PROSPECTUS SUPPLEMENT
to Prospectus dated July 29, 2005
$295,929,100
(Approximate)
Seller and Master Servicer
First Horizon Alternative Mortgage Securities Trust 2005-AA11
Issuer
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2005-AA11
Distributions payable monthly commencing in December 2005
The following classes of certificates are being offered pursuant to this prospectus supplement and the accompanying prospectus:
• 3 classes of senior certificates
• 3 classes of subordinated certificates
For a description of the classes of certificates offered by this prospectus supplement and the accompanying prospectus, see “Summary—Offered Certificates” on page S-5 of this prospectus supplement. Credit enhancement for the certificates will be provided by subordination.
You should carefully consider the risk factors beginning on page S-10 of this prospectus supplement and on page 6 of the accompanying prospectus. | The assets of the trust will include two pools of primarily 30-year adjustable rate, first lien, fully amortizing, one-to-four family residential mortgage loans. The remaining terms to maturity of the mortgage loans in Pool I will range from 355 to 360 months. The remaining terms to maturity of the mortgage loans in Pool II will range from 350 to 360 months. |
The SEC and state securities regulators have not approved or disapproved of these securities or determined if this prospectus supplement or the prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
UBS Securities LLC will purchase the senior certificates and Lehman Brothers Inc. will purchase the subordinated certificates. UBS Securities LLC and Lehman Brothers Inc., together with FTN Financial Securities Corp., will sell the offered certificates to investors at varying prices to be determined at the time of sale. The proceeds to the depositor from the sale of the certificates will be approximately 100.784% of the total principal balance of those certificates, plus accrued interest, if any, before deducting expenses. Each underwriter's commission will be the difference between the price it pays for the certificates and the amount it receives from their sale to the public. The certificates will be available for delivery to investors on or about November 30, 2005.
UBS Investment Bank
Lehman Brothers
FTN Financial
Prospectus Supplement dated November 28, 2005.
Important notice about information presented in this We provide information to you about the certificates offered by this prospectus supplement in two separate documents that progressively provide more detail: (1) the accompanying prospectus, which provides general information, some of which may not apply to your certificates, and (2) this prospectus supplement, which describes the specific terms of your certificates. You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you with different information. We are not offering the certificates in any state where the offer is not permitted. We do not claim that the information in this prospectus supplement and the accompanying prospectus is accurate as of any date other than the dates stated on their respective covers. We include cross-references in this prospectus supplement and the accompanying prospectus to captions in these materials where you can find further related discussions. The following table of contents and the table of contents included in the accompanying prospectus provide the pages on which these captions are located. After the initial distribution of the certificates offered hereby, this prospectus supplement and the accompanying prospectus may be used by FTN Financial Securities Corp., an affiliate of the depositor, the seller and the master servicer, in connection with market making transactions in such certificates. FTN Financial Securities Corp. may act as principal or agent in these transactions. These transactions will be at market prices at the time of sale and not at the prices of the initial offering. S-2 TABLE OF CONTENTS PROSPECTUS SUPPLEMENT S-3 S-4 This summary highlights selected information from this document and does not contain all the information that you need to consider in making your investment decision. To understand all the terms of an offering of the certificates, you should read carefully this entire document and the accompanying prospectus. For the definitions of certain capitalized terms used in this prospectus supplement, see “Glossary of Terms” on page S-51. The Issuer of the certificates will be First Horizon Alternative Mortgage Securities Trust 2005-AA11. The trust was created for the sole purpose of issuing the certificates. The assets of the trust will consist of two pools of mortgage loans: “Pool I” and “Pool II.” Pool I consists of 699 mortgage loans with an aggregate stated principal balance as of November 1, 2005 of approximately $136,609,536. Pool II consists of 507 mortgage loans with an aggregate stated principal balance as of November 1, 2005 of approximately $163,369,551. The mortgage rate for each mortgage loan in Pool I and Pool II is fixed for approximately 60 months after the related origination date and then becomes subject to adjustment on a semi-annual basis based on a specified index. The aggregate principal balance of the mortgage loans in Pool I and Pool II as of November 1, 2005 is approximately $299,979,086. Substantially all the mortgage loans in Pool I and Pool II were underwritten in accordance with the seller’s Super Expanded Underwriting Guidelines. For a detailed description of the mortgage loans in Pool I and Pool II, see “The Mortgage Pools” and Annexes I, II and III to this prospectus supplement. On the closing date, the trust will issue nine classes of certificates, six of which are being offered by this prospectus supplement and the accompanying prospectus. The following table shows the approximate initial class certificate balance, initial annual pass-through rate and type of each class of offered certificates: (1) The pass-through rates for each class of certificates listed above for each distribution date will be variable and will be calculated as described under “Description of the Certificates — Distributions on the Certificates — Interest” in this prospectus supplement. The trust will also issue Class B-4, Class B-5 and Class B-6 Certificates, which are not offered by this prospectus supplement. Depending on the final composition of the pools of mortgage loans sold to the trust, the class certificate balance of each class of certificates may increase or decrease from the amount listed above. Any difference between the total class certificate balance of the certificates on the date they are issued and the approximate total class certificate balance of the certificates on the date of this prospectus supplement will not exceed 5%. All classes of the offered certificates, other than the Class I-A-R Certificates, will be book-entry certificates. S-5 The trust will issue the certificates in the following minimum denominations: Certificates with principal balances in excess of these amounts, other than the Class I-A-R Certificates, will be issued in multiples of $1,000 above the minimum denomination. See “The Mortgage Pools,” “Description of the Certificates—General” and “—Book-Entry Certificates” in this prospectus supplement and “Description of theSecurities—General,” “—Categories of Classes of Securities” and “—Book-entry Registration of Securities” in the prospectus. Relationship Between Mortgage Pools and the Certificates The senior certificates whose class designation begins with “I” correspond to Pool I. The senior certificates whose class designation begins with “II” correspond to Pool II. Each of the certificates generally receives distributions based on principal and interest collected from mortgage loans in its corresponding mortgage pool or mortgage pools. The subordinated certificates correspond to and will be entitled to payments in respect of both mortgage pools. The senior certificates that correspond to a particular mortgage pool are sometimes referred to in this