if necessary) to equal a fully amortizing monthly payment as described in clause (viii) above;

(xiii)        the Mortgage Rate for each adjustable-rate Mortgage Loan adjusts every six months following its first Adjustment Date;

 

(xiv)

the initial Certificate Principal Balance of the Class P Certificates is $0.00;

 

 

(xv)

the Servicing Fee Rate is equal to 0.500% per annum and the Trustee Fee Rate is equal to 0.0014% per annum; and

(xvi)        the Fixed Swap Payment is calculated based on a schedule, a copy of which is attached hereto as Annex IV and no Swap Termination Payment to the Interest Rate Swap Provider is made.

Prepayment Scenarios(1)

 

I

II

III

IV

V

VI

Fixed-rate Mortgage Loans:

0%

50%

75%

100%

125%

150%

Adjustable-rate Mortgage Loans:

0%

50%

75%

100%

125%

150%

_______________

 

(1)

Percentages of the Fixed-Rate Vector for the fixed-rate Mortgage Loans and percentages of the Adjustable-Rate Vector for the adjustable-rate Mortgage Loans.

 

There will be discrepancies between the characteristics of the actual Mortgage Loans and the characteristics included in the Modeling Assumptions. Any such discrepancy may have an effect upon the percentages of the original Certificate Principal Balances outstanding (and the corresponding weighted average lives) of the Class A and Mezzanine Certificates set forth in the tables. In addition, since it is not likely the level of the Index or One-Month LIBOR will remain constant as assumed, the Class A and Mezzanine Certificates may mature earlier or later than indicated by the table. As described under “Description of the Certificates—Principal Distributions” herein, the occurrence of the Stepdown Date or a Trigger Event will have the effect of accelerating or decelerating the amortization of the Class A and Mezzanine Certificates and affecting the weighted average lives of such Certificates. Neither the prepayment model used herein nor any other prepayment model or assumption purports to be an historical description of prepayment experience or a prediction of the anticipated rate of prepayment of any pool of mortgage loans, including the Mortgage Loans included in the mortgage pool. Variations in the prepayment experience and the balance of the Mortgage Loans that prepay may increase or decrease the percentages of original Certificate Principal Balances (and the corresponding weighted average lives) shown in the following tables. Such variations may occur even if the average prepayment experience of all the Mortgage Loans equals any of the Prepayment Scenarios shown in the immediately following tables.

 



 

Percent of Original Certificate Principal Balance Outstanding(1)

 

Class A-1

Prepayment Scenario

Distribution Date

I

II

III

IV

V

VI

Initial Percentage

100%

100%

100%

100%

100%

100%

February 25, 2007

99

88

82

76

70

64

February 25, 2008

98

69

55

42

29

17

February 25, 2009

97

52

33

18

4

0

February 25, 2010

96

40

27

18

4

0

February 25, 2011

96

32

21

13

4

0

February 25, 2012

94

27

16

9

4

0

February 25, 2013

93

23

13

7

3

0

February 25, 2014

92

20

10

5

2

0

February 25, 2015

90

17

8

3

1

0

February 25, 2016

88

14

6

2

1

0

February 25, 2017

86

12

5

2

1

0

February 25, 2018

84

10

4

1

*

0

February 25, 2019

81

8

3

1

0

0

February 25, 2020

79

7

2

1

0

0

February 25, 2021

76

6

2

*

0

0

February 25, 2022

73

5

1

0

0

0

February 25, 2023

69

4

1

0

0

0

February 25, 2024

65

3

1

0

0

0

February 25, 2025

61

3

*

0

0

0

February 25, 2026

56

2

*

0

0

0

February 25, 2027

51

2

0

0

0

0

February 25, 2028

45

1

0

0

0

0

February 25, 2029

39

1

0

0

0

0

February 25, 2030

33

1

0

0

0

0

February 25, 2031

29

1

0

0

0

0

February 25, 2032

24

*

0

0

0

0

February 25, 2033

19

0

0

0

0

0

February 25, 2034

13

0

0

0

0

0

February 25, 2035

7

0

0

0

0

0

February 25, 2036

0

0

0

0

0

0

Weighted Average Life (years) to Maturity(2)

19.89

5.03

3.46

2.54

1.80

1.37

Weighted Average Life (years) to Optional Termination(2)(3)

19.86

4.70

3.21

2.34

1.66

1.37

_________________________

 

(1)

Rounded to the nearest whole percentage except where otherwise indicated. If applicable, an * represents less than one-half of one percent but greater than zero percent.

