0000020405-01-500085.txt : 20011029 0000020405-01-500085.hdr.sgml : 20011029 ACCESSION NUMBER: 0000020405-01-500085 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 REFERENCES 429: gov.sec.edgar.dataobjects.object.PDSubFN429Data@bcf770a4 FILED AS OF DATE: 20011023 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITICORP MORTGAGE SECURITIES INC CENTRAL INDEX KEY: 0000811785 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 133408713 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-72082 FILM NUMBER: 1764209 BUSINESS ADDRESS: STREET 1: 12855 NORTH OUTER FORTY DR CITY: ST LOUIS STATE: MO ZIP: 63141 BUSINESS PHONE: 3148516305 MAIL ADDRESS: STREET 1: CITIGROUP INC CORPORATE LAW DEPT STREET 2: 425 PARK AVENUE 2ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10043 S-3 1 s3-2001.txt CMSI S-3 2001 Registration No. 333- As filed with the Securities and Exchange Commission on October 23, 2001 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Citicorp Mortgage Securities, Inc. ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware -------------------------------------------------------------- (State or Other Jurisdiction of Incorporation or Organization) 13-4300717 --------------------------------- (IRS Employer Identification No.) 12855 North Outer Forty Drive St. Louis, Missouri 63141 (314) 851-1467 ------------------------------------------------------------------------ (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) John R. Dye Associate General Counsel -- Corporate Law Citigroup Inc. 425 Park Avenue New York, New York 10043 (212) 793-8121 ------------------------------------------------------------------- (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) Approximate date of commencement of proposed sale to the public: From time to time on or after the effective date of this Registration Statement. If the only securities being registered on this form are to be offered pursuant to dividend or interest reinvestment plans, please check the following box. | | If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. | X | If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. | | If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier registration statement for the same offering. | | If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. | |
CALCULATION OF REGISTRATION FEE ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Proposed Maximum Proposed Maximum Title Of Each Class Of Amount To Be Offering Prince Per Aggregate Offering Amount Of Securities To Be Registered Unit Prince Registration Fee Registered ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Certificates $1,000,000,000(1) 100% $1,000,000,000(2) $250,000 ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- (1) $3,093,721,479 aggregate principal amount of Certificates registered by the Registrant under Registration Statement No. 333-72459 referred to below are consolidated in this Registration Statement pursuant to Rule 429. All registration fees in connection with such unsold amount of Certificates have been previously paid by the Registrant under the foregoing Registration Statement. Accordingly, the total amount registered under the Registration Statement as so consolidated as of the date of this filing is $4,093,721,479. (2) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. In accordance with Rule 429 under the Securities Act of 1933, the Prospectus included herein also relates to Citicorp Mortgage Securities, Inc.'s Registration Statement on Form S-3 File No. 333-72459. Prospectus [date] Citicorp Mortgage Securities, Inc. ------------------------------------------------------------------------------- 12855 North Outer Forty Drive St. Louis, MO 63141 (314) 851-1467 www.citimortgagembs.com $[...] (approximate) REMIC Pass-Through Certificates Series 200[..]-[..] The purchase price for the offered certificates will be set by the underwriter or negotiated by the purchaser and the underwriter at the time of sale. Total proceeds to the Trust for the offered certificates will be approximately $[...], plus accrued interest from [cut-off date] to the closing date. CMSI does not intend to list the certificates on a national securities exchange or the Nasdaq Stock Market. You should read "General risk factors," beginning on page 3 of the core prospectus, and "Series risk factors," beginning on page S-8 of the supplement, before you purchase any certificates. [Underwriter] ------------------------------------------------------------------------------- The certificates are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Neither the Securities and Exchange Commission nor any state securities commission has approved the certificates or determined that this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. HOW TO READ THIS PROSPECTUS --------------------------- This prospectus consists of a prospectus supplement followed by a core prospectus. The core prospectus gives general background information that applies to all series of certificates. The supplement gives specific information about the series of certificates. You should carefully read both the core prospectus and the supplement before investing. The supplement may update or modify information in the core prospectus. Whenever information in the supplement differs from information in the core prospectus, you should rely on the information in the supplement. In deciding whether to purchase certificates, you should rely solely on the information in this prospectus. We have not authorized anyone to give you different information about the certificates. CONTENTS -------- PROSPECTUS SUPPLEMENT Summary S-3 Series risk factors S-6 Allocations and distributions S-8 [Procedure for distribution requests on retail class certificates] S-12 [Insured classes] S-13 Sensitivity of certificates to prepayments S-13 Voting Rights S-16 Additional ERISA considerations S-17 Legal investment S-17 Federal income tax consequences S-17 Plan of Distribution S-18 Legal opinions S-18 Additional SEC filings S-18 Appendix - Detailed description of the mortgage loans S-19 CORE PROSPECTUS The certificates 1 General risk factors 1 Series structure 2 Subordination 6 Allocations 7 Distributions 10 Adjustments to class balances 13 Realized losses 13 Distribution reports 14 Clean-up call 14 Weighted average life of certificates 14 Yield to maturity 16 Delinquency, foreclosure and loss experience 17 The mortgage loans 18 Defective mortgage loans 21 Insurance and other credit support 22 Mortgage documents 23 CMSI and its affiliates 24 Mortgage loan underwriting 25 Servicing 27 The Trustee 30 The pooling agreement 30 Book-entry and physical certificates 32 ERISA considerations 33 Legal investment considerations 35 Taxation of certificate holders 36 Legal aspects of mortgage loans 44 Use of proceeds 55 Additional information 55 Index 1 ARMs 2 Buydown loans 2 Agency certificates 3 S-2 PROSPECTUS SUPPLEMENT SUMMARY ------- Series overview - the certificates Offered by this prospectus
Expected Principal balance rating at cut-off date, [S&P/Moody's/Fitch] Class +/- up to 5% Interest rate Special features Subordinated to ---------------- --------------------- -------------- ---------------------- --------------- ------------------ A-1 $ [...] [...]% AAA/AAA N/A A-2 [...] [...]% AAA/AAA N/A A-.... [...] [...]% AAA/AAA N/A A-PO [...] 0% Ratio-stripped PO AAA/AAA N/A B-1 [...] [...]% --/AA A B-2 [...] [...]% --/A A, B-1, B-3 [...] [...]% --/BBB A, B-1, B-2 Not offered by this prospectus Principal balance at cut-off date, Class +/- up to 5% Interest rate Special features Subordinated to ---------------- ------------------------- -------------- ------------------------ ---------------------------- A-IO $ [...] (notional) Variable* Ratio-stripped IO N/A B-4 [...] [...]% A, B-1, B-2, B-3 B-5 [...] [...]% A, B-1, B-2, B-3, B-4 B-6 [...] [...]% A, B-1, B-2, B-3, B-4, B-5 Residual N/A [...]% Residual N/A
*Class A-IO will accrue interest on its notional balance at a per annum rate equal to the weighted average of the net loan rates of the premium loans minus [the target rate]%. The initial per annum interest rate for class A-IO is expected to be approximately [...]%. S-3 Trustee [Trustee name, address, telephone number and website] Paying agent, transfer agent and [Trustee] certificate registrar Relative size of classes Principal balance of class as percentage of principal Class balance of all classes at cut-off date (the class percentage) ------------ -------------------------------------------------------- A [...]% to [...]% B-1 [...]% to [...]% B-2 [...]% to [...]% B-3 [...]% to [...]% B [...]% to [...]%
Ratings The offered certificates will not be sold unless [Standard & Poor's Ratings Group (S&P) and/or Fitch, Inc. (Fitch) and/or Moody's Investors Service, Inc. (Moody's)] have rated the offered certificates as shown above. You should evaluate these ratings independently from similar ratings on other types of securities. A rating is not a recommendation to buy, sell or hold securities. [S&P or Fitch or Moody's] may revise or withdraw a rating at any time. Denominations For all offered certificates, [$1,000] and any whole dollar amount above [$1,000]. Distribution days 25th day (or, if that is not a business day, the next business day) of each month, beginning [month] 25, 200[..]. Last distribution day [month] 25, [year]. Clean-up call Permitted when principal balance of the mortgage loans is below 5% of the scheduled principal balance of the mortgage loans as of the cut-off date. Loss limits (approximate) Special hazard: $[...] (or approximately [...]% of the initial aggregate scheduled principal balance of the mortgage loans) Fraud: $[...] ([...]%) Bankruptcy: $[...] ([...]%)
Prepayment rate assumed in [...]% of the prepayment model. structuring series "Mortgage related securities" under Classes A and B-1 SMMEA Record date For a distribution day, the close of business on the last business day of the calendar month preceding that distribution day. Closing date [closing date] Conditions to closing The certificates offered by this prospectus will not be sold unless the certificates in classes B-4, B-5 and B-6 (none of which are offered by this prospectus) are sold on the closing date. [Underwriter] has agreed to purchase the offered certificates on the closing date, subject to the satisfaction of customary closing conditions. Also see "Ratings" above. S-4 Series Overview - The Mortgage Loans at [cut-off date] (the cut-off date) Number of mortgage loans [number] Types of mortgage loans Fixed rate one- to four-family residential, of which o at least [...]% of the mortgaged properties will be one-familY dwellings, o no more than [...]% of the mortgaged properties will be condominiums, townhouses, rowhouses or cooperative apartments, o no more than [...]% of the mortgaged properties will be investment properties, and o at least [...]% of the mortgaged properties are determined by CMSI to be primary residences of borrowers. (Percentages are of scheduled principal balance of mortgage loans.) Geographic concentration No more than o [...]% of the mortgaged properties are in [state], o 10% of the mortgaged properties are in any one other state, and o [...]% of the mortgaged properties are in any one ZIP code. (Percentages are of scheduled principal balance of mortgage loans.)
Scheduled principal balance on cut-off $[...] +/- up to 5%. date Range of scheduled principal balances o No more than 5% of the mortgage on cut-off date loans will have a scheduled principal balance less than $[...]. o At least 70% of the mortgage loans will have a scheduled principal balance less than $[...]. o No mortgage loan will have a scheduled principal balance greater than $[...]. (Percentages are of scheduled principal balance of mortgage loans.) Loan-to-value ratios At origination, o no more than [...]% of the mortgage loans had a loan-to-value ratio greater than 80%, o no more than [...]% of the mortgage loans had a loan-to-value ratio greater than 90%, o no more than [...]%of the mortgage loans had a loan-to-value ratiO greater than 95%, and o the weighted average loan-to-value ratio of the mortgage loans was no more than [...]%. (Percentages are of scheduled principal balance of mortgage loans, and loan-to-value ratios are calculated taking into account the value of additional collateral.)
Mortgage loans for which additional collateral (i.e., collateral other than the mortgaged property) was considered in calculating loan-to- value ratios represent not more than 1% of the mortgage loans by scheduled principal balance. If the loan-to-value ratios for these loans are calculated without regard to the value of the additional collateral, their weighted average loan-to-value ratio is approximately [...]%. S-5 Range of interest rates on mortgage [...]% to [...]% per annum. loans (before deduction of servicing fee Weighted average mortgage interest [...]% per annum. rate (before deduction of servicing fee) Servicing fee [...]% per annum. Range of maturities [...] to [...] years. Latest scheduled maturity [month] 1, [year]. Weighted average remaining term to [...] months. maturity Weighted average original term to [...] months. maturity Premium mortgage loans - i.e., loans Scheduled principal balance: $[...] (approximate). with net loan rates (interest rate less servicing fee) of [...]% or more Weighted average interest rate: [...]% per annum (approximate). Weighted average remaining term to maturity: [...] months (approximate). Weighted average original term to maturity: [...]months (approximate). Discount mortgage loans - i.e., loans Scheduled principal balance: $[...] (approximate). with net loan rates less than [...]% Weighted average interest rate: [...]% per annum (approximate). Weighted average remaining term to maturity: [...] months (approximate). Weighted average original term to maturity: [...]months (approximate). Mortgage loans originated or acquired CitiMortgage, Citi FSB, Citibank (originator only). by Originated from [month] 1, [year] through [month] 1, [year]. Underwriting policies o At least [...]% of the mortgage loans either were originated usinG loan underwriting policies that require proof of income and liquid assets and telephone verification of employment, or are refinanced mortgage loans originated using alternative or streamlined underwriting policies. o No more than [...]% of the mortgage loans were originated using a loan underwriting policy that requires verification of employment and may require proof of liquid assets, but does not require verification of the prospective borrower's income as stated on the loan application. o No more than [...]% of the mortgage loans will be refinanced mortgage loans originated using alternative or streamlined underwriting policies. (Percentages are of scheduled principal balance of the mortgage loans.)
Detailed information Additional information on the mortgage loans expected to be included in the Trust on the closing date is set forth in the Appendix to this supplement. The mortgage loans actually included in the Trust may differ from the description in the summary and the Appendix, but the differences will not be material. Within 15 days after the closing date, CMSI will file a Form 8-K with the SEC containing detailed information on the mortgage loans actually in the Trust and other matters, including o the special hazard, fraud and bankruptcy loss limits, o the initial principal balance of each class, and o the subordination levels for classes A, B-1, B-2, B-3, B-4 and B-5. SERIES RISK FACTORS ------------------- You should consider the following risk factors for this series, as well as the general risk factors for the certificates discussed in the core prospectus, before you purchase any certificates. S-6 Limited credit enhancement Credit enhancement for the senior classes is provided by the subordination of other classes. The amount of credit enhancement provided by subordination for any class will, however, be limited and will decrease over the life of the transaction due to reductions of the principal balances of the subordinated classes through the distribution of principal and allocation of principal losses to them. Also, special hazard, fraud and bankruptcy losses will only be allocated to the subordinated classes up to specific dollar limits; once these limits are reached, such losses on the hypothetical mortgage loans in the target-rate strip will be allocated proportionally among all target-rate classes, and such losses on the hypothetical mortgage loans in the PO strip will be allocated to class A-PO. (Losses allocated to an accrual class will be allocated on the basis of the lesser of that class's current or initial principal balance.) Geographic concentration Approximately [...]% of the total initial scheduled principal balance of the mortgage loans in this series are mortgage loans secured by mortgaged properties located in [state]. No other state contains mortgaged properties securing more than 10% of the initial scheduled principal balance of the mortgage loans. In recent years, California, the New York/ New Jersey metropolitan area and several other regions have experienced significant fluctuations in housing prices. Weaker economic conditions and housing markets may result in a higher rate of delinquencies and defaults by homeowners and in less proceeds being realized upon liquidations of defaulted mortgage loans. Any concentration of mortgage loans in such a region presents risk considerations in addition to those generally present for similar mortgage-backed securities. In addition, California, Florida and other regions have experienced natural disasters such as earthquakes, fires, floods and hurricanes. These disasters may adversely affect property values generally in the region, and may result in physical damage to mortgaged properties located in such regions. Any direct damage to a mortgaged property caused by such disasters, and any deterioration in housing prices or in economic conditions in a region, may reduce the ability of homeowners to make scheduled monthly payments on their mortgage loans. This in turn may increase the likelihood and magnitude of delinquencies and losses on mortgage loans. Losses on mortgage loans may adversely affect the yield to maturity on your certificates, especially if your certificates are subordinated. In addition, delinquencies on mortgage loans may increase the likelihood of foreclosures and prepayments, which in turn may have an adverse effect on the yield to maturity of your certificates. Subordination Shortfalls in payments received on the mortgage loans will result in shortfalls in distributions to the subordinated classes, in the following order of priority: o Class B-1 is subordinated to the senior target-rate classes. Class B-1 will therefore not receive a distribution of interest or principal on a distribution day until the senior target-rate classes have received full distributions on that day. o Class B-2 is subordinated to the senior target-rate classes and class B-1. Class B-2 will therefore not receive a distribution of interest or principal on a distribution day until the senior target-rate classes and class B-1 have received full distributions on that day. o Class B-3 is subordinated to the senior target-rate classes and classes B-1 and B-2. Class B-3 will therefore not receive a distribution of interest or principal on a distribution day until the senior target-rate classes and classes B-1 and B-2 have received full distributions on that day. If a principal loss is allocated to a class, it reduces (by the amount of the loss) the principal that can ultimately be distributed to that class. Principal losses realized on mortgage loans are generally allocated to the most subordinated class until its principal balance is reduced to zero, then to the next most subordinated class until its principal balance is reduced to zero, and so on through the subordinated classes. As a result, the ultimate distribution to holders of the offered class B certificates of their principal balances depends upon the timing and the level of losses realized on the mortgage loans and other shortfalls in payments on the mortgage loans. S-7 Although some realized losses on mortgage loans may initially be allocated to class A-PO, these losses are likely to be borne ultimately by the subordinated classes. This is because class A-PO will generally be reimbursed for principal losses out of amounts of principal otherwise distributable to class B. See "Subordination" in the core prospectus. Ratings considerations [The ratings of S&P on mortgage pass-through certificates address the likelihood of the receipt by certificate holders of timely payments of interest and the ultimate return of principal. S&P ratings take into consideration the credit quality of the mortgage pool, including any credit support providers, structural and legal aspects associated with the certificates, and the extent to which the payment stream on the mortgage pool is adequate to make payments required under the certificates. S&P's ratings on such certificates do not, however, constitute a statement regarding frequency of prepayments on the mortgage loans. S&P's rating does not address the possibility that investors may suffer a lower than anticipated yield as a result of prepayments of the underlying mortgages. In addition, in some structures a default on a mortgage is treated as a prepayment and may have the same effect on yield as a prepayment.] [The ratings assigned by Fitch to mortgage pass-through certificates address the likelihood of the receipt by certificate holders of all distributions to which such certificate holders are entitled. Fitch's ratings address the structural and legal aspects associated with the certificates, including the nature of the underlying mortgage loans. Fitch's ratings on mortgage pass-through certificates do not represent any assessment of the likelihood or rate of principal prepayments. The ratings do not address the possibility that certificate holders might suffer a lower-than-anticipated yield.] ALLOCATIONS AND DISTRIBUTIONS ----------------------------- On the first distribution day, the senior target-rate classes are expected to be allocated between [...]% and [...]% of scheduled principal payments on the target-rate strip. Senior target-rate class allocations On each distribution day before the subordination depletion date, principal allocated to the senior target-rate classes as a group will be further allocated to the senior target-rate classes in the following order: 1 To each NAS class, the amount determined under "Special rules for NAS classes" below. 2 [rules for senior target-rate class allocations] On any distribution day on or after the subordination depletion date, the principal allocation for the senior target-rate classes will be allocated to the senior target-rate classes in proportion to their principal balances on the preceding day. Special rules for NAS classes Class A-[...] is a non-accelerated senior, or NAS class For each distribution day before [Month] [year], the principal allocation for class A-[...] will be zero. [Alternative 1] [For distribution days in [month] [year] and after, class A-[...]'s principal allocation will equal the following percentage of its proportionate share, based on principal balances of the senior target-rate classes, of scheduled and unscheduled principal payments allocated to the senior target-rate classes for that distribution day:] [Alternative 2] [For distribution days in [month] [year] and after, class A-[...]'s principal allocation will equal o its proportionate share, based on principal balances of the target-rate classes, of scheduled principal payments, plus o the following percentage of its proportionate share, based on principal balances of the target-rate classes, of unscheduled principal payments, allocated to the target-rate classes for that distribution day:] S-8 [Alternative 3] [For distribution days in [month] [year] and after, class A-[...]'s principal allocation will equal o its proportionate share, based on principal balances of the senior target-rate classes, of scheduled principal payments allocated to the senior target-rate classes for that distribution day, plus o the following percentage of its proportionate share, based on principal balances of the senior target-rate classes, of unscheduled principal payments allocated to the senior target-rate classes for that distribution day:] Distribution days in Percentage ------------------------------------ -------------------- [Month] [year] - [Month] [year] 30% [Month] [year] - [Month] [year] 40% [Month] [year] - [Month] [year] 60% [Month] [year] - [Month] [year] 80% [Month] [year] and after 100% However, if no other senior target-rate class is outstanding, Class A-[...]'s principal allocation for the distribution day will be 100% of the principal allocation for the senior target-rate classes for that distribution day. A NAS class's weighted average life will be longer, and could be significantly longer, than if it always received its proportional share of principal distributions. Prepayments and other unscheduled principal Until the fifth anniversary of the first distribution day, the senior target-rate classes will receive principal distributions equal to 100% of all unscheduled principal on the target-rate strip. From the fifth anniversary of the first distribution day, the senior target-rate classes will receive principal distributions equal to the percentage set forth below (the class A prepayment percentage) of all unscheduled principal on the target-rate strip. Except as otherwise stated in this section, any remaining unscheduled principal will be distributed to the subordinated classes in proportion to their principal balances. (Some subordinated classes may not be entitled to a principal distribution on a distribution day as described in "Maintenance of subordination" above.)
Period (dates inclusive) Class A prepayment percentage ------------------------------------ -------------------------------------------------------------------------- [month year] - [month year] Class A (target-rate) percentage plus 70% of the class A subordination level* [month year] - [month year] Class A (target-rate) percentage plus 60% of the class A subordination level* [month year] - [month year] Class A (target-rate) percentage plus 40% of the class A subordination level* [month year] - [month year] Class A (target-rate) percentage plus 20% of the class A subordination level* [month year] and after Class A (target-rate) percentage *For these purposes, class A percentage and subordination level are calculated solely by reference to the target-rate classes.
However, the class A prepayment percentage will be 100% for any distribution day on which the ratio of the principal balance of the senior target-rate classes to all target-rate classes is greater than it was on the closing date. In addition, no reduction of the class A prepayment percentage as described in the preceding table will occur on a distribution day unless: o on the first distribution day to which a reduction applies, either (1) the scheduled principal balance of mortgage loans delinquent 60 days or more (including, for this purpose, mortgage loans in foreclosure and real estate owned by the Trust as a result of homeowner default), averaged over the last six months, is less than 50% of the average class B principal balance for the preceding six months, or (2) the average scheduled principal balance of such delinquent mortgage loans for that period is less than 2% of the average scheduled principal balance of all mortgage loans for that period, and o cumulative realized losses on the mortgage loans are less than: (a) for distribution days in [month year] through [month year], 30% of the initial principal balance of the subordinated classes (the original subordinated amount), (b) for distribution days in [month year] through [month year], 35% of the original subordinated amount, (c) for distribution days in [month year] through [month year], 40% of the original subordinated amount, (d) for distribution days in [month year] through [month year], 45% of the original subordinated amount, and (e) for distribution days in [month year] and afterwards, 50% of the original subordinated amount. S-9 [Cross-collateralization] [Payments received on the pool I target-rate strip may be distributed to the group II target-rate classes, and payments received on the pool II target-rate strip may be distributed to the group I target-rate classes, in the following circumstances. [Undersubordination: If on a distribution day before the subordination depletion date, all the group I senior target-rate classes have been reduced to zero, and there is undersubordination (as defined in the following paragraph), then on that distribution day all amounts that would otherwise be distributed as principal to the subordinated classes will (after reimbursement of any losses to any ratio-stripped PO classes) instead be distributed as principal to the group II senior target-rate classes, up to, and in proportion to, their principal balances. Similarly, if on a distribution day before the subordination depletion date, the group II senior target-rate classes have been reduced to zero, and there is undersubordination, then on that distribution day all amounts that would otherwise be distributed as principal to the subordinated classes will (after reimbursement of any losses to any ratio-stripped PO classes) instead be distributed as principal to the group I senior target-rate classes, up to, and in proportion to, their aggregate principal balances. Such distributions will be made in accordance with the priorities described in "Senior target-rate class allocations" above. There is undersubordination on a distribution day if either o the subordination level of the senior classes on that distribution day is less than 200% of the subordination level of the senior classes on the closing date, or o the aggregate scheduled principal balance of the mortgage loans in pool I or II pool that are delinquent 60 days or more (including for this purpose mortgage loans in foreclosure and real estate owned by the Trust as a result of homeowner default), averaged over the last six months, is 50% or more of the principal balance of the group I or group II subordinated components, respectively. Undercollateralization: Because losses are allocated to the subordinated classes without regard to whether the losses are on mortgage loans in the pool I or pool II target-rate strip, it is possible that before or after the subordination depletion date, either o the aggregate principal balance of the group I senior target-rate classes and subordinated target-rate components could exceed the scheduled principal balance of the pool I target-rate strip (group I undercollateralization), or o the aggregate principal balance of the group II senior target-rate classes and subordinated target-rate components could exceed the scheduled principal balance of the pool II target-rate strip (group II undercollateralization). The aggregate scheduled principal balance of all the hypothetical mortgage loans in the pool I and pool II target-rate strips will always equal the aggregate principal balance of all the target-rate classes. Accordingly, o if there is group I undercollateralization in any amount, then the aggregate scheduled principal balance of the pool II target-rate strip will exceed the principal balance of the group II senior classes and subordinated components (group II overcollateralization) by the same amount, and o if there is group II undercollateralization in any amount, then the aggregate scheduled principal balance of the pool I target-rate strip will exceed the principal balance of the group I senior classes and subordinated components (group I overcollateralization) by the same amount. Prior to the subordination depletion date, if (a) the principal balance of the group I subordinated components has been reduced to zero, and there is group I undercollateralization, or (b) the principal balance of the group II subordinated components has been reduced to zero, and there is group II undercollateralization, then o any principal distributions that would otherwise be made to the group I subordinated components classes will (after reimbursement of any losses to any ratio-stripped PO classes) instead be distributed to the group II senior target-rate classes, and any principal distributions that would otherwise be made to the group II subordinated components classes will (after reimbursement of any losses to any ratio-stripped PO classes) instead be distributed to the group I senior target-rate classes, S-10 o if there is group I undercollateralization, to the extent that interest payments on the pool II target-rate strip exceed interest distributions to the group II senior target-rate classes, the excess will be distributed as interest to the group I senior target-rate classes to the extent that interest allocations to such classes exceed the amount available for interest distributions to the group I senior target-rate classes from payments of interest on the pool I target-rate strip, and o if there is group II undercollateralization, to the extent that interest payments on the pool I target-rate strip exceed interest distributions to the group I senior target-rate classes, the excess will be distributed as interest to the group II senior target-rate classes to the extent that interest allocations to such classes exceed the amount available for interest distributions to the group II senior target-rate classes from payments of interest on the pool II target-rate strip. These principal and interest distribution to the senior target-rate classes will have the same priority as other principal and interest distributions to the senior target-rate classes. If after the subordination depletion date there is group I undercollateralization (and, therefore, group II overcollateralization), o to the extent that interest payments on the mortgage loans in the pool II target-rate strip exceed the interest allocations to the group II senior target-rate classes, the excess will be distributed as interest to the group I senior target-rate classes to the extent that interest allocations to the group I senior target-rate classes exceed interest payments on the mortgage loans in the pool I target-rate strip, o principal payments on the pool II target-rate strip will, after the principal balance of the group II senior target-rate classes is reduced to zero, be used to make principal distributions to the group I senior target-rate classes in proportion to their principal balances until their principal balances are reduced to zero, and o realized losses on the pool II target-rate strip will reduce the principal balance of the group I senior target-rate classes, in proportion to their principal balances, until the group II overcollateralization is eliminated. If after the subordination depletion date there is group II undercollateralization (and, therefore, group I overcollateralization): o to the extent that interest payments on the mortgage loans in the pool I target-rate strip exceed the interest allocations to the group I senior target-rate classes, the excess will be distributed as interest to the group II senior target-rate classes to the extent that interest allocations to the group II senior target-rate classes exceed interest payments on the mortgage loans in the pool II target-rate strip, o principal payments on the pool I target-rate strip will, after the principal balance of the group I senior target-rate classes is reduced to zero, be used to make principal distributions to the group II senior target-rate classes in proportion to their principal balances until their principal balances are reduced to zero, and o realized losses on the pool I target-rate strip will reduce the principal balance of the group II senior target-rate classes, in proportion to their principal balances, until the group I overcollateralization is eliminated.] [Because the pool [II] target-rate strip has a lower interest rate than the pool [I] target-rate strip, if there is group [I] undercollateralization after the subordination depletion date, interest payments from the pool [II] target-rate strip that remain after interest distributions to the group [II] senior target-rate classes will not be sufficient to fully cover interest shortfalls on the group [I] senior target-rate classes.] Maintenance of subordination The degree of credit enhancement enjoyed by a class due to subordination may be measured by that class's subordination level, which is the sum of the class percentages of all classes that are subordinated to that class. On the closing date, the following classes will have the following approximate subordination levels: Class A: [...]% ($[...]) Class B-1: [...]% ($[...]) Class B-2: [...]% ($[...]) Class B-3: [...]% ($[...]) Thus, the subordinated classes will have an aggregate principal balance on the closing date that is approximately [...]% of the aggregate principal balance of all the certificates. S-11 The subordinated classes are also entitled to maintain a degree of credit enhancement by subordination throughout the life of the transaction. If on a distribution day, a subordinated class has an impaired subordination level - that is, its subordination level on that day is less than its initial subordination level - then the principal allocations of the subordinated classes will be determined as follows: First, all principal originally allocated to the subordinated classes will be allocated to the most senior of the subordinated classes with an impaired subordination level and to those subordinated classes that are senior to the impaired class, in proportion to their principal balances, up to those classes' principal balances. Next, if the amount initially allocated to those classes under the preceding paragraph exceeds the principal balance of those classes, the excess will be allocated as principal to the remaining subordinated classes in accordance with the preceding paragraph, and so on, until the principal balance of each subordinated class with an impaired subordination level is reduced to zero, and then to the remaining subordinated classes under the normal rules for principal allocations. Example: On the February 200x distribution day, (a) each of classes B-2 and B-3 has an impaired subordination level, (b) each of classes B-1 through B-6 has a principal balance of $1,000, and (c) the aggregate principal allocation to the subordinated classes is $3,120. Then on the February 200x distribution day: (1) The entire amount allocated to the subordinated classes will be allocated to classes B-1 and B-2, in proportion to their principal balances, up to their principal balances, (2) Since the amount allocated to the subordinated classes exceeds the principal balances of classes B-1 and B-2 by $1,120, the excess will be allocated to the remaining classes B-3 through B-6 in accordance with the principal allocation rules. (3) But class B-3 also has an impaired subordination level, so the excess $1,120 will be allocated to class B-3 up to its principal balance. (4) Since the excess $1,120 exceeds class B-3's principal balance by $120, the excess $120 will be allocated to classes B-4 through B-6. Since none of classes B-4 though B-6 has an impaired subordination level, the $120 will be allocated to classes B-4 through B-6 in proportion to their principal balances - that is, $40 to each class. Special hazard, bankruptcy and fraud loss limits The initial special hazard, bankruptcy and fraud loss limits are: Special hazard: $[...] (or [...]% of the initial aggregate principal balance) Fraud: $[...] ([...]%) Bankruptcy: $[...] ([...]%) Each type of loss limit will be reduced by losses of that types. Once a loss limit is reduced to zero, further losses of that type will not be subject to subordination. The limit for each type of loss my be further modified as follows: o The special hazard loss limit can not be greater than the amount on the preceding anniversary of the cut-off date of the greatest of (1) 1% of the scheduled principal balance of all the mortgage loans, (2) the largest aggregate scheduled principal balance of mortgage loans on mortgaged properties located in a single California ZIP code, and (3) twice the largest scheduled principal balance of any single mortgage loan. o The bankruptcy loss limit can not be greater than the initial bankruptcy loss limit minus the largest amount of bankruptcy losses in any year (or current partial year) that begins on the cut-off date or any anniversary of the cut-off date. The bankruptcy loss limit may be further reduced by CMSI if [S&P and Moody's and Fitch] confirm that the reduction will not adversely affect their then-current ratings of the certificates. o From the second through the fifth anniversary of the cut-off date, the fraud loss limit will be (1) the lesser of (a) the fraud loss limit on the most recent anniversary of the cut-off date and (b) 0.50% of the aggregate scheduled principal balance of the mortgage loans on the most recent anniversary of the cut-off date minus (2) the aggregate amount of fraud losses since that anniversary. After the fifth anniversary of the cut-off date, the fraud loss limit will be zero. S-12 [PROCEDURE FOR DISTRIBUTION REQUESTS ON RETAIL CLASS CERTIFICATES] ------------------------------------------------------------------ [Classes [...] and [...] are retail classes. Requests for principal distributions on a retail class certificate must be made in writing to the securities intermediary that maintains the beneficial owner's account through which the certificate is held. Requests for a deceased holder must be accompanied by appropriate evidence of death and any necessary tax waivers. A request for a distribution on a particular distribution day must be received before the first day of the month in which the distribution day occurs. The securities intermediaries should transmit such requests up the hierarchy of securities intermediaries to DTC in accordance with DTC's procedures. DTC will date and time stamp each request upon receipt and forward it to the Trustee. Neither CMSI nor the Trustee will be liable for any delay by DTC or any securities intermediary in forwarding requests for distributions. Requests for distributions will be honored in the order of their receipt, subject to the priorities described in the preceding section. The Trustee, acting in conjunction with DTC, will establish procedures for determining the order of receipt of requests. DTC may adopt procedures it deems fair and equitable to establish the order of receipt of requests it receives on the same day. A distribution request received by the Trustee too late for a distribution day, or a timely request that is not honored for a distribution day, will be treated as a request for distribution on the next distribution day and each following distribution day until the request is honored or withdrawn. Before each distribution day, CMSI or the Trustee will notify DTC of the extent to which distribution requests will be honored on the distribution day. DTC will in turn notify its participants, which will in turn notify their account holders until the beneficial owners are notified. CMSI expects that beneficial owners will be notified at least three days before the distribution day. A beneficial owner of a retail class certificate may withdraw a distribution request by notifying his or her securities intermediary in writing. Notices of withdrawal of requests for distribution will be transmitted up the hierarchy of securities intermediaries to DTC, and then to the Trustee, in the same way as requests for distribution. A notice of withdrawal of a request for distribution will not be effective for a distribution day unless the Trustee receives the notice by the last business day of the month preceding the distribution day.] [INSURED CLASSES] ----------------- [Classes [...] and [...] are insured classes. [Description of insured class certificates, insurance policy and insurer]] SENSITIVITY OF CERTIFICATES TO PREPAYMENTS ------------------------------------------ The following tables of weighted average lives and yields to maturity have been prepared using the following structuring assumptions: o The mortgage loans and the classes have the characteristics set forth in "Summary - series overview" above, without regard to any variation or approximation provided for in that section. o Scheduled payments of principal and interest on the mortgage loans are received in a timely manner. o The discount mortgage loans have a weighted average original term to maturity of [...] months, a weighted average remaining term to maturity of [...] months, a gross weighted average interest rate of [...]%, and an aggregate scheduled principal balance of $[...]. o The premium loans have a weighted average original term to maturity of [...] months, a weighted average remaining term to maturity of [...] months, a gross weighted average interest rate of [...]%, and an aggregate scheduled principal balance of $[...]. o CMSI does not make a clean-up call. o You purchase the certificates on the closing date. o CMSI's servicing fee is [...]% per annum. The prepayment model, the structuring assumptions and the other assumptions described below are made for illustrative purposes only. It is highly unlikely that the mortgage loans will prepay at a constant rate until maturity. The characteristics of the actual mortgage loans are also likely to differ from the structuring and other assumptions. As a result, the actual principal balances, weighted average lives and pre-tax yields of the certificates are likely to differ from those shown in the tables in this "Sensitivity of certificates to prepayments" section, even if all of the mortgage loans prepay at the indicated percentages of the prepayment model. We urge you to consult your investment advisor and to make your investment decision based on your own determination as to anticipated rates of prepayment under a variety of scenarios and the suitability of a class of certificates to your investment objectives. S-13
Principal balance as percent of initial principal balance Percentage of prepayment model ----------------------------------------------------------------------------------------------------------------- Class [...] Class [...] distribution day 0% [125]% [275]% [425]% [550]% 0% [125]% [275]% [425]% [550]% ----------------------------------------------------------------------------------------------------------------- Initial [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] Weighted Average Life (Years) -------------------------------------------------------------------- Class [...] distribution day 0% [125]% [275]% [425]% [550]% -------------------------------------------------------------------- Initial 100% 100% 100% 100% 100% [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] [month] 25, [year] Weighted Average Life (Years)
* Indicates that between zero and 0.5% of initial principal balance is outstanding. S-15 Yield to maturity CMSI intends to file additional yield tables and other computational material for some classes of certificates with the SEC in a report on Form 8-K. See "Additional SEC filings" below. These tables and materials were prepared by the underwriter at the request of some prospective investors, based on assumptions provided by, and satisfying the special requirements of, the investors. These assumptions may differ from the structuring assumptions and may not be relevant to or appropriate for other investors. Sensitivity of the class A-PO certificates The following table indicates sensitivity to various rates of prepayment on the mortgage loans of the pre-tax yields to maturity on a corporate bond equivalent basis of the class A-PO certificates. In addition to the structuring assumptions described in the core prospectus under "Yield to maturity - The prepayment model," we have assumed that the class A-PO certificates will be issued at an aggregate purchase price of approximately [...]% of their initial principal balance. You should note that the only prepayments that affect the class A-PO certificates are prepayments on the hypothetical loans in the PO strip.