prospectus supplement collectively as a “certificate group.” First Horizon Home Loan Corporation originated or acquired all the mortgage loans. The mortgage loans in Pool I which are expected to be sold to the trust on the closing date have the following characteristics as of November 1, 2005: The mortgage loans in Pool II which are expected to be sold to the trust on the closing date have the following characteristics as of November 1, 2005: (1) Approximate, after deducting payments of principal due on or before November 1, 2005, and subject to the variance described in this prospectus supplement. See “The Mortgage Pools — General” in this prospectus supplement. November 1, 2005, the date as of which the aggregate principal balance of the mortgage loans is determined for purposes of this prospectus supplement, unless a different date is specified. On or about November 30, 2005. First Horizon Asset Securities Inc. S-6 First Horizon Home Loan Corporation The Bank of New York Custodian First Tennessee Bank National Association Distributions on the Certificates The trustee will make distributions on the certificates on the 25th day of each month. If the 25th is not a business day, the trustee will make distributions on the next business day. The first distribution date will be December 27, 2005. On each distribution date, the trustee will first pay to the senior certificates of each certificate group the amounts of interest and principal distributable to them from available funds from the corresponding mortgage pool. The trustee will then pay interest and principal to the subordinated certificates from the remaining available funds from each mortgage pool. Interest Payments Principal Payments S-7 You should refer to “Description of the Certificates Distributions on the Certificates —Allocation of Available Funds” in this prospectus supplement. The master servicer may purchase all the remaining assets of the trust after the aggregate stated principal balance of the mortgage loans in the mortgage pools owned by the trust declines below 10% of the aggregate stated principal balance of the mortgage loans in both mortgage pools on November 1, 2005. Except as described under “Description of the Certificates — Optional Termination” in this prospectus supplement, if the trust assets are purchased, certificateholders will be paid accrued interest and principal equal to the outstanding principal amount of the certificates. See “Description of the Certificates — Optional Termination” in this prospectus supplement. The master servicer will make cash advances with respect to delinquent payments of principal and interest on the mortgage loans to the extent the master servicer reasonably believes that the cash advances can be repaid from future payments on the mortgage loans. These cash advances are only intended to maintain a regular flow of scheduled interest and principal payments on the certificates and are not intended to guarantee or insure against losses. See “Servicing of Mortgage Loans — Advances” in this prospectus supplement. Subordination If you are the holder of a senior certificate, your certificate will benefit from the credit enhancement provided by the subordination of the subordinated certificates. This subordination will benefit the senior certificates in two ways: If you are the holder of a senior certificate, you should keep in mind, however, that the subordination of the subordinated certificates offers only limited protection against the loss of your investment. If you are the holder of a subordinated certificate, your certificate will benefit from the credit enhancement provided by the subordination of any lower-ranking classes of subordinated certificates. This subordination will, however, offer only limited protection against the loss of your investment. Cross-collateralization Except as provided in this prospectus supplement, if the aggregate class certificate balance of the senior certificates of a certificate group is greater than the Pool Principal Balance of the related mortgage pool, then certain payments on the mortgage loans in the other mortgage pool, otherwise payable to the subordinated certificates will be paid to such senior certificates until their class certificate balances are equal to the Pool Principal Balance of the related mortgage pool. See “Description of the Certificates — Cross-collateralization” in this prospectus supplement. For federal income tax purposes, the trust will consist of one or more real estate mortgage investment conduits: one or more underlying REMICs (if any) and the master REMIC. The assets of the lowest underlying REMIC in this tiered structure (or the S-8 master REMIC if there are no underlying REMICs) will consist of the mortgage loans and any other assets designated in the pooling and servicing agreement. The master REMIC will issue several classes of certificates, which, other than the Class I-A-R Certificates, will represent the regular interests in the master REMIC. The Class I-A-R Certificates will represent ownership of both the residual interest in the master REMIC and the residual interests in any underlying REMICs. See “Material Federal Income Tax Consequences” in this prospectus supplement and in the prospectus. A pension or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974 or Section 4975 of the Internal Revenue Code of 1986 may purchase the offered certificates, other than the Class I-A-R Certificates, so long as the conditions described under “ERISA Considerations” are met. See “ERISA Considerations” in this prospectus supplement and in the prospectus. The senior certificates and the Class B-1 Certificates will be mortgage related securities for purposes of the Secondary Mortgage Market Enhancement Act of 1984 as long as they are rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization. The Class B-2 and Class B-3 Certificates will not be mortgage related securities for purposes of that act. See “Legal Investment” in the prospectus. The classes of senior certificates will not be offered unless they are assigned ratings “AAA” and “Aaa” by Fitch and Moody’s, respectively. The classes of subordinated certificates listed below will not be offered unless they are assigned the following ratings by Fitch: A rating is not a recommendation to buy, sell or hold securities. These ratings may be lowered or withdrawn at any time by either of the rating agencies. You should refer to “Ratings” in this prospectus supplement to learn more about the significance and limitations of ratings. S-9 The following information, which you should carefully consider, identifies known material sources of risk associated with an investment in the certificates. You should also carefully consider the information set forth under “Risk Factors” on page 6 of the prospectus. S-10 S-11 S-12 S-13 S-14 S-15 S-16 S-17 We caution you that certain statements contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus consist of forward-looking statements relating to future economic performance or projections and other financial items. These statements can be identified by the use of forward-looking words such as “may,” “will,” “should,” “expects,” “believes,” “anticipates,” “estimates,” or other comparable words. Forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ from the projected results. Those risks and uncertainties include, among others, general economic and business conditions, regulatory initiatives and compliance with governmental regulations, customer preferences, effects of prepayments, changes in interest rates and various other matters, many of which are beyond our control. Because we cannot predict the future, what actually happens may be very different from what we predict in our forward-looking statements. The depositor will purchase the mortgage loans in each mortgage pool from the seller pursuant to a mortgage loan purchase agreement (the “MLPA”) between First Horizon, as seller, and the depositor, as purchaser. Simultaneously with the depositor’s purchase of the