   

(2)

The weighted average life of any class of Class A and Mezzanine Certificates is determined by (i) multiplying the assumed net reduction, if any, in the Certificate Principal Balance on each Distribution Date of such class of Certificates by the number of years from the date of issuance of the Certificates to the related Distribution Date, (ii) summing the results and (iii) dividing the sum by the aggregate amount of the assumed net reductions in Certificate Principal Balance of such class of Certificates.

   

(3)

Assumes an optional purchase of the Mortgage Loans on the earliest Distribution Date on which it is permitted.

 

 



 

Percent of Original Certificate Principal Balance Outstanding(1)

 

Class A-2A

Prepayment Scenario

Distribution Date

I

II

III

IV

V

VI

Initial Percentage

100%

100%

100%

100%

100%

100%

February 25, 2007

98

73

60

47

34

21

February 25, 2008

97

31

1

0

0

0

February 25, 2009

95

0

0

0

0

0

February 25, 2010

94

0

0

0

0

0

February 25, 2011

92

0

0

0

0

0

February 25, 2012

89

0

0

0

0

0

February 25, 2013

86

0

0

0

0

0

February 25, 2014

83

0

0

0

0

0

February 25, 2015

79

0

0

0

0

0

February 25, 2016

75

0

0

0

0

0

February 25, 2017

70

0

0

0

0

0

February 25, 2018

65

0

0

0

0

0

February 25, 2019

60

0

0

0

0

0

February 25, 2020

54

0

0

0

0

0

February 25, 2021

47

0

0

0

0

0

February 25, 2022

40

0

0

0

0

0

February 25, 2023

32

0

0

0

0

0

February 25, 2024

23

0

0

0

0

0

February 25, 2025

13

0

0

0

0

0

February 25, 2026

2

0

0

0

0

0

February 25, 2027

0

0

0

0

0

0

February 25, 2028

0

0

0

0

0

0

February 25, 2029

0

0

0

0

0

0

February 25, 2030

0

0

0

0

0

0

February 25, 2031

0

0

0

0

0

0

February 25, 2032

0

0

0

0

0

0

February 25, 2033

0

0

0

0

0

0

February 25, 2034

0

0

0

0

0

0

February 25, 2035

0

0

0

0

0

0

February 25, 2036

0

0

0

0

0

0

Weighted Average Life (years) to Maturity(2)

13.50

1.59

1.22

1.00

0.85

0.75

Weighted Average Life (years) to Optional Termination(2)(3)

13.50

1.59

1.22

1.00

0.85

0.75

_________________________

 

(1)

Rounded to the nearest whole percentage except where otherwise indicated. If applicable, an * represents less than one-half of one percent but greater than zero percent.

   

(2)

The weighted average life of any class of Class A and Mezzanine Certificates is determined by (i) multiplying the assumed net reduction, if any, in the Certificate Principal Balance on each Distribution Date of such class of Certificates by the number of years from the date of issuance of the Certificates to the related Distribution Date, (ii) summing the results and (iii) dividing the sum by the aggregate amount of the assumed net reductions in Certificate Principal Balance of such class of Certificates.

   

(3)

Assumes an optional purchase of the Mortgage Loans on the earliest Distribution Date on which it is permitted.

 

 



 

Percent of Original Certificate Principal Balance Outstanding(1)

 