Pre-tax yields Percentages of prepayment model Class 0% [125]% [275]% [425]% [550]% ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- A-PO [...]% [...]% [...]% [...]% [...]% [class] [...]% [...]% [...]% [...]% [...]%
The pre-tax yields set forth in the preceding table (and in the tables below for yields on offered subordinated classes) were calculated by o determining the monthly discount rates that, when applied to the streams of cash flows assumed to be paid on the certificates, would make the discounted present value of the assumed stream of cash flows equal to the assumed purchase price on the closing date for each class, and o converting the monthly rates to corporate bond equivalent rates. The calculation does not take into account the interest rates at which you might reinvest distributions received by you on the certificates. Yields on class B-2 and B-3 certificates The following yield tables have been prepared using the structuring assumptions, except that we assumed that o scheduled interest and principal payments on the mortgage loans are received timely, except for mortgage loans on which defaults occur in accordance with the indicated percentages of SDA, o all defaulted loans are liquidated after exactly 12 months, o there are realized losses of a percentage (referred to in the tables as the "loss severity" percentage) of the principal balance at liquidation of the liquidated mortgage loans, o all realized losses are covered by subordination, o the class A prepayment percentage is reduced only when permitted as described above under "Allocations and distributions - Prepayments and other unscheduled principal" above, and o there are no interest allocation carryforwards due to prepayment interest shortfalls. The pre-tax yields shown in the following tables were calculated in the same manner as the pre-tax yields on the class A-PO certificates, as described in the preceding section. We assumed purchase prices of [...]% of the initial principal balance plus accrued interest for the class B-2 certificates and [...]% of the initial principal balance plus accrued interest for the class B-3 certificates. S-16
Pre-tax yield to maturity of class B-2 certificates (at an assumed purchase price of [...]% of initial principal balance plus accrued interest) Percentages of prepayment model [...]% Loss Severity [...]% Loss Severity SDA Percentage 0% [275]% [550]% 0% [275]% [550]% ------------------ ---------------- ---------------- --------------- ---------------- ---------------- --------------- 50% [...]% [...]% [...]% [...]% [...]% [...]% 100% [...]% [...]% [...]% [...]% [...]% [...]% 150% [...]% [...]% [...]% [...]% [...]% [...]% 200% [...]% [...]% [...]% [...]% [...]% [...]% Pre-tax yield to maturity of class B-3 certificates (at an assumed purchase price of [...]% of initial principal balance plus accrued interest) Percentages of prepayment model [...]% Loss Severity [...]% Loss Severity SDA Percentage 0% [275]% [550]% 0% [275]% [550]% ------------------ ---------------- ---------------- --------------- ---------------- ---------------- --------------- 50% [...]% [...]% [...]% [...]% [...]% [...]% 100% [...]% [...]% [...]% [...]% [...]% [...]% 150% [...]% [...]% [...]% [...]% [...]% [...]% 200% [...]% [...]% [...]% [...]% [...]% [...]%
The following table shows aggregate realized losses on the certificates under each of the scenarios in the preceding tables, expressed as a percentage of the initial principal balance:
Aggregate realized losses Percentages of prepayment model 20% loss severity 30% loss severity SDA Percentage 0% [275]% [550]% 0% [275]% [550]% ------------------ ---------------- ---------------- --------------- ---------------- ---------------- --------------- [...]% [...]% [...]% [...]% [...]% [...]% 100% [...]% [...]% [...]% [...]% [...]% [...]% 150% [...]% [...]% [...]% [...]% [...]% [...]% 200% [...]% [...]% [...]% [...]% [...]% [...]%
Investors should note that o the loss severity percentage does not purport to be a historical description of loss severity experience or a prediction of the anticipated loss severity of any pool of mortgage loans, and o even if subsequently cured, delinquencies may affect the timing of distributions on the offered subordinated classes, because the entire amount of the delinquencies would be borne by the offered subordinated classes in reverse order of seniority before they would affect the senior classes. S-17 VOTING RIGHTS ------------- At all times, o 98% of the voting rights of registered holders of the certificates will be allocated among the classes (other than class A-IO) in proportion to their principal balances, and o 2% of such voting rights will be allocated to the class A-IO certificates. ADDITIONAL ERISA CONSIDERATIONS ------------------------------- The Department of Labor has granted the underwriter, [Underwriter] ([Underwriter]), an administrative exemption, Prohibited Transaction Exemption PTE [...-...], from some of ERISA's prohibited transaction rules and some of the excise taxes imposed by the Internal Revenue Code for the initial purchase, the holding and the subsequent resale by ERISA plans of certificates in pass-through trusts that meet the conditions and requirements of the underwriter's exemption. The underwriter's exemption should apply to the acquisition, holding, and resale of the offered certificates by an ERISA plan, provided that specified conditions are met, including o the acquisition of offered certificates by an ERISA plan is on terms that are at least as favorable to the ERISA plan as they would be in an arm's-length transaction with an unrelated party, o at the time the ERISA plan acquired the offered certificates, [S&P, Fitch or Moody's] ] rated the certificates in one of the four highest generic rating categories, o the sum of all payments made to the underwriter in connection with the distribution of the offered certificates represents not more than reasonable compensation for underwriting those certificates, and o the sum of all payments made to and retained by the servicer represents not more than reasonable compensation for the services provided to the Trust by the servicer and for reimbursement of the servicer's reasonable expenses in providing those services. The underwriter's exemption does not apply to the acquisition and holding of offered certificates by ERISA plans sponsored by CMSI, the underwriter, the Trustee or any of their affiliates. Moreover, the exemption provides relief from certain self-dealing/conflict of interest prohibited transactions only if, among other requirements o an ERISA plan's investment in each class or subclass of offered certificates does not exceed 25% of the outstanding amount of that class or subclass at the time it acquired that position, and o immediately after it acquired that position, no more than 25% of the assets of an ERISA plan with respect to which the person who has discretionary authority or renders advice are invested in certificates representing an interest in a trust containing assets sold or serviced by the same person. A governmental plan as defined in Section 3(32) of ERISA is not subject to ERISA or Internal Revenue Code section 4975. However, a governmental plan may be subject to similar federal, state or local laws. A fiduciary of a governmental plan should make its own determination as to the need for the availability of any exemptive relief under such similar laws. LEGAL INVESTMENT ---------------- The offered class A and class B-1 certificates will be "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984, (SMMEA), so long as they are rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization. The offered class B-2 and B-3 certificates will not be "mortgage related securities" under SMMEA. S-18 FEDERAL INCOME TAX CONSEQUENCES ------------------------------- The assets of the Trust will consist of mortgage loans. For federal income tax purposes, an election will be made to treat the Trust as one or more REMICs. Each class of the offered certificates will be designated as a regular interest in a REMIC. Offered certificates will be treated as debt instruments for U.S. federal income tax purposes. It is anticipated that o the class A-PO certificates will be issued with original issue discount (OID) equal to the excess of their initial principal balance over their issue price, o the class A-[...] certificates will be issued with OID equal to the excess of the sum of all distributions of principal and interest (whether current or accrued) expected to be received on those certificates over their issue price (including accrued interest from [the cut-off date]), o the class [...] certificates will be issued with OID equal to the excess of their initial principal balance (plus three days of accrued interest) over their issue price (including accrued interest from [the cut-off date]), o the class [...]certificates will be issued at a premium, and o the class [...] certificates will be issued with de minimis OID. The offered certificates will be treated as o "loans . . . secured by an interest in real property which is . . . residential real property" and "regular interests in a REMIC" for domestic building and loan associations, o "real estate assets" for real estate investment trusts, o "qualified mortgages" for another REMIC, and o "permitted assets" for a financial asset securitization investment trust. PLAN OF DISTRIBUTION -------------------- Subject to the terms and conditions of the underwriting agreement among [Underwriter], Citicorp and CMSI, [Underwriter], as underwriter, will purchase the offered certificates from CMSI upon issuance. The underwriter has committed to purchase all the offered certificates if any certificates are purchased. The underwriter will distribute the offered certificates from time to time in negotiated transactions or otherwise at varying prices to be determined at the time of sale. Proceeds to CMSI will be approximately [...]% of the aggregate initial principal balance of the senior classes, and [...]% of the aggregate initial principal balance of the offered subordinated classes, plus accrued interest at the rate of [...]% and before deducting expenses of approximately $[...] payable by CMSI. However, if the initial principal balance of the senior classes is less than $[...], the aggregate proceeds to CMSI (as a percentage of the initial principal balance of the senior classes) will be adjusted upwards by not more than 0.002% and if the aggregate initial principal balance of the senior classes is greater than $[...], the aggregate proceeds to CMSI (stated as a percentage of the initial principal balance of the senior classes) will be adjusted downwards by not more than 0.002%. In connection with the purchase and sale of the offered certificates, the underwriter may be deemed to have received compensation from CMSI in the form of underwriting discounts. Subject to the terms and conditions of the purchase agreement among Citicorp, CMSI and [Underwriter], [Underwriter] will purchase the unoffered subordinated certificates upon issuance. [Underwriter] has committed to purchase all of the unoffered subordinated certificates if any offered certificates are purchased. [Underwriter] will offer the unoffered subordinated certificates through one or more negotiated transactions, as a private placement to a limited number of institutional investors. The closing of the sale of the unoffered subordinated certificates is a condition to the closing of the sale of the offered certificates to the underwriter. The underwriting agreement provides that CMSI and Citicorp will indemnify the underwriter against certain civil liabilities under the Securities Act of 1933 or contribute to payments the underwriter may be required to make under that Act. In connection with this offering, the underwriter may over-allot or effect transactions that stabilize or maintain the market price of the offered certificates at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. CMSI anticipates that certificates will be sold primarily to institutional investors. A purchaser of certificates, including a dealer, may be deemed to be an "underwriter" of those securities under the Securities Act of 1933 in making re-offers and sales by it of certificates. certificate holders should consult their legal advisers as to the consequences of being deemed an "underwriter." Underwriters and agents participating in the distribution of the certificates, and their affiliates, may engage in transactions with and perform services for Citicorp or its affiliates in the ordinary course of business. S-19 LEGAL OPINIONS -------------- Legal opinions will be delivered for CMSI and Citicorp by John R. Dye, as Associate General Counsel - Corporate Law of Citigroup, and for the underwriter by Cadwalader, Wickersham & Taft, New York, New York. Mr. Dye owns or has the right to acquire less than 0.01% of the outstanding common stock of Citigroup. [Cadwalader, Wickersham & Taft], will deliver opinions on ERISA matters and federal income tax matters for CMSI. ADDITIONAL SEC FILINGS ---------------------- The following documents filed with the SEC by CMSI under the Securities Exchange Act of 1934 are incorporated by reference in this prospectus as of their filing dates: o Current Reports on Form 8-K dated [date] and [date], filed pursuant to Section 13, and o all reports subsequently filed pursuant to sections 13(a), 13(c) or 15(d) prior to the termination of the offering of the certificates. S-20 APPENDIX - DETAILED DESCRIPTION OF THE MORTGAGE LOANS ----------------------------------------------------- The following tables give additional information about the mortgage loans as of the cut-off date. The mortgage loans actually included in the Trust may differ from their description below, but the differences will not be material. Years of origination Year originated Number of loans Aggregate principal balance [year] [number] $ [...] [year] [number] $ [...] [year] [number] $ [...] [year] [number] $ [...] [year] [number] $ [...] [year] [number] $ [...] ---------------------- --------------------- ------------------------------- Total [number] $ [...] Types of dwellings Type Number of loans Aggregate principal balance Detached house [number] $ [...] 2- to 4-family [number] $ [...] Townhouse [number] $ [...] Condominium [number] $ [...] (one to four stories) Condominium [number] $ [...] (over four stories) Cooperative [number] $ [...] ---------------------------- --------------------- ---------------------------- Total [number] $ [...] S-21 Number of units in dwellings Type Number of loans Aggregate principal balance 1-family [number] $ [...] 2-family [number] $ [...] 4-family [number] $ [...] ------------------- ------------------- -------------------------------- Total [number] $ [...] Sizes of loans Principal balance Number of Loans Aggregate principal balance $ 149,999 and under [number] $[...] $ 150,000 - 199,999 [number] $[...] $ 200,000 - 249,999 [number] $[...] $ 250,000 - 299,999 [number] $[...] $ 300,000 - 349,999 [number] $[...] $ 350,000 - 399,999 [number] $[...] $ 400,000 - 449,999 [number] $[...] $ 450,000 - 499,999 [number] $[...] $ 500,000 - 549,999 [number] $[...] $ 550,000 - 599,999 [number] $[...] $ 600,000 - 649,999 [number] $[...] $ 650,000 - 699,999 [number] $[...] $ 700,000 - 749,999 [number] $[...] $ 750,000 - 799,999 [number] $[...] $ 800,000 - 849,999 [number] $[...] $ 850,000 - 899,999 [number] $[...] $ 900,000 - 949,999 [number] $[...] $ 950,000 - 999,999 [number] $[...] $ 1,000,000 and over [number] $[...] ----------------------------- ----------------------- ------------------------- Total [number] $[...] S-22 Distribution by interest rates Interest rate Number of loans Aggregate principal balance [...] % - [...] % [number] $[...] [...] % - [...] % [number] $[...] [...] % - [...] % [number] $[...] [...] % - [...] % [number] $[...] [...] % - [...] % [number] $[...] [...] % - [...] % [number] $[...] ------------------------- --------------------- ------------------------------- Total [number] $[...] Distribution by loan-to-value ratio at origination Loan-to-value ratio Number of loans Aggregate principal balance 65 % and below [number] $[...] 65+ % - 75 % [number] $[...] 75+ % - 80 % [number] $[...] 80+ % - 85 % [number] $[...] 85+ % - 90 % [number] $[...] 90+ % - 95 % [number] $[...] ------------------------- --------------------- ------------------------------- Total [number] $[...] S-23 Geographic distribution State Number of loans Aggregate principal balance Alabama [number] $[...] Arizona [number] $[...] California [number] $[...] Colorado [number] $[...] Connecticut [number] $[...] Delaware [number] $[...] District of Columbia [number] $[...] Florida [number] $[...] Georgia [number] $[...] Hawaii [number] $[...] Illinois [number] $[...] Iowa [number] $[...] Kansas [number] $[...] Louisiana [number] $[...] Maine [number] $[...] Maryland [number] $[...] Massachusetts [number] $[...] Michigan [number] $[...] Minnesota [number] $[...] Mississippi [number] $[...] Missouri [number] $[...] Nevada [number] $[...] New Jersey [number] $[...] New Mexico [number] $[...] New York [number] $[...] North Carolina [number] $[...] Ohio [number] $[...] Oklahoma [number] $[...] Oregon [number] $[...] Pennsylvania [number] $[...] Rhode Island [number] $[...] South Carolina [number] $[...] Tennessee [number] $[...] Texas [number] $[...] Utah [number] $[...] Virginia [number] $[...] Washington [number] $[...] Wisconsin [number] $[...] -------------------------- -------------------- ------------------------------- Total [number] $[...] S-24 CORE PROSPECTUS Summary THE CERTIFICATES ---------------- Citicorp Mortgage Securities, Inc. (CMSI) has set up a Trust under New York law. On the closing date designated in the supplement, the Trust will purchase one or more pools of mortgage loans from CMSI. The Trustee for the Trust is identified in the supplement. The Trustee is not affiliated with CMSI. The Trust will sell certificates to investors evidencing interests in the mortgage loans. The certificates offered by the Trust for the mortgage loans will comprise a single series of certificates. CMSI will set up other trusts for other series of certificates. This prospectus describes the series of certificates to be offered by the Trust. This core prospectus describes features of the series that it shares with other series offered by other trusts; the supplement describes some unique features of this series. A certificate holder will own, through the Trust, a portion of the payments on the mortgage loans received by the Trust and other property held by the Trust. Principal and interest payments on the mortgage loans received by the Trust will, after deduction of servicing and other costs, be distributed to the certificate holders. Distributions to certificate holders will be made on periodic distribution days, which will be monthly unless otherwise stated in the supplement. Each mortgage loan will be secured, usually by a first-priority mortgage on a one- to four-family residential property. Some mortgage loans may be loans on cooperative apartments, which will be secured by a first-priority lien on shares in a cooperative apartment corporation and the related lease or occupancy agreement. Other mortgage loans may be secured by leases of residential property. Some mortgage loans may be partially secured by pledges of investment securities. The supplement describes the mortgage loans in the Trust. REMIC election The Trust will elect to be treated as one or more "real estate mortgage investment conduits" (or REMICs) under US federal tax laws. A REMIC is generally not subject to US federal corporate tax, so payments of principal and interest received by the Trust can generally be distributed to certificate holders without deduction for those taxes. See "Taxation of the Trust" below. GENERAL RISK FACTORS -------------------- You should consider the following general risk factors, and any risk factors described in the supplement that are specific to the series, before you purchase any certificates. Limited liquidity The liquidity of the certificates may be limited. o A secondary market for a class of certificates may not develop or, if it does, it may not provide you with liquidity of investment or continue for the life of the certificates. o While CMSI anticipates that the underwriter will establish a secondary market for the certificates, the underwriter will not have to do so or to continue doing so for any period of time. o CMSI does not intend to list any certificates on a securities exchange or automated quotation system. 1 Limited assets The Trust's assets are generally limited to mortgage loans. If payments and recoveries on the mortgage loans are insufficient to make all distributions of interest and principal on the certificates, there may be no other assets available to make up the deficiency. CMSI may advance its own funds to cover delinquent scheduled payments of principal or interest on the mortgage loans it services, but is not obligated to do so. CMSI intends to make advances to the extent it determines that the funds advanced will be reimbursed to it from future payments and collections on the related mortgage loans. If CMSI fails to make an advance, the Trustee, acting in its individual capacity and not as Trustee, will make an advance to cover delinquencies, but only to the extent it believes its advances will be reimbursed from future payments and collections on the related mortgage loans. Other servicers and master servicers of third-party mortgage loans must advance their own funds to cover delinquent scheduled payments of principal and interest on the loans they service, but only to the extent they determine that the funds advanced will be reimbursed from future payments and collections on the related mortgage loans. To the extent that CMSI, other servicers and master servicers and the Trustee do not make such advances, the only source of cash for distributions on the certificates will be cash received on the mortgage loans. Uncertainty of yields The yield to maturity of each class of certificates will be sensitive, in varying degrees, to o the rate of principal prepayments and other unscheduled receipts on the mortgage loans, o the allocation of prepayments and unscheduled receipts among the classes of certificates, o the amount, timing and cause of losses and payment shortfalls on the mortgage loans, o the allocation of losses and distribution shortfalls among the classes of certificates, and o any difference between the purchase price of a certificate and its principal balance at the time of purchase. If you purchase a certificate at a discount, a slower than anticipated rate of prepayment will result in an actual yield lower than the anticipated yield. If you purchase a certificate at a premium, a faster than anticipated rate of prepayment will result in an actual yield lower than the anticipated yield. If losses or distribution shortfalls are allocated to your certificates, your actual yield will be adversely affected. You should therefore understand the terms and conditions of any certificates in which you are considering an investment and the priorities for principal and interest distributions and allocations of losses and shortfalls before you make an investment. See "Allocations" and "Distributions" below and "Allocations and Distributions" and "Sensitivity of certificates to prepayments" in the supplement. Legal investment Institutions whose investment activities are subject to legal investment laws and regulations or to regulatory review may be subject to restrictions on investment in certificates. CMSI cannot represent that any class of certificates will be a legal investment for you. You should consult your counsel on whether any class of certificates is a legal investment for you. Restrictions on transfer The purchase and holding of subordinated classes of certificates by or on behalf of an employee benefit plan subject to the Employee Retirement Security Act of 1974 (ERISA) may result in prohibited transactions under ERISA, the Internal Revenue Code or similar law. These laws may restrict the number and types of investors that can buy subordinated classes of certificates and could therefore adversely affect the liquidity of these certificates. The Trust will not register or recognize a transfer of certificates of a subordinated class unless the transferee satisfies the conditions set forth in "ERISA considerations - Class exemption" and "- Underwriter exemptions" below. 2 SERIES STRUCTURE ---------------- Payments on mortgage loans All payments of principal and interest on the mortgage loans by homeowners (or advances of such payments by CMSI or the Trustee), and certain recoveries of losses on the mortgage loans, will, after deduction of servicing fees and other expenses, be distributed to the certificate holders. There will be no other source of payments on the certificates. (In this prospectus, we often refer to the borrower under a mortgage loan as the homeowner, even though he or she may be a tenant or a cooperative apartment shareholder.) Principal and interest payments received on the mortgage loans will include scheduled payments of principal and interest on the mortgage loans, voluntary prepayments of principal, proceeds of foreclosure proceedings on the mortgaged properties securing the mortgage loans, and payments of hazard or other insurance on the mortgaged properties or mortgage loans. The Trust may also receive other payments described in this prospectus that are not considered payments of principal or interest, and which will not be available for distribution to certificate holders. The Trust's expenses will include fees paid to CMSI and/or others for servicing the mortgage loans, expenses of foreclosure proceedings, and other expenses. Each mortgage loan will have a scheduled payment for each month that is due on the first day of the following month. The scheduled payment will consist of o interest on the loan's principal balance for the preceding month, and o a part of the loan's principal balance. Scheduled payments of principal will include scheduled payments on a defaulted mortgage loan until foreclosure of the related mortgaged property by the Trust. Scheduled payments may also include payments for real estate taxes or other assessments and for property insurance. Scheduled payments will be reduced by any reduction in the homeowner's scheduled principal payments due to a bankruptcy proceeding, if the reduction is not covered by subordination. The homeowner usually has a grace period in which he or she can make a scheduled payment without having to pay additional interest or a late payment charge. In addition to scheduled payments, there will also be unscheduled payments of principal on a mortgage loan. These will consist primarily of voluntary prepayments by homeowners. A homeowner may prepay part or all of his or her mortgage loan at any time. That is, a homeowner can pay more principal than he or she is scheduled to pay. The homeowner can include this additional payment with the scheduled payment of principal and interest, or can pay it at some other time. A homeowner will usually not incur an additional prepayment charge for prepaying a mortgage loan. In addition to voluntary prepayments, there are a number of other types of prepayments (such as foreclosure proceeds) that may be included in unscheduled payments, and which are described in "Weighted average life of certificates - Types of prepayments" below. CMSI anticipates that a significant number of mortgage loans will be prepaid in whole or in part. Homeowner mobility, economic conditions, enforceability of due-on-sale clauses, mortgage market interest rates and the availability of mortgage funds will all influence the level of prepayments. Property of the Trust; the cut-off date The initial unpaid principal amount of each mortgage loan (the initial principal balance of the mortgage loan) in the Trust will be determined as of the first day of the month in which the certificates are issued (the cut-off date). Prepayments of principal received on or before the cut-off date will not be property of the Trust. Nor will scheduled payments of principal and interest for months ending before the cut-off date, even if the homeowners make the payments on or after the cut-off date. Example: A Trust issues certificates on January 27. Then January 1 is the cut-off date. Principal prepayments received on or before January 1 are not property of the Trust, nor are scheduled payments of principal and interest for months before January, no matter when they are received. (Note that principal payments for December will be due on January 1, but will still not be property of the Trust.) Principal prepayments received on or after January 1 are property of the Trust, as are scheduled payments due for January or later months, even if the scheduled payments were received before the cut-off date. 3 The scheduled principal balance of a mortgage loan for a distribution day will equal its initial principal balance, reduced by o scheduled principal payments due after the cut-off date and before the distribution day, whether or not received by the Trust, and o prepayments received by the Trust before the first day of the month. If stated in the supplement, the Trust may contain in addition to, or instead of, mortgage loans, mortgage-backed securities issued by the Government National Mortgage Association (popularly known as Ginnie Mae), the Federal Home Loan Mortgage Corporation (popularly known as Freddie Mac), Fannie Mae (formerly Federal National Mortgage Association) (collectively, agency certificates) or by other REMICs. Principal and interest received on agency certificates or REMIC securities will be distributed to certificate holders in much the same way as principal and interest payments received on mortgage loans. Other property of the Trust may include mortgaged properties acquired by foreclosure, reserve funds or other credit support, and insurance policies. The mortgage loans in the Trust may be either o affiliated mortgage loans originated by CMSI or its affiliates or purchased from third parties and serviced by CMSI or its affiliates, or o third-party mortgage loans originated by third parties and sold to CMSI on a "servicing retained" basis - that is, where a third-party continues to service the loan. Classes of certificates The certificates of the series are divided into a number of classes with different interest and principal payment characteristics. The supplement describes each class of certificates in the series. Some classes of certificates may not be offered publicly but may be sold privately (including sales to CMSI or an affiliated company). Only certificates rated as investment grade by a nationally recognized rating agency are offered by this prospectus. In addition to those regular classes of certificates that have a principal balance and/or an interest rate, there will be one or more residual classes of certificates that will have no interest rate and may have no principal balance. A residual class will receive in each month only amounts that were available for distribution but that exceeded the distributions to be made to the regular classes. Residual certificates are not offered by this prospectus. Principal and notional balances of classes and certificates Each class of certificates, other than an interest-only or residual class, will have a principal balance. Each interest-only class will have a notional balance. The initial principal or notional balance of each class of the series is stated in the supplement. The aggregate of the initial principal balances of the classes equals the initial principal balance of the mortgage loans. The principal or notional balance of each class of certificates will be adjusted on each distribution day, as described in "Adjustments to class balances" below. The aggregate of the initial principal or notional balances of the certificates of a class will equal the class's initial principal or notional balance. Thereafter, except for any retail classes (see "Distributions - Retail classes" below), a certificate's principal or notional balance will equal its proportional share of the principal or notional balance of the class, based on the initial principal or notional balances of the certificates of the class. (If there are any retail classes in this series, they will be described in the supplement.) Ratio stripping In structuring a series, it is desirable that most of the mortgages have the same interest rate. To achieve this, most series use a structuring technique known as ratio stripping. Ratio stripping converts a pool of mortgage loans with varying interest rates into three pools of hypothetical mortgage loans: o a pool with a single fixed target interest rate, o a pool of principal-only mortgage loans (i.e., loans with a zero interest rate), and o a pool of interest-only mortgage loans (i.e., loans that pay interest but not principal). 4 This structure is achieved by dividing the loans into a group of premium loans with net loan rates equal to or greater than a target rate, which is stated in the supplement, and a group of discount loans with net loan rates less than the target rate. The net loan rate is the interest rate on the mortgage loan minus the servicing fee. Then: o For each premium loan, the interest rate in excess of the target rate is "stripped off" from the loan and considered as a separate hypothetical "interest-only" mortgage loan. For example, suppose the target rate is 6%. Then a premium loan with a 7% net loan rate - 1% greater than the target rate - and a principal balance of $100,000 will be divided into a hypothetical target-rate loan with a 6% net loan rate and a $100,000 principal balance, and a hypothetical interest-only (or IO) loan with a $100,000 notional balance and a 1% net loan rate. The IO loan will distribute 1% per annum on its notional balance, but will never distribute any principal. The two hypothetical loans will thus pay the same interest and principal as the single premium loan. o For each discount loan, a portion of the principal of the loan is stripped off and applied to create a hypothetical principal-only (or PO) loan. This stripping-off of principal is done to make the effective yield on the remaining loan equal the target rate. For example, suppose a discount loan has a 5.4% net loan rate and a $100,000 principal balance. Such a loan would be split into a hypothetical target-rate loan with a $90,000 principal balance (5.4% of $100,000 being the same as 6% of $90,000) and a hypothetical $10,000 PO loan. The PO loan will make scheduled distributions of principal equal to one-tenth of the scheduled principal payments on the original discount loan (before stripping), but will not distribute any interest. Again, the two hypothetical loans will pay the same interest and principal as the single discount loan. In general, the principal amount of the target-rate loan can be calculated by solving the equation: principal of discount loan X net interest rate on discount loan = principal of target-rate loan X target rate. The principal amount of the PO loan is then found by subtracting the principal amount of the target-rate loan from the principal amount of the discount loan. o Finally, all the target-rate loans are grouped into a target-rate strip, all the PO loans are grouped into a PO strip, and all the IO loans are grouped into an IO strip. Subject to any qualifications described below or in the supplement, o principal payments received on the PO strip will be distributed to a ratio-stripped PO class, o interest payments received on the IO strip will be distributed to a ratio-stripped IO class, and o principal and interest payments received on the target-rate strip will be distributed to the remaining target-rate classes. Prepayments on a discount loan are divided between the target-rate loan and the PO loan in proportion to their principal balances. Thus, a $10,000 prepayment on the $100,000 discount loan described above would result in an $9,000 prepayment of the target-rate loan and a $1,000 prepayment of the PO loan. These prepayments on the target-rate and PO loans will reduce the principal balance of the target-rate strip by the same $9,000 and of the PO strip by the same $1,000. Prepayments on a premium loan work a bit differently: the full prepayment reduces both the principal balance of the target-rate loan and the notional balance of the IO loan. For example, for the $100,000 premium loan described above, a $10,000 prepayment will reduce both the principal balance of the target-rate loan and the notional balance of the IO loan to $90,000. The $10,000 prepayment on the premium loan would be allocated solely to the target-rate classes. Principal losses are handled similarly. A $10,000 principal loss on the $100,000 discount loan described above would reduce the principal balance of the target-rate loan (and the target-rate strip) by $9,000 and the principal balance of the PO loan (and the PO strip) by $1,000. A $10,000 principal loss on the premium loan described above will reduce both the principal balance of the target-rate loan and the notional balance of the IO loan by $10,000 (and similarly for the strips of which the target-rate and IO loans are a part). The target-rate, IO and PO strips are groups of hypothetical mortgage loans, not real mortgage loans. The obligations of a homeowner with a premium or discount loan are not affected in any way by ratio stripping. Principal and interest payments received on premium loans will not be segregated from principal and interest payments on discount loans, nor will funds to be distributed to target-rate classes be kept separately from funds to be distributed to other classes. Rather, the strips are ways of understanding how mortgage loan payments and realized losses are allocated among the different classes of a ratio-stripped series. 5 In this core prospectus, we usually assume that the series is ratio-stripped. If not, then references in this core prospectus to "target-rate classes" and "senior target-rate classes" should be understood to refer to all classes or all senior classes of the series, respectively. Multiple pool series Some series may be structured by dividing the mortgage loans into two or more pools based on the characteristics of the mortgage loans. For example, a series might have two pools, one containing only mortgage loans with an original term of 20 years or less, the other containing only mortgage loans with an original term of more than 20 years. In a multiple-pool series, principal and interest payments from a single pool would be allocated to separate senior classes and subordinated components. If the series uses ratio-stripping, each pool would be separately ratio-stripped, with the result that there would be a separate ratio-stripped PO class or component and ratio-stripped IO class or component for each pool. Any ratio-stripped IO or PO components, and the subordinated components, would then be combined into ratio-stripped IO and PO and subordinated classes. For most series, pools and their related senior and ratio-stripped IO and PO classes will be designated by Roman numerals. Example: A series has two pools of mortgage loans, I and II. The pools are separately ratio-stripped to give separate IO, PO and target-rate strips for each pool. Principal and interest payments on the pool I target-rate strip are allocated to senior classes IA-*1 and IA-*2 and to subordinated components IB-*1 through IB-*6, while principal and interest payments on the pool II target-rate strip are allocated to senior classes IIA-*1 and IIA-*2 and subordinated components IIB-*1 through IIB-*6. Payments on the pool I PO strip are allocated to the ratio-stripped PO component IA-*PO and payments on the pool I IO strip are allocated to the ratio-stripped IO class IA-*IO. Similarly, payments on the pool II PO strip are allocated to the ratio-stripped PO component IIA-*PO and payments on the pool II IO strip are allocated to the ratio-stripped IO class IIA-*IO. The subordinated components IB-*1 and IIB-*1 are then combined to form the subordinated class B-*1, the subordinated components IB-*2 and IIB-*2 are then combined to form the subordinated class B-*2, and so on. (Classes B-*1 through B-*6 do not have roman numeral prefixes because they receive principal and interest allocations from both pools.) Similarly, the ratio-stripped PO components IA-*PO and IIA-*PO are combined to form the ratio-stripped class A-*PO. In this example, there are separate ratio-stripped IO classes for each pool and a combined ratio-stripped PO class. But a series could have separate ratio-stripped PO classes for each pool and/or a combined ratio-stripped IO class. Subordinated classes, however, are always combined. A multiple-pool series works somewhat like separate series based on separate pools, except that losses on mortgage loans in one pool may be absorbed by the subordinated classes even though they exceed the aggregate initial principal balances of the subordinated components of that pool. Example: Suppose that in the series in the preceding example, the pool I subordinated components have an aggregate initial principal balance of $1 million, and the pool II subordinated components have an aggregate initial principal balance of $2 million. This gives the subordinated classes an aggregate initial principal balance of $3 million. Now suppose that there are $2.5 million of losses on the mortgage loans in pool II's target-rate strip, but no losses on the mortgage loans in pool I's target-rate strip. Then the entire $2.5 million of losses will be allocated to the subordinated classes; no losses will be allocated to classes IIA-*1 or IIA-*2, even though the losses on pool II's target-rate strip exceed the initial principal balance of the pool II subordinated components. The fact that the subordinated classes will bear losses incurred in one mortgage pool that exceed the subordinated components of that pool is referred to as cross-collateralization. Cross-collateralization may also require some payments received on mortgage loans in one pool to be distributed to classes that would normally only receive distributions based on payments in the other pool. If this series is a multiple-pool series, the supplement will describe the cross-collateralization provisions. SUBORDINATION ------------- The classes of a series will generally be divided between one or more senior classes and six subordinated classes. Subordination involves the disproportionate allocation of losses and distribution shortfalls to the subordinated classes. 6 Senior classes will generally be designated with a prefix A, as A-1, A-2, etc. Subordinated classes will generally be designated with the prefix B, with B-1 being the least subordinated, B-2 being the next least subordinated, etc., and class B-6 being the most subordinated. The senior classes will occasionally be referred to collectively as class A, and the subordinated classes will occasionally be referred to collectively as class B. The three most subordinated classes, B-4, B-5 and B-6, will generally not be offered by this prospectus. Subordination protects the more senior classes against realized losses on the mortgage loans and against distribution shortfalls. Losses are generally allocated in order of subordination - that is, first to the most subordinated class until its principal balance is reduced to zero, then to the next most subordinated class until its principal balance is reduced to zero, and so on until the loss has been fully allocated. Example: A series has two senior classes, A-*1 and A-*2, and six subordinated classes B-*1 through B-*6, of which B-*6 is the most subordinated, B-*5 the next most subordinated, etc., with B-*1 being the least subordinated. In this structure, all subordinated losses would be allocated first to class B-*6 until its principal balance is reduced to zero. Losses would then be allocated to class B-*5 until its principal balance is reduced to zero, then to class B-*4, and so on through class B-*1. Once the principal balance of each subordinated class is reduced to zero, additional losses would be allocated to the senior classes, usually in proportion to their principal balances. Cash available for distribution is generally distributed in order of seniority - that is, first to the most senior class up to its allocated interest and principal, then to the next most senior class, and so on until a full distribution of allocated interest and principal has been made or the cash available for distribution is exhausted. Accordingly, if the amount available for distribution is less than the total amount allocated to the classes, the subordinated classes, beginning with the most subordinated class, will not receive their full principal and interest allocations. Once principal or interest is distributed to a subordinated class, the distributions do not have to be refunded even if, on a later distribution day, full distributions can not be made to a more senior class. The date on which the principal amounts of all the subordinated classes are reduced to zero is the subordination depletion date. After the subordination depletion date, the senior classes will absorb all realized losses and distribution shortfalls. Losses and shortfalls not subject to subordination Certain non-subordinated losses are not subject to subordination; these losses on the mortgage loans in the target-rate strip are generally allocated to the target-rate classes, senior and subordinated, in proportion to their principal balances. Losses not subject to subordination are: 1 Delinquencies and losses resulting from certain extraordinary events, including o hostile or warlike action in peace or war, o the use of a nuclear weapon in peace or war, and o insurrection, rebellion, revolution or civil war, or governmental action to prevent such occurrences (but not including peacetime looting or rioting). 2 When a homeowner makes a prepayment, he or she will often not pay any interest on the prepayment. However, since the Trust does not distribute this prepayment until the following month, interest will accrue on the prepayment amount for the entire month. Example: A homeowner prepays $1,000 on January 10, and pays no interest with this prepayment. The homeowner's February 1 scheduled payment also does not include any interest on the $1,000 prepayment. The $1,000 prepayment will be distributed to the certificate holders on the February distribution day. However, the classes in the series will accrue interest on the prepaid $1,000 for the entire month of January, and the accrued interest will be allocated to the classes of the series even though it was not paid by the homeowner. Prepayments thus create a gap, called a prepayment interest shortfall between the interest accrued on the certificates and the interest paid by homeowners. If there is a prepayment interest shortfall on a distribution day for affiliated mortgage loans, CMSI will apply up to one-half of the servicing fee it would be entitled to retain out of the scheduled principal and interest payments on the mortgage loans for the month (but not more than the servicing fee it actually receives during the calendar month before the distribution day) to reduce the shortfall. To the extent a net shortfall remains for the target-rate classes, it will be deducted from the interest allocations to all the target-rate classes in proportion to their accrued interest; similarly for allocations to ratio-stripped IO classes. This shortfall will not be carried forward or distributed on any subsequent distribution day. 3 Losses on mortgage loans include o special hazard losses - that is, direct physical loss or damage from a cause that is not an extraordinary event referred to in the first exception to subordination listed above and is not covered by (a) a homeowner's fire, flood or extended coverage insurance policy required by the mortgage loan or (b) hazard insurance on the mortgaged property that CMSI is required to maintain, 7 o bankruptcy losses attributable to the actions of a bankruptcy court, and o fraud losses resulting from fraud committed by the borrower in obtaining the mortgage loan. Special hazard, bankruptcy and fraud losses are only covered by subordination up to dollar limits specified by the rating agencies for each type of loss. Once the limit for one of these types of losses is exceeded, o excess principal losses on the target-rate strip will generally be deducted from the principal balances of those classes in proportion to their principal balances, and o excess losses of accrued interest will be deducted from interest allocations in proportion to interest accrued. Example 1: The principal balance of the most subordinated class B-*6 is $1,000 and of the next most subordinated class B-*5 is also $1,000. Then a realized $1,500 principal loss on the target-rate strip that is covered by subordination would be deducted from the principal balance of class B-*6 until its principal balance is reduced to zero. The remaining $500 of the loss would then be deducted from the principal balance of class B-*5, reducing its principal balance to $500. Example 2: Same facts, except that the loss is a bankruptcy loss that exceeds the limit for such losses. Since such an excess loss is not covered by subordination, it will be deducted from the principal balances of the senior target-rate classes and each subordinated class in proportion to their principal balances. The initial limits for special hazard, bankruptcy and fraud losses for this series are stated in the supplement. Reimbursement of ratio-stripped PO classes A ratio-stripped PO class does not have the same senior status as the senior target-rate classes. Instead, if such a class's principal balance is reduced by a principal loss on a hypothetical mortgage loan in the PO strip that is covered by subordination, the ratio-stripped PO class will be reimbursed on that day for the amount of the loss, and for any loss from a prior distribution day that is covered by subordination and has not been reimbursed. Reimbursement will be made from principal distributions on that distribution day to the subordinated classes in order of subordination. As a result, one or more subordinated classes may have part or all of their principal distributions redirected to a ratio-stripped PO class. The ratio-stripped PO class's principal balance will not be reduced by reimbursement from the subordinated classes. Conversely, the subordinated classes' principal balances will be reduced by the principal distribution allocated to them, even though part of that principal distribution may, instead of being distributed to the subordinated class, will be used to reimburse the ratio-stripped PO class. ALLOCATIONS ----------- Principal allocations The principal and interest allocated to a class for a distribution day are the amounts of principal and interest that would be distributed to the class if all homeowners make timely payments of principal and interest, or, failing that, if all delinquent payments on the mortgage loans are advanced by the servicers or the Trustee. Except as described in the supplement, scheduled and unscheduled principal payments on the target-rate strip for a distribution day will be allocated between the senior target-rate classes as a group and the subordinated classes in proportion to principal balances. Allocations to the subordinated classes as a group will be further allocated among the individual subordinated classes in proportion to their principal balances. Among the senior classes, however, the allocation will generally be structured so that some senior classes will receive disproportionally large principal allocations, with the result that the principal balances of these classes will be reduced much sooner than the principal balances of the other senior classes or of the subordinated classes. Example: In a ratio-stripped series, there are two senior target-rate classes, A-*1 and A-*2, each with a principal balance of $470,000 (for a total of $940,000), and six subordinated target-rate classes, B-*1 through B-*6, each with a principal balance of $10,000 (for a total of $60,000). The aggregate principal balance of all the target-rate classes is thus $1,000,000, of which the senior target-rate classes have 94% and the subordinated classes have 6%. Suppose that scheduled and unscheduled principal payments on the target-rate strip for the preceding month total $50,000. Then the principal payments will be allocated between the senior and the subordinated classes in proportion to their principal balances - that is, $47,000 (94%) of these payments will be allocated to the two senior target-rate classes, and the remaining $3,000 (6%) will be allocated to the subordinated classes. 