mortgage loans, the seller will transfer the servicing rights for the mortgage loans to First Tennessee Mortgage Services, Inc. (“FTMSI”) pursuant to a servicing rights transfer and subservicing agreement (the “Servicing Rights Transfer and Subservicing Agreement”) between the seller, as transferor, and FTMSI, as transferee. FTMSI will agree to service the mortgage loans for the depositor and its assigns pursuant to a servicing agreement (the “Servicing Agreement”) between the depositor, as owner, and FTMSI, as servicer. In addition, the seller will agree to subservice the mortgage loans for FTMSI pursuant to the Servicing Rights Transfer and Subservicing Agreement. The seller will have directly originated or acquired the mortgage loans from various unaffiliated third parties. All of the mortgage loans were underwritten substantially in accordance with the seller’s underwriting standards. See “Loan Program — Underwriting Standards” in the prospectus. The depositor will sell and assign the mortgage loans to the trustee for the benefit of the certificateholders pursuant to a pooling and servicing agreement among the depositor, First Horizon, as master servicer, and The Bank of New York, as trustee. First Tennessee Bank National Association (“FTBNA”), an affiliate of the depositor and the master servicer, will act as custodian of the mortgage files for the mortgage loans pursuant to the terms of a custodial agreement by and between the trustee, First Horizon, as servicer, and FTBNA. Under the MLPA, the seller will make certain representations, warranties and covenants to the depositor relating to, among other things, the due execution and enforceability of the MLPA and certain characteristics of the mortgage loans and, subject to the limitations described under “—Assignment of the Mortgage Loans” in this prospectus supplement, will be obligated to repurchase or substitute a similar mortgage loan for any mortgage loan as to which there exists deficient documentation or as to which there has been an uncured breach of any representation or warranty relating to the characteristics of the mortgage loans that materially and adversely affects the interests of the certificateholders in the mortgage loan. The seller will represent and warrant to the depositor in the MLPA that the mortgage loans were selected from among the outstanding one-to-four family mortgage loans in the seller’s portfolio as to which the representations and warranties set forth in the MLPA can be made and that the selection was not made in a manner intended to adversely affect the interests of the certificateholders. See “Loan Program — Representations by Sellers; Repurchases” in the prospectus. Under the pooling and servicing agreement, the depositor will assign all its interest in the seller’s representations, warranties and covenants under the MLPA, including the seller’s repurchase obligation, to the trustee for the benefit of the certificateholders. The depositor will make no representations or warranties with respect to the mortgage loans and will have no obligation to repurchase or substitute mortgage loans with deficient documentation or which are otherwise defective. The seller is selling the mortgage loans to the depositor without recourse and the depositor is selling the mortgage loans to the trustee for the benefit of the certificateholders without recourse. Neither the depositor nor the seller will have any obligation with respect to the certificates in its capacity as a mortgage loan seller other than the repurchase and substitution obligations of the seller described above. The obligations of the master servicer with respect to the S-18 certificates are limited to the master servicer’s contractual servicing obligations under the pooling and servicing agreement. The obligations of FTBNA with respect to the mortgage loans are limited to FTBNA’s contractual obligations as custodian of the related mortgage files under the custodial agreement. Information with respect to the mortgage loans expected to be included in each mortgage pool is set forth under this heading and in the tables in Annexes I, II and III to this prospectus supplement. Annexes I and II to this prospectus supplement correspond to the mortgage loans expected to be in Pool I and Pool II, respectively. Information with respect to the mortgage loans expected to be included in both mortgage pools is set forth in Annex III to this prospectus supplement. Before the closing date, mortgage loans may be removed from a mortgage pool and other mortgage loans may be substituted for them. The depositor believes that the information set forth in this prospectus supplement and each Annex with respect to each mortgage pool as presently constituted is representative of the characteristics of each mortgage pool as it will be constituted at the closing date, but some characteristics of the mortgage loans in each mortgage pool may vary. Unless otherwise indicated, information presented in this prospectus supplement and each Annex expressed as a percentage, other than rates of interest, are approximate percentages based on the aggregate Stated Principal Balances of all the mortgage loans as of the cut-off date. No more than 5% of the mortgage loans relative to the aggregate cut-off date pool principal balance of the mortgage pools will deviate from the mortgage loan characteristics described under this heading or in Annexes I, II and III. As of the cut-off date, the aggregate Stated Principal Balance of the mortgage loans in Pool I is expected to be approximately $136,609,536, which is referred to as the cut-off date pool principal balance of Pool I. As of the cut-off date, the aggregate Stated Principal Balance of the mortgage loans in Pool II is expected to be approximately $163,369,551, which is referred to as the cut-off date pool principal balance of Pool II. The mortgage loans in each mortgage pool provide for the amortization of the amount financed over a series of monthly payments, subject to periodic interest rate adjustments; provided that, in the case of the interest-only mortgage loans, such amortization does not begin until after the 120th due date from the origination date. The due date for each mortgage loan is the first day of each calendar month. At origination, substantially all the mortgage loans had stated terms to maturity of 30 years. Scheduled monthly payments made by the mortgagors on the mortgage loans either earlier or later than their scheduled due dates will not affect the amortization schedule or the relative application of the payments to principal and interest. The mortgagors may prepay their mortgage loans at any time without penalty. The mortgage rate of each of the mortgage loans will be fixed for a period of five years after the origination of that mortgage loan. Each mortgage note for the mortgage loans will provide for adjustments to the mortgage rate thereon at the end of the initial five year fixed-rate period and semi-annually thereafter (each such date, an “Adjustment Date”) to equal the sum, rounded to the nearest 0.125%, of (1) the average of the London interbank offered rates for the six-month U.S. dollar deposits in the London market, as set forth in the Wall Street Journal, or, if such rate ceases to be published in the Wall Street Journal or becomes unavailable for any reason, then based upon a new index selected by the master servicer based on comparable information, in each case as most recently announced as of a date generally 45 days prior to such Adjustment Date (the “Six-Month LIBOR Index” or the “Mortgage Index”), and (2) a fixed percentage amount specified in the related mortgage note (the “Gross Margin”); provided, however, that the mortgage rate for all the mortgage loans will not increase or decrease by more than 2.000% every six months, as specified in the related mortgage note (each limit on adjustments in the mortgage rate is referred to as a “Subsequent Periodic Rate Cap”), with the exception of the initial Adjustment Date of the mortgage loans for