Class A-2B

Prepayment Scenario

Distribution Date

I

II

III

IV

V

VI

Initial Percentage

100%

100%

100%

100%

100%

100%

February 25, 2007

100

100

100

100

100

100

February 25, 2008

100

100

100

36

0

0

February 25, 2009

100

89

0

0

0

0

February 25, 2010

100

30

0

0

0

0

February 25, 2011

100

0

0

0

0

0

February 25, 2012

100

0

0

0

0

0

February 25, 2013

100

0

0

0

0

0

February 25, 2014

100

0

0

0

0

0

February 25, 2015

100

0

0

0

0

0

February 25, 2016

100

0

0

0

0

0

February 25, 2017

100

0

0

0

0

0

February 25, 2018

100

0

0

0

0

0

February 25, 2019

100

0

0

0

0

0

February 25, 2020

100

0

0

0

0

0

February 25, 2021

100

0

0

0

0

0

February 25, 2022

100

0

0

0

0

0

February 25, 2023

100

0

0

0

0

0

February 25, 2024

100

0

0

0

0

0

February 25, 2025

100

0

0

0

0

0

February 25, 2026

100

0

0

0

0

0

February 25, 2027

79

0

0

0

0

0

February 25, 2028

50

0

0

0

0

0

February 25, 2029

18

0

0

0

0

0

February 25, 2030

0

0

0

0

0

0

February 25, 2031

0

0

0

0

0

0

February 25, 2032

0

0

0

0

0

0

February 25, 2033

0

0

0

0

0

0

February 25, 2034

0

0

0

0

0

0

February 25, 2035

0

0

0

0

0

0

February 25, 2036

0

0

0

0

0

0

Weighted Average Life (years) to Maturity(2)

22.01

3.71

2.46

2.00

1.76

1.52

Weighted Average Life (years) to Optional Termination(2)(3)

22.01

3.71

2.46

2.00

1.76

1.52

_________________________

 

(1)

Rounded to the nearest whole percentage except where otherwise indicated. If applicable, an * represents less than one-half of one percent but greater than zero percent.

   

(2)

The weighted average life of any class of Class A and Mezzanine Certificates is determined by (i) multiplying the assumed net reduction, if any, in the Certificate Principal Balance on each Distribution Date of such class of Certificates by the number of years from the date of issuance of the Certificates to the related Distribution Date, (ii) summing the results and (iii) dividing the sum by the aggregate amount of the assumed net reductions in Certificate Principal Balance of such class of Certificates.

   

(3)

Assumes an optional purchase of the Mortgage Loans on the earliest Distribution Date on which it is permitted.

 

 



 

Percent of Original Certificate Principal Balance Outstanding(1)

 

Class A-2C

Prepayment Scenario

Distribution Date

I

II

III

IV

V

VI

Initial Percentage

100%

100%

100%

100%

100%

100%

February 25, 2007

100

100

100

100

100

100

February 25, 2008

100

100

100

100

73

19

February 25, 2009

100

100

99

22

0

0

February 25, 2010

100

100

64

22

0

0

February 25, 2011

100

90

35

0

0

0

February 25, 2012

100

66

12

0

0

0

February 25, 2013

100

46

0

0

0

0

February 25, 2014

100

28

0

0

0

0

February 25, 2015

100

13

0

0

0

0

February 25, 2016

100

1

0

0

0

0

February 25, 2017

100

0

0

0

0

0

February 25, 2018

100

0

0

0

0

0

February 25, 2019

100

0

0

0

0

0

February 25, 2020

100

0

0

0

0

0

February 25, 2021

100

0

0

0

0

0

February 25, 2022

100

0

0

0

0

0

February 25, 2023

100

0

0

0

0

0

February 25, 2024

100

0

0

0

0

0

February 25, 2025

100

0

0

0

0

0

February 25, 2026

100

0

0

0

0

0

February 25, 2027

100

0

0

0

0

0

February 25, 2028

100

0

0

0

0

0

February 25, 2029

100

0

0

0

0

0

February 25, 2030

91

0

0

0

0

0

February 25, 2031

70

0

0

0

0

0

February 25, 2032

47

0

0

0

0

0

February 25, 2033

21

0

0

0

0

0

February 25, 2034

0

0

0

0

0

0

February 25, 2035

0

0

0

0

0

0

February 25, 2036

0

0

0

0

0

0

Weighted Average Life (years) to Maturity(2)

25.83

7.00

4.62

3.00

2.16

1.97

Weighted Average Life (years) to Optional Termination(2)(3)

25.83

7.00

4.62

3.00

2.16

1.97

_________________________

 

(1)

Rounded to the nearest whole percentage except where otherwise indicated. If applicable, an * represents less than one-half of one percent but greater than zero percent.

   

(2)

The weighted average life of any class of Class A and Mezzanine Certificates is determined by (i) multiplying the assumed net reduction, if any, in the Certificate Principal Balance on each Distribution Date of such class of Certificates by the number of years from the date of issuance of the Certificates to the related Distribution Date, (ii) summing the results and (iii) dividing the sum by the aggregate amount of the assumed net reductions in Certificate Principal Balance of such class of Certificates.