8 The $3,000 allocated to the six subordinated classes will be allocated based on their principal balances; since in our example their principal balances are the same, each of the six subordinated classes will be allocated $500. However, the $47,000 allocated to the senior target-rate classes will usually not be allocated in proportion to principal balances. For example, the series may be structured so that all principal allocated to the senior target-rate classes will be allocated to class A-*1 until its principal balance is reduced to zero, and then to class A-*2 until its principal balance is reduced to zero. Thus, for this distribution day, the entire $47,000 allocated to the senior target-rate classes will be allocated to class A-*1, with no principal being allocated to class A-*2. As a result, holders of class A-*1 certificates may receive principal distributions equal to the entire initial principal balance of their certificates before holders of class A-*2 certificates receive any distributions of principal at all. A senior class's priority in allocations does not make it senior to other senior classes. If there are realized losses on the target-rate strip that are not subject to subordination, they will generally be allocated to the senior target-rate classes in proportion to their principal balances. And if there is not enough cash available to the Trust to make a full distribution to the senior target-rate classes of the principal payments allocated to them, the shortfall will be allocated to the senior-target-rate classes in proportion to their principal allocations. There may be a number of other differences among the senior target-rate classes. For example, different classes may not be allocated interest at the same rate on their principal balances. In particular, target-rate principal-only classes will not be allocated any interest, and target-rate interest-only classes will be allocated interest on their notional balance but will not be allocated any principal. (These target-rate PO and IO classes would be in addition to any ratio-stripped PO or IO classes.) The supplement may describe other types of senior target-rate classes. Interest allocations Interest will accrue on the principal balance or notional balance of each class at the annual rate stated in the supplement. The interest rate for a class may differ from the average interest rate on the mortgage loans or the rate on any particular mortgage loan. However, except for the possibility of prepayment interest shortfalls (discussed above under "Subordination - Losses and shortfalls not subject to subordination") and reduced interest payments ordered by a bankruptcy court (discussed below under "Homeowner BANKRUPTCY"), the series is structured so that total scheduled interest payments on the mortgage loans for each month will equal the aggregate interest allocated to the certificates. The monthly interest for a class with a fixed rate of interest is calculated on the basis of a 360-day year of twelve 30-day months. This means that o interest for a calendar month will be calculated by multiplying the class's principal or notional balance by 1/12 of the CLASS's annual interest rate, regardless of the number of days in the month, and o interest for a part of a calendar month will be calculated by multiplying the class's principal or notional balance by the class's annual interest rate times a fraction that is the number of days in the month for which interest is owed over 360. Calculation of interest for any class with a variable or floating rate of interest is described in the supplement. A class's interest allocation for a distribution day will be the sum of o accrued interest on the class, minus the class's proportionate share of the interest component of any non-subordinated losses (the current interest allocation), and o plus any excess of the class's interest allocation for the preceding distribution day over the interest distributed to the class on that distribution day (the interest allocation carryforward). Example: A class has a principal balance of $100,000 for January and an annual interest rate of 6%. Then accrued interest for January will be 1/12 of 6%, or 0.5%, of $100,000, which equals $500. If there is no interest allocation carryforward from December, the class's interest allocation for January will be $500. Suppose that, owing to defaults by homeowners, only $450 in interest is distributed to the class for January. Then the interest allocation carryforward to February will be $50. Assuming that the principal balance of the class remains $100,000, the class's interest allocation for February month will be $550 - $500 in accrued interest for February, plus the $50 interest carryforward from January. If only $450 in interest is distributed for February, the interest carryforward to March will be $100. 9 Interest accrued on mortgage loans during a calendar month will be due from the homeowner on the first day of the following month, along with the scheduled principal payment due on that first day, but will not be distributed to certificate holders until the distribution day. These payments of principal and interest will not accrue interest from the first day of the month to the distribution day. For example, interest accrued during January on the principal balances of the mortgage loans, and the scheduled payments of principal, will be due from the homeowners on February 1 but will not earn interest from February 1 to the February distribution day. This delay in the certificate holder's receipt of principal and interest for a period during which no additional interest accrues means that the effective interest rate on a certificate with a fixed interest rate will be lower than its stated interest rate. Homeowner bankruptcy If a homeowner files for protection under the federal bankruptcy laws, the bankruptcy court may reduce the principal amount owed on the mortgage loan (causing a bankruptcy loss), or the court may change the scheduled principal payment by reducing the loan's interest rate or extending its maturity, or both. The difference between the original scheduled payment on the mortgage loan, after taking into account the reduction in principal amount ordered by the bankruptcy court, and the new monthly payment ordered by the bankruptcy court is a debt service reduction). The principal portion of a debt service reduction in any month that results in a permanent reduction in principal to be paid by the homeowner will be a bankruptcy loss. Example: A homeowner has a mortgage loan with an outstanding principal balance of $50,000 and an interest rate of 7%. The loan has 10 years to run. The homeowner files for bankruptcy, and the bankruptcy court (1) reduces the outstanding principal balance to $40,000, (2) reduces the interest rate to 6%, and (3) stretches the payments out to 20 years. Then o the $10,000 reduction in principal owed will be a bankruptcy loss, and o the difference between the monthly payment the homeowner would have made on the remaining $40,000 at the original interest rate and maturity, and the monthly payment the homeowner is now required to make on the new lower interest rate and extended maturity, is a debt service reduction. The principal portion of the debt service reduction is not a bankruptcy loss because it is scheduled to be paid eventually by the homeowner. Until the subordination depletion date occurs or the bankruptcy loss limit is reached, a debt service reduction will be ignored in calculating principal allocations. As a result, principal allocations will exceed principal payments due from homeowners. This will cause principal distributions to the subordinated classes to be less than their allocations. The principal portion of each month's debt service reduction will, however, be considered a bankruptcy loss for purposes of calculating the bankruptcy loss limit. A debt service reduction will also not reduce the interest allocations to the classes. As a result, if there is a debt service reduction, interest allocated to the classes will exceed the aggregate interest distributions to the classes. A bankruptcy loss will not be realized so long as CMSI has notified the Trustee in writing that CMSI is diligently pursuing any remedies that may exist in connection with the representations and warranties made regarding the related mortgage loan, and either o the mortgage loan is current on payments due, or o delinquent payments of principal and interest on the mortgage loan, premiums on any applicable standard hazard insurance policy and any escrow payments for the mortgage loan are being advanced on a current basis by CMSI, in each case without giving effect to any reduction in monthly payments on the loan due to bankruptcy proceedings. DISTRIBUTIONS ------------- Timing of distributions CMSI, as paying agent for the Trust, will distribute principal and interest on the certificates at regular intervals. For most series, distributions will be made monthly, but distributions can be made quarterly, semi-annually or at other intervals, but not less often than annually. In this core prospectus, unless otherwise stated, we shall assume that distributions are monthly. On the determination day, which is usually the 18th day of each month, CMSI will determine the amount of 10 o scheduled principal and interest payments due on the first day of that month that have been received by the persons administering and servicing the mortgage loans (the servicers) and forwarded to the Trust, and o principal prepayments received by the servicers and forwarded to the Trust in the preceding calendar month. After deduction of the servicers' fees, these funds will be distributed to the certificate holders on the distribution day, which is usually the 25th day of the month. (If the 18th day of the month is not a business day, the determination day will be the next business day after the 18th; similarly for the distribution day.) Example: On March 1, a homeowner makes a full scheduled payment of principal and interest, and also makes a $1,000 principal prepayment. The scheduled payment of principal and interest will be distributed to certificate holders on the March distribution day, but the $1,000 prepayment will generally not be distributed until the April distribution day. Prepayments received in a month may be used by the Trust to make an advance to cover shortfalls on a distribution day in that month, as described in "Advances" below. Advances Homeowners from time to time delay making scheduled payments of principal and interest until after the determination day for the month. If there are delinquent payments, the Trust may not have enough money available to make full distributions of principal and interest allocated to the classes on the distribution day. To avoid distributions of less than allocated amounts, the Trust may advance prepayments received in the month of the distribution day. If the Trust uses prepayments received in the month of the distribution day to cover shortfalls on that distribution day, the Trust will reimburse itself out of payments received for the following month. If prepayments received in the month of the distribution day are not adequate to enable the Trust to distribute all amounts allocated to the classes, CMSI, while not required to do so, may make a voluntary advance to the Trust of a delinquent payment on an affiliated mortgage loan, and a third-party servicer may make a voluntary advance of a delinquent payment on a third-party mortgage loan. A delinquent payment, and the advance, may be for principal, interest, taxes or insurance premiums. CMSI intends to make a voluntary advance for a delinquent payment on an affiliated mortgage loan if it believes the advance will be recoverable from future payments and proceeds on the loan. The Trust will reimburse CMSI or a third-party servicer for a voluntary advance, without interest, out of later payments received on the mortgage loan for which the advance was made, or if CMSI determines that the advance will not be recoverable from payments on that mortgage loan, from payments on other mortgage loans. If on a distribution day, the scheduled payments due in that month that have actually been received from homeowners, prepayments received in that month and voluntary advances made by CMSI and any third-party servicers are less than the scheduled payments due in that month from homeowners, the Trustee will advance the difference to the Trust, but only up to an amount the Trustee determines will be recoverable from future payments, proceeds or recoveries on the mortgage loans. The Trustee will make separate determinations and advances for the affiliated mortgage loans and for the third-party mortgage loans. In determining whether to make, and in making, an advance, the Trustee will be acting in its individual capacity, and not as a trustee. Advances by the Trustee on affiliated mortgage loans will be reimbursed from future payments on affiliated mortgage loans received by the Trust, and similarly for advances on third-party mortgage loans. Distribution shortfalls Distributions can only be made from cash that is available to the trust. If available cash is less than the aggregate amounts allocated to the classes, some classes will not receive a distribution of their full allocated amounts. Instead, the available cash will be distributed to the classes in accordance with the priorities described in "Distribution priorities" below. Not all cash held by the Trust may be available for distribution on a distribution day. For instance, a scheduled payment that the Trust receives after the determination day is not available to be distributed on the following distribution day. Also, as described above, prepayments will not be generally available for distribution until a later distribution day, although they may be used for advances by the Trust. And escrowed or other funds held by the Trust or a servicer for a special purpose (such as the payment of real estate taxes on the mortgaged properties) will not be available for distribution at all. 11 Cash available for distribution may include recoveries of interest and principal on a mortgage loan that had previously been considered a realized loss on the loan. Recoveries may be of subordinated or non-subordinated losses. Types of distributions Each distribution to a regular class will be either an interest, a principal, a reimbursement, or a redirected distribution. Except as stated in "Distribution priorities" below, cash available for distribution may be used for an interest, principal, reimbursement or redirected distribution to a class without regard to whether the cash was received as principal or interest or as a recovery on a mortgage loan. Thus, cash received by the Trust as principal payments on mortgage loans may be distributed to certificate holders as interest, and vice-versa. Distribution priorities On each distribution day, cash in the Trust that is available for distribution will be distributed to the classes in the following order of priority: 1 If there is a recovery of subordinated losses on a hypothetical mortgage loan in the target-rate strip, the recovery will be used to reimburse the target-rate classes, in order of seniority, to the extent those target-rate classes were previously allocated principal losses on that hypothetical mortgage loan that were not previously reimbursed. If classes with the same seniority are entitled to such reimbursement, the distribution will be in proportion to the allocated principal losses on the mortgage loan not yet reimbursed. 2 If there is a recovery of subordinated losses on a hypothetical mortgage loan in the PO strip, the recovery will be used to reimburse the ratio-stripped PO class to the extent the class was previously allocated principal losses on that hypothetical mortgage loan that were not previously reimbursed. Any excess will be distributed as a reimbursement distribution to the subordinated classes, in order of seniority, to the extent those classes reimbursed the ratio-stripped PO class under paragraph 7 below and have not been reimbursed under this paragraph 2. 3 If there is a recovery of non-subordinated losses on a hypothetical mortgage loan, the recovery will be used to reimburse each class to the extent that class was previously allocated principal losses on that hypothetical mortgage loan that were not previously reimbursed. Reimbursements for a mortgage loan to the classes will be in proportion to the realized losses on the mortgage loan not previously reimbursed. 4 To each senior class, first, its current interest allocation, and second, its interest allocation carryforward, for that distribution day, except that an accrual class's interest distributions may be redirected as described in "Accrual and accrual directed classes" below. Distributions of current allocations among the senior classes will be in proportion to current interest allocation, and distributions of interest allocation carryforwards will be in proportion to interest allocation carryforwards, for that distribution day. 5 (a) To a ratio-stripped PO class, its principal allocation for that distribution day, and (b) to the senior target-rate classes as a group, their principal allocation for that distribution day, to be allocated to the individual senior target-rate classes according to the priorities described in "Allocations and distributions" in the supplement. 6 To each subordinated class, in order of seniority, first, its interest allocation for that distribution day, and second, its principal allocation for that distribution day, except that (a) a subordinated class's principal distribution may used to reimburse a ratio-stripped PO class as described in the following paragraph 7, and (b) principal distributions to the subordinated classes may be altered to maintain subordination, as described in the supplement. Example: There are six subordinated classes, B-*1 through B-*6 in order of seniority. Classes B-*1 and B-*2 each have an interest allocation of $1,000 and a principal allocation of $200. After the distributions described in paragraphs 1 through 5 above, there is only $1,350 available for interest and principal distributions to the subordinated classes. Then class B-*1 will receive interest and principal distributions equal to its full $1,000 interest and $200 principal allocations. The remaining $150 will be distributed as interest to class B-*2. Class B-*2 will not receive the other $50 of interest allocated to it nor will it receive any of its principal allocation. The other subordinated classes, B-*3 through B-*6, will not receive any distributions of interest or principal. 12 7 Principal that would otherwise be distributed to the subordinated classes under the preceding paragraph 6 will instead be reduced, in order of subordination, so as to reimburse a ratio-stripped PO class up to the amount of any realized subordinated losses that were allocated to the ratio-stripped PO class and not previously reimbursed. 8 To each class, in order of seniority, a reimbursement distribution of any reduction to the class's principal balance under paragraph 6 of "Adjustments to class balances" below to reflect the excess of (a) aggregate principal allocations to the class over (b) aggregate principal distributions to the class. Classes with equal seniority will share in the reimbursement in proportion to such unreimbursed reductions. 9 To the residual certificates, the remaining cash available for distribution. A class that is no longer outstanding can not receive a distribution. Distributions to a class will be distributed to the certificates of the class in proportion to the principal balances of the certificates, except for distributions to a retail class (see "Retail classes" below). Accrual and accrual directed classes Some classes in the series may be accrual classes. Each accrual class will have one or more associated accrual directed classes. On each distribution day, the interest distribution for an accrual class will be redirected to its accrual directed classes in accordance with rules stated in the supplement, and in exchange an equal amount of the accrual directed classes' principal balances will be transferred to the accrual class. This redirection of interest in exchange for principal balance will cease once the principal balance of the accrual directed classes is reduced to zero. Example: Class A-*1 is an accrual class and class A-*2 and A-*3 are its accrual directed classes. On a distribution day, classes A-*1, A-*2 and A-*3 each has a principal balance, before distributions, of $1,000, and class A-*2 has an interest distribution of $60. According to the series' rules for redirecting class A-*2's interest distribution, class A-*2 receives $20 of class A-*1's $60 interest distribution, and class A-*3 receives the remaining $40 of class A-*1's interest distribution. As a result, class A-*1's principal balance will increase by $60 to $1,060, class A-*2's principal balance will decrease by $20 to $980, and class A-*3's principal balance will decrease by $40 to $960. The first distribution day on which the principal balance of the accrual directed classes, before distributions, is zero is the accrual termination day. On the last distribution day before an accrual class's accrual termination day, an accrual class's interest distribution may exceed the aggregate principal balance of its accrual directed classes. In that case, only that portion of the accrual class's interest distribution that equals the aggregate principal balances of its accrual directed classes will be redirected to the accrual directed classes; the excess will be distributed (as a redirected distribution) to the accrual class, and the principal balance of the accrual class will be neither increased nor decreased by this distribution of the excess. Retail classes Some classes may be retail classes, as indicated in the supplement. Unlike other classes, holders of retail class certificates will not receive pro-rata distributions of amounts distributed to the class. Instead, distributions will be made to holders of retail class certificates in $1,000 increments based on a queuing procedure described in the supplement. Method of distribution The Trustee will generally make distributions by wire transfer (if it receives appropriate instructions) to registered holders of certificates with an initial principal or notional balance of at least $1 million. ADJUSTMENTS TO CLASS BALANCES ----------------------------- After distributions are made on a distribution day, the principal balance of each class that is not an interest-only class will be adjusted, in the following order, as follows: 1 The principal balance of a ratio-stripped PO class will be reduced by realized losses on the PO strip for the preceding month, whether or not reimbursed. 2 The principal balance of the target-rate classes will be reduced by the principal portion of realized non-subordinated losses on the target-rate strip for the preceding month. The reduction will first be allocated to the subordinated classes as a group and to the senior target-rate classes as a group in proportion to the groups' principal balances. The reduction will then be further allocated to the classes in each group in proportion to their principal balances, except that for this second allocation, the principal balance of an accrual class will be deemed to be the lesser of its current or its initial principal balance. 13 3 The principal balances of accrual and accrual directed classes will be adjusted on each distribution day in accordance with "Distributions - Accrual and accrual directed classes" above. 4 The principal balance of each class will be reduced by its principal distributions for that distribution day (including principal distributions to a subordinated class that were used to reimburse a ratio-stripped PO class). 5 The principal balance of the target-rate classes will be reduced by the principal portion of realized subordinated losses on the target-rate strip for the preceding month. The reductions will be allocated first to the subordinated classes in order of subordination, in each case until the principal balance of the class is reduced to zero. If the realized losses exceed the principal balance of the subordinated classes, the principal balance of the senior target-rate classes will be reduced by the amount of the excess. The reduction will be allocated to the senior target-rate classes in proportion to their principal balances, except that for this allocation, the principal balance of an accrual class will be deemed to be the lesser of its current or its initial principal balance. 6 The principal balance of each class will be reduced, in order of subordination, by the excess of (a) the class's principal allocation over (b) the class's principal distribution. Classes of equal seniority will share in such reduction in proportion to such excess. References to the principal balance of a class in any of the preceding paragraphs 2 through 6 mean the principal balance after the adjustments required by the preceding numbered paragraphs. REALIZED LOSSES --------------- When a mortgage loan becomes seriously delinquent, CMSI may take steps to foreclose. Foreclosure involves seizure and sale of the mortgaged property. The proceeds of the sale are used first to pay CMSI's expenses of foreclosure and advances, then to pay accrued interest, and lastly to pay the principal balance of the mortgage loan. The foreclosure process and some alternatives to foreclosure are described below in "Servicing - Realizing on defaulted mortgage loans." Mortgage loan originators take certain precautions to reduce the risk of foreclosure and of foreclosure losses. These primarily involve checking the creditworthiness of potential homeowners and the value of the mortgaged property. The mortgage loan underwriting policies of the affiliated originators are described below under "Mortgage loan underwriting." Certificate holders may also be protected against losses by various types of insurance and credit support, including the subordination of some classes. A mortgage loan becomes a liquidated loan if CMSI either o determines that all recoverable liquidation and insurance proceeds have been received, or o accepts payment for the release of the mortgage of less than the principal balance of the loan after determining that liquidation expenses would exceed the difference between the cash portion of the payment and the principal balance. Liquidation proceeds are amounts received or property acquired by CMSI from foreclosure sales, insurance or otherwise in liquidating a defaulted mortgage loan. In calculating a liquidated loan loss, net liquidation proceeds (i.e., liquidation proceeds after reimbursement to CMSI and the Trustee for unreimbursed advances and liquidation expenses on the mortgage loan) are applied first to accrued interest and then to the principal balance of the loan. If the net liquidation proceeds on a liquidated mortgage loan are less than the loan's principal balance plus accrued interest at the mortgage loan interest rate through the last day of the month in which the loan was liquidated, the difference will be a realized loss. Realized losses also include special hazard, fraud and bankruptcy losses. Example: A mortgage loan has a scheduled principal balance of $80,000. On foreclosure, liquidation proceeds (after reimbursement to CMSI and the Trustee of advances, and payment of liquidation expenses) are $70,000, of which $400 represents accrued interest for the preceding calendar month. The Trust will thus receive $400 of interest, and $69,600 that will be treated like a principal prepayment. If the loss on the property is covered by subordination, the subordinated classes, in order of subordination, will be allocated a principal loss of $10,400 - the $80,000 scheduled principal balance of the loan minus the $69,600 of liquidation proceeds applied to the principal balance of the loan. 14 DISTRIBUTION REPORTS -------------------- On each distribution day, the Trustee will send a report to each person who is a registered holder of a certificate on the related record day. Beneficial owners of certificates may obtain copies of these reports free of charge from the Trustee upon request to the address or telephone number given in the supplement. The report will include information for each class on o the assumed principal balance of the mortgage loans on the last day of the preceding month, o aggregate payments received on the mortgage loans from the second day of the preceding month through the first day of the current month, o interest and principal distributed to the class, and interest and principal distributions to all classes, o accrued interest added to an accrual class's principal balance, o losses allocated to the class, o reductions to the principal balance of the class on the distribution day that was not due to principal distributions, o the principal or notional balance and class percentage of the class, and the aggregate principal balances for all classes, both before and after the distribution, o any advances, o any interest allocation carryforwards to the next distribution day, o the number and aggregate principal balances of mortgage loans delinquent 30 days and 60 or more days, o the book value of any real estate acquired by the Trust through foreclosure or otherwise, o the amount remaining under any form of credit support, o CMSI's servicing compensation since the preceding report, and o other customary information that CMSI believes certificate holders need to prepare their tax returns. CMSI will provide certificate holders that are federally insured savings and loan associations, on request, reports and access to information and documentation on the mortgage loans sufficient to permit the associations to comply with applicable regulations of the Office of Thrift Supervision. The Trustee or CMSI will file with the IRS and state and local taxing authorities, and make available to certificate holders, information as required by federal or other tax law. CLEAN-UP CALL ------------- CMSI may, at any time after the principal balance of the mortgage loans is less than a percentage (usually 5%) stated in the supplement of the initial scheduled principal balance, repurchase the mortgage loans and any other property owned by the Trust for the loans' principal balances plus accrued interest. Such a repurchase is called a clean-up call. Certificate holders would then receive a final distribution reducing the principal balance of their certificates to zero. The final distribution of principal on the certificates will be made according to the distribution rules in this prospectus. Some certificates may not receive a distribution equal to their principal balance plus accrued interest if CMSI's purchase price is based in part on the fair market value of the Trust's property. CMSI may transfer its right to repurchase the mortgage loans to a third party. WEIGHTED AVERAGE LIFE OF CERTIFICATES ------------------------------------- Weighted average lives Weighted average life refers to the average amount of time from the date a certificate is acquired by an investor until its principal balance is reduced to zero. A table in the supplement shows the weighted average life of each class offered by this prospectus, determined by (1) multiplying the amount of each principal distribution or reduction of notional balance by the number of years from the closing date to the related distribution day, (2) adding the results, and (3) dividing the sum by the initial principal or notional balance of the class. The table is based on assumptions stated in the supplement and on a prepayment model described in "The prepayment model" below. 15 Types of prepayment The rate at which mortgage loans are prepaid affects a certificate's weighted average life, and, for certificates purchased at a premium or a discount, yield to maturity. In addition to voluntary prepayments by a homeowner, there are other circumstances in which part or all of a mortgage loan may be prepaid. o The homeowner may refinance the mortgage loan by prepaying the mortgage loan in full and taking out a new mortgage loan, or the homeowner and the lender may agree to modify the terms of the mortgage loan as an alternative to refinancing. Refinanced or modified mortgage loans will be treated as fully prepaid and removed from the Trust. Originators affiliated with CMSI are permitted to refinance or modify mortgage loans and may offer homeowners special refinancing or modification incentives. o CMSI permits participation in "prepayment programs" offered by unaffiliated service agencies in which homeowners generally make 26 bi-weekly payments during a calendar year. Each payment equals one-half of the homeowner's scheduled monthly payment, with the result that the homeowner makes payments in a calendar year equal to 13 scheduled monthly payments, rather than 12. The extra amount is applied as a prepayment of the mortgage loan. o Most fixed rate mortgage loans permit the servicer to demand payment of the entire principal balance of the loan upon a sale of the mortgaged property (a due-on-sale clause) rather than allowing the purchaser to assume the mortgage loan. CMSI will generally exercise a due-on-sale clause if (1) for a fixed rate mortgage loan, CMSI believes the clause is legally enforceable, and (2) for an adjustable-rate mortgage loan, the assumption will impair the Trust's security. o If a mortgaged property is damaged by fire or other hazard insured under a hazard insurance policy (described below), insurance payments received by the Trust may be used to reduce the principal balance of the mortgage loan. (They may also be used to restore the property, which would not be a prepayment.) o If the mortgage loan is foreclosed, the foreclosure proceeds, less the expenses of foreclosure and accrued interest, will be used to reduce the principal balance of the mortgage loan. o CMSI will make various warranties about the mortgage loans to the Trust. If a mortgage loan does not conform to these warranties, CMSI may have to repurchase the loan. The repurchase will be treated as a full prepayment of the mortgage loan. See "Defective mortgage loans" below. o If a homeowner pledges securities or other collateral in addition to the mortgaged property, and the homeowner defaults under the pledge agreement for the additional collateral, CMSI may liquidate the additional collateral and apply it as a prepayment. o CMSI may make a clean-up call. The prepayment model Prepayments on mortgage loans are commonly measured by a prepayment model. A prepayment model is a set of assumptions about the rate at which homeowners will prepay their mortgage loans. The model used in this prospectus assumes that homeowners will prepay new mortgage loans at some multiple of o 0.2% per annum of the principal balance of the mortgage loans in the first month of the mortgage loans, o an additional 0.2% per annum in each month thereafter (that is, 0.4% per annum in the second month, 0.6% per annum in the third month, and so forth) until the 30th month, and o beginning in the 30th month and in each month thereafter, 6% per annum. If homeowners prepaid their mortgages at exactly these rates, we would say that they were prepaying at 100% of the prepayment model. Similarly, we would say that homeowners were prepaying at 200% of the prepayment model if they prepaid their loans twice as fast as 100% - that is, 0.4% per annum in the first month, 0.8% per annum in the second month, and so forth. If homeowners never made a prepayment, they would be said to prepay at 0% of the prepayment model. There is no assurance that prepayment of the mortgage loans will conform to any level of the prepayment model. The rate of principal payments on pools of mortgage loans is influenced by a variety of economic, geographic, social and other factors, including the level of mortgage interest rates and the rate at which homeowners sell their homes, refinance their mortgage loans or default on their mortgage loans. In general, if prevailing interest rates fall significantly below the interest rates on the mortgage loans, the mortgage loans are more likely to prepay faster than if prevailing rates rise or remain level. Conversely, if interest rates rise above the interest rates on the mortgage loans, we would expect the rate of prepayment to decrease. 16 Other factors affecting prepayment of mortgage loans include changes in homeowners' housing needs, job transfers, unemployment and homeowners' net equity in the mortgaged properties. In addition, as homeowners move or default on their mortgage loans, the houses are generally sold and the mortgage loans prepaid, although some of the mortgage loans may be assumed by a new buyer. Because the amount of principal distributions to each class will depend on the rate of repayment (including prepayments) of the mortgage loans, the date by which the principal balance of any class is reduced to zero is likely to occur earlier than the last scheduled distribution day for the series that is specified in the supplement. YIELD TO MATURITY ----------------- [define YTM] A table in the supplement shows the yield to maturity of some of the classes of this series, based on assumptions stated in the supplement, on the prepayment model described in "The prepayment model" above, and on a default model described in "The default model" below. Prepayments increase the speed at which the principal balance of a class will be distributed. Principal distributions that are faster or slower than anticipated can profoundly affect the return, or yield, on a class. Consider for example a series consisting of just two classes - an interest-only (IO) class and a principal-only (PO) class. (This is an unlikely structure for a series, but one in which the effect of prepayments can be clearly seen.) If prepayments on the mortgage loans are greater than anticipated, the PO class will be paid off faster, and the IO class will receive less interest, than anticipated. In the extremely unlikely event that all the mortgage loans are completely prepaid in the first month, the PO class will be paid off on the first distribution day, greatly increasing its rate of return, while the IO class will receive only one distribution of interest. Conversely, if prepayments are less than anticipated, the IO class would benefit, but the PO class would see its yield reduced. If a certificate is purchased at a discount from parity (as described below), and the anticipated yield to maturity of the certificate assumed faster prepayments of the mortgage loans than are actually received, the actual yield to maturity will generally be lower than anticipated. Conversely, if a certificate is purchased at a premium to parity, and the anticipated yield to maturity of the certificate assumed slower prepayments of the mortgage loans than are actually received, the actual yield to maturity will generally be lower than anticipated. Parity is the price at which a certificate will yield its coupon, after giving effect to any payment delay. The yield on a ratio-stripped PO class, which are not entitled to receive interest, will be very sensitive to prepayments on the hypothetical loans in the PO strip. A slower than anticipated rate of prepayment on these loans will lower their yield. Since the PO strip is derived from the discount loans, which accrue interest at a rate below the target rate, it is historically more likely that these loans will prepay more slowly than the premium loans. The timing of changes in the rate of prepayments on the mortgage loans may significantly affect an investor's actual yield to maturity, even if the average rate of principal payments is consistent with the investor's expectations. In general, the earlier a prepayment is received, the greater the effect on the investor's yield to maturity. As a result, higher (or lower) than anticipated principal payments during the period immediately following the closing date will not be offset by the same amount of lower (or higher) principal payments in a subsequent period. The default model In addition to prepayment rates, the yields to maturity on the subordinated classes will be extremely sensitive to the amount and timing of losses on the mortgage loans, because the losses (other than losses that are not covered by subordination) will be entirely allocated to the most subordinated class until its principal balance is reduced to zero, then to the next most subordinated class, and so forth. Defaults on the mortgage loans may be measured relative to a default standard or model. The model used in the tables in the supplement, the standard default assumption, or SDA, assumes constant default rates of o 0.02% per annum of the principal balance in the first month of the mortgage loans, o an additional 0.02% per annum in each month from the second month until the 30th month, 17 o 0.6% per annum in each month from the 30th month through the 60th month, o 0.0095% per annum less in each month from the 61st month through the 120th month, and o 0.03% per annum in each month after the 121st month. Mortgage loans that conform to this assumption are said to be 100% SDA. A default assumption of 50% SDA would assume default rates in each month that were 50% of the assumption, and similarly for 150% SDA and other assumptions. No percentage SDA purports to be a historical description of default experience or a prediction of the anticipated rate of default of any pool of mortgage loans. DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE -------------------------------------------- Loss and delinquency considerations The following tables show the recent delinquency, foreclosure and loss experience of CMSI and originators affiliated with CMSI (affiliated originators). The loans represented in the tables include fixed and adjustable interest rate loans (ARMs), including buydown loans, loans with stated maturities of 10 to 30 years and other types of first mortgage loans. Potential investors should realize that the loan portfolios on which these tables are based may not be representative of the mortgage loans in the Trust described in the supplement. There may be important differences in, for example, the types of loans, their maturities and the geographic location of the mortgaged properties. Also, prevailing national or local economic conditions or real estate values may have been quite different at the times the loans were originated. Accordingly, the future delinquency, foreclosure and loss experience on the mortgage loans described in the supplement is likely to diverge, and may sharply diverge, from the historical experience of the mortgage loans shown in the following tables. Delinquency and foreclosure experience on affiliated originators' serviced portfolio The following table shows delinquency and foreclosure experience on one- to four-family conventional residential first mortgage loans (including cooperative apartment loans) originated or acquired by affiliated originators and serviced by CitiMortgage, Inc., an affiliate of CMSI. The table also includes mortgage loans serviced by CitiMortgage that have been sold to Fannie Mae or Freddie Mac, securitized by CMSI or sold as packages of whole loans. The table does not include loans purchased strictly for servicing revenue or loans originated by the Florida branches of Citibank, Federal Savings Bank (Citi FSB), an affiliate of CMSI, prior to their acquisition by Citicorp in January 1984. Since June 20, 1997, CitiMortgage has transferred the servicing of 803 delinquent loans and loans in foreclosure totaling $106.0 million.
Delinquency and foreclosure experience on serviced portfolio December 31, 1998 December 31, 1999 December 31, 2000 September 30, 2001 ----------------- ----------------- ----------------- ------------------ Principal Principal Principal Principal balance balance balance balance Number ($ millions) Number ($millions) Number ($millions) Number ($millions) ------ ------------ ------ ----------- ------ ----------- ------ ----------- Loans 310,628 $ 41,115.1 324,487 $47,642.4 345,506 $56,861.4 Days past due 30-59 7,466 $ 766.9 6,049 $ 607.7 6,426 $ 682.3 60-89 1,603 $ 160.1 1,251 $ 121.3 1,356 $ 127.6 90 or more 2,074 $ 226.8 1,578 $ 167.2 1,274 $ 134.3 Delinquent loans 11,143 $ 1,153.8 7,466 $ 766.9 7,466 $ 766.9 Ratio of 3.59% 2.81% 2.74% 1.88% 2.62% 1.66% delinquent loans to all loans Foreclosures 2,726 $ 293.7 1,664 $ 175.9 1,139 $ 114.1 begun Ratio of 0.88% 0.71% 0.51% 0.37% 0.33% 0.20% foreclosures begun to all loans
18 Delinquency, foreclosure and loss experience on affiliated originators' securitized portfolio The following two tables show the delinquency, foreclosure and loss experience on one- to four-family conventional residential first mortgage loans (including cooperative apartment loans) originated or acquired by affiliated originators and serviced by CitiMortgage that were later securitized - that is, mortgage loans assembled into pools for which ownership interests were sold in public offerings registered under the federal securities laws.
Delinquency and foreclosure experience on securitized portfolio December 31, 1998 December 31, 1999 December 31, 2000 September 30, 2001 ----------------- ----------------- ----------------- ------------------ Principal Principal Principal Principal balance balance balance balance Number ($ millions) Number ($millions) Number ($millions) Number ($millions) ------ ------------ ------ ----------- ------ ----------- ------ ----------- Loans 34,350 $ 7,056.0 32,617 $ 7,670.3 32,055 $ 7,989.4 Days past due 30-59 715 $ 93.9 488 $ 68.9 493 $ 76.4 60-89 152 $ 21.2 77 $ 9.7 107 $ 13.6 90 or more 200 $ 28.7 128 $ 17.9 97 $ 14.0 Delinquent loans 1,067 $ 143.8 693 $ 96.5 697 $ 104.0 Ratio of 3.11% 2.04% 2.12% 1.26% 2.17% 1.30% delinquent loans to all loans Foreclosures 392 $ 53.7 204 $ 26.9 136 $ 18.3 begun Ratio of 1.14% 0.76% 0.63% 0.35% 0.42% 0.23% foreclosures begun to all loans
Loss experience on securitized portfolio Cumulative net losses as Aggregate principal percentage of Cumulative net losses balance of aggregate ($ millions)(1) securities principal balance ($ millions)(2) of securities December 31, 1998 $ 501.2 $ 31,040.7 1.61% December 31, 1999 $516.3 $31,040.7 1.61% December 31, 2000 $522.2 $34,093.4 1.53% September 30, 2001 (1) Calculated without giving effect to any credit enhancement. (2) Issued securities that have had at least one distribution day.