which the Mortgage Rate on each mortgage loan will not increase or decrease by more than 6.000% (the limit on initial adjustments in the mortgage rate is referred to as an “Initial Periodic Rate Cap” and, together with the Subsequent Periodic Rate Cap, the “Periodic Rate Caps”). In addition, adjustments to the mortgage rate for each mortgage loan are subject to a lifetime maximum interest rate (the “Maximum Mortgage Rate”). Each mortgage loan specifies a lifetime minimum interest rate (the “Minimum Mortgage Rate”), which is equal to the Gross Margin for that mortgage loan. All the mortgage loans in Pool I and Pool II are 5/6 Mortgage Loans. A 5/6 Mortgage Loan has a mortgage rate that is fixed for approximately 60 months after origination thereof before the mortgage rate for that mortgage loan becomes subject to adjustment based on the Six-Month LIBOR Index as described in the preceding paragraph. The earliest date of origination, earliest stated maturity date and latest stated maturity date of any mortgage loan in each loan group is set forth in the following table: S-19 None of the mortgage loans in Pool I and approximately 46.72% of the mortgage loans in Pool II are jumbo mortgage loans which have principal balances at origination that exceed the then applicable limitations for purchase by Fannie Mae and Freddie Mac. Substantially all the mortgage loans were underwritten pursuant to the seller’s “Super Expanded Underwriting Guidelines,” which guidelines generally allow for FICO scores, loan-to-value ratios and debt-to-income ratios that are less restrictive than the seller’s standard full/alternative documentation loan programs. Accordingly, some of the mortgage loans may have higher loan-to-value ratios, higher loan amounts, higher debt-to-income ratios and different documentation requirements than mortgage loans underwritten in accordance with seller’s standard full/alternative documentation loan programs. In addition, the borrowers under such mortgage loans may have lower FICO scores than borrowers under mortgage loans that were underwritten in accordance with seller’s standard full/alternative documentation loan programs. Many of the mortgage loans underwritten in accordance with the seller’s Super Expanded Underwriting Guidelines are not eligible for sale to Fannie Mae or Freddie Mac for reasons other than their principal balance. See“Risk Factors —The mortgage loans have been underwritten under less restrictive guidelines which may result in losses on the mortgage loans,” in this prospectus supplement and “Loan Program — Underwriting Standards — General Standards for First-Lien Mortgage Loans” and “—Guide Standards” in the prospectus. As of the cut-off date, no mortgage loan was delinquent more than 30 days. Substantially all the mortgage loans will not be subject to buydown agreements. No mortgage loan provides for deferred interest or negative amortization. Approximately 85.29% and 89.16% of the mortgage loans in Pool I and Pool II, respectively, are interest-only loans which provide for payment of interest at the related mortgage rate, but no payment of principal, for a period of ten years following the origination of the mortgage loan. No mortgage loan has a loan-to-value ratio at origination of more than 95%. Generally, each mortgage loan with a loan-to-value ratio at origination of greater than 80% is covered by a primary mortgage guaranty insurance policy issued by a mortgage insurance company acceptable to Fannie Mae or Freddie Mac. The primary mortgage guaranty insurance policy provides coverage in an amount equal to a specified percentage times the sum of the Stated Principal Balance of the related mortgage loan, the accrued interest on the related mortgage loan and the related foreclosure expenses. The specified percentage is generally 12% for loan-to-value ratios between 80.01% and 85.00%, 25% for loan-to-value ratios between 85.01% and 90.00%, and 30% for loan-to-value ratios between 90.01% and 95.00%. No primary mortgage guaranty insurance policy will be required with respect to any mortgage loan The loan-to-value ratio of a mortgage loan at any given time is a fraction, expressed as a percentage, the numerator of which is the Stated Principal Balance of the related mortgage loan at the date of determination and the denominator of which is S-20 For mortgage loans originated pursuant to First Horizon’s Streamlined Documentation Program See “Loan Program — Underwriting Standards — General Standards for First-Lien Mortgage Loans” and “—Guide Standards” in the prospectus. No assurance can be given that the value of any mortgaged property has remained or will remain at the level that existed on the appraisal or sales date. If residential real estate values generally or in a particular geographic area decline, the loan-to-value ratios might not be a reliable indicator of the rates of delinquencies, foreclosures and losses that could occur with respect to the affected mortgage loans. Annexes I, II and III attached hereto, set forth in tabular format certain information, as of the cut-off date, as to the mortgage loans in each of the mortgage pools and in the aggregate. Other than with respect to rates of interest, percentages (approximate) are reported by aggregate Stated Principal Balance of the related mortgage loans as of the cut-off date and have been rounded in order to total 100%. Assignment of the Mortgage Loans Pursuant to the pooling and servicing agreement and on the closing date, the depositor will sell, without recourse, all its interest in the mortgage loans and the other assets included in the trust fund, including all principal and interest due and received on the mortgage loans after the cut-off date, to the trustee in trust for the benefit of the certificateholders. In connection with the sale, the depositor will deliver or cause to be delivered to FTBNA, as a custodian for the trustee, the mortgage file for each mortgage loan, which contains, among other things, S-21 except for any documents not returned from the public recording office or an original or certified copy of the applicable title policy, to the extent unavailable, unless an alternative title product is used, each of which will be delivered to the custodian as soon as the same is available to the depositor. With respect to up to 25% of the mortgage loans, the depositor may deliver all or a portion of each related mortgage file to the custodian not later than thirty days after the closing date. Assignments of the mortgage loans to the trustee or its nominee will be recorded in the appropriate public office for real property records in each state where recording is required in order to protect the trustee’s interests in the mortgage loan against the claim of any subsequent transferee or any successor to or creditor of the depositor or the seller. The custodian will review each mortgage file within 90 days of the closing date, or promptly after the custodian’s receipt of any document permitted to be delivered after the closing date, and if any document in a mortgage file is found to be missing or materially defective and the seller does not cure the defect within 90 days after receiving notice of the defect from the custodian, or within such longer period not to exceed 720 days after the closing date as provided in the pooling and servicing agreement (in the case of missing documents not returned from the public recording office or in the case of the original or certified copy of the applicable title policy, unless an alternative title product is used), the seller will be obligated to repurchase the affected mortgage loan from the trust fund. Rather than repurchase the mortgage loan as provided above, the seller may, at its option, remove the affected mortgage loan (referred to as a deleted mortgage loan) from the trust fund and substitute in its place another mortgage loan (referred to as a replacement mortgage loan); however, a substitution will only be permitted within two years of the closing date and may not be made unless an