   

(3)

Assumes an optional purchase of the Mortgage Loans on the earliest Distribution Date on which it is permitted.

 

 

 



 

Percent of Original Certificate Principal Balance Outstanding(1)

 

Class A-2D

Prepayment Scenario

Distribution Date

I

II

III

IV

V

VI

Initial Percentage

100%

100%

100%

100%

100%

100%

February 25, 2007

100

100

100

100

100

100

February 25, 2008

100

100

100

100

100

100

February 25, 2009

100

100

100

100

39

0

February 25, 2010

100

100

100

100

39

0

February 25, 2011

100

100

100

95

39

0

February 25, 2012

100

100

100

69

38

0

February 25, 2013

100

100

92

50

25

0

February 25, 2014

100

100

73

36

17

0

February 25, 2015

100

100

57

26

12

0

February 25, 2016

100

100

45

19

8

0

February 25, 2017

100

86

35

14

5

0

February 25, 2018

100

73

28

10

2

0

February 25, 2019

100

61

22

8

*

0

February 25, 2020

100

52

17

6

0

0

February 25, 2021

100

44

13

3

0

0

February 25, 2022

100

37

11

1

0

0

February 25, 2023

100

30

8

0

0

0

February 25, 2024

100

25

6

0

0

0

February 25, 2025

100

21

5

0

0

0

February 25, 2026

100

17

3

0

0

0

February 25, 2027

100

14

1

0

0

0

February 25, 2028

100

11

0

0

0

0

February 25, 2029

100

9

0

0

0

0

February 25, 2030

100

7

0

0

0

0

February 25, 2031

100

5

0

0

0

0

February 25, 2032

100

2

0

0

0

0

February 25, 2033

100

*

0

0

0

0

February 25, 2034

89

0

0

0

0

0

February 25, 2035

44

0

0

0

0

0

February 25, 2036

0

0

0

0

0

0

Weighted Average Life (years) to Maturity(2)

28.90

15.48

10.72

7.91

4.91

2.32

Weighted Average Life (years) to Optional Termination(2)(3)

28.68

13.02

8.75

6.38

3.73

2.32

_________________________

 

(1)

Rounded to the nearest whole percentage except where otherwise indicated. If applicable, an * represents less than one-half of one percent but greater than zero percent.

   

(2)

The weighted average life of any class of Class A and Mezzanine Certificates is determined by (i) multiplying the assumed net reduction, if any, in the Certificate Principal Balance on each Distribution Date of such class of Certificates by the number of years from the date of issuance of the Certificates to the related Distribution Date, (ii) summing the results and (iii) dividing the sum by the aggregate amount of the assumed net reductions in Certificate Principal Balance of such class of Certificates.

   

(3)

Assumes an optional purchase of the Mortgage Loans on the earliest Distribution Date on which it is permitted.

 

 

 



 

Percent of Original Certificate Principal Balance Outstanding(1)

 

Class M-1

Prepayment Scenario

Distribution Date

I

II

III

IV

V

VI

Initial Percentage

100%

100%

100%

100%

100%

100%

February 25, 2007

100

100

100

100

100

100

February 25, 2008

100

100

100

100

100

100

February 25, 2009

100

100

100

100

100

100

February 25, 2010

100

100

76

60

100

100

February 25, 2011

100

91

60

37

72

75

February 25, 2012

100

78

47

27

27

45

February 25, 2013

100

66

36

19

9

27

February 25, 2014

100

56

29

14

6

16

February 25, 2015

100

47

22

10

4

7

February 25, 2016

100

40

17

7

2

1

February 25, 2017

100

34

14

5

*

0

February 25, 2018

100

29

11

4

0

0

February 25, 2019

100

24

8

2

0

0

February 25, 2020

100

20

6

*

0

0

February 25, 2021

100

17

5

0

0

0

February 25, 2022

100

14

4

0

0

0

February 25, 2023

100

12

3

0

0

0

February 25, 2024

100

10

*

0

0

0

February 25, 2025

100

8

0

0

0

0

February 25, 2026

100

7

0

0

0

0

February 25, 2027

100

5

0

0

0

0

February 25, 2028

100

4

0

0

0

0

February 25, 2029

100

3

0

0

0

0

February 25, 2030

94

1

0

0

0

0

February 25, 2031

82

0

0

0

0

0

February 25, 2032

69

0

0

0

0

0

February 25, 2033

54

0

0

0

0

0

February 25, 2034

37

0

0

0

0

0

February 25, 2035

18

0

0

0

0

0

February 25, 2036

0

0

0

0

0

0

Weighted Average Life (years) to Maturity(2)