Delinquency, foreclosure and loss experience of third-party originators The supplement describes the delinquency, foreclosure and loss experience of any third-party originator that has originated more than 10% (by principal balance on the cut-off date) of the mortgage loans in the Trust. THE MORTGAGE LOANS ------------------ Each mortgage loan will generally o have a principal balance of less than $2.5 million at the cut-off date and an original maturity of 10 to 30 years, and o have monthly payments due on the first day of each month. The mortgage loan pool may contain cooperative apartment loans. The "homeowner" of a cooperative apartment owns shares issued by the private non-profit housing corporation that owns the apartment building, and has a proprietary lease or occupancy agreement that gives the homeowner the exclusive right to occupy a designated apartment in the building. In a cooperative apartment loan, the homeowner's shares and lease or occupancy agreement are the collateral for the loan. 19 Each mortgage loan will be selected by CMSI from mortgage loans originated or acquired by originators in the ordinary course of their businesses. The originators will often be affiliates of CMSI. A portion of the interest component of a mortgage loan may be retained by the originator and not transferred to the Trust. The interest rate, the principal balance, the maturity date, the homeowner's identity, the principal amortization schedule or other terms of a mortgage loan may have been modified before the Trust bought the mortgage loan. If a mortgage loan has been so modified, the terms "original," "originated" or "origination" when applied to the mortgage loan mean o if only the interest rate has been changed (and, as a result, the monthly payment), the original date of the extension of credit under the mortgage loan, but with the modified interest rate and monthly payment, and o for other changes, the mortgage loan as modified at the effective date of the modification. Warranties by CMSI CMSI will warrant to the Trustee that on the closing date o the mortgage loans conform in all material respects with their descriptions in this prospectus and the schedule of mortgage loans CMSI delivered to the Trustee (including maximum loan-to-value ratios and primary mortgage insurance coverage, as described below), o at the cut-off date, no mortgage loan was 30 days or more past due or had been 30 days or more past due more than once in the preceding 12 months, o there are no delinquent tax or assessment liens against the mortgaged properties, o each mortgaged property is free of material damage and in good repair, o each mortgage loan (other than a cooperative apartment loan) had at its origination a lender's title and insurance policy or binder (or other customary assurance of title), which remains in force, o any mechanics' lien or claim for work, labor or material on a mortgaged property is subordinate to the mortgage (except for liens or claims covered by title insurance), o CMSI had good title to each mortgage loan immediately before its transfer to the Trust, and has taken all necessary steps to confer good title on the Trustee, o each mortgage is a valid first lien on the mortgaged property, subject only to (1) liens for current real property taxes and assessments, (2) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the recording of the mortgage that are generally acceptable to mortgage lending institutions or specifically reflected in the appraisal of the mortgaged property at origination, and (3) other matters to which similar properties are commonly subject that do not materially interfere with the benefits of the mortgage, and o each mortgage loan complied at origination in all material respects with applicable state and federal laws, including usury, equal credit opportunity and disclosure laws. Adjustable rate mortgages, buydown loans and agency certificates The mortgage loans in a Trust will, on the closing date, generally consist entirely of fixed rate mortgage loans or entirely of arms. Most Trusts sponsored by CMSI in the past few years have consisted of fixed rate loans. Accordingly, most of the description of the mortgage loans in this core prospectus will assume that the mortgage loans are fixed rate loans held directly by the Trust and that they are not "buy-down loans." An appendix to this prospectus describes the characteristics of ARMs, buy-down loans and agency certificates. If a series does not contain a material amount of ARMs, buy-down loans or agency certificates, the appendix may be omitted. Fixed rate mortgage loans A fixed rate mortgage loan may be o a fully amortizing mortgage loan with level monthly payments of principal and interest, o a balloon mortgage loan that amortizes over a fixed number of years but has a shorter term to maturity, so that the entire remaining principal balance of the loan is due at maturity, or 20 o a fully amortizing graduated-payment mortgage loan that has lower periodic payments, or payments of interest only, during the early years of the loan, followed by payments of principal and interest that increase periodically until the loan is repaid or for a specified number of years, after which level periodic payments begin. No fixed rate mortgage loan will have "negative amortization" - i.e., scheduled payments will not be less than accrued interest at the mortgage loan interest rate. A fixed rate mortgage loan may have originally been an ARM that was converted, at the homeowner's option, into a fixed rate fully amortizing mortgage loan providing for level monthly payments over a term not exceeding its remaining term to maturity. Such a mortgage loan was subject at origination to the same underwriting guidelines as a comparable ARM and is not underwritten again at conversion. The fixed interest rate for the converted mortgage loan may be higher than the interest rate at origination or the adjustable interest rate that would otherwise be payable currently, which could reduce the homeowner's capacity to repay the loan. The mortgaged properties The mortgaged properties will usually be detached homes, attached homes (i.e., one- to four-family units with a common wall), units located in condominiums or planned unit developments, or interests in cooperative apartments. The mortgaged properties will be located in the 50 United States, the District of Columbia or Puerto Rico. The mortgaged properties may include investment properties and vacation and second homes. However, CMSI anticipates that a mortgaged property will usually be the homeowner's primary residence. CMSI will determine whether a mortgaged property is a homeowner's primary residence, based solely on either o the homeowner's representation at origination that he or she will use the property for at least six months every year or that the homeowner intends to use the property as a primary residence, or o the mortgaged property being the homeowner's mailing address in the originator's records. The determination of whether a mortgaged property is a primary residence is not reexamined if the mortgage loan is assumed by a new homeowner after origination. Loan-to-value ratios Each mortgage loan will usually have an original principal balance that is not more than 95% of the value of the mortgaged property (a 95% loan-to-value ratio). For these purposes, "value" is the lesser of the sale price of the property or the appraised value at origination, and the "principal balance" includes any part of an origination fee that is financed. The financed portion of the origination fee will always be less than 5% of the loan amount. (The loan-to-value ratio of mortgage loans originated or acquired by the California and Florida branches of Citi FSB may be reduced by a new appraisal delivered after origination.) The affiliated originators offer a program under which homeowners may reduce or eliminate their down payments by pledging additional collateral, usually in the form of marketable securities. Under this program, a mortgage loan could exceed 95% (but not 100%) of the value of the mortgaged property. Loan-to-value ratios for these mortgage loans are based on the value of both the mortgaged property and the loanable value of the required additional collateral. In calculating the loanable value of the additional collateral, the originator applies a discount (or "haircut") to the market prices of the securities. The loanable value of the additional collateral will rise and fall with the market prices of the securities. The required loanable value of the additional collateral is set at origination as a percentage of the original principal balance of the mortgage loan. This amount is often referred to as the "gap amount." If the loanable value of the securities pledged as additional collateral falls below the gap amount, the homeowner must pledge more collateral. Example: a homeowner's mortgage loan of $200,000 is secured by a mortgaged property valued at $200,000. The gap amount of the loan is set at 25% of the loan, or $50,000. The mortgage loan is also secured by additional collateral (securities) with a loanable value of at least $50,000, which is less than the securities' market price. The loan-to-value ratio of the mortgage loan is therefore $150,000 (loan amount minus gap amount) over $200,000 (value of mortgaged property), or 75%. If a fall in the market price of the securities causes the loanable value of the additional collateral to fall to $45,000 while the gap amount remains at $50,000, the homeowner must pledge more securities to bring the loanable value of the additional collateral back to $50,000. The homeowner may have the additional collateral released from the pledge once the principal balance of the mortgage loan has been reduced by the gap amount. 21 Primary mortgage insurance Affiliated mortgage loans that have original loan-to-value ratios greater than 80% are currently required to be covered by primary mortgage insurance. This insurance will remain in effect until the loan-to-value ratio is reduced to 80% through principal payments by the homeowner. Primary mortgage insurance will cover losses from a homeowner's default of from 12% to 30% of the principal balance of the mortgage loan. Prior to 1986, the affiliated originators did not generally make one- to four-family mortgage loans with loan-to-value ratios above 80% without primary mortgage insurance coverage. From 1986 through January 1993, affiliated originators originated mortgage loans with loan-to-value ratios from 80% to 90% without obtaining primary mortgage insurance. Since February 1993, it has been the policy of each affiliated originator not to make one- to four-family mortgage loans with loan-to-value ratios above 80% without obtaining primary mortgage insurance. Affiliated originators offer corporate relocation programs to employees of approved corporations. These programs permit single family real estate loans, for the purchase of the borrower's primary residence only, with loan-to-value ratios above 80% without requiring primary mortgage insurance. For these relocation loans, however, the corporate employer generally guarantees the excess of the mortgage loan over the 80% loan-to-value amount. Some other corporate relocation programs permit the corporate employer to provide subordinate financing at the origination of the first priority mortgage loan by an affiliated originator. Generally, the borrower must provide at least 5% of the purchase price of the property unless the loan-to-value ratio is 80% or less. In nine states, homeowners can cancel their primary mortgage insurance (and thus save the cost of premiums for the insurance) once the loan-to-value ratio of their mortgage falls below a specified percentage. The states are California, Connecticut, Illinois, Maryland, Massachusetts, Minnesota, New York, Texas and Washington. In addition, federal laws permit a homeowner to cancel his or her primary mortgage insurance if he or she has a good payment history for the mortgage, the value of the mortgaged property has not declined and the outstanding balance of the mortgage loan falls below a specified level, generally 80% of the original property value. These federal laws also provide for automatic cancellation of primary mortgage insurance once the outstanding balance of the mortgage loan falls below a specified level, generally 78% of the original property value. Cancellation can occur under state or federal law while there is still an amount of coverage under the insurance policy. Cancellation of a primary mortgage insurance policy will eliminate a source of recourse against losses resulting from a borrower default. Second mortgages A mortgaged property may be encumbered by a subordinated (or second) mortgage loan. Subordinated loans are not included in loan-to-value calculations. The subordinated mortgage loan may have been originated by an affiliated originator, either at the origination of the mortgage loan or later. It is the policy of the affiliated originators to provide a subordinated loan in connection with the origination of a first priority mortgage loan only if the combined amount of the loans would result in a loan-to-value ratio of 90% or less. Primary mortgage insurance is generally not required for these second loans. DEFECTIVE MORTGAGE LOANS ------------------------ Repurchase or substitution The Trustee will review the mortgage loan documents (see "Mortgage documents" below) within 90 days of receipt. If the Trustee discovers that a document evidencing a mortgage loan or necessary to the effectiveness of the mortgage is missing or materially defective, CMSI must, within 180 days (90 days for defects that could affect the Trust's REMIC status), either cure the defect or repurchase the mortgage loan. If CMSI or the Trustee discovers at any time that a warranty that CMSI gave to the Trustee on a mortgage loan is false to an extent that materially and adversely affects the certificates, then CMSI will have 60 days to either cure the false warranty or repurchase the mortgage loan. The repurchase price for a mortgage loan will be 22 o the sum of the loan's principal balance and accrued unpaid interest (after deduction of servicing fees) to the first day of the month following repurchase, minus o any unreimbursed payments under guaranties or other credit support or voluntary advances on the loan. Repurchase of a mortgage loan will not diminish the amount available under any credit support. During the first two years following the closing date, CMSI may, within the periods required for a repurchase, substitute another mortgage loan instead of repurchasing a mortgage loan. A substituted mortgage loan must o be current in payments, o have a principal balance that is not less than the aggregate principal balance of the loans for which it is substituted (except that CMSI may make up any difference in the principal balances with a cash payment to be distributed to certificate holders), o have an interest rate that is not less than the highest interest rate of the loans for which it is substituted, o have an original term to maturity equal to that of the loans for which it is substituted, o have a maturity date that is no later than, and not more than one year earlier than, any of the loans for which it is substituted, and o be suitable for a REMIC. CMSI will indemnify the Trust for any losses not reimbursed by the repurchase or substitution. If CMSI does not cure a defect in a mortgage loan, the Trustee's and the certificate holders' only remedy is to require CMSI to repurchase the mortgage loan or substitute another satisfactory mortgage loan. INSURANCE AND OTHER CREDIT SUPPORT ---------------------------------- Homeowners' policies Most mortgaged properties will be covered by homeowners' insurance policies that, in addition to the standard form of fire and extended coverage, provide coverage for certain other risks. These homeowners' policies typically contain a "coinsurance" clause that, in effect, requires the buildings on the mortgaged property to be insured for at least a specified percentage (generally 80% to 90%) of their full replacement value. If coverage is less than the specified percentage, the insurer's liability for a partial loss will not exceed the proportion of the loss that the amount of insurance bears to the specified percentage of the full replacement cost of the buildings. Example: If a residence is only insured for 60% of its value, and sustains $10,000 of damage covered by the homeowners' policy, the insurer will only pay $6,000 - i.e., 60% of the loss. Since the amount of hazard insurance required to be maintained on the buildings may decline, and since residential properties generally have historically appreciated in value over time, coinsurance may cause hazard insurance proceeds to be less than needed to fully restore the damaged property. Part or all of this shortfall may be covered, however, by any credit support. Hazard insurance Mortgaged properties will generally be covered by hazard insurance against fire and certain other hazards that may not be fully covered by home-owners' policies. The amount of hazard insurance coverage will depend on the relationship between the principal balance of the mortgage loan and the maximum insurable value of the buildings on the mortgaged property. (Maximum insurable value is established by the insurer.) o If the principal balance is greater than the maximum insurable value, coverage will be limited to the maximum insurable value. o If the principal balance is between 80% and 100% of maximum insurable value, coverage will equal the principal balance. o If the principal balance is less than 80% of maximum insurable value, coverage will be 80% of the maximum insurable value. 23 CMSI may maintain a blanket policy insuring all the mortgage loans against hazard losses rather than maintaining separate policies on each mortgaged property. If the blanket policy contains a deductible clause, CMSI will pay the Trust the deductible for each hazard loss. The standard form of fire and extended coverage policy generally covers damage caused by fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil commotion. The policy typically does not cover damage from war, revolution, governmental actions, floods and other water-related causes, earth movement (including earthquakes, landslides and mud flows), nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft and, in some cases, vandalism. However, flood insurance will be maintained for mortgaged properties located in federally designated special flood hazard zones. The hazard insurance policies for the mortgaged properties will be underwritten by different insurers and therefore will not contain identical terms and conditions. The preceding paragraph therefore merely indicates certain kinds of insured and uninsured risks and is not intended to be all-inclusive. While hazard insurance, and flood insurance if applicable, will be required for cooperative apartment buildings, no hazard or flood insurance will be required for individual cooperative apartments. If a homeowner defaults on his or her payment obligations on a mortgage loan, the certificate holders will bear all risk of loss resulting from hazard losses not covered by hazard insurance or other credit support. Fidelity bond and errors and omissions policy CMSI will maintain a fidelity bond and an errors and omissions policy or their equivalent. These cover losses from an officer's or employee's misappropriation of funds or errors and omissions in failing to maintain insurance, subject to limitations as to amount of coverage, deductible amounts, conditions, exclusions and exceptions. The policies will conform to Fannie Mae and Freddie Mac requirements. Other insurance The Trust may have the benefit of the following additional insurance coverage: o Primary mortgage insurance may be supplemented by pool insurance. Pool insurance covers certain losses from homeowner defaults that are not covered by primary mortgage insurance. o Since hazard insurance policies do not cover all possible causes of physical damage to mortgage properties, the Trust may obtain special hazard insurance against some additional hazards. o Some losses from homeowner bankruptcies may be covered under a mortgagor bankruptcy bond. The supplement describes any additional insurance maintained for the series. Other credit support Additional credit support for a series may be provided by a guaranty, letter of credit, financial guaranty insurance policy or one or more reserve funds, which may be issued or provided by an affiliate of CMSI or by a third party. The supplement describes any additional credit support. MORTGAGE DOCUMENTS ------------------ Assignments to Trustee On the closing date, CMSI will assign the mortgage loans to the Trust, together with any principal and interest on the mortgage loans that belong to the Trust. CMSI will deliver to the Trust for each mortgage loan, other than a cooperative apartment or leasehold loan, o the endorsed mortgage note, o any assumption, modification, buydown or conversion to fixed interest rate agreement, o any certificate of primary mortgage insurance, and o the original recorded mortgage (or, temporarily, copies if recorded documents cannot be immediately delivered due to recording delays). For a cooperative apartment loan, CMSI will deliver to the Trust 24 o the endorsed promissory note evidencing the loan, o the original security agreement, o the proprietary lease or occupancy agreement, o the recognition agreement, o a signed financing statement (if required at origination), and o the stock certificate with signed stock powers. Recording of assignments CMSI will deliver a mortgage assignment in recordable form or a blanket assignment, which will not be in recordable form, together with a power of attorney empowering the Trustee to act for the originator in preparing, executing, delivering and recording in the Trust's name any instruments for assigning or recording the mortgages. CMSI will record assignments of the mortgage loans to the Trust after the issuance of the certificates only to the extent required under rating agency guidelines. Recording is not necessary to make the assignment to the Trust effective between the Trustee and the originator or CMSI. However, so long as the Trust is not the mortgagee of record, the Trustee might not be able to enforce the mortgage directly, but may have to act indirectly through the record holder of the mortgage (who will be the originator or an affiliate of the originator). In addition, if any of the originators or CMSI were to sell, assign, satisfy or discharge a mortgage loan before the recording of its assignment to the Trust, the other party to the sale, assignment, satisfaction or discharge might have rights superior to the Trust's. If the originator or CMSI acted without authority, it would be liable to the Trust or the certificate holders. If the originator or CMSI became bankrupt before the assignment to the Trust was recorded, creditors of the originator or CMSI might have rights in the mortgage loan superior to the Trust's. CMSI AND ITS AFFILIATES ----------------------- Citicorp Citicorp, a Delaware corporation, is a holding company whose principal subsidiary is Citibank, N.A. CMSI, CitiMortgage and Citi FSB are all wholly owned subsidiaries of Citicorp. Citicorp is itself a wholly owned subsidiary of Citigroup Inc., a publicly owned Delaware corporation. Citicorp's principal offices are at 399 Park Avenue, New York, New York 10043, telephone (212) 559-1000. Through its subsidiaries and affiliates, Citicorp is a multinational financial services organization serving the financial needs of businesses, governments, financial institutions and individuals in the United States and throughout the world. Citicorp Mortgage Securities, Inc. CMSI was incorporated in Delaware in 1987. It is not expected that CMSI will have any business operations other than offering mortgage-backed securities and related activities. CMSI's principal offices are at 12855 North Outer Forty Drive, St. Louis, Missouri 63141, telephone (314) 851-1467. Citibank, N.A. Citibank is a commercial bank offering a wide range of banking services to its customers in the New York City metropolitan area and around the world. Citibank's domestic deposits are insured by the Federal Deposit Insurance Corporation (the FDIC). Citibank has been an active one- to four-family residential real estate mortgage lender since 1960. Citibank has also been an active cooperative apartment lender. Except for its issuance of mortgage pass-through certificates, Citibank has not engaged in any significant servicing activities on behalf of unaffiliated persons for conventional residential mortgage or cooperative apartment loans. Citibank's residential mortgage lending is conducted in New York City and four surrounding counties (Westchester, Nassau, Suffolk and Rockland). Citibank's principal offices are at 399 Park Avenue, New York, New York 10043, telephone (212) 559-1000. 25 CitiMortgage, Inc. CitiMortgage (formerly Citicorp Mortgage, Inc.) was incorporated in Delaware in 1979 and began making mortgage loans in 1980. CitiMortgage derives income primarily from interest on mortgages that it owns, secondary mortgage market sales, mortgage loan servicing fees and mortgage origination fees and charges. CitiMortgage has been approved as a mortgagee and seller/servicer by the Federal Housing Administration, the Veterans Administration, Fannie Mae, Ginnie Mae and Freddie Mac. CitiMortgage's origination operations are subject to operational guidelines and regulations of, as well as audits by, some of these agencies. CitiMortgage's principal offices are at 750 Washington Blvd., Stamford, Connecticut 06901, telephone (800) 285-3000. Citibank, Federal Savings Bank Citi FSB is a federal savings bank based in San Francisco, California. It became a wholly owned subsidiary of Citicorp in 1982. From 1990 to 1993, Citicorp Savings of Illinois, Citicorp Savings of Washington, D.C. and Citicorp Savings of Florida, all wholly owned subsidiaries of Citicorp, were merged into Citi FSB. In 1993, Citi FSB acquired the branches of Citibank (Maryland), N.A., and in 1994 it acquired the branches of Citibank (Florida), N.A. Citi FSB has been an active one- to four-family residential mortgage lender since 1983. Citi FSB's deposits are insured by the FDIC. Citibank Service Corporation, an affiliate of Citi FSB, acts as trustee for substantially all deeds of trust for mortgaged property located in California that secure mortgage loans originated or acquired by Citi FSB. A trustee under a California deed of trust forecloses on the mortgaged property upon notice from the beneficiary of a delinquency and executes full and partial reconveyances of the mortgaged property at the beneficiary's direction. Citi FSB's principal offices are at 1 Sansome Street, San Francisco, California 94104, telephone (415) 627-6000. Third-party originators The supplement identifies any originators of third party loans with an aggregate principal balance greater than 10% of the aggregate principal balance of all the mortgage loans in the Trust. Each third party originator will generally be a savings and loan association, savings bank, commercial bank, credit union, insurance company, or a mortgagee approved by the Secretary of Housing and Urban Development. Third party originators must be experienced in originating mortgage loans of the types in the pool in accordance with accepted practices and prudent guidelines. MORTGAGE LOAN UNDERWRITING -------------------------- Mortgage loan underwriting assesses a prospective borrower's ability to repay, and the adequacy of the property as collateral for, a requested loan. Procedures of affiliated originators Each affiliated originator's real estate lending process for one- to four-family residential mortgage loans follows a standard procedure, established to comply with federal and state laws and regulations. For some residential mortgage loans, the affiliated originators have contracted with or delegated the underwriting process to unaffiliated third parties. Since January 1995, each affiliated originator has used a credit scoring system as part of its underwriting process. The credit scoring system assesses a prospective borrower's ability to repay a mortgage loan based upon predetermined mortgage loan characteristics and credit risk factors. Prospective borrowers remain subject to verification of employment, income, assets and credit history, as described below. All credit scored loans are rated "strong," "satisfactory" or "inconclusive." Mortgage loans rated strong or satisfactory that do not exceed specified risk limits do not undergo the full loan underwriting process described below. This "streamlined" underwriting process is restricted to loans secured by single family dwellings, other than investor properties, with a principal amount not exceeding $700,000. These loans are subject to verification of property value as described in "Appraisals" below. Additional underwriting approvals are required for relocation loans with credit scores or loan-to-value ratios that do not meet the affiliated originator's normal underwriting policies. All other mortgage loans are underwritten in accordance with the affiliated originators' normal underwriting policies. 26 Initially, a prospective borrower must fill out an application that gives information about the prospective borrower, the property to be financed and the type of loan desired. The prospective borrower must also provide o a current balance sheet and a statement of income and expenses, o proof of income, such as a paycheck stub or W-2 form (except for certain self-employed prospective borrowers), o proof of liquid assets (required since April 1991), o telephone verification of employment (required since April 1991), which may be verified by a third party national employment verification service, and o a credit report that summarizes the prospective borrower's credit history with local merchants and lenders and any record of bankruptcy. Since July 1993, facsimile copies of some verification documents (such as bank statements and verification of employment) have been accepted in lieu of originals. From February 1991 until May 1997, affiliated originators would obtain at least two credit reports (which could be in the form of a merged credit bureau report) on a prospective borrower. Since May 1997, affiliated originators have obtained the single most comprehensive readily available credit bureau report on the prospective borrower. Self-employed prospective borrowers must submit their federal income tax returns for the most recent two years and a separate statement of income and expenses. If a proposed mortgage loan's loan-to-value ratio does not exceed 65% (before December 1992, 80%), self-employed prospective borrowers may be excused from providing financial statements, federal income tax returns or proof of income. If a proposed mortgage loan does not exceed $700,000 and certain credit score and other criteria are satisfied, o prospective borrowers that are employees of Citigroup and its affiliates are excused from providing proof of income and, if the loan is obtained to refinance an existing mortgage, proof of liquid assets, and o for some relocation loans, prospective borrowers are excused from providing proof of income. During 1990 and 1991 the affiliated originators implemented telephone verification of employment. Certain high net worth prospective borrowers with ongoing banking relationships with Citibank's private banking group may be exempted from employment verification. Lending guidelines Once the employment verification and credit reports are received, the affiliated originator decides o whether the prospective borrower has enough monthly income to meet monthly obligations on the proposed loan and related expenses as well as the prospective borrower's other financial obligations and monthly living expenses, and o since April 1991, whether the prospective borrower has enough liquid assets to acquire the mortgaged property and make the initial monthly mortgage payments, taking into account, among other things, proceeds from the sale of a prior residence. This decision may be made from evidence such as a contract for sale of a prior residence and bank statements supplied by the prospective borrower. Each affiliated originator has established as normal lending guidelines that the mortgage payments, plus applicable real property taxes and any condominium or homeowner association common charges and hazard insurance, should not exceed 33% (34% for ARMs) of the borrower's gross income, or that all monthly payments, including those mentioned above and other fixed obligations, such as car payments (together, the debt burden), should not exceed 38% of gross income. However, for higher loan-to-value loans, these percentages are reduced to 28% and 36%. Since May 1997, loans that meet the affiliated originator's minimum credit score and delinquency requirements may have debt burden ratios up to 45% (40% for higher loan-to-value loans) and, for some relocation loans, 50%. Where two individuals co-sign the mortgage note or documents, the income and debt of both are included in the computation. For mortgage loans originated by the California branches of Citi FSB before June 1991, the actual mortgage payments may be higher due to a higher mortgage rate at the time the loan documents were prepared, but the mortgage rate generally does not exceed the anticipated rate used in the analysis by more than one percent. Often, other credit considerations may cause a loan underwriter to depart from the guidelines, and a loan underwriter may require additional information or verification to compensate for the departure. 27 Leasehold loans Leasehold loans are approved in accordance with the affiliated originator's standard underwriting criteria. An ALTA leasehold title insurance policy is required that o contains no exceptions for any adjustable features of the lease and o assures that the mortgage is not subordinated to any lien or encumbrance other than the land lease. The term of the land lease must extend at least ten years beyond the scheduled maturity of the mortgage loan and must give the originator the right to receive notice of and to cure any default by the borrower. The leasehold must be assignable or transferable if it is subjected to the mortgage lien. (California branches of Citi FSB may require a consent to assignment of lease and/or subordination agreement be obtained and recorded.) Payments due pursuant to the land lease are taken into account in debt ratio calculations. Refinancings Since May 1997, affiliated originators have not required income or asset verification for their current homeowners seeking to refinance their mortgage loans if the refinancing meets the originator's minimum seasoning, payment history and credit score requirements. For other homeowners seeking to refinance their mortgage loans, affiliated originators do not require asset verification and allow a debt burden ratio of up to 45% for loans that meet the affiliated originator's minimum seasoning, payment history and credit score requirements. For ARMs, the calculation of debt burden is based on the initial mortgage rate, even though the initial rate may be lower than the rate that would generally apply under the terms of the ARM. Appraisals The affiliated originators require the value of the mortgaged property, together with any other collateral, to support the principal balance of the mortgage loan, with enough excess value to protect against minor declines in real estate values. Each affiliated originator requires an appraisal of each property to be financed. Two appraisals are required in the normal underwriting process if the loan amount is greater than $700,000. Each appraisal is conducted by an independent fee appraiser. The appraiser personally visits the property and estimates its market value on the basis of comparable properties. Since April 1997, each affiliated originator accepts, in lieu of originals, electronic appraisals without photographs from appraisers who utilize approved appraisal software packages. The independent appraisers do not receive any compensation dependent upon either the amount of the loan or its consummation. In normal practice, the affiliated originator's judgment of the appraisal determines the maximum amount of the mortgage loan. Where an affiliated mortgage loan is refinanced, a current appraisal of the property may be omitted if the principal balance of the mortgage loan is only increased by an amount that is used to pay off junior liens on the property plus the homeowner's out-of-pocket costs for the refinancing. A current appraisal may also be omitted for modification of the interest rate on an existing mortgage loan. Lien records; title insurance Each affiliated originator obtains at origination a search of the recorded liens on the property being financed. Title insurance, or an attorney's opinion of title in jurisdictions where the practice is acceptable, is required for all mortgage loans, except that for cooperative apartment loans, an affiliated originator will not require title insurance or a title search of the cooperative apartment building. Mortgage loans purchased from third-party originators The affiliated originators purchase mortgage loans originated by third parties. These mortgage loans, other than those acquired in a bulk purchase, are reviewed for compliance with the affiliated originator's underwriting criteria, and the affiliated originator may reject loans that fail to conform to its criteria. For mortgage loans acquired in a bulk purchase of more than $15 million from a financially sound mortgage loan originator, the affiliated originator will review the selling originator's underwriting policies and procedures for compliance with the affiliated originator's or Fannie Mae/Freddie Mac underwriting standards and will credit score each loan. The affiliated originator will also conduct a limited mortgage loan file review. 28 Underwriting standards of third-party originators The underwriting policies and guidelines of third party originators may differ from those of the affiliated originators. In purchasing third party loans, CitiMortgage will review a sample of the loans to determine whether they generally conform to CitiMortgage's underwriting standards. CitiMortgage will fully or partly credit score or re-underwrite the third party loans to determine whether the original underwriting process adequately assessed the borrower's ability to repay and the adequacy of the property as collateral, based on CitiMortgage's underwriting standards. SERVICING --------- The servicer; delegation CMSI will be responsible for administering and servicing the mortgage loans. CMSI will act as servicer for affiliated mortgage loans and as master servicer for third-party mortgage loans. CMSI may delegate or subcontract servicing or master servicing duties to affiliated or non-affiliated qualified corporations. CMSI will delegate its servicing duties for affiliated mortgage loans to CitiMortgage. CitiMortgage may further delegate its servicing duties. In particular, CitiMortgage may delegate its servicing duties on mortgage loans that are seriously delinquent to an unaffiliated special servicer that primarily services delinquent loans for third parties. CMSI will delegate its master servicing duties for third-party mortgage loans to an unaffiliated master servicer named in the supplement. The master servicer will delegate the primary servicing duties on the third-party mortgage loans to the third-party originators. CMSI will in all cases remain ultimately responsible for servicing both the affiliated and the third party mortgage loans. References to the servicer and the master servicer in this prospectus will refer to CMSI, acting by itself or through delegated or subcontracted subservicers or master servicers. References to actions taken by CMSI after the issuance of the certificates will refer to CMSI acting in its capacity as servicer and/or master servicer, usually through other persons to whom it has delegated servicing and/or master servicing duties. Resignation and removal CMSI may only resign as servicer/master servicer if o it receives a legal opinion that remaining as servicer would be illegal or o the Trustee and 2/3 of the registered holders of certificates (by principal balance) consent to the resignation. A resignation will become effective when the Trustee or a successor servicer assumes CMSI's servicing obligations. The Trustee may remove CMSI as servicer/ master servicer only if CMSI does not, within 60 days after notice from the Trustee, remedy a failure to perform its servicing duties. The remainder of this "Servicing" section will describe servicing procedures for affiliated mortgage loans. Collection procedures for affiliated mortgage loans CMSI will make reasonable efforts to collect all payments on affiliated mortgage loans, following collection procedures it believes advisable. CMSI may o waive any prepayment charge and o arrange with a homeowner a schedule for eliminating delinquencies within 180 days, provided that the scheduling will not affect any primary mortgage insurance coverage. Credit support payments will continue to be governed by the original payment schedule on the mortgage loan, not the new schedule for eliminating deficiencies. Enforcement of due-on-sale clauses If a homeowner transfers a mortgaged property to a new homeowner, and the mortgage loan includes a due-on-sale clause, CMSI will usually accelerate the maturity of the mortgage loan. If CMSI reasonably believes it will not be able to enforce the due-on-sale clause, and if any primary mortgage insurance coverage will not be affected, CMSI will enter into an assumption agreement with the new homeowner making him or her liable under the mortgage loan. The original homeowner will also, if local law permits, remain secondarily liable under the agreement (except for mortgage loans originated by Citi FSB). The mortgage rate on the mortgage loan will not be decreased under the agreement. The interest rate may be increased, however, under the terms of the mortgage loan. CMSI will retain as additional servicing compensation any fees it receives for entering into the assumption agreement. 29 Real estate taxes and assessments CMSI will deposit all homeowner payments of taxes, assessments or comparable items in a special servicing account. CMSI will use the servicing account only to pay taxes, assessments and comparable items on the mortgaged properties, to reimburse CMSI for any costs incurred in paying taxes and assessments or for otherwise preserving or protecting the value of the mortgages, to refund to the homeowner any overages, and to pay any required interest to homeowners on balances in the servicing account. Primary mortgage insurance CMSI will present claims and take reasonable steps to recover on defaulted mortgage loans under any primary mortgage insurance policy. CMSI will exercise its best reasonable efforts to maintain primary mortgage insurance for as long as required. CMSI will pay premiums for primary mortgage insurance on a timely basis if the homeowner does not make the payments, and will be reimbursed by the Trust for such payments. CMSI may replace primary mortgage insurance by substantially equivalent insurance if o each rating agency that initially rated the series advises CMSI that the replacement will not adversely affect the current rating of the series, or o the rating agencies rate the claims-paying ability of the substitute primary mortgage insurance company no lower than the series. Realizing on defaulted mortgage loans Regardless of whether recovery under primary mortgage insurance or other credit support is available, CMSI will follow those normal practices and procedures it believes advisable to realize on a defaulted mortgage loan. However, CMSI need not spend its own money to foreclose on a loan or to restore a damaged property unless it decides that the expenditure will increase the net proceeds of liquidation, after reimbursement to CMSI for the expenditure. Certificate holders will realize a loss to the extent that o liquidation proceeds and payments under credit support for a mortgaged property are less than o the principal balance and accrued interest on the mortgage loan plus CMSI's unreimbursed expenses and advances. If a mortgage loan goes into default, a provider of credit support may have to purchase the liquidated loan. To avoid draws under credit support, CMSI may pay the purchase price of the loan on behalf of the credit support provider. The ultimate net recovery on the loan will be used to replenish the credit support up to the amount of the unreimbursed payments under the credit support for the loan, and any excess will be retained by the credit support provider, or by CMSI. Although certificate holders will have no right to the excess proceeds, the reduction in a provider's obligations under credit support will have been fully restored. Credit support providers do not have to purchase a defaulted mortgage loan or cover delinquencies if the remaining obligations under the credit support are less than the purchase price of the mortgage loan. If CMSI does not foreclose on a defaulted mortgage loan, CMSI may accept less than the principal balance and accrued interest on the mortgage loan on a sale or a retention by the homeowner of the mortgaged property. If CMSI does foreclose on a defaulted mortgage loan, CMSI may sell the property, negotiate with the homeowner for a deed in lieu of foreclosure or, if a deficiency judgment is available, foreclose on the property and pursue a deficiency against the homeowner. CMSI does not have to pursue a deficiency judgment on a mortgage loan, even if legally permitted. 30 Fees The Trust will pay CMSI a servicing fee that is generally a fixed annual percentage of the principal balance of each mortgage loan. Alternatively, the servicing fee may be based on the excess of the mortgage interest rate over a specified rate. In addition, CMSI will keep all prepayment and late payment charges, assumption fees and similar charges as additional servicing compensation. In CMSI's experience, this additional servicing compensation has been negligible. CMSI will pay o the subservicer's fees, o the Trustee's and independent accountants fees and expenses, o expenses for distributing reports to certificate holders, and o fees and expenses for realizing on defaulted mortgage loans. CMSI will be reimbursed for certain expenses in liquidating a defaulted mortgage loan (including expenditures for the preservation, protection or restoration of the mortgaged property, as well as legal fees, appraisal costs, etc.) out of payments by the homeowner, credit support or from foreclosure proceedings before those payments are distributed to certificate holders. CMSI may retain this reimbursement even if the remaining funds are inadequate to distribute to certificate holders the full principal balance and accrued interest on the mortgage loan. CMSI's liability CMSI, as servicer and/or master servicer, will not be liable to certificate holders except for its willful misfeasance, bad faith or gross negligence in the performance of its servicing duties. Default by CMSI The following are events of default: o CMSI, if it is the paying agent, fails to distribute to the registered certificate holders the full amount of a required distribution or, if it is not the paying agent, fails to pay over to the paying agent for distribution to the registered certificate holders the full amount of a required distribution, and does not remedy its failure (1) within 10 business days of receiving notice of the failure if the failure was due to an error in calculating the required payment or distribution or (2) within three business days of receiving notice of the failure if the failure was due to any other cause. o CMSI fails to (1) repurchase a mortgage loan as required or (2) observe or perform any other obligation that materially affects the rights of certificate holders, and does not remedy the failure for 60 business days after either the Trustee notifies cmsi, or the registered holders of 2/3 of the principal balance of the certificates notify CMSI and the Trustee, of the failure. o Certain events indicate CMSI's insolvency, reorganization or inability to pay its obligations. Actions on event of default As long as an event of default remains unremedied, the Trustee or the registered holders of 2/3 of the principal balance of the certificates may have the Trustee take over CMSI's responsibilities, duties and liabilities under similar compensation arrangements. CMSI will be paid for its prior services notwithstanding the termination of its activities as servicer and/or master servicer. Termination of CMSI as servicer and/or master servicer will not affect the obligations of any credit support provider. If the Trustee is unwilling or unable to act as servicer or master servicer, it may appoint, or ask a court to appoint, a housing and home finance institution with a net worth of at least $5 million to be a successor servicer or master servicer for a servicing compensation no greater than CMSI's servicing compensation. THE TRUSTEE ----------- The Trustee is named in the supplement. The Trustee may appoint agents (including CMSI and its affiliates) to perform any of its responsibilities, but the Trustee will continue to be responsible for its duties and obligations. To meet legal requirements of certain local jurisdictions, CMSI and the Trustee may jointly appoint co-trustees or separate trustees for some or all of the mortgage loans. Each separate trustee or co-trustee will have all of the Trustee's rights and obligations, which they will exercise solely at the Trustee's direction. 31 The Trustee may have normal banking relationships with CMSI or any originator, or any of their affiliates. o The Trustee may resign at any time. The Trustee may be removed by the registered holders of 50% of the principal balance of the certificates and 50% of the residual certificates. The Trustee may also be removed by CMSI if o the Trustee ceases to be eligible to serve as Trustee under the pooling agreement, o the Trustee is insolvent, o the Trustee breaches a duty that materially and adversely affects the certificate holders, or o through the Trustee's performance or non-performance of certain actions, or because of a downgrade of the Trustee's credit rating, the rating assigned to the certificates would be lowered. If the Trustee resigns or is removed, the resignation or removal will not be effective until CMSI appoints a successor Trustee. The Trustee's duties; limitation of liability If no event of default has occurred, the Trustee need only perform those duties specifically required of it under the pooling agreement. However, the Trustee must examine the various certificates, reports or other instruments required to be furnished to it to determine if they conform to the requirements of the pooling agreement. The Trustee is not responsible for CMSI's deposit to or withdrawal from the Trust of any funds, the validity or sufficiency of the pooling agreement, the certificates or any mortgage loan or related document, and is not accountable for the use or application by cmsi of funds paid to it on the mortgage loans. The Trustee will not be liable for any losses incurred as a result of the Trust's failure to qualify as a REMIC, termination of its REMIC status or any "prohibited transaction" for a REMIC, unless the losses were caused by the Trustee's negligence, bad faith or failure to perform its duties. THE POOLING AGREEMENT --------------------- The certificates of each series are governed by a separate pooling and servicing agreement (the pooling agreement) between CMSI and the Trustee, which provides for the transfer of the mortgage loans to the Trust, the issuance of the certificates, repurchase or substitution of mortgage loans by CMSI, the collection of payments on the mortgage loans and other servicing activities, the distributions to the certificate holders, the relative rights of classes of certificates to distributions, and otherwise sets forth the specific rights and obligations of CMSI and the Trustee. The certificates are complex instruments, and the pooling agreement is a lengthy and complex document. This prospectus only discusses those aspects of the certificates and the pooling agreement that CMSI believes are likely to be material to certificate purchasers. You should read the pooling agreement for provisions that may be important to you. The Trustee will send a copy of the pooling agreement (without exhibits) to you on your written request. The pooling agreement also contains the following provisions: Legal action by CMSI Neither CMSI nor Citicorp, if Citicorp has issued a guaranty, will have to appear in, prosecute or defend any legal action that is not incidental to CMSI's servicing responsibilities and that it believes may cause it expense or liability. CMSI may, however, take any legal action it believes desirable to enforce the pooling agreement or to protect its own rights or the rights of the Trustee or the certificate holders under the pooling agreement. The Trust will pay, or reimburse CMSI or Citicorp for, the expenses of the action and any resulting liability out of Trust assets. Legal action by certificate holders A registered certificate holder can not institute a legal proceeding to enforce the pooling agreement unless o the holder gives the Trustee written notice of default, and o the registered holders of 2/3 of the principal balances of the certificates request the Trustee in writing to institute the proceeding and offer the Trustee reasonable indemnity, and the Trustee for 60 days neglects or refuses to institute proceedings. 