opinion of counsel is provided to the trustee to the effect that the substitution will not disqualify any REMIC or result in a prohibited transaction tax under the Code. On the date of substitution, any replacement mortgage loan will: S-22 This cure, repurchase or substitution obligation of the seller constitutes the sole remedy available to certificateholders or the trustee for omission of, or a material defect in, a mortgage loan document. Notwithstanding the foregoing, in lieu of delivering a duly executed assignment of the mortgage to the custodian and the original recorded assignment or assignments of the mortgage together with all interim recorded assignments of such mortgage, above, the depositor may at its discretion provide the custodian with evidence that the related mortgage is held through the MERS® System. In addition, the mortgage for some or all the mortgage loans in the trust fund that are not already held through the MERS® System may, at the discretion of the master servicer, in the future be held through the MERS® System. For any mortgage held through the MERS® System, the mortgage is recorded in the name of Mortgage Electronic Registration Systems, Inc., or MERS, as nominee for the owner of the mortgage loan, and subsequent assignments of the mortgage were, or in the future may be, at the discretion of the master servicer, registered electronically through the MERS® System. For each of these mortgage loans, MERS serves as mortgagee of record on the mortgage solely as a nominee in an administrative capacity on behalf of the trustee, and does not have any interest in the mortgage loan. Pursuant to the Servicing Rights Transfer and Subservicing Agreement, First Horizon will transfer the servicing rights for the mortgage loans to FTMSI on the closing date and will agree to subservice the mortgage loans for FTMSI. Pursuant to the Servicing Agreement between FTBNA, or its assigns, and FTMSI, FTMSI will service the mortgage loans. In addition, pursuant to the Servicing Rights Transfer and Subservicing Agreement, First Horizon will agree to subservice the mortgage loans for FTMSI in accordance with the terms set forth in the pooling and servicing agreement. In the event of a conflict between the terms of the Servicing Rights Transfer and Subservicing Agreement and the pooling and servicing agreement, the pooling and servicing agreement provisions will prevail. See “The Agreements” in the prospectus. The master servicer may perform any of its obligations under the pooling and servicing agreement through one or more subservicers. Notwithstanding any subservicing arrangement, the master servicer will remain liable for its servicing duties and obligations under the pooling and servicing agreement as if the master servicer alone were servicing the mortgage loans. First Horizon will act as master servicer for the mortgage loans pursuant to the pooling and servicing agreement. First Horizon is engaged primarily in the mortgage banking business, and as such, originates, purchases, sells and services mortgage loans. First Horizon originates mortgage loans through a retail branch system and through mortgage loan brokers and correspondents nationwide. First Horizon’s mortgage loans are principally first-lien, fixed or adjustable rate mortgage loans secured by single-family residences. At September 30, 2005, First Horizon provided servicing for approximately $93.465 billion aggregate principal amount of mortgage loans, including certain mortgage loans for which First Horizon has sold, but not yet transferred, the servicing rights. First Horizon is servicing substantially all of these mortgage loans for unaffiliated persons. The principal executive offices of First Horizon are located at 4000 Horizon Way, Irving, Texas 75063. S-23 First Horizon initially services substantially all the mortgage loans it originates or acquires. In addition, First Horizon has purchased in bulk the rights to service mortgage loans originated by other lenders. Servicing includes collecting and remitting loan payments, accounting for principal and interest, holding escrow (impound) funds for payment of taxes and insurance, making inspections as required of the mortgaged premises, contacting delinquent mortgagors, supervising foreclosures in the event of unremedied defaults and generally administering the loans, for which First Horizon receives servicing fees. First Horizon has in the past and may in the future sell to other mortgage bankers a portion of its portfolio of loan servicing rights. For a description of the annual servicing report and the report of the independent public accountants required to be provided by First Horizon in its capacity as master servicer under the pooling and servicing agreement, see “The Agreements — Evidence as to Compliance” in the prospectus. Foreclosure, Delinquency and Loss Experience Historically, a variety of factors, including the appreciation of real estate values, have limited First Horizon’s loss and delinquency experience on its portfolio of serviced mortgage loans. There can be no assurance that factors beyond First Horizon’s control, such as weakening national or local economic conditions, higher interest rates, higher unemployment rates, a decline in the availability of refinancing, or downturns in real estate markets, will not result in increased rates of delinquencies and foreclosure losses in the future. A general deterioration of the real estate market in regions where the Mortgaged Properties are located may result in increases in delinquencies of loans secured by real estate, slower absorption rates of real estate into the market and lower sales prices for real estate. A general weakening of the economy may result in decreases in the financial strength of borrowers and decreases in the value of collateral serving as security for loans. If the real estate market and economy were to decline, First Horizon may experience an increase in delinquencies on the loans it services and higher net losses on liquidated loans. First Horizon generally follows the guidelines established by Fannie Mae with respect to foreclosure and liquidation of mortgage loans. These guidelines provide for the commencement of foreclosure proceedings when a scheduled monthly payment has become 90 days past due. First Horizon began servicing mortgage loans underwritten under its Super Expanded Underwriting Guidelines in late 2003. Thus, First Horizon currently has limited historical delinquency, foreclosure or loss statistics for this type of loan product. There can be no assurance that the experience shown in the following tables will be indicative of future delinquency, foreclosure and loss experience of mortgage loans underwritten in accordance with First Horizon’s Super Expanded Underwriting Guidelines, including the mortgage loans in Pool I and Pool II. The following table summarizes the delinquency, foreclosure and loss experience, respectively, on the dates indicated, of all jumbo first lien mortgage loans serviced, subserviced, or master serviced by First Horizon. The delinquency, foreclosure and loss percentages may be affected by the size and relative lack of seasoning of First Horizon’s jumbo loan servicing portfolio which increased from approximately $7.604 billion at December 31, 2003 to approximately $9.814 billion at December 31, 2004 and increased to approximately $12.979 billion at September 30, 2005. The information should not be considered as a basis for assessing the likelihood, amount or severity of delinquency or losses on the mortgage loans which have been underwritten in accordance with First Horizon’s Super Expanded Underwriting Guidelines and no assurances can be given that the foreclosure, delinquency and loss experience presented in the table below will be indicative of the experience on the mortgage loans in the mortgage pools: S-24 Delinquency and Foreclosure Experience in First Horizon’s Portfolio The above table shows mortgage loans which were delinquent or for which foreclosure proceedings had been