27.10

10.21

6.90

5.47

5.78

6.28

Weighted Average Life (years) to Optional Termination(2)(3)

27.01

9.31

6.20

4.94

5.12

4.17

_________________________

 

(1)

Rounded to the nearest whole percentage except where otherwise indicated. If applicable, an * represents less than one-half of one percent but greater than zero percent.

   

(2)

The weighted average life of any class of Class A and Mezzanine Certificates is determined by (i) multiplying the assumed net reduction, if any, in the Certificate Principal Balance on each Distribution Date of such class of Certificates by the number of years from the date of issuance of the Certificates to the related Distribution Date, (ii) summing the results and (iii) dividing the sum by the aggregate amount of the assumed net reductions in Certificate Principal Balance of such class of Certificates.

   

(3)

Assumes an optional purchase of the Mortgage Loans on the earliest Distribution Date on which it is permitted.

 

 

 



 

Percent of Original Certificate Principal Balance Outstanding(1)

 

Class M-2

Prepayment Scenario

Distribution Date

I

II

III

IV

V

VI

Initial Percentage

100%

100%

100%

100%

100%

100%

February 25, 2007

100

100

100

100

100

100

February 25, 2008

100

100

100

100

100

100

February 25, 2009

100

100

100

100

100

100

February 25, 2010

100

100

76

52

88

55

February 25, 2011

100

91

60

37

22

12

February 25, 2012

100

78

47

27

14

7

February 25, 2013

100

66

36

19

9

5

February 25, 2014

100

56

29

14

6

0

February 25, 2015

100

47

22

10

4

0

February 25, 2016

100

40

17

7

0

0

February 25, 2017

100

34

14

5

0

0

February 25, 2018

100

29

11

3

0

0

February 25, 2019

100

24

8

0

0

0

February 25, 2020

100

20

6

0

0

0

February 25, 2021

100

17

5

0

0

0

February 25, 2022

100

14

4

0

0

0

February 25, 2023

100

12

*

0

0

0

February 25, 2024

100

10

0

0

0

0

February 25, 2025

100

8

0

0

0

0

February 25, 2026

100

7

0

0

0

0

February 25, 2027

100

5

0

0

0

0

February 25, 2028

100

4

0

0

0

0

February 25, 2029

100

2

0

0

0

0

February 25, 2030

94

0

0

0

0

0

February 25, 2031

82

0

0

0

0

0

February 25, 2032

69

0

0

0

0

0

February 25, 2033

54

0

0

0

0

0

February 25, 2034

37

0

0

0

0

0

February 25, 2035

18

0

0

0

0

0

February 25, 2036

0

0

0

0

0

0

Weighted Average Life (years) to Maturity(2)

27.09

10.18

6.86

5.31

4.90

4.37

Weighted Average Life (years) to Optional Termination(2)(3)

27.01

9.31

6.20

4.80

4.50

4.01

_________________________

 

(1)

Rounded to the nearest whole percentage except where otherwise indicated. If applicable, an * represents less than one-half of one percent but greater than zero percent.

   

(2)

The weighted average life of any class of Class A and Mezzanine Certificates is determined by (i) multiplying the assumed net reduction, if any, in the Certificate Principal Balance on each Distribution Date of such class of Certificates by the number of years from the date of issuance of the Certificates to the related Distribution Date, (ii) summing the results and (iii) dividing the sum by the aggregate amount of the assumed net reductions in Certificate Principal Balance of such class of Certificates.

   

(3)

Assumes an optional purchase of the Mortgage Loans on the earliest Distribution Date on which it is permitted.