32 However, the Trustee is not required to exercise its powers, investigate matters arising, or institute, conduct or defend a litigation under the pooling agreement at a registered certificate holder's request unless the holder offers the Trustee reasonable security or indemnity against expenses and liabilities. Liability of CMSI and Citicorp; indemnification Neither CMSI nor Citicorp, if Citicorp has issued a guaranty, nor any of their directors, officers, employees or agents, will be liable to the Trust or the certificate holders for taking or not taking any action, or for their errors in judgment, except for liability caused by their willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties, under the pooling agreement. The Trust will indemnify CMSI and Citicorp, if Citicorp provides credit support, and their directors, officers, employees or agents, out of Trust assets against any loss, liability or expense they incur in connection with any legal proceedings, other than loss, liability or expense caused by their willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations, under the pooling agreement. Amendments CMSI, the issuers of credit support and the Trustee may together amend the pooling agreement and any credit support without the registered certificate holders' consent o to cure ambiguities, o to resolve inconsistencies, o to make other changes consistent with the pooling agreement or credit support, including replacing the credit support in whole or part by other forms of credit support described in this prospectus, o to comply with federal tax law, including amendments to maintain the Trust as a REMIC, or o to establish a "qualified reserve fund" for a REMIC. CMSI, the issuers of credit support and the Trustee may also amend the pooling agreement and any credit support without registered certificate holder consent if CMSI delivers an opinion of counsel acceptable to the Trustee that the amendment will not materially adversely affect the certificate holders. CMSI and the Trustee may also amend the pooling agreement and any form of credit support in any respect with the consent of the registered holders of 2/3 of the principal balances of the certificates affected by the amendment, except that o the amendment may not (1) decrease or delay the collections on mortgage loans or the distributions to a registered certificate holder without the holder's consent or (2) reduce the percentage of principal balances of certificates whose registered holders must consent to an amendment without the consent of the registered holders of all certificates of each affected class, and o if the amendment affects any class of certificates differently in any material respect than the other classes, the registered holders of 2/3 of the principal balances of the certificates in the differently affected class must consent to the amendment. For purposes of granting or withholding consent, if a class of certificates is divided into subclasses, a subclass will not be considered a separate "affected class." Accordingly, where consent of the registered holders of 2/3 of the principal balances of the certificates of a differently affected class is required, this means the consent of the registered holders of the entire class, without regard to subclasses. Thus, if a class of certificates is divided into subclasses, the consent of the registered holders of 2/3 of the principal balances of the certificates of a single subclass will not be sufficient in itself for any consent, nor will the withholding of consent by the registered holders of more than 1/3 of the principal balance of the certificates of the subclass be sufficient in itself to deny any consent. Compliance reports Beginning three months after the closing date, a firm of independent public accountants selected by CMSI will provide a compliance report to the Trustee by March 31 of each year for affiliated mortgage loans and by September 30 of each year for third-party loans on the servicing of the affiliated or third-party mortgage loans. 33 Beginning three months after the closing date, an officer of CMSI will deliver a certificate to the Trustee and to any registered holder of more than 50% of the certificates by March 31 of each year for affiliated mortgage loans and by September 30 of each year for third-party loans stating that CMSI has fulfilled its servicing obligations throughout the preceding calendar year or describing each default in the performance of these obligations. Certificate holders may obtain copies of these reports or certificates by written request to the Trustee. List of registered holders Unless the Trustee is also the certificate registrar, CMSI will provide the Trustee within 15 days after receipt of the Trustee's written request the names and addresses of all registered certificate holders as of the most recent record date. Upon written request of three or more registered certificate holders, for purposes of communicating with other registered certificate holders about their rights under the pooling agreement, the Trustee will give the requesting certificate holders access during business hours to the most recent list of registered certificate holders held by the Trustee. If the list is more than 90 days old on the date of the request, the Trustee will promptly request a current list from CMSI and will give the requesting certificate holders access to the new list promptly after receipt. No annual meeting There will not be any annual or other meetings of certificate holders. Successors A corporation o that is a successor to CMSI due to a merger or consolidation, or that otherwise succeeds to the business of CMSI, or o any entity that is more than 50% owned by Citicorp that assumes CMSI's obligations, will be CMSI's successor under the pooling agreement. The assumption will not, however, release CMSI from any obligation under the pooling agreement. Termination of Trust The Trust will terminate upon the distribution to the registered certificate holders of all amounts required to be distributed to them. The Trust can not, however, continue for more than 21 years after the death of the last survivor of the descendants of a certain person specified in the pooling agreement living at the date of the pooling agreement. CMSI will direct the Trustee to notify each registered certificate holder in writing in advance of the termination of the Trust. Registered holders must surrender their certificates in order to receive their final distribution. Interest will not accrue on the certificates after the date specified in the notice for return of the certificates. BOOK-ENTRY AND PHYSICAL CERTIFICATES ------------------------------------ Certificates offered to the public will be book-entry securities. That is, one or more certificates for each of these classes will be registered in the name of The Depository Trust Company, a securities depository, or its nominee (together DTC). DTC will thus be the only registered holder of these certificates. Other people will hold their certificates in these classes indirectly through securities intermediaries - banks, brokerage houses and other institutions that maintain securities accounts for their customers. The securities depository will maintain accounts showing the certificate holdings of its participants (all of whom will be securities intermediaries), and these securities intermediaries will in turn maintain accounts showing the certificate holdings of their customers (some of whom may themselves be securities intermediaries holding certificates for their customers). Thus, each holder of a book-entry certificate will hold that certificate through a hierarchy of intermediaries, with DTC at the "top" and the holder's own securities intermediary at the "bottom." A person holding a book-entry certificate for its own account through a securities intermediary will be the beneficial owner of the certificate. The certificates of each holder of a book-entry security other than DTC will be evidenced solely by entries on the books of the holder's securities intermediary. A holder of a book-entry certificate will not be able to obtain a physical (paper) certificate evidencing the holder's ownership of the certificate. The book-entry system for holding certificates through accounts with a hierarchy of securities intermediaries leading up to a securities depository is the system through which most publicly traded securities are held in the United States. 34 In this prospectus, references to "certificate holders" of book-entry securities will generally mean the beneficial owners of certificates. However, for book-entry certificates, references to actions taken by certificate holders will mean actions taken by DTC upon instructions from its participants, and references to payments and notices of redemption to certificate holders will mean payments and notices of redemption to DTC as the registered holder of the certificates for distribution to participants in accordance with DTC's procedures. Beneficial owners of book-entry certificates should realize that, unless otherwise stated in this prospectus, the Trust will make all distributions on their certificates to DTC, and will send all required reports and notices solely to DTC. Similarly, the Trustee will accept notices and directions solely from the registered holders of certificates, which for book-entry certificates will mean DTC. DTC and the securities intermediaries are generally required by law to deposit the distributions in the appropriate customers' accounts and to transmit notices and directions from the Trust to their customers and from their customers to the Trust through the chain of intermediaries. However, beneficial owners of book-entry certificates may find it somewhat more difficult to pledge their certificates because of the lack of a physical certificate, and may experience delays in receiving distributions on their certificates, since distributions will be initially made to DTC and must then travel down the hierarchy of intermediaries to the beneficial owner's own account with its securities intermediary. Neither the Trustee, CMSI nor any of their affiliates will be responsible for any action or failure to act of a securities depository or securities intermediary, including any action or inaction involving a securities depository's or securities intermediary's o distributions to its participants or customers, o transmission of notices, directions and other communications to or from beneficial owners of certificates, or o record keeping, and will not be liable to beneficial owners of certificates for any such action or failure to act. Nor will the Trustee, CMSI or any of their affiliates have any obligation to beneficial owners to monitor, supervise or review any actions or procedures of a securities depository or securities intermediary. DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered under section 17A of the Securities Exchange Act of 1934. Physical certificates Beneficial owners of book-entry certificates will receive physical certificates representing their ownership interests only if o CMSI advises the Trustee in writing that DTC is no longer willing or able to discharge properly its responsibilities as depository for the book-entry certificates and CMSI is unable to locate a qualified successor, o CMSI, at its option, elects to terminate the book-entry system, or o after CMSI's resignation or dismissal as servicer under the pooling agreement, beneficial owners of at least 51% of each outstanding class of book-entry certificates advise the Trustee, through the securities depository, in writing that continuation of the book-entry system is no longer in the beneficial owners' best interest. The Trustee will notify all beneficial owners, through DTC, of the availability of physical certificates. Physical certificates will be transferable and exchangeable at the offices of the Trustee. No service charge will be imposed for any registration of transfer or exchange, but the Trustee may require a payment sufficient to cover any tax or other governmental charge incurred. ERISA CONSIDERATIONS -------------------- The Employee Retirement Income Security Act of 1974 (ERISA) prohibits some transactions between those employee benefit plans to which it applies (ERISA plans) and persons who have specified relationships to the ERISA plan. (For purposes of this discussion, an individual retirement account established under the Internal Revenue Code (an IRA) will be an ERISA plan.) 35 "Plan asset" regulations If an ERISA plan purchases certificates, the underlying assets of the Trust - for example, mortgage loans - might be considered assets of the ERISA plan, or "plan assets." As a consequence, the plan's fiduciary might be considered to have delegated asset management responsibility to the Trustee. In such circumstances, some operations of the Trust might be considered prohibited transactions under ERISA. ERISA does not define "plan assets." However, regulations under ERISA state conditions under which an ERISA plan, in acquiring an "equity interest" in an entity (e.g., a certificate in a Trust) would be considered to acquire the underlying assets of the entity (such as the mortgage loans). These underlying assets would therefore become "plan assets." Because of the factual nature of the regulations, CMSI cannot predict whether the Trust's assets would be "plan assets." For example, the regulations state that the underlying assets of an entity are not "plan assets" as long as less than 25% of the value of each class of equity interest is held by ERISA plans and employee benefit plans not subject to ERISA. Class exemption U.S. Department of Labor Prohibited Transaction Class Exemption 83-1 for certain transactions involving mortgage pool investment trusts (PTE 83-1) exempts the acquisition and holding of certain residential mortgage pool pass-through interests by ERISA plans from ERISA's prohibited transaction provisions. PTE 83-1 sets forth "general conditions" and "specific conditions" to its applicability. CMSI believes that the general conditions would be met for the purchase and holding of senior classes of certificates in a Trust that holds mortgage loans other than cooperative apartment loans. PTE 83-1 might not apply, however, to the purchase and holding of o senior classes of certificates in a Trust that holds cooperative apartment loans, o senior classes of certificates of a PO or IO class, o subordinated classes of certificates, or o residual certificates. Accordingly, CMSI will not permit the registration of a transfer of a certificate of a subordinated or residual class unless the transferee o executes a representation letter satisfactory to the Trustee stating that (1) it is not, and is not acting on behalf of, an ERISA plan or using an ERISA plan's assets to effect the purchase or (2) if it is an insurance company, the source of funds used to purchase subordinated certificates is an "insurance company general account" (as defined in Prohibited Transaction Class Exemption 95-60 (PTE 95-60)), and there is no ERISA plan for which the general account's reserves and liabilities for the contract(s) held by or on behalf of the plan and all other ERISA plans maintained by the same employer (or an affiliate as defined in PTE 95-60) or by the same employee organization, exceed 10% of the total of all reserves and liabilities of the general account (as determined under PTE 95-60) at the date of acquisition, or o delivers (1) an opinion of counsel satisfactory to the Trustee and CMSI that the purchase or holding of the certificate by or on behalf of the plan will not result in the assets of the Trust being deemed to be "plan assets" and subject to the prohibited transaction provisions of ERISA and the Internal Revenue Code or any similar law and will not subject CMSI (or its designee) or the Trustee to any obligation in addition to those undertaken in the pooling agreement and (2) such other opinions of counsel, officers' certificates and agreements as the Trustee and CMSI may require in connection with the transfer. Trusts of certificates It is not clear whether PTE 83-1 applies to senior class certificates in a Trust that itself holds interests in a REMIC or similar entity. The regulations state that plan assets do not include the mortgages underlying an agency certificate. Accordingly, even if certificates in a Trust were owned largely or entirely by ERISA plans, the mortgages underlying agency certificates held by the Trust would not be plan assets. Accordingly, if CMSI sponsors a series where the Trust holds interests in a REMIC or similar entity, and if no other ERISA prohibited transaction exemption appears applicable, CMSI intends to include no such interests in a REMIC except agency certificates or other interests that would meet the general conditions of PTE 83-1 if purchased directly by an ERISA plan. CMSI further intends to structure the offering of the series and the operations of the Trust and to take other actions that are reasonable and appropriate to reduce the risk of an ERISA prohibited transactions should PTE 83-1 be held inapplicable to the acquisition and holding of such certificates. 36 Underwriters' exemptions Most underwriters of mortgage-backed securities have obtained ERISA prohibited transaction exemptions that are in some respects broader than PTE 83-1. These exemptions only apply to mortgage-backed securities that are sold in offerings for which the underwriter is the sole or a managing underwriter, or a selling or placement agent. The supplement describes any such exemption. Other prohibitions An ERISA plan may not purchase certificates with assets of the ERISA plan if an affiliate of CMSI (such as Citibank or Salomon Smith Barney Inc.), any underwriter or the Trustee: o has discretion to invest such assets, o has authority or responsibility to give, or regularly gives, investment advice for such assets for a fee and pursuant to an agreement or understanding that the advice will serve as a primary basis for investment decisions for the assets and that such advice will be based on the particular investment needs of the ERISA plan, or o is an employer maintaining or contributing to the ERISA plan. By agreeing to acquire a certificate for an ERISA plan, an ERISA plan fiduciary represents and warrants to the underwriter and to CMSI that the assets of the ERISA plan used in the purchase are not described in the preceding sentence. Investor's responsibility Due to the complexity of the ERISA rules and the severity of the penalties imposed upon persons involved in prohibited transactions, it is important that potential ERISA plan investors consult with their counsel regarding the consequences under ERISA of their acquisition and ownership of certificates. Employee benefit plans that are not subject to ERISA may be subject to similar federal, state, or local laws. Fiduciaries of such plans should make their own determinations of the need for and availability of exemptive relief under any such laws. LEGAL INVESTMENT CONSIDERATIONS ------------------------------- SMMEA The senior classes of certificates will generally be, and the subordinated classes of certificates and the residual certificates may be, "mortgage related securities" under the Secondary Mortgage Market Enhancement Act of 1984 (SMMEA). The supplement states which classes of certificates are mortgage related securities. Mortgage related securities under SMMEA are legal investments for an entity created or existing under state or federal law whose authorized investments are subject to state regulation to the same extent that obligations issued or guaranteed by the United States or any of its agencies or instrumentalities are legal investments for the entity. A certificate will be a SMMEA mortgage related security so long as o it is rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization, and o it is part of a series of certificates in a Trust consisting of mortgage loans originated by the types of originators specified in SMMEA. State overrides of SMMEA SMMEA permitted states that acted before October 3, 1991 to override some of its provisions. Some states have overridden parts of SMMEA and limited the ability of some entities (in particular, insurance companies) to invest in "mortgage related securities," usually by requiring the investors to rely solely upon existing state law rather than SMMEA. Investors governed by the laws of these states may be limited in their ability to invest in certificates. 37 Federal depository institutions SMMEA also permits o federal savings and loan associations and federal savings banks to invest in, sell or otherwise deal in mortgage related securities without limit, o federal credit unions to invest in mortgage related securities, and o national banks to purchase mortgage related securities for their own account without regard to the limitations generally applicable to investment securities, subject in each case to regulations of their federal regulators. In this connection, o the Comptroller of the Currency has authorized national banks to purchase and sell mortgage related securities for their own account, without limitation as to a percentage of the bank's capital and surplus (but subject to compliance with general standards of "safety and soundness" and retention of credit information), o the National Credit Union Administration has authorized federal credit unions to invest in mortgage related securities (other than stripped mortgage related securities, residual interests in mortgage related securities and commercial mortgage related securities) under limited circumstances, and o the Office of Thrift Supervision has issued guidelines for thrift institutions to follow in managing interest rate risk in purchasing investment securities. Investor's responsibility Depository institutions considering an investment in the certificates should also review the "Supervisory Policy Statement on Investment Securities and End-User Derivatives Activities" of the Federal Financial Institutions Examination Council, which has been adopted by the Federal Reserve Board, the FDIC, the Comptroller of the Currency, the Office of Thrift Supervision and the National Credit Union Administration. The policy statement sets forth guidelines that depository institutions must follow in managing risks (including market, credit, liquidity, operational (transaction), and legal risks) applicable to all securities (including mortgage pass-through securities and mortgage-derivative products) used for investment purposes. Institutions whose investment activities are subject to regulation by federal or state authorities should review rules, policies and guidelines of these authorities before purchasing any certificates, as some certificates (in particular, certificates that are entitled solely or disproportionately to distributions of principal or interest) may be considered unsuitable investments, or may otherwise be restricted, under such rules, policies or guidelines (in some instances irrespective of SMMEA). The foregoing does not consider the applicability of statutes, rules, regulations, orders, guidelines or agreements generally governing investments made by particular investors, including "prudent investor" provisions, percentage-of-assets limits and provisions that restrict or prohibit investment in securities that are not "interest-bearing" or "income-paying" or are issued in book-entry form. Except for the status of some certificates as "mortgage related securities," no representation is made as to the proper characterization of any certificates for legal investment purposes, financial institution regulatory purposes, or other purposes, or as to the ability of particular investors to purchase certificates under legal investment restrictions. The uncertainties described above (and any unfavorable future determinations concerning legal investment or financial institution regulatory characteristics of the certificates) may adversely affect the liquidity of the certificates. Accordingly, investors whose investment activities are subject to legal investment laws and regulations, regulatory capital requirements or review by regulatory authorities should consult with their own legal advisors in determining whether and to what extent the certificates of any class will be legal investments or be subject to investment, capital or other restrictions, and whether SMMEA has been overridden in any jurisdiction relevant to the investor. TAXATION OF CERTIFICATE HOLDERS ------------------------------- The following taxation sections discuss in general terms the anticipated material federal income tax consequences to certificate holders of the purchase, ownership and disposition of certificates representing regular interests in the REMIC. The Trust will consist of one or more REMICs. The discussion does not address all federal income tax consequences that may be applicable to particular categories of investors, some of whom may be subject to special rules. Moreover, the discussion is based on statutes, regulations and other authorities that are subject to change or differing interpretations, and any change or interpretation could apply retroactively. Investors should consult their own tax advisors in determining the federal, state, local and other tax consequences to them of the purchase, ownership and disposition of certificates. In this tax discussion, references to the "certificate holder" or "holder" generally mean the beneficial owner of a certificate. Unless otherwise stated, all section references are to the Internal Revenue Code. 38 Taxation of certificates - general Certificates will generally be taxed as if they were newly originated debt instruments. In particular, interest, original issue discount (discussed below) and market discount (discussed below) on a certificate will be ordinary income to the holder, and distributions of principal on a certificate will be a return of capital to the extent of the holder's basis in the certificate. Accrual method Each certificate holder must use the accrual method of accounting for certificates, regardless of the method of accounting it otherwise uses. Original issue discount All accrual certificates will be issued with original issue discount (or OID), and others classes of certificates may be issued with OID. OID for a debt instrument generally refers to the amount by which the instrument's original issue price is less than its stated redemption price at maturity. Holders of certificates issued with OID must generally include the OID in ordinary income for federal income tax purposes as it accrues, in accordance with a constant yield method that takes into account the compounding of interest. This generally means that a certificate holder will pay tax on accrued OID before the holder receives the related cash distribution. The Internal Revenue Code and implementing regulations for OID (the OID rules) do not adequately address some issues relevant to securities that, like the certificates, may be prepaid. To the extent the OID rules do not address an issue, CMSI, in calculating OID, will generally apply the methodology described in the Conference Committee Report to the Internal Revenue Code of 1986 Act (the Conference Committee Report). Investors should realize, however, that the Internal Revenue Service (the IRS) may take a different position on the issue. Moreover, the OID rules include an anti-abuse rule that allows the IRS to depart from the OID rules to ensure a reasonable tax result. CMSI will calculate the accrued OID and will report the OID to registered holders and beneficial owners of certificates as described in "Reporting requirements" below. Calculation of OID A certificate will generally be treated as a single debt instrument on which the principal is payable in installments for purposes of determining the OID includible in a certificate holder's income. (There is an exception for retail class certificates, discussed below.) Unless the OID is de minimis (described below), a certificate holder must generally include in gross income for a taxable year the sum of the "daily portions" of accrued OID for each day on which it holds the certificate during an accrual period, including the date of purchase but excluding the date of disposition. CMSI will treat the monthly period ending on the day before each distribution day as the accrual period. Determining the daily portions of OID depends on determining (1) the amount of OID and (2) when principal is payable on the instrument, which together determine the rate at which OID accrues. As discussed below, principal on the certificates is assumed to be paid at the prepayment rate assumed in structuring the series. Amount of OID. The amount of OID on a certificate is the excess of its "stated redemption price at maturity" over its "issue price." The issue price of a certificate is generally the first price at which a substantial amount of certificates of the same class are sold to the public (excluding bond houses, brokers and underwriters). Although unclear under the OID rules, CMSI intends to treat the issue price of certificates of a class for which there is no substantial sale as of the issue date or that are retained by CMSI as the fair market value of the certificate on the issue date. 39 The issue price of a certificate also includes any amount the initial certificate holder pays for accrued interest for a period prior to the issue date of the certificate, unless the holder elects on its federal income tax return to exclude that amount from the issue price and to recover it on the first distribution day. The stated redemption price at maturity of a certificate always includes its principal balance at the cut-off date. The stated redemption price at maturity may also include distributions of interest unless the distributions are of "qualified stated interest." Under the OID rules, qualified stated interest generally means interest payable at a single fixed rate or at a "qualified variable RATE" (described below), provided that the interest distributions are unconditionally distributable at intervals of one year or less during the entire term of the certificate. Because there is no penalty or default remedy for nonpayment of interest on a certificate, it is possible that no interest on any class of certificates will be treated as qualified stated interest. However, except as provided in the next paragraph, because the underlying mortgage loans provide for remedies in the event of default, CMSI intends to treat interest on certificates as qualified stated interest. Distributions on the following types of certificates will not be qualified stated interest: o certificates in an accrual class, o certificates for which interest distributions may be deferred and added to the principal balance, or o certificates in an interest-only class or a class on which interest is substantially disproportionate to its principal amount (a so-called "super- premium" class). Accordingly, the stated redemption price at maturity of these certificates will include both their initial principal balance and all other distributions on the certificates. Also, if the interval between the issue date and the first distribution day on a certificate is shorter than the interval between subsequent distribution days, the interest attributable to the additional days will be included in the stated redemption price at maturity. Any deferred interest (as defined in the supplement) that accrues on a class of certificates will constitute income to the holders of those certificates prior to the receipt of cash distributions of deferred interest. Under the OID rules, all interest payments on certificates that may have deferred interest must be treated as non-qualified stated interest payments and included in the stated redemption price at maturity of the certificates in computing OID. Rate of accrual. The OID accruing in a full accrual period on a certificate is generally the increase in the present value of the certificate over the period, adjusted for distributions that are not qualified stated interest. This amount would be the excess of o the sum of (1) the "present value of the remaining distributions" to be made on the certificate as of the end of that accrual period and (2) the distributions made on the certificate during the accrual period that are included in the certificate's stated redemption price at maturity, over o the "adjusted issue price" of the certificate at the beginning of the accrual period. For these purposes, the adjusted issue price of a certificate at the beginning of an accrual period is its issue price, increased by the aggregate amount of OID accrued in all prior accrual periods and reduced by any distributions included in the certificate's stated redemption price at maturity that were made in those prior periods. Based on the Conference Committee Report, the present value of the remaining distributions is calculated using the original yield to maturity of the certificate as the discount rate and the schedule of payments on the certificate at the prepayment rate assumed in structuring the series (which is stated in the supplement), adjusted for events, including actual prepayments, that occur before the end of the accrual period. The OID accruing during an accrual period is then divided by the number of days in the period to determine the daily portion of OID for each day in the period. For an initial accrual period that is shorter than a full accrual period, the daily portions of OID must be determined according to an appropriate allocation under any reasonable method. Under the method described above, the daily portions of OID will generally increase if prepayments on the mortgage loans exceed the prepayment rate assumed in structuring the series, and will generally decrease (but not below zero for any period) if prepayments on the mortgage loans are slower than the assumed prepayment rate. However, for some classes of certificates, an increase or decrease in prepayments on the mortgage loans can result in a change in the priority of principal payments for that class that could increase or decrease the daily portions of OID for those certificates. 40 De minimis OID OID on a certificate will be considered to be zero if the OID is less than 0.25% of the certificate's stated redemption price at maturity multiplied by the weighted average maturity of the certificate. For this purpose, weighted average maturity is the sum of the amounts determined by multiplying (1) the number of full years (i.e., rounding down partial years) from the issue date until each scheduled distribution of principal or OID by (2) the ratio of the amount of the distribution to the total stated redemption price at maturity. The schedule of distributions should be determined in accordance with the prepayment rate assumed in structuring the series. Certificate holders must generally report de minimis OID pro rata as distributions of stated redemption price at maturity are received. Such income will be capital gain if the certificate is held as a capital asset. However, certificates holders may elect to accrue all de minimis OID, as well as market discount and market premium, under the constant yield method. See " - Election to treat interest under the constant yield method" below. OID on retail class certificates For certificates on which principal distributions are made in a single installment upon the request of a certificate holder or by random lot (retail class certificates), CMSI intends to determine the yield to maturity based on the anticipated payment characteristics of the class as a whole under the prepayment rate assumed in structuring the series. In general, OID accruing on a retail class certificate in a full accrual period would be its allocable share of the OID for the entire class, as determined above. However, if there is a distribution in reduction of all or part of the principal balance of a retail class certificate, o the remaining unaccrued OID allocable to the certificate (or part) will accrue at the time of the distribution, and o the accrual of OID allocable to each remaining certificate of the class (or the principal balance of a retail class certificate after a principal distribution has been received) will be adjusted by reducing the present value of the remaining payments on the class and the adjusted issue price of the class by the principal distributed. CMSI believes that this treatment of retail class certificates is consistent with the "pro rata prepayment" rules of the OID rules, but with the rate of accrual of OID determined based on the prepayment rate assumed in structuring the series. Acquisition premium A purchaser of a certificate at a price greater than its adjusted issue price but less than its stated redemption price at maturity will be required to include in gross income the daily portions of OID on the certificate, reduced pro rata by a fraction, the numerator of which is the excess of its purchase price over the adjusted issue price and the denominator of which is the excess of the remaining stated redemption price at maturity over the adjusted issue price. Alternatively, the purchaser may elect to treat the acquisition premium under the constant yield method, as described in " - Election to treat interest under the constant yield method" below. OID on variable rate certificates Certificates may provide for interest based on a variable rate (variable rate certificates). Under the OID rules, interest is generally treated as payable at a variable rate if o the issue price does not exceed the original principal balance by more than a specified amount and o the interest compounds or is payable at least annually at current values of (1) one or more "qualified floating rates," (2) a single fixed rate and one or more qualified floating rates, (3) a single "objective rate," or (4) a single fixed rate and a single objective rate that is a "qualified inverse floating rate." A floating rate is a qualified floating rate if variations in the rate can reasonably be expected to measure contemporaneous variations in the cost of newly borrowed funds, where the rate is subject to a multiple that is greater than 0.65 but not greater than 1.35. The rate may also be increased or decreased by a fixed spread or subject to a fixed cap or floor, or a cap or floor that is not reasonably expected as of the issue date to affect the yield of the instrument significantly. An objective rate is a rate (other than a qualified floating rate) that is determined using a single fixed formula and that is based on objective financial or economic information that is not within the control, or unique to the circumstances, of the issuer or a related party. 41 A qualified inverse floating rate is a rate equal to a fixed rate minus a qualified floating rate that inversely reflects contemporaneous variations in the cost of newly borrowed funds. (An inverse floating rate that is not a qualified inverse floating rate may nevertheless be an objective rate.) OID for a certificate bearing a variable rate of interest will accrue in the manner described above under " - Original issue discount," with the yield to maturity and future distributions on the certificate generally determined by assuming that interest will be payable for the life of the certificate based on its initial rate (or, if different, the value of the applicable variable rate on the pricing date). CMSI intends to treat variable interest as qualified stated interest, other than variable interest on an interest-only or super-premium class, which will be treated as non-qualified stated interest includible in the stated redemption price at maturity. OID reported for an accrual period will be adjusted for subsequent changes in the interest rate. Although unclear under the OID rules, CMSI intends to treat certificates bearing an interest rate that is a weighted average of the net interest rates on mortgage loans having fixed or adjustable rates as having qualified stated interest. For ARMs, the applicable index used to compute interest on the mortgage loans in effect on the pricing date (or possibly the issue date) will be deemed to be in effect beginning with the period in which the first weighted average adjustment date occurring after the issue date occurs. Adjustments will be made in each accrual period either increasing or decreasing the amount of OID reportable to reflect the actual interest rate on the certificates. Under the REMIC regulations, a certificate bearing o a variable rate under the OID rules that is tied to current values of a variable rate (or the highest, lowest or average of two or more variable rates, including a rate based on the average cost of funds of one or more financial institutions), or a positive or negative multiple of such a rate (plus or minus a specified number of basis points) or that represents a weighted average of rates on some or all of the mortgage loans that bear either a fixed rate or a variable rate, including such a rate that is subject to one or more caps or floors, or o one or more such variable rates for one or more periods, and a different variable rate or fixed rate for other periods, qualifies as a regular interest in a REMIC. For OID reporting purposes, CMSI intends to treat certificates that qualify as regular interests under this rule in the same manner as obligations bearing a variable rate. A class of certificates may not have a variable rate under the preceding rules - for example, if the class bears different rates at different times so that it is considered significantly "front-loaded" or "back-loaded" within the meaning of the OID rules. Such a class might be considered to bear "contingent interest" under the OID rules. The OID rules for the treatment of contingent interest do not by their terms apply to certificates. However, if final regulations dealing with contingent interest on certificates apply the same principles as the OID rules, the regulations may lead to different timing of income inclusion than would be the case under the oid rules. Furthermore, application of such principles could lead to the characterization of gain on the sale of contingent interest certificates as ordinary income. Market discount A purchaser of a certificate may also be subject to the "market discount" rules of sections 1276 through 1278. Under these sections and the principles applied by the OID rules for OID, market discount is the amount by which the purchaser's original basis in the certificate is exceeded (1) by the then-current principal amount of the certificate, or (2) for a certificate having OID, by the adjusted issue price of the certificate at the time of purchase. The purchaser will generally have to recognize ordinary income to the extent of accrued market discount on the certificate as distributions includible in the stated redemption price at maturity are received, in an amount not exceeding the distribution. Market discount would accrue in a manner to be provided in Treasury regulations and should take into account the prepayment rate assumed in structuring the series. The Conference Committee Report provides that until regulations are issued, market discount would accrue either (1) on the basis of a constant interest rate or (2) in the ratio of stated interest allocable to the relevant period to the sum of the interest for the period plus the remaining interest as of the end of the period, or in the case of a certificate issued with oid, in the ratio of OID accrued for the relevant period to the sum of the OID accrued for the period plus the remaining OID as of the end of the period. The purchaser will also generally be required to treat a portion of any gain on a sale or exchange of the certificate as ordinary income to the extent of the market discount accrued to the date of disposition under one of the preceding methods, less any accrued market discount previously reported as ordinary income as partial distributions in reduction of the stated redemption price at maturity were received. 42 The purchaser also will be required to defer deduction of a portion of the interest expense attributable to any indebtedness incurred or continued to purchase or carry the certificate. The deferred portion of the interest expense would not exceed the accrued market discount on the certificate for the taxable year. Such deferred interest expense is, in general, allowed as a deduction not later than the year in which the related market discount income is recognized or the certificate is disposed of. As an alternative to the inclusion of market discount in income on the preceding basis, a holder may elect to include market discount in income currently as it accrues on all market discount instruments acquired by the holder in that taxable year or later, in which case the interest deferral rule will not apply. See " - Election to treat interest under the constant yield method" below regarding an alternative manner in which the election may be made. By analogy to the OID rules, market discount for a certificate will be considered to be zero if the market discount is less than 0.25% of the remaining stated redemption price at maturity of the certificate multiplied by the weighted average maturity of the certificate (determined as described above under " - Original issue discount") remaining after the date of purchase. It appears that de minimis market discount would be reported in a manner similar to de minimis OID. See " - De minimis OID" above. Treasury regulations implementing the market discount rules have not yet been issued. Investors should consult Revenue Procedure 92-67 concerning the elections to include market discount in income currently and to accrue market discount on the basis of the constant yield method. Premium A certificate purchased at a cost greater than its remaining stated redemption price at maturity generally is considered to be purchased at a premium. If a holder holds such certificate as a "capital asset" within the meaning of section 1221, the holder may elect under section 171 to amortize the premium under the constant yield method. Such election will apply to all debt obligations acquired at a premium by the holder of a certificate held in that taxable year or thereafter, unless revoked with the permission of the IRS. Final Treasury regulations issued under section 171 do not by their terms apply to prepayable debt instruments such as the certificates. However, the Conference Committee Report indicates a Congressional intent to apply the rules for the accrual of market discount on installment obligations in amortizing bond premium under section 171 on installment obligations such as the certificates. (It is unclear, however, whether the alternatives to the constant yield method described above under " - Market discount" are available.) Amortizable bond premium will be treated as an offset to interest income on a certificate, rather than a separate deduction item. See " - Election to treat interest under the constant yield method" below regarding an alternative manner in which the section 171 election may be deemed to be made. Losses Certificate holders must report income on the certificates on the accrual method of accounting, without giving effect to delays or reductions in distributions attributable to defaults or delinquencies on the mortgage loans, except to the extent it can be established that the losses are uncollectible. Accordingly, the holder of a certificate, particularly a subordinated certificate, may have income or may incur a diminution in cash flow as a result of a default or delinquency, but may not be able to take a deduction (subject to the discussion below) for the corresponding loss until a subsequent taxable year. In this regard, investors are cautioned that while they may generally cease to accrue interest income if it reasonably appears that the interest will be uncollectible, the IRS may take the position that OID must continue to accrue in spite of its uncollectibility until the debt instrument is disposed of in a taxable transaction or becomes worthless in accordance with the rules of section 166. Under section 166, it appears that o a certificate holder that is a corporation or that holds the certificate in connection with a trade or business should generally be allowed to deduct as an ordinary loss, and o other certificate holders should generally be allowed to deduct as a short term capital loss any loss of principal sustained during the taxable year on account of the certificate's becoming wholly or partially worthless. 43 Although the matter is not free from doubt, such non-corporate holders should be allowed a bad debt deduction at the time a loss is allocated to the certificate to reflect losses resulting from any liquidated mortgage loans. The IRS, however, could take the position that non-corporate holders will be allowed a bad debt deduction to reflect such losses only after all the mortgage loans remaining in the Trust have been liquidated or the certificate has been retired. The IRS could also assert that losses on the certificates are deductible on some other method that may defer such deductions for all holders, such as reducing future cash flow for purposes of computing OID. This may create "negative" OID, which would be deductible only against future positive OID or otherwise upon termination of the certificate. While losses attributable to interest previously reported as income should be deductible as ordinary losses by both corporate and non-corporate holders, the IRS may take the position that losses attributable to accrued OID may only be deducted as short-term capital losses by non-corporate holders not engaged in a trade or business. Special loss rules are applicable to banks and thrift institutions, including rules regarding reserves for bad debts. Election to treat interest under the constant yield method A certificate holder may elect to treat all interest that accrues on the instrument using the "constant yield method," with none of the interest being treated as qualified stated interest. In applying the constant yield method, (1) "interest" includes stated interest, OID, de minimis OID, market discount and de minimis market discount, as adjusted by any amortizable bond premium or acquisition premium, and (2) the debt instrument is treated as if the instrument were issued on the holder's acquisition date in the amount of the holder's adjusted basis immediately after acquisition. It is unclear whether, for this purpose, the prepayment rate assumed in structuring the series would continue to apply or if a new prepayment assumption as of the date of the holder's acquisition would apply. A holder generally may make such an election on an instrument by instrument basis or for a class or group of debt instruments. However, if the holder makes such an election with respect to a debt instrument with amortizable bond premium or with market discount, the holder is deemed to have made elections to amortize bond premium or to report market discount income currently as it accrues under the constant yield method, respectively, for all premium bonds held or market discount bonds acquired by the holder in the same taxable year or thereafter. The election is made on the holder's federal income tax return for the year in which the debt instrument is acquired and is irrevocable except with the approval of the IRS. Sale or exchange of certificates If a holder sells or exchanges a certificate, the holder will recognize gain or loss equal to any difference between the amount received and the holder's adjusted basis in the certificate. The adjusted basis of a certificate will generally equal the cost of the certificate to the seller, increased by any OID or market discount previously included in the seller's gross income for the certificate, and reduced by principal distributions on the certificate previously received by the seller, by any amortized premium and by any deductible losses. Except as described in " - Market discount" above, and except as provided in the following paragraph, gain or loss on the sale or exchange of a certificate realized by an investor who holds the certificate as a capital asset (within the meaning of section 1221) will be capital gain or loss and will be long-term or short-term depending on whether the certificate has been held for more than one year. Gain on the sale or exchange of a certificate will be treated as ordinary income o if the certificate is held as part of a "conversion transaction" as defined in section 1258(c), up to the amount of interest that would have accrued on the holder's net investment in the conversion transaction at 120% of the appropriate applicable federal rate under section 1274(d) in effect at the time the holder entered into the transaction, minus any amount previously treated as ordinary income with respect to any prior disposition of property that was held as a part of such transaction, o for a non-corporate taxpayer, to the extent the taxpayer has made an election under section 163(d)(4) to have net capital gains taxed as investment income at ordinary income rates, or o to the extent that the gain does not exceed the excess, if any, of (1) the amount that would have been includible in the gross income of the holder if its yield on the certificate were 110% of the applicable federal rate as of the date of purchase, over (2) the amount of income actually includible in the gross income of the holder for the certificate. 