instituted as of the date indicated. All dollar amounts are reported in thousands. S-25 First Horizon believes that the delinquency levels for its jumbo loan servicing portfolio are attributable primarily to the growth and relative lack of seasoning in its jumbo loan servicing portfolio over this time period. There can be no assurance that the experience shown in the above tables will be indicative of future loss and delinquency experience of First Horizon’s jumbo loan servicing portfolio or of the mortgage loans in the mortgage pools. In addition, because the jumbo mortgage loans in Pool II were underwritten under guidelines that are less restrictive than First Horizon’s standard underwriting guidelines, the jumbo mortgage loans in Pool II are likely to experience rates of delinquency, foreclosure and loss that are higher, and that may be substantially higher, than those set forth in the tables above. The following table summarizes the delinquency and foreclosure experience, respectively, on the dates indicated, of all mortgage loans serviced or master serviced by First Horizon, including certain mortgage loans for which First Horizon has sold, but not yet transferred, the servicing rights. These mortgage loans have a variety of underwriting, payment and other characteristics, many of which differ from those of the mortgage loans underlying the certificates, and no assurances can be given that the delinquency and foreclosure experience presented in the table below will be indicative of the experience of the mortgage loans underlying the certificates. Delinquency and Foreclosure Experience in First Horizon’s Total Portfolio The above table shows mortgage loans which were delinquent or for which foreclosure proceedings had been instituted as of the date indicated. All dollar amounts are reported in thousands. S-26 There can be no assurance that factors beyond First Horizon’s control, such as weakening national or local economic conditions, higher interest rates, higher unemployment rates, a decline in the availability of refinancing, or downturns in real estate markets, will not result in increased rates of delinquencies and foreclosure losses in the future. In addition, because substantially all the mortgage loans were underwritten under guidelines that are less restrictive than First Horizon’s standard underwriting guidelines, such mortgage loans are likely to experience rates of delinquency, foreclosure and loss that are higher, and that may be substantially higher, than those set forth in the tables above. Management’s Discussion and Analysis of Delinquency and Foreclosure Trends For First Horizon’s total portfolio, mortgage loan delinquencies generally have decreased since December 31, 2002. Although these decreases may be due to a variety of factors, First Horizon believes the amount of turnover and decreased seasoning in First Horizon’s servicing portfolio are contributing factors to the decreases in these categories. There can be no assurance that factors beyond First Horizon’s control, such as weakening national or local economic conditions, higher interest rates, higher unemployment rates, a decline in the availability of refinancing, or downturns in real estate markets, will not result in increased rates of delinquencies and foreclosure losses in the future. If the residential real estate market should experience an overall decline in property values such that the outstanding balances of the mortgage loans, and any secondary financing on the mortgaged properties by a lender, become equal to or greater than the value of the mortgaged properties, the actual rates of delinquencies, foreclosures and losses could be significantly higher than the rates indicated in the tables above. To the extent that such losses occur in connection with the mortgage loans and are not otherwise covered by the forms of credit enhancement described in this prospectus supplement, they will be passed through as losses on the related certificates and such losses will be borne by the related certificateholders. In addition, because substantially all the mortgage loans were underwritten under guidelines that are less restrictive than First Horizon’s standard underwriting guidelines, such mortgage loans are likely to experience rates of delinquency, foreclosure and loss that are higher, and that may be substantially higher, than those set forth in the tables above. Servicing Compensation and Payment of Expenses The “Expense Fee Rate” is the rate at which the expense fee accrues on the principal balance of each mortgage loan. The expense fees with respect to a mortgage pool are payable out of the interest payments on each related mortgage loan. The weighted average Expense Fee Rate for the mortgage loans will be approximately 0.375%. The total expense fees consist of (a) the master servicing fee payable to the master servicer in respect of its direct servicing and master servicing activities and (b) fees expenses, reimbursements and indemnities payable to the trustee in respect of its activities as trustee under the pooling and servicing agreement. The master servicer is obligated to pay some, but not all, of the ongoing expenses associated with the trust fund and incurred by the master servicer in connection with its responsibilities under the pooling and servicing agreement. Those amounts will be paid by the master servicer out of its master servicing fee. The amount of the master servicing fee is subject to adjustment with respect to prepaid mortgage loans, as described under “—Adjustment to Master Servicing Fee in Connection with Principal Prepayments” in this prospectus supplement. The master servicer is also entitled to receive, as additional servicing compensation, any Prepayment Interest Excess, all late payment fees, assumption fees and other similar charges and all reinvestment income earned on amounts on deposit in the Certificate Account. Adjustment to Master Servicing Fee in Connection with Principal Prepayments When a borrower prepays a mortgage loan between due dates, the borrower is required to pay interest on the amount prepaid only to the date of prepayment and not thereafter. Except for the month of the cut-off date, principal prepayments by borrowers received by the master servicer from the first day through the fifteenth day of a calendar month will be distributed to certificateholders of the related certificate group on the distribution date in the same month in which the prepayments are received and, accordingly, no shortfall in the amount of interest to be distributed to certificateholders with respect to the prepaid mortgage loans results. Conversely, principal prepayments by borrowers received by the master servicer from the sixteenth day or, in the case of the first distribution date, from the cut-off date through the last day of a calendar month, will be distributed to certificateholders of the related certificate group on the distribution date in the month after the month of receipt and, accordingly, a shortfall in the amount of interest to be distributed to certificateholders with respect to the prepaid mortgage loans would result. Pursuant to the pooling and servicing agreement, the master servicing fee for any month will be reduced, but not by more than 0.0083% of the Pool Principal Balance of the corresponding mortgage pool as of the related determination date, by an amount sufficient to pass through to certificateholders of the related certificate group the full S-27 amount of interest to which they would be entitled in respect of each mortgage loan prepaid on the related distribution date. If shortfalls in interest as a result of prepayments during the period from the sixteenth day of the month prior to a distribution date through the last day of such month exceed an amount equal to 0.0083% of the Pool Principal Balance of the corresponding mortgage pool as of the related determination date, the amount of interest available to be distributed to certificateholders of the related certificate group will be reduced