 

 

 



 

Percent of Original Certificate Principal Balance Outstanding(1)

 

Class M-3

Prepayment Scenario

Distribution Date

I

II

III

IV

V

VI

Initial Percentage

100%

100%

100%

100%

100%

100%

February 25, 2007

100

100

100

100

100

100

February 25, 2008

100

100

100

100

100

100

February 25, 2009

100

100

100

100

100

100

February 25, 2010

100

100

76

52

33

21

February 25, 2011

100

91

60

37

22

12

February 25, 2012

100

78

47

27

14

7

February 25, 2013

100

66

36

19

9

4

February 25, 2014

100

56

29

14

6

0

February 25, 2015

100

47

22

10

2

0

February 25, 2016

100

40

17

7

0

0

February 25, 2017

100

34

14

5

0

0

February 25, 2018

100

29

11

0

0

0

February 25, 2019

100

24

8

0

0

0

February 25, 2020

100

20

6

0

0

0

February 25, 2021

100

17

5

0

0

0

February 25, 2022

100

14

0

0

0

0

February 25, 2023

100

12

0

0

0

0

February 25, 2024

100

10

0

0

0

0

February 25, 2025

100

8

0

0

0

0

February 25, 2026

100

7

0

0

0

0

February 25, 2027

100

5

0

0

0

0

February 25, 2028

100

2

0

0

0

0

February 25, 2029

100

0

0

0

0

0

February 25, 2030

94

0

0

0

0

0

February 25, 2031

82

0

0

0

0

0

February 25, 2032

69

0

0

0

0

0

February 25, 2033

54

0

0

0

0

0

February 25, 2034

37

0

0

0

0

0

February 25, 2035

18

0

0

0

0

0

February 25, 2036

0

0

0

0

0

0

Weighted Average Life (years) to Maturity(2)

27.09

10.14

6.83

5.22

4.61

3.96

Weighted Average Life (years) to Optional Termination(2)(3)

27.01

9.31

6.20

4.74

4.23

3.66

_________________________

 

(1)

Rounded to the nearest whole percentage except where otherwise indicated. If applicable, an * represents less than one-half of one percent but greater than zero percent.

   

(2)

The weighted average life of any class of Class A and Mezzanine Certificates is determined by (i) multiplying the assumed net reduction, if any, in the Certificate Principal Balance on each Distribution Date of such class of Certificates by the number of years from the date of issuance of the Certificates to the related Distribution Date, (ii) summing the results and (iii) dividing the sum by the aggregate amount of the assumed net reductions in Certificate Principal Balance of such class of Certificates.

   

(3)

Assumes an optional purchase of the Mortgage Loans on the earliest Distribution Date on which it is permitted.

 

 

 



 

Percent of Original Certificate Principal Balance Outstanding(1)

 

Class M-4

Prepayment Scenario

Distribution Date

I

II

III

IV

V

VI

Initial Percentage

100%

100%

100%

100%

100%

100%

February 25, 2007

100

100

100

100

100

100

February 25, 2008

100

100

100

100

100

100

February 25, 2009

100

100

100

100

100

100

February 25, 2010

100

100

76

52

33

21

February 25, 2011

100

91

60

37

22

12

February 25, 2012

100

78

47

27

14

7

February 25, 2013

100

66

36

19

9

0

February 25, 2014

100

56

29

14

6

0

February 25, 2015

100

47

22

10

0

0

February 25, 2016

100

40

17

7

0

0

February 25, 2017

100

34

14

4

0

0

February 25, 2018

100

29

11

0

0

0

February 25, 2019

100

24

8

0

0

0

February 25, 2020

100

20

6

0

0

0

February 25, 2021

100

17

2

0

0

0

February 25, 2022

100

14

0

0

0

0

February 25, 2023

100

12

0

0

0

0

February 25, 2024

100

10

0

0

0

0

February 25, 2025

100

8

0

0

0

0

February 25, 2026

100

7

0

0

0

0

February 25, 2027

100

4

0

0

0

0

February 25, 2028

100

0

0

0

0

0

February 25, 2029

100

0

0

0

0

0

February 25, 2030

94

0

0

0

0

0

February 25, 2031

82

0

0

0

0

0

February 25, 2032

69

0

0

0

0

0

February 25, 2033

54

0

0

0

0

0

February 25, 2034

37

0

0

0

0

0

February 25, 2035

18

0

0

0

0

0