44 In addition, gain or loss recognized on the sale of a certificate by certain banks or thrift institutions will be treated as ordinary income or loss pursuant to section 582(c). Special types of holders CMSI anticipates that certificates held by o a domestic building and loan association will be a "regular interest in a REMIC" under section 7701(a)(19)(C)(xi) in the same proportion that the assets of the REMIC would be treated as "loans . . . secured by an interest in real property which is . . . residential real property" under section 7701(a)(19)(C)(v) or as other assets described in section 7701(a)(19)(C), [or] o a real estate investment trust will be "real estate assets" under section 856(c)(4)(A), and interest on the certificates will be "interest on obligations secured by mortgages on real property or on interests in real property" under section 856(c)(3)(B), in their entirety. Treasury regulations require that information be furnished annually to beneficial owners of certificates, and filed annually with the IRS, concerning the percentage of the REMIC's assets meeting the qualified asset tests that justify such characterization of these certificates. This information is furnished in the same manner as described below under "Reporting requirements." If the assets of the REMIC include buydown mortgage loans, the percentage of those assets constituting "loans . . . secured by an interest in real property" under section 7701(a)(19)(C)(v) might be reduced by the amount of any related buydown subsidy accounts. Certificates held by o a regulated investment company will not be "Government securities" under section 851(b)(3)(A)(i), and o certain financial institutions will be "evidence of indebtedness" under section 582(c)(1). Foreign investors A non-U.S. person is a person that is not o a citizen or resident of the United States, o a corporation, partnership (with exceptions in Treasury regulations) or other entity created or organized in or under the laws of the United States or a political subdivision, o an estate subject to United States federal income tax regardless of the source of its income, or o a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust, and one or more U.S. persons have the authority to control all substantial decisions of the trust. Interest, including OID, distributable to certificate holders who are non-U.S. persons will be considered "portfolio interest" and, therefore, generally will not be subject to 30% United States withholding tax if the non-U.S. person o is not a "10% shareholder" under section 871(h)(3)(B) or a "controlled foreign corporation" under section 881(c)(3)(C) and o provides the Trustee, or the person who would otherwise be required to withhold tax from distributions under section 1441 or 1442, with an appropriate certification, signed under penalties of perjury, identifying the beneficial owner and stating, among other things, that the beneficial owner of the certificate is a non-U.S. person. If such certification, or any other required certification, is not provided, 30% withholding will apply unless reduced or eliminated pursuant to an applicable tax treaty or unless the interest is effectively connected with the conduct of a trade or business within the United States by the non-U.S. person. In the latter case, the non-U.S. person will be subject to United States federal income tax at regular rates. The IRS has issued final regulations (the New Regulations) which provide alternative methods of satisfying the certification requirement described above. The New Regulations are effective January 1, 2001. A new series of withholding certificates must be used for payments made after December 31, 2000. The New Regulations require, for certificates held by a foreign partnership, that (1) the certification described above be provided by the partners rather than by the foreign partnership and (2) the partnership provide certain information, including a United States taxpayer identification number. A look-through rule applies in the case of tiered partnerships. 45 Backup withholding Distributions made on the certificates and proceeds from the sale of the certificates to or through certain brokers may be subject to a "backup" withholding tax under section 3406 of 31% of "reportable payments" (including interest distributions, OID, and, in some circumstances, principal distributions) unless, in general, the certificate holder complies with reporting and/or certification procedures, including the provision of its taxpayer identification number to the Trustee, its agent or the broker who effected the sale of the certificate, or the certificate holder is otherwise an exempt recipient under the Internal Revenue Code. Amounts withheld from distributions on the certificates would be refunded by the IRS or allowed as a credit against the holder's federal income tax liability. The New Regulations change some of the presumptions for information reporting and backup withholding. Reporting requirements Reports of accrued interest, OID and information necessary to compute the accrual of market discount will be made annually to the IRS and to individuals, estates, non-exempt and non-charitable trusts, and partnerships who are either holders of record of certificates or beneficial owners who own certificates through a broker or middleman as nominee. All brokers, nominees and all other non-tax-exempt holders of record of certificates (including corporations, non-calendar year taxpayers, securities or commodities dealers, real estate investment trusts, investment companies, common trust funds, thrift institutions and charitable trusts) may request such information for any calendar quarter by telephone or in writing by contacting the person designated in IRS Publication 938 for a particular series of certificates. Holders through nominees must request such information from the nominee. Taxation of the Trust REMIC qualification CMSI will elect to treat the Trust or one or more segregated pools of assets of the Trust as one or more REMICs. References to the "Trust" or the "REMIC" in this tax discussion will refer to the Trust or those asset pools. The supplement states whether CMSI will make more than one REMIC election for the Trust's assets. Rona Daniels, vice president and tax counsel of Citibank, has advised CMSI that in her opinion o the Trust will qualify as one or more REMICs under current law if CMSI makes the REMIC election(s), all parties comply with the pooling agreement, and the Trust complies with any changes to the REMIC rules, and o the certificates qualify as regular interests in a REMIC. For the Trust to remain qualified as one or more REMICs, it must continue to comply with the REMIC rules. These include a requirement that all but a de minimis portion of the assets of the Trust must be "qualified mortgages" or "permitted investments," as defined in the REMIC rules. If the Trust fails to comply with the REMIC rules during a taxable year, the Trust may cease to be a REMIC and may become taxed as a corporation for that and subsequent tax years. certificates would then be treated as equity interests in the Trust. Taxes that may be imposed on the REMIC Prohibited transactions. Income from "prohibited transactions" by the REMIC will be taxed directly to the REMIC at a 100% rate. Prohibited transactions generally include o the disposition of mortgage loans other than for (1) substitution within two years of the closing date for a defective (including a defaulted) mortgage loan (or the repurchase in lieu of substitution of a defective (including a defaulted) mortgage loan at any time), or for any mortgage loan within three months of the closing date, (2) foreclosure, default, or reasonably foreseeable default of a mortgage loan, (3) bankruptcy or insolvency of the REMIC, or (4) a qualified (complete) liquidation, o the receipt of income from assets that are not the type of mortgage loan or investments that the REMIC is permitted to hold, o the receipt of compensation for services, or o the receipt of gain from disposition of cash flow investments other than pursuant to a qualified liquidation. 46 It is not a prohibited transaction, however, to sell REMIC property to prevent a default on a regular interest as a result of a default on mortgage loans or to facilitate a clean-up call. The REMIC regulations indicate that a substantial modification of a mortgage loan generally will not be treated as a disposition if it is occasioned by a default or reasonably foreseeable default, an assumption of the mortgage loan, the waiver of a due-on-sale clause or due-on- encumbrance clause, or the conversion of an interest rate by a lender pursuant to a convertible ARM. Contributions to the REMIC after the closing date. In general, the REMIC will be subject to tax at a 100% rate on the value of any property contributed to the REMIC after the closing date. Exceptions are provided for cash contributions to the REMIC o during the three months following the closing date, o made to a qualified reserve fund by a residual interest holder, o in the nature of a guaranty, and o made to facilitate a qualified liquidation or clean-up call. Net income from foreclosure property. A REMIC will be subject to federal income tax at the highest corporate rate on "net income from foreclosure property," determined by reference to the rules applicable to real estate investment trusts. Generally, property acquired by deed in lieu of foreclosure would be treated as "foreclosure property" for a period not exceeding the close of the third calendar year beginning after the year of acquisition, with a possible extension. Net income from foreclosure property generally means gain from the sale of foreclosure property that is inventory property and gross income from foreclosure property other than qualifying rents and other qualifying income for a real estate investment trust. Liquidation of the REMIC. If a REMIC adopts a plan of complete liquidation under section 860F(a)(4)(A)(i), which may be accomplished by designating in the REMIC's final tax return a date on which the adoption is deemed to occur, and sells all of its assets (other than cash) within the 90-day period beginning on that date, the REMIC will not be subject to the prohibited transaction rules on the sale of its assets, provided that the REMIC credits or distributes in liquidation all of the sale proceeds plus its cash (other than amounts retained to meet claims) to certificate holders within the 90-day period. LEGAL ASPECTS OF MORTGAGE LOANS ------------------------------- Mortgages and deeds of trust The mortgage loans will be secured by either mortgages or deeds of trust, depending on the prevailing practice in the state in which the mortgaged property is located. A mortgage or a deed of trust creates a lien upon the mortgaged property and represents the security for the repayment of an obligation that is customarily evidenced by a promissory note or a bond. The lien created by the mortgage or deed of trust is not prior to a lien for real estate taxes and assessments and certain other liens. Priority over other mortgages and deeds of trust depends on their terms and generally on the order in which the mortgages or deeds of trust are recorded with a state, county or municipal office. There are two parties to a mortgage, the mortgagor, who is the borrower/homeowner or the land trustee (as described below), and the mortgagee, who is the lender. In keeping with the terminology used elsewhere in this prospectus, we shall generally refer to the mortgagor as the "homeowner" or "borrower" and the mortgagee as the "lender." For a land trust, title to the property is held by a land trustee under a land trust agreement, while the borrower/homeowner is the beneficiary of the land trust; at origination of a mortgage loan involving a land trust, the borrower signs a separate undertaking to the lender to make payments on the mortgage note. The security arrangements for a living trust (also known as a family trust or inter vivos trust) are similar to those for a land trust, except that the borrower signs the mortgage note. Although a deed of trust is similar to a mortgage, a deed of trust formally has three parties, the trustor (similar to a mortgagor), who is the homeowner and may or may not be the borrower, the beneficiary (similar to a mortgagee), who is the lender, and the trustee, a third-party grantee. Under a deed of trust, the trustor grants the property, irrevocably until the debt is paid, in trust, generally with a power of sale, to the trustee to secure payment of the obligation. The lender's authority under a mortgage and the trustee's authority under a deed of trust are governed by law, the express provisions of the mortgage or deed of trust, and, in some cases, the directions of the beneficiary. 47 Foreclosure Foreclosure of a deed of trust is generally accomplished by a non-judicial trustee's sale under a specific provision in the deed of trust that authorizes the trustee to sell the property upon a default by the borrower under the terms of the note or deed of trust. In some states, the trustee must record a notice of default and send a copy to the borrower-trustor and to any person who has recorded a request for a copy of a notice of default and notice of sale. In addition, the trustee in some states must provide notice to any other individual having an interest in the real property, including any junior lienholders. The trustor, borrower or any person having a junior encumbrance on the real estate may, during a reinstatement period, cure the default by paying the entire amount in arrears plus the costs and expenses incurred in enforcing the obligation. Generally, state law controls the amount of foreclosure expenses and costs, including attorney's fees, that may be recovered by a lender. If the deed of trust is not reinstated, a notice of sale must be posted in a public place and, in most states, published for a specific period of time in one or more newspapers. In addition, some state laws require that a copy of the notice of sale be posted on the property or the courthouse door of the county in which the property is located, recorded and sent to all parties having an interest in the real property. An action to foreclose a mortgage is an action to recover the mortgage debt by enforcing the lender's rights under the mortgage. It is regulated by statutes and rules and subject throughout to the court's equitable powers. For example, in Texas it is necessary to give both notice of intent to accelerate as well as notice of acceleration of an installment note, and in New Jersey it is also necessary to give a notice of intent to foreclose. Generally, a homeowner is bound by the terms of the mortgage note and the mortgage as made and cannot be relieved from his or her default. However, since a foreclosure action is equitable in nature and is addressed to a court of equity, the court may relieve a homeowner of a default and deny the lender foreclosure on proof that o the homeowner's default was neither willful nor in bad faith, and o the lender's action established a waiver, or fraud, bad faith, oppressive or unconscionable conduct that warrants a court of equity to refuse affirmative relief to the lender. Under certain circumstances a court of equity may relieve the homeowner from an entirely technical default if the default was not willful. A foreclosure action is subject to most of the delays and expenses of other lawsuits if defenses or counterclaims are interposed, sometimes requiring up to several years to complete. Substantial delay and expense may be incurred if the defaulting homeowner files a petition under the federal bankruptcy laws before the initiation of a foreclosure action or during its pendency. Moreover, recent judicial decisions suggest that a non-collusive, regularly conducted foreclosure sale may be challenged as a fraudulent conveyance, regardless of the parties' intent, if a court determines that the sale was for less than fair consideration and such sale occurred while the homeowner was insolvent and within one year (or within the statute of limitations if the trustee in bankruptcy elects to proceed under state fraudulent conveyance law) of the filing of bankruptcy. Similarly, a suit against the debtor on the mortgage note or bond may take several years. In a foreclosure under either a mortgage or a deed of trust, the sale by the referee or other designated officer or by the trustee is a public sale. However, because of the difficulty potential third party purchasers at the sale have in determining the exact status of title and because the physical condition of the property may have deteriorated during the foreclosure proceedings, it often happens that no third party purchases the property at the foreclosure sale. Rather, it is more common for the lender to purchase the property from the trustee or referee for an amount equal to the principal amount of the mortgage or deed of trust plus accrued and unpaid interest and the expenses of foreclosure. Thereafter, the lender will assume the burdens of ownership, including obtaining casualty insurance, paying real estate taxes and any special municipal assessments that have priority over the mortgage and making repairs at its own expense to make the property suitable for sale. The lender will commonly obtain the services of a real estate broker and pay the broker's commission in connection with the sale of the property. Depending upon market conditions, the ultimate proceeds of the sale of the property may not equal the lender's investment in the property. A loss may be reduced by the receipt of any mortgage insurance proceeds. CMSI is not required to expend its own funds to foreclose on a defaulted mortgage loan unless it determines that foreclosure would increase the net proceeds of liquidation available for distribution to certificate holders and that its expenditures will be recoverable. There may be circumstances - for example, the possibility of incurring liability for environmental damage or a substantial decline in the value of the underlying property - that would cause CMSI to elect not to foreclose on a defaulted mortgage loan. 49 Foreclosure of a mortgage is accomplished in New York, New Jersey and Florida in most cases, and in Illinois in all cases, by an action in foreclosure culminating in a judicial sale (or, in Illinois, a judicially approved sale) of the real property by a court-appointed referee, sales agent or other official following a judgment of foreclosure. A foreclosure action may enable a lender to realize upon its security and to bar the homeowner, persons with liens subordinate to the foreclosing lender, and other persons with interests in the real property from their statutory rights and "equity of redemption." The doctrine of equity of redemption provides that, until the property covered by a mortgage has been sold in accordance with a properly conducted foreclosure and foreclosure sale, those having an equity of redemption may redeem the property by paying the entire debt with interest and, if a foreclosure action is pending, all or part of the costs of the action. Those having a statutory right or equity of redemption must be made parties and duly summoned to the foreclosure action in order for their statutory right or equity of redemption to be barred. In Connecticut a court in its discretion may order either a foreclosure by judicial sale or strict foreclosure. Generally, Connecticut courts grant strict foreclosure unless the United States is a party or the court upon the motion of a party or upon its own motion determines that the net value of the mortgaged property is materially in excess of the debt being foreclosed. If a court orders strict foreclosure, it will establish a "law day" for each defendant in the foreclosure action. The time between the entry of the judgment of foreclosure and the first law day will be set by the court as at least 21 days after the date of the judgment. The first law day will be for the owner of the mortgaged property, and then, in sequence, there will be a law day for each party having a lien on, or other interest in, the mortgaged property that is junior to the foreclosing lender's interest, in inverse order of their priority. Unless a party assigned a prior law day redeems by paying the debt due the foreclosing lender in full, each party will have the right on his law day to redeem the mortgaged property by paying off the foreclosing lender; after redemption, the redeeming party will own the mortgaged property subject to any other liens or interests as to which a law day has not passed. If a party fails to redeem on his law day, his rights in the mortgaged property will be extinguished. If no party redeems, the foreclosing lender becomes the owner of the mortgaged property, subject to other liens or interests that are prior to the mortgage foreclosed or as to which the holders were not parties to the foreclosure action. If the court orders foreclosure by sale rather than strict foreclosure, an attorney is appointed by the court to sell the mortgaged property at auction. After the sale is approved by the court, the proceeds of the sale are then distributed first to pay the costs of the sale and then to satisfy the debts of the parties in the order of their priority to the extent the proceeds permit. Upon commencement of a foreclosure action on a Connecticut mortgage, a homeowner who is unemployed or under-employed may, in certain circumstances, be granted a stay of the foreclosure proceedings not to exceed six months, and a restructuring of the mortgage debt to add unpaid interest and certain other charges to the outstanding principal amount of the debt. The total amount of the restructured debt may not exceed the larger of the original mortgage debt or 90% of the fair market value at the time of restructuring and the restructured payments must be made over the remaining portion of the original term of the mortgage. In California, foreclosure can be judicial or nonjudicial. The primary distinction between a judicial and a nonjudicial foreclosure is that in a judicial sale a deficiency judgment may be obtained, while in a non-judicial foreclosure, no deficiency judgment is allowed. Since California borrowers are protected by anti-deficiency legislation for most purchase-money deeds of trust, the lender will, in almost all instances, pursue non-judicial foreclosure. A second difference between judicial and non-judicial foreclosures is that in the former, if the lender chooses to maintain its right to a deficiency judgment, the homeowner may redeem the property by paying the amount bid at the sale plus statutory fees, costs and interest for a period after the sale of three months (if the proceeds of sale are sufficient to pay the lender in full) or one year (if the sale proceeds are insufficient to pay the lender in full). The purchaser at the sale, whether it is the lender or a third party, may not demand possession of the property until expiration of the redemption period, although the redeemer will be required to pay reasonable rental value upon redemption. A lender may accept a deed in lieu of foreclosure instead of pursuing either judicial or nonjudicial foreclosure. By accepting a deed in lieu of foreclosure, the lender takes the property back subject to any junior liens, which would be subordinated or released of record.(1) 49 In California, a borrower has until 5 days before a trustee sale to reinstate the loan. California law can delay foreclosure and collection of late charges if a lender participates in the sale of credit disability insurance in connection with one of its loans and the borrower suffers a disability.(2) In Illinois, a borrower in a mortgage foreclosure suit is granted the right to reinstate a mortgage within 90 days after the date the court obtains jurisdiction over all homeowners for the mortgaged property. If this right is exercised, the delinquent borrower need only pay the actual delinquency costs and reasonable attorney fees, but not any amount due as a result of an acceleration provision in the mortgage note. As a result, the borrower may unilaterally reinstate the mortgage loan and terminate the foreclosure proceedings. In addition, when the lender bids less than the total debt at the judicial sale, Illinois law provides the borrower with a special 30-day right of redemption after - - - - - - - - - (1) Even a transfer at a nonjudicial foreclosure sale has been held by one federal court of appeals to constitute a fraudulent conveyance. The United States Court of Appeals for the Ninth Circuit (in which California is located), however, has held to the contrary. Amendments to the federal bankruptcy laws addressed this conflict, at least in the bankruptcy context (as opposed to a state court fraudulent conveyance claim), but not with complete clarity. It is probable that a court would interpret these amendments to permit challenging a nonjudicial foreclosure sale as a fraudulent conveyance if the property is worth significantly more than the amount paid at the sale. (2) Citibank Service Corporation, a subsidiary of Citi FSB doing business as Citibank Insurance Agency, sells such insurance in connection with mortgage loans originated by Citi FSB. [??] the approval of the judicial sale in the foreclosure of a single-family residence. Upon exercise of such right, the borrower need only redeem by paying the amount of the sale price, plus interest and costs, and not the deficiency. Many Illinois mortgages, however, give the homeowners greater contractual rights to reinstate a mortgage than are granted under Illinois statutes. Cooperatives All cooperative apartments relating to cooperative apartment loans are located in New York, New Jersey, Illinois, Maryland and the District of Columbia. The private, non-profit, cooperative apartment corporation owns all the real property that comprises the project, including the land, separate dwelling units and all common areas. The cooperative is responsible for project management and, in most cases, payment of real estate taxes and hazard and liability insurance. If there is a blanket mortgage on the cooperative apartment building and/or underlying land, as is generally the case, the cooperative must meet the mortgage obligations. A blanket mortgage is ordinarily incurred by the cooperative in connection with the construction or purchase of the cooperative's apartment building. The cooperative is owned by tenant-stockholders who, through ownership of stock, shares or membership certificates in the corporation, receive proprietary leases or occupancy agreements (cooperative apartment leases) that confer exclusive rights to occupy specific units. Generally, a tenant-stockholder of a cooperative must make a monthly payment to the cooperative representing the tenant-stockholder's share of the cooperative's payments for its blanket mortgage, real property taxes, maintenance expenses and other capital or ordinary expenses. The interest of the occupant under a cooperative apartment lease is generally subordinate to the interest of the holder of the blanket mortgage; that is, if the cooperative defaults under the blanket mortgage, the lender holding the blanket mortgage could foreclose and terminate the cooperative apartment lease. A blanket mortgage on a cooperative may provide financing in the form of a mortgage that does not fully amortize, with a significant portion of principal being due in one lump sum at final maturity. If the cooperative can not refinance this mortgage or make the final payment, the lender could foreclose. A foreclosure by the holder of the blanket mortgage could eliminate or significantly diminish the value of the collateral securing a cooperative apartment loan. A cooperative apartment loan is evidenced by a promissory note and secured by a security interest in the cooperative apartment lease and the related cooperative shares. The lender takes possession of the share certificate and a counterpart of the cooperative apartment lease and, if allowed under state law, a financing statement covering the cooperative apartment lease and the cooperative shares is filed in the appropriate state and local offices to perfect the lender's interest in its collateral. Subject to the limitations discussed below, upon the tenant-stockholder's default, the lender may sue for judgment on the promissory note, dispose of the collateral at a public or private sale or otherwise proceed against the collateral or tenant-stockholder as an individual as provided in the security agreement covering the assignment of the cooperative apartment lease and the pledge of cooperative shares. 50 The cooperative shares owned by the tenant-stockholder and pledged to the lender are, in almost all cases, subject to restrictions on transfer, and may be cancelled by the cooperative if the tenant-stockholder fails to pay rent or other charges owed by the tenant-stockholder, including mechanics' liens against the cooperative apartment building incurred by the tenant-stockholder. The cooperative can usually terminate the cooperative apartment lease if the tenant-stockholder fails to make payments or defaults in the performance of obligations under the lease. Typically, the lender and the cooperative enter into a recognition agreement that establishes the rights and obligations of both parties in the event of a default by the tenant-stockholder under the cooperative apartment lease. A default by the tenant-stockholder under the lease will usually constitute a default under the security agreement between the lender and the tenant-stockholder. The recognition agreement generally provides that if the tenant-stockholder defaults under the cooperative apartment lease, the cooperative will take no action to terminate the lease until the lender has had an opportunity to cure the default. The recognition agreement typically provides that if the cooperative apartment lease is terminated, the cooperative will recognize the lender's lien against proceeds from a sale of the cooperative apartment, subject, however, to the cooperative's right to sums due under the cooperative apartment lease. The total amount owed to the cooperative by the tenant-stockholder, which the lender generally cannot restrict and does not monitor, could reduce the value of the collateral below the principal balance of the cooperative apartment loan and accrued interest. Recognition agreements also provide that if the cooperative loan is foreclosed, the lender must obtain the cooperative's consent before transferring the cooperative shares or assigning the cooperative apartment lease. Generally, the lender is not limited in any rights it may have to dispossess the tenant-stockholders. In New York and New Jersey, foreclosure on the cooperative shares is accomplished by a sale in accordance with the provisions of Article 9 of the Uniform Commercial Code (the UCC) and the security agreement relating to those shares. Article 9 of the UCC requires that a sale be conducted in a "commercially reasonable" manner. Whether a foreclosure sale has been conducted in a "commercially reasonable" manner will depend on the facts in each case. In determining commercial reasonableness, a court will look to the notice given the debtor and the method, manner, time, place and terms of the foreclosure. Generally, a sale conducted according to the usual practice of banks selling similar collateral will be considered reasonably conducted. Article 9 of the UCC provides that the proceeds of the sale will be applied first to pay the costs and expenses of the sale and then to satisfy the indebtedness secured by the lender's security interest. The recognition agreement, however, generally provides that the lender's right to reimbursement is subject to the right of the cooperative to receive sums due under the cooperative apartment lease. If there are proceeds remaining, the lender must account to the tenant-stockholder for the surplus. Conversely, if a portion of the indebtedness remains unpaid, the tenant-stockholder is generally responsible for the deficiency. See "Anti-deficiency laws and other limitations on lenders" below. Rights of redemption In some states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the trustor or homeowner and foreclosed junior lienors are given a statutory period in which to redeem the property from the foreclosure sale. The right of redemption should be distinguished from the equity of redemption, which is a nonstatutory right that must be exercised prior to the foreclosure sale. In some states, redemption may occur only upon payment of the entire principal balance of the loan, accrued interest and expenses of foreclosure. In other states, redemption may be authorized if the former borrower pays only a portion of the sums due. The effect of a statutory right of redemption is to diminish the ability of the lender to sell the foreclosed property. The right of redemption would defeat the title of any purchaser from the lender subsequent to foreclosure or sale under a deed of trust. Consequently, the practical effect of a right of redemption is to force the lender to retain the property and pay the expenses of ownership until the redemption period has run. In some states, there is no right to redeem property after a trustee's sale under a deed of trust or after a foreclosure action. 51 Anti-deficiency laws and other limitations on lenders In some states, statutes limit the right of a lender to obtain a deficiency judgment against the borrower following foreclosure or sale under a deed of trust. A deficiency judgment is a personal judgment against the former borrower equal in most cases to the difference between the net amount realized upon the public sale of the real property and the amount due to the lender. Other statutes require the beneficiary or lender to exhaust the security afforded under a deed of trust or mortgage by foreclosure in an attempt to satisfy the full debt before bringing a personal action against the borrower. Finally, other statutory provisions limit any deficiency judgment against the former borrower following a judicial sale to the excess of the outstanding debt over the fair market value of the property at the time of the public sale. The purpose of these statutes is generally to prevent a beneficiary or a lender from obtaining a large deficiency judgment against the former borrower as a result of low or no bids at the judicial sale. Although CMSI may elect to pursue deficiency judgments on a mortgage loan, CMSI does not have to do so, even if permitted by applicable law. NEW YORK. Section 1371 of the New York Real Property Actions and Proceedings Law provides that no award of a deficiency judgment can be made unless the court has personal jurisdiction over the defendant. Moreover, any motion for a deficiency judgment must be made within 90 days of the consummation of the sale by the delivery of the deed to the purchaser. Section 1301 of the same law limits the lender's right to bring separate actions for the mortgage debt and for foreclosure. While the foreclosure action is pending, or after final judgment for the plaintiff in the action, no other action may be commenced or maintained to recover any part of the mortgage debt without leave of the court in which the foreclosure action was brought. A deficiency judgment is limited to the judgment amount in the foreclosure action, minus the higher of (1) the fair and reasonable market value of the mortgaged property at the date of the foreclosure sale or the nearest earlier date as of which the court determines a market value or (2) the sale price of the property at the foreclosure sale. Section 254-b of the New York Real Property Law also limits lenders' ability to collect late payment charges. If the mortgage permits the lender to collect a late payment charge on an installment that has become due and remains unpaid, the charge cannot be more than 2% of the delinquent installment and cannot be imposed on any installment paid within 15 days of the due date. In addition, late payment charges cannot be deducted from the regular installment payments; they must be separately charged and collected by the lender. Section 254-b also applies to a note evidencing a cooperative loan. In New York a lender can foreclose a mortgage on a residential leasehold property by maintaining a traditional equitable foreclosure action. Any rent or taxes paid by the lender following default by the leaseholder may be added to the unpaid balance of the mortgage debt upon foreclosure. A judgment of foreclosure of a leasehold, however, results in a public auction only if the mortgage expressly so provides, whereas judgment of foreclosure on a real property mortgage would result in a public auction in all cases. In the absence of an express provision, in a leasehold mortgage, the lender can only recover a money judgment. In this event, the lender may follow traditional enforcement procedures. In addition to enforcement of judgment remedies, the leasehold interest may then be subject to a post-judgment sale pursuant to an execution. NEW JERSEY. Under New Jersey law, an action for deficiency judgment must be commenced within three months from the date of the foreclosure sale of a mortgaged premises. In a deficiency action, judgment will be rendered only for the balance due on the debt and interest and costs of the action. The obligor under the note may file an answer in the action for deficiency, disputing the amount of the deficiency sued for. The court will determine the amount of the deficiency by deducting from the debt the amount determined as the fair market value of the premises. In New Jersey, the commencement of a deficiency action reopens the homeowner's right of redemption for a period of six months after the entry of any deficiency judgment, which could have an adverse effect on the ability to transfer good title to the mortgaged premises during this period. CONNECTICUT. If the lender took title to the mortgaged property under strict foreclosure but the property's value was less than the debt, Connecticut law permits the lender to move for a deficiency judgment in the amount of the difference within 30 days after the redemption period expires. If there was a foreclosure sale and the sale proceeds were insufficient to discharge the mortgage debt in full, the lender may obtain a deficiency judgment for the difference. If, however, the sales price is less than the value of the mortgaged property as found by the court, one half of the difference between such value and the sales price must be credited against the deficiency claim of the person who sought foreclosure by sale. To avoid this outcome, lenders do not generally seek foreclosure sales. 52 CALIFORNIA. Under California's "one-action rule," a lender must include all claims in one action and must foreclose its security before seeking to impose any personal liability. The anti-deficiency rules limit the recovery of personal judgments. If a foreclosure is conducted by way of a nonjudicial foreclosure sale, California law prohibits the recovery of a deficiency judgment. In addition, a deficiency judgment is prohibited even if judicial foreclosure is pursued when a lender finances the purchase price of residential real property and the property has four or fewer units and is occupied by the purchaser. Because most mortgage loans fall into this category, the Issuer intends to pursue nonjudicial foreclosure. While it is possible to sue the borrower for any fraud or damage to the mortgaged property, it generally is not practical to do so. TEXAS. In Texas most foreclosures are non-judicial. However, the lender must give both notice of intent to accelerate as well as notice of acceleration of the installment note unless proper waiver language is included in the note. If the real property is the debtor's residence, the debtor must be given at least 20 days to cure the default before the entire debt is due and notice of sale is given. A suit for a deficiency judgment must be brought within two years after foreclosure. During the pendency of the suit, the debtor can request the court to determine the fair market value of the property foreclosed upon. If the court determines that the fair market value of the property is greater than the bid price paid at foreclosure, the debtor is entitled to an offset against the deficiency claim in the amount by which the fair market value exceeds the bid price. ILLINOIS. In Illinois, if the price at the foreclosure sale is less than the total amount held due in the judgment of foreclosure plus statutory interest, certain advances and costs incurred at the time of judicial sale, the lender may obtain a deficiency judgment against the homeowner provided that there is personal jurisdiction over the homeowner. FLORIDA. Under Florida law, if the fair market value of the mortgaged property at the time of the foreclosure sale is less than the debt of the final judgment, the lender may seek a deficiency judgment, either as part of the foreclosure action or in a separate action on the note. The decision whether to grant a deficiency judgment sought as part of the foreclosure action lies within the sound judicial discretion of the court but is subject to any equitable defenses by the borrower. No award of a deficiency judgment can be made, either as part of or separately from the foreclosure action, unless the court has personal jurisdiction over the defendant. A request for a deficiency judgment is subject to dismissal for lack of prosecution if the deficiency relief is not sought within one year from the foreclosure sale date. ALL MORTGAGE LOANS. In addition to anti-deficiency and related legislation, numerous other federal and state statutory provisions, including the United States Bankruptcy Code (the Bankruptcy Code), and state laws affording relief to debtors may interfere with or affect the ability of a secured mortgage lender to obtain payment of a mortgage loan, to realize upon collateral and/or enforce a deficiency judgment. For example, under the Bankruptcy Code, virtually all actions (including foreclosure actions and deficiency judgment proceedings) are automatically stayed upon the filing of a bankruptcy petition and, usually, no interest or principal payments are made during the course of the bankruptcy case. Foreclosure of an interest in real property of a debtor in a case under the Bankruptcy Code can typically occur only if the bankruptcy court vacates the stay, an action the court may be reluctant to take, particularly if the debtor has the prospect of restructuring his or her debts and the mortgage collateral is not deteriorating in value. The delay and its consequences caused by the automatic stay can be significant. Also, under the Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a junior lienor (a subordinate lender secured by a mortgage on the property) may stay a senior lender from taking action to foreclose. A homeowner may file for relief under any of three different chapters of the Bankruptcy Code. Under Chapter 7, the assets of the debtor are liquidated and a lender secured by a lien may "bid in" (i.e., bid up to the amount of the debt) at the sale of the asset. A homeowner may also file for relief under Chapter 11 of the Bankruptcy Code and reorganize his or her debts through his or her reorganization plan. Alternatively, a homeowner may file for relief under Chapter 13 of the Bankruptcy Code and address his or her debts in a rehabilitation plan. (Chapter 13 is often referred to as the "wage earner chapter" or "consumer chapter" because most individuals seeking to restructure their debts file for relief under Chapter 13 rather than Chapter 11). 53 The Bankruptcy Code permits a mortgage loan that is secured by property that does not consist solely of the debtor's principal residence to be modified without the consent of the lender provided certain substantive and procedural safeguards are met. The lender's security interest may be reduced to the then-current value of the property as determined by the court if the value is less than the amount due on the loan, thereby leaving the lender as a general unsecured creditor for the difference between the value of the collateral and the outstanding balance of the mortgage loan. A borrower's unsecured indebtedness will typically be discharged in full upon payment of a substantially reduced amount. Other modifications to a mortgage loan may include a reduction in the amount of each scheduled payment, which reduction may result from a reduction in the rate of interest, an alteration of the repayment schedule, an extension of the final maturity date, and/or a reduction in the outstanding balance of the secured portion of the loan. In some circumstances, subject to the court's approval, a debtor in a case under Chapter 11 of the Bankruptcy Code may have the power to grant liens senior to the lien of a mortgage. A reorganization plan under Chapter 11 and a rehabilitation plan under Chapter 13 of the Bankruptcy Code may each allow a debtor to cure a default under a mortgage loan on the debtor's residence by paying arrearages over time and to deaccelerate and reinstate the original mortgage loan payment schedule, even though the lender accelerated the loan and a final judgment of foreclosure had been entered in state court (provided no sale of the property had yet occurred) prior to the filing of the debtor's petition under the Bankruptcy Code. Under a Chapter 13 plan, curing of defaults must be accomplished within the five year maximum term permitted for repayment plans, such term commencing when repayment plan becomes effective, while defaults may be cured over a longer period under a Chapter 11 plan of reorganization. Generally, a repayment plan in a case under Chapter 13 and a plan of reorganization under Chapter 11 may not modify the claim of a mortgage lender if the borrower elects to retain the property, the property is the borrower's principal residence and the property is the lender's only collateral. Certain courts have allowed modifications when the mortgage loan is secured both by the debtor's principal residence and by collateral that is not "inextricably bound" to the real property, such as appliances, machinery, or furniture. The general protection for mortgages secured only by the debtor's principal residence is not applicable in a case under Chapter 13 if the last payment on the original payment schedule is due before the final date for payment under the debtor's Chapter 13 plan (which date could be up to five years after the debtor emerges from bankruptcy). Under several recently decided cases, the terms of such a loan can be modified in the manner described above. While these decisions are contrary to the holding in a prior case by a senior appellate court, it is possible that the later decisions will become the accepted interpretation in view of the language of the statute. If this interpretation is adopted by a court considering the treatment in a Chapter 13 repayment plan of a mortgage loan, it is possible that the mortgage loan could be modified. State statutes and general principles of equity may also provide a homeowner with means to halt a foreclosure proceeding or sale and to force a restructuring of a mortgage loan on terms a lender would not otherwise accept. If a court relieves a borrower's obligation to repay amounts otherwise due on a mortgage loan, the servicer will not be required to advance those amounts, and any loss will be borne by the certificate holders. In a bankruptcy or similar proceeding of a homeowner, action may be taken seeking the recovery, as a preferential transfer or on other grounds, of any payments made by the homeowner under the mortgage loan before the proceeding. Payments on long-term debt may be protected from recovery as preferences if they are payments in the ordinary course of business made on debts incurred in the ordinary course of business or if the value of the collateral exceeds the debt at the time of payment. Whether any particular payment would be protected depends upon the facts specific to a particular transaction. A trustee in bankruptcy may sometimes be entitled to collect its costs and expenses in preserving or selling the mortgaged property ahead of a payment to the lender. Moreover, the laws of certain states also give priority to certain tax and mechanics liens over the lien of a mortgage. Under the Bankruptcy Code, if the court finds that actions of the lender have been unreasonable and inequitable, the mortgage may be subordinated to the claims of unsecured creditors. Various proposals to amend the Bankruptcy Code in ways that could adversely affect the value of the mortgage loans in a trust have been considered by Congress, and more such proposed legislation may be considered in the future. No assurance can be given that any particular proposal will or will not be enacted into law or that any provision so enacted will not differ materially from the proposal described above. 54 The Internal Revenue Code gives priority to some tax liens over the mortgage or deed of trust. The laws of some states give priority to certain tax liens over the lien of the mortgage or deed of trust. Numerous federal and some state consumer protection laws impose substantive requirements upon mortgage lenders in the origination, servicing, and enforcement of mortgage loans. These laws include the federal Truth in Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, and related statutes and regulations. These federal laws and state laws impose specific statutory liabilities upon lenders who originate or service mortgage loans and who fail to comply with the provisions of the law. In some cases, this liability may affect assignees of the mortgage loans. Due-on-sale clauses For Trusts containing only fixed rate mortgage loans, at least 90% of the scheduled principal balance of the loans on the cut-off date will contain due-on-sale clauses. Generally, ARMs in a Trust will contain due-on-sale clauses permitting the lender to accelerate only in situations where its security may be impaired. These clauses permit the lender to accelerate the maturity of the loan if the borrower sells, transfers or conveys the property or, for a land trust, the beneficial interest. The Garn-St Germain Depository Institutions Act of 1982 (the Garn-St Germain Act) preempts state law that prohibits the enforcement of due-on-sale clauses. Exempted from this preemption are some mortgage loans that were originated o before October 15, 1982, o for mortgaged properties in Minnesota, Michigan, New Mexico and Utah, or o by a lender that was not a federal savings and loan associations or a federal savings bank. However, the Garn-St Germain Act also provides for nine specific instances in which a mortgage lender can not exercise a due-on-sale clause on a transfer of the property. If a lender can not enforce a due-on-sale clause where the mortgage loan has an interest rate below the current market rate, the loan will be assumed by a new home buyer rather than being paid off. This may affect the average life of the mortgage loans underlying a series and the number of mortgage loans that may be outstanding until maturity. Other limitations on foreclosure Upon foreclosure, courts have imposed general equitable principles. The equitable principles are generally designed to relieve the borrower from the legal effect of his defaults under the loan documents. For example, courts have o required lenders to take affirmative and expensive actions to determine the causes for the borrower's default and the likelihood that the borrower will be able to reinstate the loan, o required lenders to reinstate loans or recast payment schedules in order to accommodate borrowers who are suffering from temporary financial disability, and o limited the lender's right to foreclose if the default is not monetary, such as the borrower's failure to adequately maintain the property or the borrower's execution of a second mortgage or deed of trust affecting the property. Courts have also been faced with the question whether federal or state constitutional provisions reflecting due process concerns for adequate notice require that homeowners receive notices in addition to the statutorily prescribed minimums. For the most part, these cases have upheld the notice provisions as being reasonable or have found that the sale by a trustee under a deed of trust, or under a mortgage having a power of sale, does not involve sufficient state action to afford constitutional protections to the borrower. Applicability of usury laws Title V of the Depository Institutions Deregulation and Monetary Control Act of 1980 (Title V), provides that state usury limitations will not apply to certain types of residential first mortgage loans originated by certain lenders after March 31, 1980. A similar federal statute was in effect for mortgage loans made during the first three months of 1980. Title V authorized the states to reimpose interest rate limits by adopting, before April 1, 1983, a law or constitutional provision that expressly rejects an application of the federal law. In addition, even where Title V is not so rejected, a state can limit discount points or other charges on mortgage loans covered by Title V. Some states have reimposed interest rate limits and/or limited discount points or other charges. 55 CMSI will warrant to the Trustee on the closing date that each mortgage loan was originated in compliance in all material respects with applicable state law, including usury laws. Environmental considerations Mortgaged properties will be subject to federal, state, and local environmental protection laws. These laws may regulate o emissions of air pollutants, o discharges of wastewater or storm water, o generation, transport, storage or disposal of hazardous waste or hazardous substances, o operation, closure and removal of underground storage tanks, o removal and disposal of asbestos-containing materials, and o management of electrical or other equipment containing polychlorinated biphenyls (popularly known as "PCBs"). Failure to comply with these laws can result in significant penalties, including civil and criminal fines. Under the laws of certain states, environmental contamination on a property may give rise to a lien on the property to ensure the availability and/or reimbursement of cleanup costs. Generally, all subsequent liens on the property are subordinated to such a lien and, in some states, even prior recorded liens are subordinated to such liens (superliens). The Trustee's security interest in a property subject to a superlien could be adversely affected. Under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), a secured party that takes a deed in lieu of foreclosure, purchases a mortgaged property at a foreclosure sale, operates a mortgaged property or undertakes certain types of activities that may constitute "management" of the property may become liable in some circumstances for cleanup costs if hazardous wastes or hazardous substances have been released or disposed of on the property. Cleanup costs may be substantial and could exceed the value of the property and the aggregate assets of the owner or operator. CERCLA imposes strict, as well as joint and several, liability for environmental remediation and/or damage costs on several classes of "potentially responsible parties," including current "owners and/or operators" of property, regardless of whether those owners or operators caused or contributed to contamination on the property. In addition, owners and operators of properties that generate hazardous substances that are disposed of at other off-site locations may be held strictly, jointly and severally liable for environmental remediation and/or damages at the off-site locations. Many states also have laws that are similar to CERCLA. Liability under CERCLA or under similar state law could exceed the value of the property itself as well as the aggregate assets of the property owner. The law is unclear as to whether and under what precise circumstances cleanup costs, or the obligation to take remedial actions, could be imposed on a secured lender such as the Trust. Under the laws of some states and under CERCLA, a lender may be liable as an owner or operator for costs of addressing releases or threatened releases of hazardous substances on a mortgaged property if the lender or its agents or employees have "participated in the management" of the operations of the borrower, even though the environmental damage or threat was caused by a prior owner or current owner or operator or other third party. Excluded from CERCLA's definition of "owner or operator," is a person "who without participating in the management of . . . [the] facility, holds indicia of ownership primarily to protect his security interest" (the secured creditor exemption). This exemption for holders of a security interest such as a secured lender applies only to the extent that the lender seeks to protect its security interest in the contaminated facility or property. Thus, if a lender's activities begin to encroach on the actual management of the facility or property, the lender faces potential liability as an "owner or operator" under CERCLA. Similarly, when a lender forecloses and takes title to a contaminated facility or property, the lender may incur potential CERCLA liability if, for example, it holds the facility or property as an investment (including leasing the facility or property to a third party), fails to market the property in a timely fashion or fails to properly address environmental conditions at the property or facility. 