by the amount of the excess. See “Description of the Certificates — Distributions on the Certificates — Interest” in this prospectus supplement. Subject to the following limitations, the master servicer will be required to advance before each distribution date, from its own funds or funds in the Certificate Account that do not constitute Available Funds for the distribution date, an amount equal to the aggregate of payments of principal and interest on the mortgage loans (net of the master servicing fee with respect to the related mortgage loans) which were due on the related due date and which were delinquent on the related determination date, together with an amount equivalent to interest on each mortgage loan as to which the related mortgaged property has been acquired by the trust fund through foreclosure or deed-in-lieu of foreclosure. The determination date will be the third business day after the 15th day of each month; provided that the determination date in each month will always be at least two business days before the related distribution date. Advances are intended to maintain a regular flow of scheduled interest and principal payments on the certificates rather than to guarantee or insure against losses. The master servicer is obligated to make advances with respect to delinquent payments of principal of or interest on each mortgage loan to the extent that advances are, in its reasonable judgment, recoverable from future payments and collections or insurance payments or proceeds of liquidation of the related mortgage loan. If the master servicer determines on any determination date to make an advance, the advance will be included with the distribution to certificateholders of the related certificate group on the related distribution date. Any failure by the master servicer to make a deposit in the Certificate Account as required under the pooling and servicing agreement, including any failure to make an advance on the related distribution date, will constitute an Event of Default under the pooling and servicing agreement. If the master servicer is terminated as a result of the occurrence of an Event of Default, the trustee or a successor master servicer appointed by the trustee will be obligated to make advances in accordance with the terms of the pooling and servicing agreement. Unanticipated Recoveries of Losses on the Mortgage Loans Holders of certificates that had previously been allocated a Realized Loss in respect of a mortgage loan (which holders may, in the event of a transfer of any such certificate, be different from the holders at the time the Realized Loss was allocated) may receive distributions if the servicer subsequently makes an Unanticipated Recovery in respect of such mortgage loan as a result of events such as an unanticipated insurance settlement, tax refund or mortgagor bankruptcy distribution. In such event, the class certificate balance of each class of certificates to which the Realized Losses were allocated shall be increased, sequentially in the order of payment priority, by the amount of Unanticipated Recoveries, but not by more than the amount of losses previously allocated to reduce such class certificate balances. Holders of any class of certificates for which the class certificate balance has been increased by the amount of any Unanticipated Recoveries will not be entitled to any payment in respect of interest on the amount of any such increase for any interest accrual period preceding the distribution date on which such increase occurs. Unanticipated Recoveries, if any, will be distributed on each distribution date pursuant to the Available Funds Allocation. This distribution will be made on the distribution date in the calendar month following receipt of the Unanticipated Recovery. No certificateholder will be entitled to receive any share of an Unanticipated Recovery following the distribution date on which the principal balance of its certificates has been reduced to zero, including following the termination of the trust. DESCRIPTION OF THE CERTIFICATES The certificates will be issued pursuant to the pooling and servicing agreement and will have the respective initial class certificate balances, subject to a variance of ±5%, and initial pass-through rates set forth on page S-5. S-28 As of any distribution date, the class certificate balance of any class of certificates is equal to the initial class certificate balance of that class as reduced by all amounts previously distributed to certificateholders of that class as payments of principal, and the amount of Realized Losses, including Excess Losses, allocated to that class. In addition, the class certificate balance of the class of subordinated certificates then outstanding with the highest numerical class designation will be reduced if and to the extent that the aggregate of the class certificate balances of all classes of the certificates, following all distributions and the allocation of Realized Losses on a distribution date, exceeds the aggregate of the Stated Principal Balances of the mortgage loans in both mortgage pools as of the due date occurring in the month of the distribution date. Such a reduction is referred to in this prospectus supplement as the “Subordinated Certificate Writedown Amount.” The senior certificates will have an initial aggregate class certificate balance of approximately $282,730,100 and will evidence in the aggregate an initial beneficial ownership interest of approximately 94.25% in the trust fund. The Class B-l, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates will each evidence in the aggregate an initial beneficial ownership interest of approximately 2.45%, 1.10%, 0.85%, 0.55%, 0.40% and 0.40%, respectively, in the trust fund. The Class I-A-R Certificates will be issued in fully registered certificated form. All the other classes of offered certificates will be represented by book-entry certificates. The book-entry certificates will be issuable in book-entry form only. The Class I-A-R Certificates will be issued as two certificates in denominations of $99.99 and $0.01. For federal income tax purposes, the trust fund will comprise multiple real estate mortgage investment conduits; one or more underlying REMICs (if any) and the master REMIC. The assets of the lowest underlying REMIC in this tiered structure (or the master REMIC if there are no underlying REMICs) will consist of the mortgage loans and any other assets designated in the pooling and servicing agreement. The master REMIC will issue several classes of certificates, which, other than the Class I-A-R Certificates, will represent the regular interests in the master REMIC. The Class I-A-R Certificates will represent ownership of both the residual interest in the master REMIC and the residual interests in any underlying REMICs. Each class of book-entry certificates will be issued in one or more certificates which equal the aggregate initial class certificate balance of the class of certificates and which will be held by a depository, initially a nominee of The Depository Trust Company in the United States (“DTC”) or Euroclear Bank S.A./N.V. (“Euroclear”) in Europe. Euroclear will hold omnibus positions on behalf of their participants through customers’ securities accounts in Euroclear’s name on the books of their respective depositaries, which in turn will hold positions in customers’ securities accounts in the depositaries’ names on the books of DTC. Beneficial interests in the book-entry certificates will be held indirectly by investors through the book-entry facilities of the applicable depository, as described in the prospectus under “Description of the Securities — Book-entry Registration of Securities.” Investors may hold beneficial interests in the book-entry certificates in the minimum denominations set forth in the table on page S-6 and integral multiples of $1,000 in excess thereof. If necessary in order to aggregate the initial principal balance of a class of certificates, one certificate of such class will be