56 The Resource Conservation and Recovery Act (RCRA), contains a similar secured creditor exemption for lenders who hold a security interest in petroleum underground storage tanks (USTs) or in real estate containing a UST, or that acquire title to a UST or facility or property on which such a UST is located. As under CERCLA, a lender may lose its secured creditor exemption and be held liable under RCRA as a UST owner or operator if such lender or its employees or agents participate in the management of the UST. And, if the lender takes title to or possession of the UST or the real estate containing the UST, under certain circumstances the secured creditor exemption may be unavailable. Court decisions have taken varying views of the scope of the secured creditor exemption, leading to administrative and legislative efforts to provide guidance to lenders on the scope of activities that would trigger CERCLA and/or RCRA liability. Until recently, these efforts have failed to provide substantial guidance. On September 30, 1996, however, the President signed into law legislation intended to clarify the scope of the secured creditor exemption under both CERCLA and RCRA. This legislation more explicitly defined the kinds of "participation in management" that would trigger liability under CERCLA and specified certain activities that would not constitute "participation in management" or otherwise result in a loss of the secured creditor exemption before foreclosure or during a workout period. The legislation also clarifies the extent of protection against foreclosure liability under CERCLA. The legislation also authorizes regulatory clarifications of the scope of the secured creditor exemption for purposes of RCRA, similar to the statutory protections under CERCLA. However, since the courts have not yet had the opportunity to interpret the new statutory provisions, the scope of the additional protections offered by the new law is not fully defined. It also is important to note that the new legislation does not offer complete protection to lenders and that risk of liability remains. If a secured lender does become liable, it may be entitled to bring an action for contribution against the owner or operator who created the environmental contamination or against some other liable party, but that person or entity may be bankrupt or otherwise judgment-proof. It is therefore possible that cleanup or other environmental liability costs could become a liability of the Trust and occasion a loss to the Trust and to certificate holders in certain circumstances. The new secured creditor amendments to CERCLA also affect the potential for liability in actions by either a state or a private party under other federal or state laws that may impose liability on "owners or operators" but do not incorporate the secured creditor exemption. Traditionally, residential mortgage lenders have not taken steps to evaluate whether hazardous wastes or hazardous substances are present on a mortgaged property prior to origination of the mortgage loan or prior to foreclosure or accepting a deed in lieu of foreclosure. Neither CMSI nor any originator has made such evaluations prior to the origination of the mortgage loans, and CMSI does not require that originators who sell mortgage loans to it make such evaluations. CMSI is not required to undertake any such evaluations prior to foreclosure or accepting a deed in lieu of foreclosure. CMSI does not make any representations or warranties or assume any liability with respect to: the environmental condition of any mortgaged property; the absence or presence of hazardous wastes or hazardous substances on a mortgaged property; any casualty resulting from the presence or effect of hazardous wastes or hazardous substances on, near or emanating from such property; or the impact of any environmental condition or the presence of any substance on or near the property on the performance of the mortgage loans or the compliance of a mortgaged property with any environmental laws, nor is any agent, person or entity otherwise affiliated with CMSI authorized or able to make any such representation, warranty or assumption of liability relating to a mortgaged property. USE OF PROCEEDS --------------- CMSI intends to use net proceeds from the sale of the certificates to originate or purchase new residential mortgage loans and for other general corporate purposes. These other purposes may include repayment of indebtedness to Citicorp, its affiliates or unaffiliated parties. Certificates will be sold in series from time to time. The timing and amount of the sales will depend upon many factors, including the volume of mortgage loans CMSI acquires, prevailing interest rates, availability of funds and general market conditions. ADDITIONAL INFORMATION ---------------------- SEC filings The following documents are incorporated by reference into this prospectus: 57 o All documents subsequently filed by CMSI on behalf of the Trust with the Securities and Exchange Commission (the SEC) pursuant to section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 before the termination of the offering of the certificates. o If Citicorp issues a guaranty as part of the credit enhancement for the series offered by this prospectus, Citicorp's most recent Annual Report on Form 10-K and any subsequent reports on Form 8-K or Form 10-Q filed with the SEC by Citicorp, and all reports filed by Citicorp pursuant to sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act before the termination of the offering of the certificates. CMSI will provide without charge to any person, including a beneficial owner of certificates, to whom a copy of this prospectus is delivered, a copy of any document incorporated by reference in this prospectus. Written or telephone requests for documents should be made o for documents filed by CMSI, to Citicorp Mortgage Securities, Inc., 12855 North Outer Forty Drive, St. Louis, Missouri 63141, telephone (314) 851-1467, and o for documents filed by Citicorp, to Citicorp, 399 Park Avenue, New York, NY 10043, Attention: Investor Relations Department, telephone (212) 559-2718. You may read and copy any materials CMSI or Citicorp files with the SEC at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-sec-0330. The SEC also maintains an Internet site at http://www.sec.gov that contains, reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including CMSI and Citicorp. Our delivery of this prospectus or any document incorporated by reference at any time does not imply that information in those documents is correct at any time after their dates. Mortgage loan information You may subscribe for detailed mortgage loan information in machine readable format updated monthly for each outstanding series of certificates. This information reflects payments made on the individual mortgage loans, including full and partial prepayments and liquidation proceeds, and identifies various characteristics of the mortgage loans. Contact CitiMortgage, Inc., 15851 Clayton Road West, Ballwin, Missouri 63011, telephone (636) 256-6406, for subscription information. CitiMortgage also maintains an internet site at http://www.citimortgagembs.com that contains the above information, along with payment statements, security documents and other related reports. 58 INDEX ----- accrual class, 12 accrual directed class, 12 advances, 10 affiliated mortgage loans, 3 affiliated originators, 17 agency certificates, 3 ARMs, 17 bankruptcy loss limit, 12 buydown mortgage loans, 2 buydown period, 2 CERCLA, 53 certificates, 1 Citi FSB, 17 class A, 6 class A prepayment percentage, 9 class B, 6 class percentage, 3 classes, 3 clean-up call, 14 CMSI, 1 components, 5 cross-collateralization, 6 current interest allocation, 9 cut-off date, 4, 3 debt service reduction, 9 determination day, 10 discount loans, 4 distribution day, 1 DTC, 32 due-on-sale clause, 15 ERISA, 2 FHA loans, 3 Fitch, 4 fraud loss limits, 12 Freddie Mac, 3 Ginnie Mae, 3 Ginnie Mae certificates, 3 Ginnie Mae I certificates, 4 Ginnie Mae II certificates, 4 Gold PCs, 5 group I overcollateralization, 10 group I undercollateralization, 10 group II overcollateralization, 10 group II undercollateralization, 10 homeowner, 2 hypothetical mortgage loans, 5 impaired subordination level, 11 index interest rate, 2 initial principal balance of mortgage loan, 3 insured classes, 13 interest allocation, 9 interest allocation carryforward, 9 interest distribution, 11 interest-only loan, 4 59 IO loan, 4 IO strip, 4 liquidated loan, 13 liquidation proceeds, 13 loan-to-value ratio, 20 Moody's, 4 mortgage loans, 1 NAS class, 8 negative amortization, 2 net liquidation proceeds, 13 net loan rate, 4 non-accelerated senior class, 8 non-subordinated losses, 6 notional balance, 4 OID, 17 OID rules, 36 order of seniority, 6 order of subordination, 6 Original PCs, 5 original subordinated amount, 9 PO loan, 4 PO strip, 4 pools, 5 premium loans, 4 prepayment interest shortfall, 7 principal balance of a class, 4 principal distribution, 11 principal-only loan, 4 PTC, 4 ratio stripping, 4 ratio-stripped IO class, 4 ratio-stripped PO class, 4 RCRA, 54 realized loss, 14 recoveries, 11 redirected distribution, 11 regular classes, 3 reimbursement distribution, 11 relocation loans, 21 REMIC, 1 residual classes, 3 retail class, 12 S&P, 4 scheduled payment, 2 scheduled principal balance of mortgage loan, 3 SDA, 17 SEC, 55 securitized, 18 senior classes, 6 series, 1 servicers, 10 SMMEA, 17 special hazard loss limit, 12 standard default assumption, 17 structuring assumptions, 13 subordinated classes, 6 60 subordination depletion date, 6 subordination level, 11 target rate, 4 target-rate classes, 4 target-rate loan, 4 target-rate strip, 4 third-party mortgage loans, 3 Title VIII, 2 Trust, 1 Trustee, 1 unscheduled payments, 3 USTs, 54 VA loans, 3 61 APPENDIX: ARMS, BUYDOWN LOANS AND AGENCY CERTIFICATES ARMs ---- Adjustable rate mortgage loans (ARMs) bear interest at a rate that is adjusted at regular intervals to equal a fixed number of basis points over a variable index interest rate. (A basis point is 0.01%.) The adjusted rate is generally rounded to the nearest eighth of a percent. There are often limits on the size of any one upward or downward adjustment or on the total upward or downward adjustment during a specified period (such as a year), and there is usually a limit on the maximum interest rate (and, less commonly, on the minimum interest rate) that can ever be charged on the mortgage loan. When the interest rate on an ARM is adjusted, some ARMs may adjust the scheduled monthly payment of principal and interest in order to amortize fully the mortgage loan by its stated maturity; other ARMs may keep the scheduled mortgage payment constant but extend or shorten the maturity to take account of the increase or decrease in the principal portion of the payment. The initial scheduled monthly payment by the homeowner is the amount that will fully amortize the initial principal balance of the ARM in equal installments over its remaining term and pay interest at the initial interest rate. On the first day of the month following the month in which an interest rate adjusts, the homeowner must begin making scheduled monthly payments that will fully amortize the principal balance of the ARM in equal installments over its remaining term and pay interest at the adjusted interest rate (except for ARMs that defer a portion of interest, as described in the preceding paragraph). The homeowner under an ARM may have been qualified at an interest rate that is lower than the current interest rate at origination. Accordingly, the repayment of the ARM will depend on the homeowner's ability to make larger monthly payments after the initial interest rate adjustment date. ARMs included in the Trust will generally not be convertible at the homeowner's option into fixed-rate fully amortizing loans. Negative amortization If an ARM limits the amount by which monthly payments may be increased, or if changes to the interest rate of the ARM are made more frequently than changes in the scheduled payments, an increase in the interest rate may not be fully covered by the adjusted scheduled monthly payment. In that case, the uncollected portion of interest will be deferred and added to the principal balance of the ARM. Interest will accrue on the additional principal at the then applicable interest rate from the date of the addition Such a deferral is referred to as negative amortization. Negative amortization tends to lengthen the weighted average life of a mortgage loan and may cause payments near the maturity of the mortgage loan to be larger than the previously scheduled monthly payments unless the mortgage loan permits its maturity to be extended. A-1 Yield considerations When the scheduled monthly payment on an ARM is adjusted, the first distribution to certificate holders that reflects the adjustment will be made on the distribution day in the month following the month in which the interest rate on the ARM is adjusted. Furthermore, adjustments in the interest rates are based on the relevant index most recently available 45 days before the date of the interest rate adjustment. Moreover, there may be a delay between the time the index is set and its public availability. Accordingly, the yield to Certificate holders will be adjusted on a delayed basis relative to movements in the index. Adjustments to the interest rate on an ARM may also be limited by a maximum periodic adjustment or a maximum or minimum interest rate. The following table illustrates the timing of the adjustments and receipt by Certificate holders of related distributions for a hypothetical ARM pool containing ARMs having a July 1 adjustment date. All dates are assumed to be business days. May 1 Index published May 15 Index fixed, based on May 1 publication. July 1 Interest rates adjusted based on May 15 index. August 1 Homeowners make first adjusted monthly payments at adjusted interest rates. August 18 Determination day. August 25 First payment to Certificate holders that reflects adjusted scheduled monthly payments on underlying ARMs. On the cut-off date for a Trust containing ARMs, some ARMs may be newly originated while others may have had one or more adjustments. ARMs that have not had their first interest rate adjustment will generally bear interest at rates that are lower than the rate that would otherwise be produced by the sum of the index and the number of basis points over the index used to compute the interest rate for the mortgage loan. State law restrictions Adjustable interest rate mortgage loans originated by non-federally chartered lenders have historically been subject to a variety of restrictions. Such restrictions differed from state to state, resulting in difficulties in determining whether a particular alternative mortgage instrument originated by a state-chartered lender complied with applicable law. These difficulties were alleviated substantially by Title VIII of the Garn-St Germain Act (Title VIII). Title VIII provides that, notwithstanding any state law to the contrary, o state-chartered banks may originate "alternative mortgage instruments" (including adjustable rate mortgage loans) in accordance with o regulations of the Comptroller of the Currency for origination of alternative mortgage instruments by national banks, o state-chartered credit unions may originate alternative mortgage instruments in accordance with regulations of the National Credit Union Administration for origination of alternative mortgage instruments by federal credit unions and all other non-federally chartered housing creditors, including state-chartered savings and loan associations, and A-2 o state-chartered savings banks and mortgage banking companies may originate alternative mortgage instruments in accordance with the regulations of the Federal Home Loan Bank Board (now the Office of Thrift Supervision) for origination of alternative mortgage instruments by federal savings and loan associations. Title VIII allowed states to reject Title VIII by adopting, before October 15, 1985, a law or constitutional provision expressly rejecting its applicability. Some states have taken that action. CMSI has been advised by its counsel that, in their opinion, a court would hold that adjustable interest rate mortgage loans originated by state-chartered lenders before enactment of a state law or constitutional provision rejecting applicability of Title viii would not be subject to state laws imposing restrictions or prohibitions on the ability of state-chartered lenders to originate alternative mortgage instruments. Any ARMs in the Trust o originated by a state-chartered lender after enactment of a state law or constitutional provision rejecting the applicability of Title VIII complied with applicable state law, and o originated by federally chartered lenders, or by state-chartered lenders before enactment of a state law or constitutional provision rejecting the applicability of Title VIII, were originated in compliance with all applicable federal regulations. BUYDOWN LOANS ------------- Some mortgage loans in the Trust may be subject to temporary buydown plans (buydown mortgage loans). In a buydown mortgage loan, monthly payments by the homeowner during the early years of the loan (the buydown period) are less than the scheduled monthly payments, the difference being made up from buydown funds contributed by the homeowner, the homeowner's employer, the seller or builder of the mortgaged property or another source. The buydown funds may be contributed at the origination of the buydown mortgage loan or in some cases when buydown funds are contributed by an employer, on an annual basis. Buydown funds contributed on an annual basis by the homeowner's employer will generally have a buydown period of three years but may have a buydown period of up to five years. The employer may or may not be required to guarantee the payment of buydown funds even if the homeowner is no longer employed by the employer. Buydown funds contributed at origination are placed on the closing date in a depository account maintained by CMSI or the originator (or for third party mortgage loans, the subservicer), and amounts are withdrawn monthly from the account promptly following receipt of the homeowner's monthly payment and deposited with the Trust. Buydown funds for different Series may be held in the same deposit account. Each affiliated originator originates buydown mortgage loans. Each buydown mortgage loan will o provide for payments by the homeowner during the buydown period based on a hypothetical reduced interest rate (the buydown mortgage rate) that will not be more than 5% below the mortgage rate at origination, o have an annual increase in the buydown mortgage rate during the buydown period that will not exceed 1%. o have a buydown period not exceeding three years for mortgage loans originated by Citibank or originated by the Florida branches of Citi FSB, five years for mortgage loans originated or acquired by CitiMortgage, and six years for other mortgage loans originated or acquired by Citi FSB. For mortgage loans originated before October 1, 1991, the maximum buydown funds that the seller or builder of the related mortgaged property can contribute is 9% of the value at origination of the mortgaged property; for mortgage loans originated on or after October 1, 1991, the maximum buydown funds that the seller or builder of the related mortgaged property can contribute is 6% of the value at origination of the mortgaged property. These limits do not apply to contributions from the homeowner, the homeowner's immediate relatives or the homeowner's employer. The homeowner under a buydown mortgage loan will have been qualified at an interest rate that is not more than 5% per annum below the current mortgage rate at origination. Accordingly, repayment of a buydown mortgage loan depends on the homeowner's ability to make larger monthly payments after the buydown funds are depleted and, for some buydown mortgage loans, while the funds are being depleted during the buydown period. A-3 AGENCY CERTIFICATES ------------------- Ginnie Mae The Government National Mortgage Association (Ginnie Mae) is a wholly-owned corporate instrumentality of the United States within the Department of Housing and Urban Development. Ginnie Mae is authorized to guarantee the timely payment of principal and interest on certificates (Ginnie Mae certificates) that are backed by, and represent an interest in, pools of mortgage loans insured by the Federal Housing Administration (FHA loans) or partially guaranteed by the Veterans Administration (VA loans) or by pools of other eligible mortgage loans. The full faith and credit of the United States is pledged to the payment of all amounts that Ginnie Mae guarantees on Ginnie Mae certificates. Ginnie Mae can borrow from the United States Treasury in any amount required to enable Ginnie Mae to perform its obligations under its guaranties. Ginnie Mae certificates All of the Ginnie Mae certificates are "fully modified pass-through" certificates. They are issued and serviced by issuers approved by Ginnie Mae or by Fannie Mae as a seller-servicer of FHA Loans or VA Loans. The mortgage loans underlying Ginnie Mae certificates may be o FHA Loans secured by mortgages on one- to four-family residential properties or multifamily residential properties, o VA loans, and o other mortgage loans eligible for inclusion in mortgage pools underlying Ginnie Mae certificates, which may be level payment mortgage loans (including buydown mortgage loans) or graduated payment mortgage loans each secured by a first lien on a one- to four-family residential property. All payments on Ginnie Mae certificates are made by or on behalf of the issuer of the Ginnie Mae certificate to the registered holder of the certificate. Except for Ginnie Mae certificates backed by graduated payment mortgage loans, each Ginnie Mae certificate provides for monthly payments of the registered holder's proportionate share of o the aggregate monthly scheduled principal and interest payments on the underlying mortgage loans (less servicing and guaranty fees), o any principal prepayments on the mortgage loans and, o any net proceeds of foreclosure or other disposition of mortgage loans. Ginnie Mae certificates may be issued under either the Ginnie Mae I program (Ginnie Mae I certificates) or the Ginnie Mae II program (Ginnie Mae II certificates). A principal difference between the two programs is that under the Ginnie Mae I program payments are made directly by the issuer of the Ginnie Mae I Certificate to the registered holder, while under the Ginnie Mae II program payments are made to the registered holder through Chemical Bank as paying agent. A further difference between the two programs is that under the Ginnie Mae I program single issuer approach, an individual Ginnie Mae issuer assembles a pool of mortgages against which it issues and markets Ginnie Mae I Certificates, while under the Ginnie Mae II program multiple issuer pools may be formed by aggregating loan packages of several Ginnie Mae issuers. However, single issuer pools may be formed under the Ginnie Mae II program as well. [If specified in the related prospectus supplement, Ginnie Mae certificates in the Trust may be held on deposit at the Participants Trust Company (PTC), a limited trust company organized under the banking laws of the State of New York. PTC operates a private sector, industry owned depository and settlement facility for book-entry transfer of interests in Ginnie Mae certificates. Distribution of principal of and interest on such Ginnie Mae certificate held through PTC will be credited by PTC to the PTC participant to whose account the Ginnie Mae certificate is credited.] A-4 All mortgage loans underlying a particular Ginnie Mae I Certificate must have the same annual interest rate (except for pools of mortgages secured by mobile homes). The annual interest rate on each Ginnie Mae I Certificate is 50 basis points less than the annual interest rate on the mortgage loans included in the pool of mortgages backing such Ginnie Mae I Certificate. Mortgages underlying a particular Ginnie Mae II Certificate may have annual interest rates that vary from each other by up to 100 basis points. The annual interest rate on each Ginnie Mae II Certificate will be between 50 basis points and 150 basis points per annum less than the highest annual interest rate on the mortgage loans included in the pool of mortgages backing such Ginnie Mae II Certificate. All of the Ginnie Mae certificates included in the Trust have original maturities of not more than 30 years (but may have original maturities of substantially less than 30 years). In general, Ginnie Mae requires that at least 90% of the original principal amount of the mortgage pool underlying a Ginnie Mae certificate must be mortgage loans with maturities of 20 years or more. However, in some circumstances Ginnie Mae certificates may be backed by pools of mortgage loans at least 90% of the original principal amount of which have original maturities of at least 15 years. Each mortgage loan underlying a Ginnie Mae certificate, at the time Ginnie Mae issues its guarantee commitment, must be originated no more than 12 months prior to the commitment date. The Ginnie Mae certificates are not a liability of, or evidence any recourse against, the issuer of the Ginnie Mae certificates or any of its affiliates. The only recourse of a registered holder of Ginnie Mae certificates, such as the Trustee, is to enforce Ginnie Mae's guaranty. Ginnie Mae approves the issuance of each Ginnie Mae certificate in accordance with a guaranty agreement between Ginnie Mae and the servicer of the mortgage loans underlying the Ginnie Mae certificate, which is the issuer of the Ginnie Mae certificates. The agreement requires the issuer to advance its own funds to make timely payments of all amounts due on the Ginnie Mae certificate, even if the payments received by the issuer on the mortgage loans backing the Ginnie Mae certificate are less than the amounts due on the Ginnie Mae certificate. If the issuer is unable to make payments on a Ginnie Mae certificate as it becomes due, it must promptly notify Ginnie Mae and request Ginnie Mae to make the payment. Upon the notification and request, Ginnie Mae will make the payments directly to the registered holder of the Ginnie Mae certificate. If no payment is made by the issuer and the issuer fails to notify and request Ginnie Mae to make the payment, the registered holder of the Ginnie Mae certificate has recourse only against Ginnie Mae to obtain the payment. The Trustee or its nominee, as registered holder of the Ginnie Mae certificates in the Trust can proceed directly against Ginnie Mae for any amounts that are not paid when due under a Ginnie Mae certificate. Freddie Mac The Federal Home Loan Mortgage Corporation (Freddie Mac) is a corporate instrumentality of the United States. Freddie Mac's common stock is owned by the Federal Home Loan Banks. Freddie Mac was established primarily to increase the availability of mortgage credit for the financing of urgently needed housing. It seeks to provide an enhanced degree of liquidity for residential mortgage investments primarily by assisting in the development of secondary markets for conventional mortgages. The principal activity of Freddie Mac currently consists of the purchase of first lien conventional residential mortgage loans or participation interests in such mortgage loans and the resale of the mortgage loans in the form of mortgage securities. Freddie Mac is confined to purchasing, so far as practicable, conventional mortgage loans and participation interests therein that it deems to be of a quality, type and class that generally meet the purchase standards imposed by private institutional mortgage investors. Freddie Mac certificates Each Freddie Mac certificate represents an undivided interest in a group of mortgage loans. The mortgage loans underlying any Freddie Mac certificates in the Trust are fixed rate mortgage loans with original terms to maturity of between 10 and 30 years. The mortgage loans may include whole loans, participation interests in whole loans and undivided interests in whole loans and/or participations underlying other Freddie Mac certificates. A-5 For some Freddie Mac certificates (Original PCs), the period between the first day of the month in which the certificate is issued and the initial payment date for the certificate is approximately 75 days. For other Freddie Mac certificates (Gold PCs), the period between the first day of the month in which the certificate is issued and the initial payment date for the certificate is approximately 45 days. Also, the record date for payments of principal and interest on a Gold PC is the last day of the month immediately preceding the month in which the related payment date occurs, whereas the record date for payments of principal and interest on an Original PC is the last day of the second month preceding the month in which the payment date occurs. Freddie Mac guarantees timely payment of interest at the rate provided for each Freddie Mac certificate. Freddie Mac also guarantees the ultimate collection by the registered holder of a Freddie Mac certificate of its pro rata share of all principal on the underlying mortgage loans, without any offset or deduction. However, only Gold PCs guarantee the timely payment of scheduled principal. Pursuant to its guaranties, Freddie Mac indemnifies certificate holders against any diminution in principal for property repairs, maintenance and foreclosure. Freddie Mac may pay any amount due on its guaranty of collection of principal at any time after default on an underlying mortgage loan, but not later than 30 days following the later of o foreclosure sale, o payment of the claim by a mortgage insurer, or o expiration of any right of redemption, but in no event later than one year after demand has been made upon the homeowner for accelerated payment of principal. In collecting principal after default on a mortgage loan, including timing a demand for acceleration, Freddie Mac may exercise its servicing judgment in the same manner as for mortgages that it has purchased but not sold. Freddie Mac certificates are not guaranteed by the United States or by any Federal Home Loan Bank and do not constitute debts or obligations of the United States or any Federal Home Loan Bank. Accordingly, Freddie Mac's guaranty is not backed by the full faith and credit of the United States. Registered holders of Freddie Mac certificates receive their monthly pro rata share of all principal payments on the underlying mortgage loans received by Freddie Mac, including any scheduled principal payments, full and partial payments of principal, and principal received by Freddie Mac by virtue of condemnation, insurance or foreclosure, and repurchases of the mortgages by Freddie Mac or the sellers of the mortgages. Freddie Mac is required to remit to each registered Freddie Mac certificate holder its pro rata share of principal payments on the underlying mortgage loans, interest at the Freddie Mac certificate rate and any other sums (such as prepayment fees), within 60 days of the date the payments are deemed received by Freddie Mac. Under Freddie Mac's Cash Program, before June 1987 there was no limit on the amount by which interest rates on the mortgage loans underlying a Freddie Mac certificate could exceed the interest rate on the Freddie Mac certificate. Under the Cash Program, Freddie Mac purchases groups of whole mortgage loans from sellers at percentages up to 100% of their unpaid principal amount, adjusted for accrued or prepaid interest, that results in the yield required by Freddie Mac. The required yield, which includes a minimum servicing fee retained by the servicer, is calculated using the outstanding principal balance of the mortgage loans, an assumed term and a prepayment period determined by Freddie Mac. The range of interest rates on the mortgage loans underlying a Freddie Mac certificate under the Cash Program formed before June 1987 will vary since mortgage loans are purchased and assigned to a Freddie Mac certificate based upon their yield to Freddie Mac rather than on the interest rate on the mortgage loans. Since June 1987, the range of interest rates on the mortgage loans and participations underlying a Freddie Mac certificate comprised of 15-and 30-year fixed rate single family mortgage loans bought by Freddie Mac under the Cash Program is limited to 1%. Moreover, the lowest coupon on any mortgage loan underlying a Freddie Mac certificate can not be less than the annual pass-through rate on the certificate, and the highest mortgage interest rate can not be more than 2% above the pass-through rate. Under Freddie Mac's Guarantor Program, the annual pass-through rate on a Freddie Mac certificate is established based upon the lowest interest rate on the underlying mortgage loans, minus a minimum servicing fee and the amount of Freddie Mac's management and guaranty income as agreed between the seller and Freddie Mac. Before December 1987, the range between the lowest and highest annual interest rates on the mortgage loans underlying a Freddie Mac certificate formed under the Guarantor Program could not exceed 2%. Beginning in December 1987, the range was limited to 1%. A-6 Freddie Mac certificates duly presented for registration of transfer on or before the last business day of a month are registered effective as of the first day of that month. The first remittance check to a registered holder of a Freddie Mac certificate is mailed to be received normally by the 15th day of the second month following the month in which the purchaser became a registered holder of the Freddie Mac certificate. Thereafter checks will be mailed monthly to the registered holder to be received normally by the 15th day of each month. The Federal Reserve Bank of New York maintains book-entry accounts for Freddie Mac certificates sold by Freddie Mac on or after January 2, 1985, and makes payments of interest and principal each month to the registered holders in accordance with the holders' instructions. Fannie Mae Fannie Mae was established in 1938 as a United States government agency to provide supplemental liquidity to the mortgage market. It was transformed into a stockholder-owned and privately managed corporation by legislation enacted in 1968. Fannie Mae provides funds to the mortgage market primarily by purchasing home mortgage loans from lenders, thereby replenishing their funds for additional lending. Fannie Mae acquires funds to purchase loans from many capital market investors that may not ordinarily invest in mortgage loans, thereby expanding the total amount of funds available for housing. By operating nationwide, Fannie Mae helps to redistribute mortgage funds from capital-surplus to capital-short areas. In addition, Fannie Mae issues mortgage-backed securities primarily in exchange for pools of mortgage loans from lenders. Fannie Mae certificates A Fannie Mae certificate represents a fractional undivided interest in a pool of mortgage loans formed by Fannie Mae. Each mortgage loan must meet the applicable standards of the Fannie Mae purchase program. Mortgage loans comprising a pool are either provided by Fannie Mae from its own portfolio or purchased under Fannie Mae's purchase program. Mortgage loans underlying Fannie Mae certificates in the Trust consist of conventional mortgage loans, FHA Loans or VA Loans. The original maturities of substantially all of the conventional, level payment mortgage loans underlying a Fannie Mae certificate are expected to be between either 8 and 15 years or 20 and 30 years. The original maturities of substantially all of the level payment FHA Loans or VA Loans are expected to be 30 years. Mortgage loans underlying a Fannie Mae certificate may have annual interest rates that vary by as much as 2% from each other. The rate of interest payable on a Fannie Mae certificate is the lowest interest rate of any mortgage loan in the related pool, less a specified minimum annual percentage representing servicing compensation and Fannie Mae's guaranty fee. Under a regular servicing option (pursuant to which the mortgagee or other servicer assumes the entire risk of foreclosure losses), the annual interest rates on the mortgage loan underlying a Fannie Mae certificate will be between 50 basis points and 250 basis points greater than the annual interest rate for the Fannie Mae certificates. Under a special servicing option (pursuant to which Fannie Mae assumes the entire risk for foreclosure losses), the annual interest rates on the mortgage loans underlying a Fannie Mae certificate will generally be between 55 basis points and 255 basis points greater than the annual Fannie Mae certificate interest rate. A-7 Fannie Mae guarantees scheduled principal and interest (at the rate provided for by the Fannie Mae certificate) on the mortgage loans in the pool represented by a Fannie Mae certificate, whether or not received, and the full principal amount of any foreclosed or other finally liquidated mortgage loan, regardless of the portion of the principal amount actually recovered. Fannie Mae's obligations under its guaranties are obligations solely of Fannie Mae and are not backed by the full faith and credit of the United States. Although the Secretary of the Treasury of the United States has discretionary authority to lend Fannie Mae up to $2.25 billion outstanding at any time, neither the United States nor any of its agencies is obligated to finance Fannie Mae's operations or to assist Fannie Mae in any other way. If Fannie Mae is unable to satisfy its obligations, distributions on Fannie Mae certificates would consist solely of payments and other recoveries on the underlying mortgage loans and, accordingly, monthly distributions on Fannie Mae certificates would be affected by delinquent payments and defaults on those mortgage loans. Fannie Mae certificates evidencing interests in pools of mortgage loans formed on or after May 1, 1985 are available in book-entry form only and will not be convertible to definitive form. Distributions of principal and interest on each Fannie Mae certificate will be made by Fannie Mae on the 25th day of each month to the persons in whose name the Fannie Mae certificate is entered on the books of the Federal Reserve Bank (or registered in the Fannie Mae certificate register in the case of fully registered Fannie Mae certificates) as of the close of business on the last day of the preceding month. For Fannie Mae certificates issued in book-entry form, distributions will be made by wire, and for fully registered Fannie Mae certificates, distributions will be made by check. A-8 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. The following is an itemized list of the estimated expenses to be incurred in connection with the offering of the Certificates other than underwriting discounts and commissions. SEC filing fee $ [250,000] Printing and engraving expenses. [1,000,000]* Accounting fees and expenses [1,500,000]* Legal fees and expenses [850,000]* Trustee fees and expenses [850,000]* Rating agency fees [2,500,000]* Miscellaneous [520,000]* Total $ [7,470,000] * Estimated. Item 15. Indemnification of Directors and Officers. Subsection (a) of Section 145 of the General Corporation Law of Delaware empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no cause to believe his conduct was unlawful. Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification may be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director, officer, employee or agent of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that expenses of the indemnified party may be paid by the corporation in advance of a final disposition; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and empowers the corporation to purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. The Registrant's Certificate of Incorporation provides that the Registrant shall (or, in the case of an employee or agent of the Registrant, or a person who was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, may) indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Registrant) by reason of the fact that he is or was a director, officer, employee or agent of the Registrant, or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Registrant, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The Registrant's Certificate of Incorporation also provides that the termination of any such action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Registrant, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The Registrant's Certificate of Incorporation further provides that the Registrant shall (or, in the case of an employee or agent of the Registrant, or a person who was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, may) indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Registrant to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Registrant, or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Registrant and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Registrant unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. The Registrant's Certificate of Incorporation provides that any indemnification thereunder (unless ordered by a court) shall be made by the Registrant only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth therein. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum (as defined in the by-laws of the Registrant) consisting of directors who were not parties to such action, suit or proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. The Registrant's Certificate of Incorporation provides that expenses of the indemnified party may be paid by the Registrant in advance of a final disposition and that the indemnification and advancement of expenses provided for therein shall not be deemed exclusive of any other rights to which the indemnified party may be entitled. The Registrant's Certificate of Incorporation empowers the Registrant to purchase and maintain insurance, in such amounts as the Board of Directors deems appropriate, on behalf of any person who is or was a director, officer, employee or agent of the Registrant, or of any corporation a majority of the voting stock of which is owned by the Registrant, or is serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Registrant would have the power or would be required to indemnify him against such liability under the provisions of the Registrant's Certificate of Incorporation or of the General Corporation Law of the State of Delaware. The Registrant's Certificate of Incorporation provides that a director of the Registrant shall not be personally liable to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitations thereof is not permitted under the Delaware General Corporation Law as the same existed at the time of the Registrant's incorporation or may thereafter be amended; and that any repeal or modification of the foregoing provision by the stockholders of the Registrant shall not adversely affect any right or protection of a director of the Registrant existing at the time of such repeal or modification. Pursuant to Section 145 of the General Corporation Law of Delaware, liability insurance is maintained covering directors and principal officers of the Registrant. Item 16. Exhibits. 1.1 - Form of Underwriting Agreement. 4.1 - Form of Pooling and Servicing Agreement with respect to REMIC Certificates representing interests in mortgage loans between Citicorp Mortgage Securities, Inc., as packager and servicer, and the Trustee, including Standard Terms and forms of Certificates, Subservicing Agreement and Custodial Agreement.* 5.1 - Opinion of John R. Dye, Esq. with respect to the Certificates being registered. 8.1 - Opinion of Rona Daniels, Esq. with respect to certain tax matters. 23.2 - Consents of John R. Dye, Esq., and Rona Daniels, Esq. are contained in their opinions filed herewith as Exhibits 5.1 and 8.1, respectively. * To be filed by amendment Item 17. Undertakings. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of Citicorp's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on October 23, 2001. Each person whose signature appears below hereby appoints each of Daniel P. Hoffman and Jerome A. Cipponeri his true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, to sign and file with the Securities and Exchange Commission any amendments to this registration statement, together with all exhibits thereto and other documents in connection therewith, Such amendments may make such changes in the registration statement as such attorney-in-fact and agent deems appropriate, granting unto each attorney-in-fact and agent full power and authority to perform every act and thing required to be done, as fully to all intents and purposes as the person signing below might or could do in person. Each person whose signature appears below hereby ratifies and confirms all that each attorney-in-fact and agent or his substitute may lawfully do or cause to be done by virtue hereof. CITICORP MORTGAGE SECURITIES, INC. By: /s/ Jerome A. Cipponeri ----------------------- President Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed on October 23, 2001 by the following persons in the capacities indicated. Signature Capacity /s/ Jerome A. Cipponeri President and a Director ----------------------- (Principal Executive Officer) /s/ Daniel P. Hoffman Senior Vice President and Chief ----------------------- Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Bradley Brunts Director ---------------------- /s/ Charles Wainhouse Director ---------------------- EX-1 3 exhibit1.txt FORM OF UNDERWRITING AGREEMENT Exhibit 1.1 Citicorp Mortgage Securities, Inc. REMIC Pass-Through Certificates, Series 200[_]-[__] Underwriting Agreement [_________, 200_] To: [_________________], as Underwriter [Address] [Address] Ladies and Gentlemen: Citicorp Mortgage Securities, Inc., a Delaware corporation ("CMSI"), proposes to sell to you, as underwriter (the "Underwriter"), REMIC Pass-Through Certificates (the "offered certificates"), comprised of the classes of certificates set forth in Schedule I hereto evidencing ownership interests in a trust (the "Trust") consisting of the mortgage loans described in Schedule I (the "mortgage loans") originated or acquired by the affiliates of CMSI identified in Schedule I (the "Originators") and having, as of the close of business on the date specified in Schedule I as the cut-off date (the "cut-off date"), the aggregate principal balance set forth in such Schedule I and related property. An election will be made to treat the Trust, or one or more segregated pools of assets within the Trust, as one or more real estate mortgage investment conduits (each a "REMIC") for purposes of federal income taxation. The offered certificates will represent regular interests in a REMIC and the residual certificates will represent the residual interests in a REMIC. The mortgage loans are to be conveyed to CMSI pursuant to a mortgage loan purchase agreement, to be dated as of the cut-off date (the "Mortgage Loan Purchase Agreement"), between CMSI, as buyer, and the Originators, as sellers. The offered certificates are to be issued under a pooling and servicing agreement (the "Pooling Agreement"), dated as of the cut-off date, between CMSI, as packager and servicer, and [TRUSTEE], in its individual capacity and as trustee (in such capacity, the "Trustee"). The offered certificates will be issued in the denominations specified in Schedule I. 1. Representations and Warranties. CMSI represents and warrants to the Underwriter that: (a) A registration statement (File No. [___________]) on Form S-3 has been filed with the Securities and Exchange Commission (the "Commission") and has become effective under the Securities Act of 1933, as amended (the "Act"); such registration statement includes a prospectus consisting of a core prospectus and a prospectus supplement, which, as completed, is proposed to be, used in connection with the sale of the offered certificates. The registration statement, as amended to the date of this Agreement, is hereinafter referred to as the 1 "Registration Statement"; such prospectus (which shall be in the form in which it has most recently been filed, as the same is proposed to be added to or changed), relating to the offered certificates, filed, or transmitted for filing, with the Commission pursuant to Rule 424 under the Act and used in connection with the sale of the offered certificates, is hereinafter referred to as the "Prospectus." Any reference herein to the Registration Statement or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on or before the date hereof; and any reference herein to the terms "amend", "amendment" or "supplement" with respect to the Registration Statement or the Prospectus shall be deemed to refer to and include the filing of any document under the Exchange Act deemed to be incorporated by reference therein after the date hereof; (b) The Registration Statement and the Prospectus, as of the date of the Prospectus, and any revisions or amendments thereof or supplements thereto filed prior to the termination of the offering of the offered certificates, as of their respective effective or issue dates, conformed or will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder applicable to such documents as of such respective dates, and the Registration Statement and the Prospectus as revised, amended or supplemented as of the closing date (as defined herein), will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder applicable to such documents to be used as of the closing date; and no such document, as of such respective dates and, in the case of the Prospectus and any revisions or amendments thereof or supplements thereto filed prior to the closing date, as of the closing date, included or will include any untrue statement of a material fact or omitted or will omit to state a material fact necessary to make the statements therein in the light of the circumstances under which they were made, not misleading; provided, however, that CMSI makes no representations, warranties or agreements as to (i) the information contained in or omitted from the Prospectus or any revision or amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to CMSI by or on behalf of the Underwriter specifically for use in connection with the preparation of the Prospectus or any revision or amendment thereof or supplement thereto, consisting solely of such Underwriter's statements as are included in Schedule I hereto or (ii) any information in any Computational Materials or ABS Term Sheets (each as defined in Section 7(b)) provided by the Underwriter; (c) Each of the offered class A and class B-1 certificates will, when issued, be a "mortgage related security" as such term is defined in Section 3(a)(41) of the Exchange Act, and each of the offered certificates, when validly authenticated, issued and delivered in accordance with the Pooling Agreement, will be duly and validly issued and outstanding and entitled to the benefits of the Pooling Agreement; (d) As of the closing date, each of this Agreement and the Pooling Agreement will have been duly authorized, executed and delivered by CMSI and, assuming the valid execution of the Pooling Agreement by [TRUSTEE], in its individual capacity and as Trustee, each such agreement will constitute a valid and binding agreement of CMSI enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights and by general equity principles; and 2 (e) CMSI has been duly organized and is validly existing in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus. 2. Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, CMSI agrees to sell to the Underwriter, and the Underwriter agrees to purchase from CMSI, all of the offered certificates at the purchase price set forth in Schedule I hereto. 3. Delivery and Payment. Delivery of and payment for the offered certificates shall be made at the office, on the date and at the time specified in Schedule I hereto, which place, date and time may be changed by agreement among the Underwriter and CMSI (such date and time of delivery of and payment for the offered certificates being hereinafter referred to as the "closing date"). Unless otherwise specified in Schedule I, delivery of one certificate representing each class of offered certificates shall be made to the account of the Underwriter against payment by the Underwriter of the purchase price therefor to or upon the order of CMSI in the manner provided in Schedule I hereto. Unless otherwise specified in Schedule I, the certificates to be so delivered shall be registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"), and the interests of beneficial owners of such offered certificates will be represented by book entries on the records of DTC and participating members thereof. Unless otherwise specified in Schedule I, definitive certificates representing the offered certificates will be available only under limited circumstances. CMSI agrees to have the offered certificates available for inspection, checking and packaging by the Underwriter in New York, New York, one business day prior to the closing date. 4. Agreements by Underwriter. (a) It is understood that the Underwriter proposes to offer the offered certificates for sale as set forth in the Prospectus. (b) The Underwriter represents and warrants to and agrees with CMSI, as of the date hereof and as of the closing date, as applicable, that: (i) if the Underwriter has provided any Collateral Term Sheets (as defined in the PSA No-Action Letter referred to in Section 7(b)) to potential investors in the offered certificates prior to the date hereof and if the filing of such materials with the Commission is a condition of the relief granted in the PSA No-Action Letter, then in each such case the Underwriter has heretofore delivered two copies of such materials to CMSI, and the Underwriter will deliver to CMSI two copies of all Computational Materials or ABS Term Sheets delivered to such potential investors, except for any Computational Materials and ABS Term Sheets which are not required to be filed with the Commission in accordance with the Kidder No-Action Letter and the PSA No-Action Letter referred to in Section 7(b) (collectively, the "No-Action Letters"), not later than noon on the fifth business day preceding the closing date; 3 (ii) the Computational Materials (either in original, aggregated or consolidated form) and ABS Term Sheets furnished to CMSI as contemplated in Section 4(b)(i) will constitute all such materials relating to the offered certificates required to be filed with the Commission furnished by the Underwriter (whether in written, electronic or other format) to prospective investors in the offered certificates prior to the closing date, and all Computational Materials and ABS Term Sheets provided or to be provided by the Underwriter to potential investors in the offered certificates comply with the requirements of the No-Action Letters; (iii) the Underwriter will not provide to potential investors in the offered certificates Collateral Term Sheets containing collateral information other than that set forth in CMSI's Form 8-K filed as described in Section 5(g); (iv) on the dates any such Computational Materials and/or ABS Term Sheets with respect to the offered certificates referred to in Section 4(b) (i) are filed pursuant to Section 5(f), such Computational Materials and/or ABS Term Sheets will not include any untrue statement of a material fact or, when read in conjunction with the Prospectus, omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (other than any untrue statement or omission resulting directly from a Collateral Error, as defined in Section 8(a)); provided, however, that the Underwriter makes no representation or warranty as to the Prospectus (other than the portion thereof constituting the Underwriter's statements as are included in Schedule I hereto); (v) at the time any Computational Materials or ABS Term Sheets with respect to the offered certificates are furnished to a prospective investor, the Underwriter possessed, and on the date of delivery of such materials to CMSI pursuant to or as contemplated by this Section 4 and on the closing date, the Underwriter will possess, the capability, knowledge, expertise, resources and systems of internal control necessary to ensure that such Computational Materials and/or ABS Term Sheets conform to the representations and warranties of the Underwriter contained in subparagraphs (ii) and (iv) above of this paragraph; (vi) all Computational Materials and ABS Term Sheets with respect to the offered certificates furnished by the Underwriter to potential investors after the date hereof will contain a legend, prominently displayed on the first page thereof, to the effect that Citicorp, CMSI and the Originators have not prepared, reviewed or participated in the preparation of such Computational Materials or ABS Term Sheets, are not responsible for the accuracy thereof and have not authorized the dissemination thereof; (vii) all Collateral Term Sheets with respect to the offered certificates furnished by the Underwriter to potential investors contained a legend, prominently displayed on the first page thereof, indicating that the information contained therein will be superseded by the description of the mortgage loans contained in the Prospectus and, except in the case of the initial Collateral Term Sheet, that such information supersedes the information in all prior Collateral Term Sheets; and 4 (viii) on and after the date on which the Prospectus has been filed with the Commission as provided in Section 5(a), the Underwriter shall not deliver or authorize the delivery of any Computational Materials, ABS Term Sheets or other materials relating to the offered certificates (whether in written, electronic or other format) to any potential investor unless such potential investor has received a Prospectus prior to or at the same time as the delivery of such Computational Materials, ABS Term Sheets or other materials. (c) the Underwriter acknowledges and agrees that CMSI and the Originators have not authorized and will not authorize the distribution of any Computational Materials or ABS Term Sheets with respect to the offered certificates to any prospective investor and agrees that any such Computational Materials and/or ABS Term Sheets furnished to prospective investors shall include a disclaimer in the form set forth in paragraph (b)(vi) above. The Underwriter agrees that it will not represent to potential investors that any Computational Materials and/or ABS Term Sheets with respect to the offered certificates were prepared or disseminated on behalf of Citicorp, CMSI or the Originators. 5. Agreements by CMSI. CMSI agrees with the Underwriter that: (a) CMSI will cause the Prospectus to be filed, or transmitted for filing, with the Commission pursuant to Rule 424 under the Act and will promptly advise the Underwriter when the Prospectus has been so filed, or transmitted for filing, and, prior to the termination of the offering of the offered certificates, will also promptly advise the Underwriter (i) when any amendment to the Registration Statement relating to the offered certificates has become effective or any revision of or supplement to the Prospectus has been so filed or transmitted for filing (unless such amendment, revision or supplement does not relate to the offered certificates), (ii) of any request by the Commission for any amendment of the Registration Statement or the Prospectus or for any additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (iv) of the receipt by CMSI of any notification with respect to the suspension of the qualification of the offered certificates for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. CMSI will use its best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. Neither CMSI nor Citicorp will file or transmit for filing prior to the termination of such offering any amendment to the Registration Statement or any revision of or supplement to the Prospectus (other than any such amendment, revision or supplement which does not relate to the offered certificates) unless a copy has been furnished to the Underwriter for its review prior to such filing or transmission for filing. (b) If, at any time when a prospectus relating to the offered certificates is required to be delivered under the Act, (i) any event occurs as a result of which the Prospectus, as then amended or supplemented, would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (ii) it shall be necessary to revise, amend or supplement the Prospectus to comply with the Act or the rules and regulations of the Commission thereunder, CMSI and Citicorp promptly will prepare and file with the 5 Commission, subject to paragraph (a) of this Section 5, a revision, amendment or supplement which will correct such statement or omission or effect such compliance. (c) CMSI will furnish to the Underwriter and counsel for the Underwriter, without charge, signed copies of the Registration Statement (including exhibits thereto) and, so long as delivery of a prospectus relating to the offered certificates is required under the Act, as many copies of the Prospectus and any revisions or amendments thereof or supplements thereto as may be reasonably requested. (d) CMSI will pay all expenses incidental to the performance of its obligations under this Agreement, including without limitation (i) expenses of preparing, printing and reproducing the Registration Statement, the Prospectus, this Agreement, the Pooling Agreement, the Mortgage Loan Purchase Agreement and the offered certificates, (ii) all expenses of KPMG LLP (other than their expenses relating to the preparation of the letter referred to in Section 7(c) below which shall be paid by the Underwriter) and (iii) the cost of delivering the offered certificates to the office of DTC (or other costs of delivery, if so specified in Schedule I); provided, however, that except as provided in this paragraph (d) and in Section 8 hereof, the Underwriter will pay (i) all of its own expenses, including the fees of Cadwalader, Wickersham & Taft and any other counsel to the Underwriter, (ii) any transfer taxes on resale of any of the offered certificates by it and (iii) advertising expenses connected with any offers that the Underwriter may make. (e) CMSI will use its best efforts to arrange for the qualification of the offered certificates for sale under the laws of such jurisdictions as the Underwriter may designate, to maintain such qualifications in effect so long as required for the distribution of the offered certificates and to arrange for the determination of the legality of the offered certificates for purchase by institutional investors; provided, however, that neither CMSI nor Citicorp shall be required to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general or unlimited service of process in any jurisdiction where it is not now so subject. (f) CMSI will file with the Commission in a Current Report on Form 8-K all ABS Term Sheets and Computational Materials furnished by the Underwriter and identified by it as such, not later than the earlier of (i) the date the Prospectus has been made available to the Underwriter and (ii) the date of the filing of the Prospectus pursuant to Rule 424 (or such earlier date as required under the No-Action Letters). Notwithstanding the preceding sentence, CMSI shall have no obligation to file materials provided by the Underwriter pursuant to or as contemplated by Section 4 which, in the reasonable determination of CMSI and the Underwriter, are not required to be filed pursuant to the No-Action Letters, or which contain erroneous information or contain any untrue statement of a material fact or which, when read in conjunction with the Prospectus, omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; it being understood, however, that CMSI shall have no obligation to review or pass upon the accuracy or adequacy of, or to correct, any Computational Materials or ABS Term Sheets provided by the Underwriter to CMSI pursuant to or as contemplated by Section 4 hereof. 6 (g) promptly after the first business day of the month on which the closing date is to occur, CMSI will file with the Commission on Form 8-K a Collateral Term Sheet containing such information regarding the mortgage loans as it deems appropriate. 6. Conditions to the Obligation of the Underwriter. The obligation of the Underwriter to purchase the offered certificates shall be subject to the accuracy in all material respects of the representations and warranties on the part of CMSI contained herein as of the date hereof and as of the closing date, to the accuracy of the statements of CMSI made in any officer's certificate pursuant to the provisions hereof, to the performance by CMSI of its obligations hereunder and to the following additional conditions: (a) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted and be pending or shall have been threatened. (b) CMSI shall have furnished to the Underwriter a certificate, dated the closing date, of such corporation, signed by the President or any Vice President of CMSI, to the effect that the signer of such certificate has examined the Registration Statement, the Prospectus and this Agreement and that: (i) The representations and warranties of such corporation herein are true and correct in all material respects on and as of the closing date with the same effect as if made on the closing date, and CMSI has complied with all agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the closing date; and (ii) No stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted and are pending or, to such officer's knowledge, have been threatened as of the closing date. (c) CMSI shall have furnished to the Underwriter: (i) an opinion, dated the closing date, of an Associate General Counsel-Corporate Law of Citigroup Inc., to the effect that: (A) CMSI is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority under such laws to own its properties and conduct its business as described in the Prospectus; (B) Each Originator is a Delaware corporation, a federal savings bank or a national banking association, as the case may be, validly existing under applicable law, with full power and authority under such law to own its properties and conduct its business as described in the Prospectus; (C) The offered certificates have been duly authorized, executed, issued and delivered and, assuming authentication in the manner contemplated in the Pooling Agreement, are validly issued and outstanding and entitled to the benefits provided by the Pooling Agreement; 7 (D) Assuming that the class A and class B-1 certificates are rated at the time of issuance in one of the two highest rating categories by a nationally recognized statistical rating organization, each such certificate at such time will be a "mortgage related security" as such term is defined in Section 3(a)(41) of the Exchange Act; (E) The Pooling Agreement has been duly authorized, executed and delivered by CMSI and, assuming valid execution thereof by [TRUSTEE], in its individual capacity and as Trustee, constitutes a valid and legally binding agreement of CMSI enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights and by general equity principles; (F) The Pooling Agreement is not required to be qualified under the Trust Indenture Act of 1939, as amended, and the Trust Fund (as defined in the Pooling Agreement) is not required to be registered under the Investment Company Act of 1940, as amended; (G) The Mortgage Loan Purchase Agreement has been duly authorized, executed and delivered by CMSI and each Originator and constitutes the valid and legally binding obligation of CMSI and each such Originator, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights and by general equity principles; (H) The Registration Statement has become effective under the Act, and, to the best of the knowledge of such counsel, (x) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or have been threatened under the Act, (y) the Registration Statement and the Prospectus, as of the date of the Prospectus, and each revision or amendment thereof or supplement thereto relating to the offered certificates, as of its effective or issue date, appeared on their respective faces to be appropriately responsive in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder applicable to such documents as of such respective dates and (z) the Prospectus, as revised, amended or supplemented as of the closing date, will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder applicable to such documents as of the closing date; in the course of such counsel's review of the Registration Statement and the Prospectus and discussion of the same with certain officers of CMSI, Citicorp and the Originators and their auditors, no facts came to the attention of such counsel that caused such counsel to believe that the Registration Statement or the Prospectus, as of the date of the Prospectus, or any revision or amendment thereof or supplement thereto, as of its effective or issue date, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or that the Prospectus, or any revision or amendment thereof or supplement thereto filed prior to the date of such opinion, as of the date of such opinion, contained any untrue statement of 8 a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; the descriptions in the Registration Statement and the Prospectus, as of the date of such opinion, of the offered certificates and the Pooling Agreement and such description, as of the date of the Prospectus, of the aspects of certain statutes as set forth in the Prospectus under the headings "ERISA considerations" and "Additional ERISA considerations" were, to the extent that they constitute statements of matters of law or legal conclusions with respect thereto, accurate in all material respects; and such counsel does not know of any contracts or documents relating to CMSI of a character required to be described in or to be filed as exhibits to the Registration Statement, as of the date of the Prospectus, which were not described or filed as required; it being understood that such counsel need express no opinion as to the financial or statistical statements or other financial data and statistical data contained or incorporated by reference in or omitted from the Registration Statement or the Prospectus; (I) This Agreement has been duly authorized, executed and delivered by each of CMSI and Citicorp; and (J) Such other opinions with regard to secured transactions, bankruptcy, insolvency and related matters which the Underwriter may reasonably request. Such opinion may express its reliance (a) as to factual matters on the representations and warranties made by, and on certificates or other documents furnished by officers of, the parties to this Agreement and the Pooling Agreement, (b) as to legal matters relating to the Employee Retirement Income Security Act of 1974, as amended, on an opinion, dated the closing date, of counsel acceptable to the Underwriter, and (c) as to legal matters relating to secured transactions, bankruptcy, insolvency and related matters, on an opinion, dated the closing date, of Cadwalader, Wickersham & Taft, special bankruptcy counsel to CMSI. Such opinion may assume the due authorization, execution and delivery of the instruments and documents referred to therein by the parties thereto other than CMSI, Citicorp and the Originators. Such opinion may be qualified as an opinion only on the General Corporation Law of the State of Delaware, the laws of each state in which the writer of the opinion is admitted to practice law and the federal law of the United States. (ii) An opinion, dated the closing date, of a Tax Counsel for Asset Securitization of Citibank, N.A. or other tax counsel acceptable to you, to the effect that: (A) The description in the Registration Statement and the Prospectus, as of the date of the Prospectus, to the extent it constitutes statements of matters of law or legal conclusions with respect thereto, of the aspects of certain statutes as set forth in the Prospectus under the headings "Taxation of certificate holders," "Taxation of the Trust," and "Federal income tax consequences" is accurate in all material respects; and (B) The Trust described in the Prospectus and the Pooling Agreement will qualify as one or more REMICs within the meaning of Section 860D of the Internal Revenue Code of 1986, as amended (the "Code"), the certificates described in the 9 Prospectus and the Pooling Agreement will be treated as "regular interests" in a REMIC for purposes of Code Section 860G(a)(1) and the residual certificates described in the Pooling Agreement will be treated as "residual interests" in a REMIC for purposes of Code Section 860G(a)(2), assuming: (i) an election is made to treat the Trust, or one or more segregated pools of assets within the Trust, as one or more REMICs, (ii) compliance with the Pooling Agreement and (iii) compliance with changes in the law, including any amendments to the Code or applicable Treasury regulations thereunder. (d) The Underwriter shall have received from Cadwalader, Wickersham & Taft, counsel for the Underwriter, such opinion or opinions, dated the closing date, with respect to the issuance and sale of the offered certificates, the Registration Statement and the Prospectus, and such other related matters as the Underwriter may reasonably request. (e) KPMG LLP shall have furnished to the Underwriter a letter, dated the closing date, in form and substance satisfactory to the Underwriter, stating in effect that they have performed certain specified procedures as a result of which they have determined that: (i) the information of an accounting, financial or statistical nature with respect to the serviced portfolio of CitiMortgage, Inc. ("CitiMortgage") and the securitized portfolio of the originators named in the Prospectus (and certain other affiliates of CitiMortgage) of one- to four-family mortgage loans (which is limited to accounting, financial or statistical information derived from the general accounting records of the Originators) set forth in the Prospectus under the caption "Delinquency, foreclosure and loss experience" agrees with the accounting records of the Originators, excluding any questions of legal interpretation. (f) KPMG LLP shall have furnished to the Underwriter a letter, dated the closing date, in form and substance satisfactory to the Underwriter, stating in effect that: (i) They have performed certain specified procedures as a result of which they have determined that the information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Originators and which is obtained from an analysis of a sample of the mortgage loans) set forth in the Prospectus under the caption "Series overview--the mortgage loans at the cut-off date" and in the detailed description relating to such Prospectus and the mortgage loans agrees with the accounting records of the Originators, excluding any questions of legal interpretation; and (ii) They have compared the data contained in a data sheet or computer tape prepared by CitiMortgage for the mortgage loans to information contained in the Mortgage Loan files furnished by the Originators and in such other sources as shall be specified by them, based on an appropriate sampling thereof, and found such data and information to be in agreement, unless otherwise noted in such letter. 10 (g) If there is more than one class of offered certificates, KPMG LLP shall have furnished to the Underwriter a letter, dated the date of the Prospectus, in form and substance satisfactory to the Underwriter, stating in effect that: (i) using the assumptions and methodology used by CMSI (which include and do not conflict with any assumptions and methodology set forth in the Prospectus), all of which shall be described by reference in such letter, they have recalculated the percentages and weighted average lives set forth in the Prospectus in the tables relating to the "Principal balance as percent of initial principal balance" for each class of offered certificates at certain percentages of the prepayment model to be set forth in the Prospectus, compared the results of their calculations to the corresponding items in the respective table and found each such percentage and weighted average life set forth in each such table to be in agreement with the respective results of such calculations; (ii) using the assumptions and methodology prescribed in the Prospectus, they have recalculated, for each distribution day (as defined in the Prospectus), the aggregate of the amount of cash to be on deposit in the Trust on the Determination Date immediately preceding such distribution day and found that such aggregate amount equals or exceeds the aggregate amount of interest and distributions in reduction of Principal Amount that is distributable on the offered certificates on the following distribution day, as recalculated by them; (iii) using the assumptions and methodology prescribed in the Pooling Agreement and the Prospectus, they have recomputed the last distribution day for each class of offered certificates and found such dates to be in agreement with those set forth in the Prospectus; (iv) if one or more classes of offered certificates will be entitled to receive distributions in respect of interest at other than a fixed rate or distributions in reduction of Principal Amount according to a schedule of planned or targeted amounts, or have other characteristics which give rise to the use of tables in the Prospectus reflecting yield or cash flow, such letters shall also set forth such other statements as are customarily set forth by KPMG LLP in such letters with respect to such classes; and (v) using the assumptions and methodology used by CMSI set forth in the Prospectus, all of which shall be described by reference in such letter, they have recalculated the percentages set forth in the Prospectus in the tables entitled "Pre-tax yield" of the offered class B certificates, compared the results of their calculations to the corresponding items in such table and found each such percentage set forth in such table to be in agreement with the results of such calculations. (h) Subsequent to the date hereof, there shall not have occurred any change, or any development involving a prospective change, in or affecting the business or properties of CMSI which the Underwriter concludes, after consultation with CMSI, in the judgment of the Underwriter, materially impairs the investment quality of the offered certificates so as to make it impractical or inadvisable to proceed with the public offering or the delivery of the offered certificates as contemplated by the Prospectus. 11 (i) The offered certificates shall have been rated at least the rating or ratings specified in Schedule I by the rating agency specified in Schedule I and such ratings shall not have been rescinded or placed under review. (j) CMSI shall have furnished to the Underwriter such further information, certificates and documents as the Underwriter may reasonably have requested not less than three full business days prior to the closing date. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Underwriter and its counsel, this Agreement and all obligations of the Underwriter hereunder may be canceled at, or at any time prior to, the closing date by the Underwriter. Notice of such cancellation shall be given to CMSI in writing, or by telephone or telegraph confirmed in writing. 7. Conditions to the Obligation of CMSI. The obligation of CMSI to issue and sell the offered certificates shall be subject to the satisfaction of the conditions that on the closing date, (a) the unoffered certificates (as described in the Prospectus) shall have been issued and sold under the Purchase Agreement dated the date of this Agreement among CMSI, Citicorp and the purchaser thereof. (b) the Underwriter shall have delivered to CMSI a certificate stating that attached thereto are all of the information, tables, charts and other items prepared by the Underwriter that constitute "Computational Materials" (as defined in the letter dated May 4, 1994, from Brown & Wood to Linda C. Quinn, Director of the Division of Corporation Finance of the Commission (together with the Commission's response thereto dated May 20, 1994, the "Kidder No-Action Letter")) or "ABS Term Sheets" (as defined in the letter dated February 13, 1995 from Cleary, Gottlieb, Steen & Hamilton to Abigail Arms, Associate Director (Legal) of the Division of Corporation Finance of the Commission (together with the Commission's response thereto dated February 17, 1995, the "PSA No-Action Letter")) which are required to be filed with the Commission pursuant to the terms of the Kidder No-Action Letter or the PSA No-Action Letter and stating that the Underwriter has otherwise complied with the terms of the Kidder No-Action Letter and the PSA No-Action Letter. (c) KPMG LLP shall have furnished to the Issuer and the Underwriter a letter or letters, each in form and substance satisfactory to the Issuer, relating to the ABS Term Sheets and Computational Materials of the Underwriter filed in accordance with Section 5(f) and dated the date of the related Current Report on Form 8-K and stating in effect that: (i) using the assumptions and methodology used by the Underwriter, all of which shall be described by reference in the letter, they have recomputed the numerical data and dates set forth in the ABS Term Sheets and Computational Materials (or portions thereof) attached to such letter, compared the results of their calculations to 12 the corresponding items in such ABS Term Sheets and Computational Materials (or portions thereof) and found such items to be in agreement with the respective results of such calculations; (ii) if such ABS Term Sheets and Computational Materials include data reflecting the distribution of interest at other than a fixed rate or the distribution in reduction of Principal Amount according to a schedule of planned or targeted amounts, or reflecting other characteristics which give rise to the use of tables in such ABS Term Sheets and Computational Materials, such letter shall also set forth such other statements as are customarily set forth by KPMG LLP in such letter with respect to such data; and (iii) they have performed certain specified procedures as a result of which they have determined that the information of an accounting, financial or statistical nature set forth in such Computational Materials and ABS Term Sheets agrees with the data sheet or computer tape prepared by CMSI, unless otherwise indicated in such letter. 8. Indemnification and Contribution. (a) CMSI agrees to indemnify and hold harmless the Underwriter and each person who controls the Underwriter within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which it or any of them may become subject under the Act, the Exchange Act, or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact (except any fact relating to Citicorp or any affiliates of Citicorp other than CMSI) contained in the Registration Statement or in the Prospectus, or in any revision or amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact (except any fact relating to Citicorp or any affiliates of Citicorp other than CMSI) required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading, and agrees to reimburse as incurred each such indemnified party for any legal or other expenses reasonably incurred by them or him in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that CMSI will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to CMSI by or on behalf of the Underwriter specifically for use in connection with the preparation thereof, consisting solely of such Underwriter's statements as are included in Schedule I hereto, or (ii) any such untrue statement made in ABS Term Sheets or Computational Materials incorporated therein as a result of any filing pursuant to Section 5(f) (except to the extent any such untrue statement or alleged untrue statement results directly from inaccurate information (including information set forth in the Collateral Term Sheet referred to in Section 5(g)) or a failure to furnish information specifically requested by the Underwriter (each, a "Collateral Error") provided to the Underwriter by or on behalf of CMSI or Citicorp relating to the mortgage loans) or (iii) any omission or alleged omission to state in Computational Materials or ABS Term Sheets of the Underwriter incorporated by reference into the Registration Statement or Prospectus as a result of any filing pursuant to Section 5(f) a material fact that, when read in conjunction with the Prospectus, is required to be stated therein or necessary to make the statements therein not misleading (except to the extent any such omission or alleged omission results 13 directly from a Collateral Error), or (iv) any inaccuracy or untruth of the statements or representations set forth in Section 7(b); and provided further that such indemnity with respect to any Collateral Error shall not inure to the benefit of the Underwriter (or any person controlling the Underwriter) from whom the person asserting any loss, claim, damage or liability received any Computational Materials or ABS Term Sheets that were prepared on the basis of such Collateral Error, if, prior to the time of confirmation of the sale of offered certificates to such person, CMSI notified the Underwriter in writing of the Collateral Error or provided in written or electronic form information superseding or correcting such Collateral Error (in any such case, a "Corrected Collateral Error"), and the Underwriter failed to notify such person thereof or to deliver such person corrected Computational Materials and/or ABS Term Sheets, as applicable. This indemnity agreement will be in addition to any liability which CMSI may otherwise have. (b) Citicorp agrees to indemnify and hold harmless the Underwriter and each person who controls the Underwriter within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act, or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact relating to Citicorp or any affiliates of Citicorp (other than CMSI) contained in the Registration Statement or in the Prospectus, or in any revision or amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact relating to Citicorp, or any affiliates of Citicorp (other than CMSI) required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading, and agrees to reimburse as incurred each such indemnified party for any legal or other expenses reasonably incurred by them or him in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that Citicorp will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to Citicorp by or on behalf of the Underwriter specifically for use in connection with the preparation thereof, consisting solely of such Underwriter's statements as are included in Schedule I hereto, or (ii) any such untrue statement made in ABS Term Sheets or Computational Materials incorporated therein as a result of any filing pursuant to Section 5(f) (except to the extent any such untrue statement or alleged untrue statement results directly from a Collateral Error) or (iii) any omission or alleged omission to state in Computational Materials or ABS Term Sheets of the Underwriter incorporated by reference into the Registration Statement or Prospectus as a result of any filing pursuant to Section 5(f) a material fact that, when read in conjunction with the Prospectus, is required to be stated therein or necessary to make the statements therein not misleading (except to the extent any such omission or alleged omission results directly from a Collateral Error), or (iv) any inaccuracy or untruth of the statements or representations set forth in Section 7(b); and provided further that such indemnity with respect to any Collateral Error shall not inure to the benefit of the Underwriter (or any person controlling the Underwriter) in the case of a Corrected Collateral Error, if the Underwriter failed to notify such person thereof or to deliver to such person corrected Computational Materials and/or ABS Term Sheets, as applicable. This indemnity agreement will be in addition to any liability which Citicorp may otherwise have. 14 (c) The Underwriter agrees to indemnify and hold harmless CMSI and Citicorp, each of their respective directors, each of their respective officers who signed the Registration Statement or any amendment thereof, and each person who controls CMSI or Citicorp within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnities from CMSI and Citicorp to the Underwriter, but only with reference to (i) written information furnished to CMSI or Citicorp by or on behalf of the Underwriter specifically for use in connection with the preparation of the Prospectus or any revision or amendment thereof or supplement thereto, consisting solely of such Underwriter's statements as are included in Schedule I hereto, (ii) any untrue statement made in ABS Term Sheets or Computational Materials incorporated by reference into the Registration Statement or Prospectus as a result of any filing pursuant to Section 5(f) (except to the extent any such untrue statement or alleged untrue statement results directly from a Collateral Error that is not subsequently a Corrected Collateral Error) and (iii) any inaccuracy or untruth of the statements or representations set forth in Section 7(b). This indemnity agreement will be in addition to any liability which the Underwriter may otherwise have. Each of CMSI and Citicorp acknowledges that the statements set forth in Schedule I under the heading "Underwriter's Statements to be Included in the Prospectus" constitute the only information furnished in writing by or on behalf of the Underwriter for inclusion in the Prospectus or any revision or amendment thereof or supplement thereto, and the Underwriter confirms that such statements are correct. (d) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise than under this Section 8. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by the indemnified party or parties, representing the indemnified party or parties who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has 15 authorized the employment of counsel for the indemnified party at the expense of the indemnifying party; and except that, if clause (i) or (iii) is applicable, such liability shall be only in respect of the counsel referred to in such clause (i) or (iii). (e) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 8 is due in accordance with its terms but is for any reason held by a court to be unavailable on grounds of policy or otherwise, CMSI or Citicorp, as the case may be, and the Underwriter shall contribute to the aggregate losses, claims, damages and liabilities (including legal and other expenses reasonably incurred in connection with investigating or defending same) to which CMSI or Citicorp, as the case may be, and the Underwriter may be subject in such proportion so that the Underwriter is responsible for 0.5% thereof and CMSI or Citicorp, as the case may be, is responsible for the balance; provided that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation and provided further that, to the extent such circumstances relate to any untrue statement made in ABS Term Sheets or Computational Materials incorporated by reference into the Registration Statement or Prospectus as a result of any filing pursuant to Section 5(f) (except to the extent any such untrue statement resulted directly from a Collateral Error that was not subsequently a Corrected Collateral Error) or any inaccuracy or untruth of the statements or representations set forth in Section 7(b), then such contribution shall be determined based on the relative fault of CMSI or Citicorp, as the case may be, on the one hand, and the Underwriter on the other in connection with the statements made in such ABS Term Sheets or Computational Materials or the inaccuracy or untruth of such statements or representations which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, or such inaccurate or untrue statement or representation, relates to information supplied by CMSI, Citicorp or the Underwriter, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement, omission or representation. For purposes of this Section 8, each person who controls the Underwriter within the meaning of either the Act or the Exchange Act shall have the same rights to contribution as the Underwriter, and each person who controls CMSI or Citicorp, as the case may be, within the meaning of either the Act or the Exchange Act, each officer of CMSI or Citicorp, as the case may be, who shall have signed the Registration Statement or any amendment thereof and each director of CMSI or Citicorp, as the case may be, shall have the same rights to contribution as CMSI or Citicorp, as the case may be. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph (e), notify such party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this paragraph (e). 9. Termination. This Agreement shall be subject to termination in the absolute discretion of the Underwriter, by notice given to CMSI and Citicorp prior to delivery of and payment for the offered certificates, if prior to such time (i) trading in securities generally on the New York Stock Exchange shall have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in New York shall have been declared by either 16 federal or New York State authorities, or (iii) there shall have occurred any material outbreak or escalation of hostilities or other calamity or crisis the effect of which on the financial markets of the United States is such as to make it, in the reasonable judgment of the Underwriter after consultation with CMSI, impracticable to market the offered certificates. 10. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of CMSI and Citicorp and its respective officers and of the Underwriter set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriter, CMSI or Citicorp or any of the officers, directors or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the offered certificates. The provisions of Section 8 hereof shall survive the termination or cancellation of this Agreement. 11. Obligation of Citicorp. Citicorp agrees, in consideration of and as an inducement to the Underwriter's purchase of the offered certificates from CMSI, to indemnify and hold harmless the Underwriter, and each person who controls the Underwriter against any failure by CMSI to perform any of its obligations under this Agreement, including, without limitation, any obligation of CMSI to the Underwriter pursuant to Sections 5 and 8 hereof, after receipt from the Underwriter of written notice of any such failure. 12. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers, directors and controlling persons referred to in Section 8 hereof and their respective successors and assigns, and no other person will have any right or obligation hereunder. 13. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York. 14. Miscellaneous. This Agreement supersedes all prior or contemporaneous agreements and understandings relating to the subject matter hereof. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated except by a writing signed by the party against whom enforcement of such change, waiver, discharge or termination is sought. This Agreement may be signed in any number of counterparts, each of which shall be deemed an original, which taken together shall constitute one and the same instrument. 15. Notices. All communications hereunder will be in writing and effective only upon receipt and, if sent to the Underwriter, will be delivered to the Underwriter at the address specified in Schedule I, or if sent to CMSI, will be delivered to Citicorp Mortgage Securities, Inc., 12855 North Outer Forty Drive, St. Louis, Missouri 63141, Attn: Daniel P. Hoffman, or if sent to Citicorp, will be delivered to Citicorp, Citigroup Center, 153 East 53rd Street, 6th Floor, New York, New York 10043, Attn: Gregory C. Ehlke, Vice President. 17 If the foregoing is in accordance with your understanding of our agreement, please sign and return to each of the undersigned a counterpart hereof, whereupon this letter and your acceptance shall represent a binding agreement among CMSI, Citicorp and the Underwriter. Very truly yours, CITICORP MORTGAGE SECURITIES, INC. By: ---------------------------------- Daniel P. Hoffman Senior Vice President CITICORP By: ---------------------------------- Gregory C. Ehlke Vice President The foregoing Agreement is hereby confirmed and accepted as of the date first above written. [UNDERWRITER] By: ----------------------------------- Name: Authorized Signatory 18 SCHEDULE I Underwriting Agreement dated [_______ __], 200[_] REMIC Pass-Through Certificates, Series 200[_]-[__] Offered Certificates: Senior certificates, and subordinated class B-1 certificates, class B-2 certificates and class B-3 certificates (the "offered class B certificates") (each in such proportion of the mortgage loans as specified in Attachment A hereto and within the respective tolerances as are set forth therein). The senior certificates may include one or more classes of senior class A certificates with the prior consent of an authorized officer of CMSI, which consent shall not unreasonably be withheld. Purchase Price: [__________]% of the Initial Principal Amount of the senior class A certificates other than a class of senior class A certificates which is a ratio-stripped principal-only class (the "class A-PO certificates"), [__________]% of the initial principal balance of the class A-PO certificates, [__________]% of the initial principal balance of the class B-1 certificates, [__________]% of the initial principal balance of the class B-2 certificates, and [__________]% of the initial principal balance of the class B-3 certificates plus, in each case (other than in the case of principal only classes of certificates), accrued interest from (and including) the cut-off date to (but excluding) the closing date at the rate of [_____]% per annum, plus $[________]. Originator and Address: CitiMortgage, Inc.(1) 12855 North Outer Forty Drive St. Louis, Missouri 63141 Underwriter and Address for Notices: [UNDERWRITER]] [Address] [Address] -------- 1 Mortgage loans of this Originator include mortgage loans originated or acquired by Citibank, Federal Savings Bank and originated by Citibank, N.A. I-1 Description of Mortgage Loans: [__]- to [__]-year fixed-rate conventional one- to four-family mortgage loans having an aggregate principal balance as of the cut-off date of approximately $[___________] (subject to an upward or downward variance of up to 5%). The weighted average note rate of the mortgage loans as of the cut-off date is expected to be at least [_____]% but not more than [_____]%. The weighted average remaining term to stated maturity of the mortgage loans as of the cut-off date is expected to be at least [_____]months but no more than [_____] months. The mortgage loans, subject to certain changes by CMSI (which changes shall not be material), are further described in Attachment A hereto. Cut-Off Date: [_________] 1, 200[_] Ratings of Offered Certificates: The senior class A certificates shall be rated "AAA" by [RATING AGENCY 1] and "AAA" by [RATING AGENCY 2]. The class B-1 certificates shall be rated at least "AA" by [RATING AGENCY 2], the class B-2 certificates shall be rated at least "A" by [RATING AGENCY 2], and the class B-3 certificates shall be rated at least "BBB" by [RATING AGENCY 2]. Denominations: The denominations of each senior class and each of the class B-1, class B-2 and class B-3 certificates will be as set forth in the Prospectus. Such denominations will be set by the Underwriter except that the minimum denomination of each senior class and each of the class B-1, class B-2 and class B-3 certificates will be an initial principal balance or initial notional amount of $1,000 and any whole dollar amount in excess thereof (except that one certificate of each such senior class and one class B-1, class B-2 and class B-3 certificate may be in a different denomination if necessary). Underwriter's Statements to be Included in the Prospectus: The purchase price for the offered certificates will be set by the underwriter or negotiated by the purchaser and the underwriter at the time of sale. Subject to the terms and conditions of the underwriting agreement among Citicorp, CMSI and the underwriter, the underwriter will purchase the offered certificates from CMSI upon issuance. The underwriter has committed to purchase all of the offered certificates if any certificates are purchased. The underwriter will distribute the offered certificates from time to time in negotiated transactions or otherwise at varying prices to be determined at the time of sale. I-2 In connection with the purchase and sale of the offered certificates, the underwriter may be deemed to have received compensation from CMSI in the form of underwriting discounts. In connection with this offering, the underwriter may over-allot or effect transactions that stabilize or maintain the market price of the offered certificates at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. Delivery and Payment: Same day funds by federal funds wire. Closing Date and Location: 10:00 a.m. (New York City time) on [________ __], 200[_] at the offices of: Citigroup Inc. 425 Park Avenue, 2nd Floor New York, New York 10043 I-3 ATTACHMENT A A-1 EX-5 4 exhibit5-1.txt OPINION OF JOHN DYE Exhibit 5.1 October 23, 2001 Citicorp Mortgage Securities, Inc. 12855 North Outer Forty Drive St. Louis, MO 63141 Ladies and gentlemen: This opinion is being provided by the undersigned, as an Associate General Counsel--Corporate Law of Citigroup Inc. I have acted as your counsel in connection with the Registration Statement on Form S-3 (the "Registration Statement") being filed today with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"). The Registration Statement covers a total of $1 billion aggregate principal amount of certificates (the "Certificates") of one or more series to be issued by Citicorp Mortgage Securities, Inc. ("CMSI") evidencing fractional undivided interests in a trust or trusts to be created by CMSI. Each series of Certificates will be issued pursuant to a separate Pooling and Servicing Agreement (the "Pooling and Servicing Agreement" for such series) between CMSI and a commercial bank, savings and loan association or trust company (the "Trustee" for such series). I, or attorneys under my supervision, have examined originals or copies, certified or otherwise identified to my satisfaction, of such corporate records of CMSI, such other documents and certificates of public officials, officers and representatives of CMSI and other persons and such other documents, agreements and instruments, and I have made such investigations of law, as I have deemed appropriate as a basis for the opinions expressed below. In arriving at the opinions expressed below, I have assumed that the signatures on all documents that I have examined are genuine. In addition, I have assumed that each of the Certificates and each Pooling and Servicing Agreement will be in substantially the form set forth in Citicorp Mortgage Securities, Inc. Page 2 the applicable form of Pooling and Servicing Agreement filed or to be filed as an exhibit to the Registration Statement; and that each Trustee will have the power, authority and legal right to enter into the related Pooling and Servicing Agreement. Based on the foregoing, I am of the opinion that: 1. CMSI is a corporation duly incorporated and validly existing under the laws of the State of Delaware; 2. When the issuance, execution and delivery of any particular series of Certificates have been duly authorized by CMSI, and when the Certificates of such series have been duly executed and delivered by CMSI, duly authenticated by the applicable Trustee and issued and sold as contemplated by the Registration Statement and the prospectus delivered pursuant to Section 5 of the Act in connection therewith, such Certificates will be legally and validly issued, fully paid and nonassessable and entitled to the benefits provided by the applicable Pooling and Servicing Agreement; 3. When a Pooling and Servicing Agreement has been duly and validly authorized, executed and delivered by CMSI and a Trustee, such Pooling and Servicing Agreement will constitute a valid and binding obligation of CMSI subject, as to enforcement, to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting the rights of creditors generally and to general principles of equity and the discretion of the court (regardless of whether enforceability is considered in a proceeding in equity or at law). The opinions expressed herein are limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the federal laws of the United States of America. I hereby consent to the use and filing of this opinion as an exhibit to the Registration Statement and to the reference to this opinion Citicorp Mortgage Securities, Inc. Page 3 under the heading "Legal opinions" in any prospectus filed in connection with the Registration Statement. In giving such consent, I do not thereby admit that I come within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, /s/ John R. Dye John R. Dye EX-8 5 exhibit8-1.txt RONA DANIELS TAX OPINION Exhibit 8.1 October 23, 2001 Citicorp Mortgage Securities, Inc. 12855 North Outer Forty Drive, Mail Station 74 St. Louis, MO 63141 Re: REMIC Pass-Through Certificates Gentlemen: I am a Vice President of Citibank, N.A., and have acted as your tax counsel in connection with the proposed issuance of REMIC Pass-Through Certificates (the "Certificates") pursuant to a Registration Statement on Form S-3 (the "Registration Statement"), which is being filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"). Capitalized terms used and not otherwise defined herein are intended to have the respective meanings ascribed to such terms in the Registration Statement. In rendering the opinion set forth below, I have examined and relied upon the following: (1) the Registration Statement and the Prospectus forming a part thereof (the "Prospectus"), substantially in the form to be filed with the Commission; (2) the form of Pooling and Servicing Agreement to be filed as an exhibit to the Registration Statement; and (3) such other documents, materials, and authorities as I have deemed necessary in order to enable me to render my opinion set forth below. As your tax counsel, I have advised you with respect to certain federal income tax aspects of the proposed issuance of the Certificates. Such advice has formed the basis for the description of material federal income tax consequences for holders of the Certificates that appears under the headings "Taxation of certificate holders" and "Taxation of the Trust" in the Prospectus. Such description does not purport to discuss all possible federal income tax ramifications of the proposed issuance of the Certificates, but, with respect to those federal income tax consequences which are discussed, in my opinion the description is accurate in all material respects. The foregoing opinions are based on the facts and circumstances set forth in the Prospectus and in the other documents reviewed by me. My opinion as to the matters set forth herein could change with respect to a particular series of Certificates as a result of changes in facts and circumstances, changes in the terms of the documents reviewed by me, or changes in the law subsequent to the date hereof. As the Registration Statement contemplates series of Certificates with numerous different characteristics, the particular characteristics of each series of Certificates must be considered in determining the applicability of this opinion to a particular series of Certificates. I hereby consent to the filing of this letter as an exhibit to the Registration Statement and to the reference to this opinion under the heading "Taxation of the Trust" in each Prospectus, without admitting that I am an "expert" within the meaning of the Act or the rules or regulations of the Commission issued thereunder. Very truly yours, /s/ Rona Daniels