issued in an incremental denomination of less than that listed in the table on page S-6. One investor of each class of book-entry certificates may hold a beneficial interest in a book entry certificate that is not an integral multiple of $1,000. The depositor has been informed by DTC that its nominee will be CEDE & Co. Accordingly, CEDE & Co. is expected to be the holder of record of the book-entry certificates. Except as described in the prospectus under “Description of the Securities — Book-entry Registration of Securities,” no beneficial owner of a book-entry certificate will be entitled to receive a physical certificate. Unless and until definitive certificates are issued, it is anticipated that the only certificateholder of the book-entry certificates will be CEDE & Co., as nominee of DTC. Beneficial owners of the book-entry certificates will not be certificateholders, as that term is used in the pooling and servicing agreement. Beneficial owners are only permitted to exercise the rights of certificateholders indirectly through financial intermediaries and DTC. Monthly and annual reports on the trust fund provided to CEDE & Co., as nominee of DTC, may be made available to beneficial owners upon request, in S-29 accordance with the rules, regulations and procedures creating and affecting DTC, and to the financial intermediaries to whose depository accounts the book-entry certificates of the beneficial owners are credited. For a description of the procedures generally applicable to the book-entry certificates, see “Description of the Securities — Book-entry Registration of Securities” in the prospectus. Payments on Mortgage Loans; Accounts On or before the closing date, the master servicer will establish a Certificate Account, which will be maintained in trust for the benefit of the certificateholders. Funds credited to the Certificate Account may be invested for the benefit and at the risk of the master servicer in Permitted Investments, as defined in the pooling and servicing agreement, that are scheduled to mature on or before the business day preceding the next distribution date. On or before the business day before each distribution date, the master servicer will withdraw from the Certificate Account the amount of Available Funds from each mortgage pool and will deposit the Available Funds into the applicable subaccount of the Distribution Account. The trustee will be entitled to withdraw its fee from the amounts on deposit in the Distribution Account each month immediately prior to making the distributions on the Certificates. Distributions on the Certificates Allocation of Available Funds Interest and principal on the certificates will be distributed monthly on the 25th day of each month or, if such 25th day is not a business day, on the succeeding business day, commencing in December 2005. These distributions will be made to the certificates of a certificate group in an aggregate amount equal to the Available Funds for the related mortgage pool for the related distribution date. Distributions will be made to holders of record on the close of business on the last business day of the month prior to the month in which the related distribution date occurs. The rights of the subordinated certificates to receive distributions with respect to the mortgage loans will be based on interest and principal received or advanced with respect to the mortgage loans in each mortgage pool, and will be subordinated to the rights of the holders of the senior certificates of each certificate group to the extent described in this prospectus supplement. On each distribution date, the Available Funds for each mortgage pool will be distributed among the classes of certificates in the related certificate group in the following order of priority: first, to the classes of senior certificates of the related certificate group, the Accrued Certificate Interest on each such class for such distribution date; second, to the classes of senior certificates of the related certificate group, any Accrued Certificate Interest thereon remaining undistributed from previous distribution dates, to the extent of remaining Available Funds from the related mortgage pool; third, to the classes of senior certificates of the related certificate group entitled to distributions of principal, to the extent of remaining Available Funds from the related mortgage pool, the related Senior Optimal Principal Amount for that distribution date, in the order of priority set forth after priorityseventh below, in the case of Pool I, until their respective class principal balances have each been reduced to zero; fourth, to the Class B-l Certificates, to the extent of remaining Available Funds, for the mortgage pools, but subject to the prior payment of amounts described under “ —Cross-collateralization,” in the following order: (1) the Accrued Certificate Interest thereon for such distribution date, (2) any Accrued Certificate Interest thereon remaining undistributed from previous distribution dates and (3) such class’ Allocable Share for that distribution date; fifth, to the Class B-2 Certificates, to the extent of remaining Available Funds, for the mortgage pools, but subject to the prior payment of amounts described under “—Cross-collateralization,” in the following order: (1) the Accrued Certificate S-30 Interest thereon for such distribution date, (2) any Accrued Certificate Interest thereon remaining undistributed from previous distribution dates and (3) such class’ Allocable Share for that distribution date; sixth, to the Class B-3 Certificates, to the extent of remaining Available Funds, for the mortgage pools, but subject to the prior payment of amounts described under “—Cross-collateralization,” in the following order: (1) the Accrued Certificate Interest thereon for such distribution date, (2) any Accrued Certificate Interest thereon remaining undistributed from previous distribution dates and (3) such class’ Allocable Share for that distribution date; and seventh, to the Class B-4, Class B-5 and Class B-6 Certificates, to the extent of remaining Available Funds, for the mortgage pools, but subject to the prior payment of amounts described under “—Cross-collateralization,” in the following order: (1) the Accrued Certificate Interest thereon for such distribution date, (2) any Accrued Certificate Interest thereon remaining undistributed from previous distribution dates and (3) each such class’ Allocable Share for that distribution date. Amounts allocated to the senior certificates corresponding to Pool I pursuant to prioritythird above will be distributed sequentially in the following order of priority: On each distribution date after the Cross-over Date, distributions of principal on the outstanding senior certificates relating to Pool I and entitled to principal distributions will be made,pro rata, among all such senior certificates, regardless of the allocation, or sequential nature, of principal payments described above. Interest will accrue on the class certificate balances of each class of senior certificates at an annual pass-through rate equal to the weighted average of the Net Mortgage Rates of the mortgage loans in the related mortgage pool for such distribution date. The annual pass-through rate for each class of senior certificates for the first distribution date is set forth in the table on page S-5. See “Risk Factors – Changes to the weighted average net mortgage rate on the mortgage loans may reduce the yield with respect to the certificates” in this prospectus supplement. Interest will accrue on the class certificate balances of the Class B-l, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates for each interest accrual period at an annual pass-through rate equal to the weighted average of the weighted average Net Mortgage Rates of the mortgage loans in both mortgage pools, weighted on the basis of the Group Subordinate Amount for both mortgage pools. The annual pass-through rate for each class of subordinated certificates for the first distribution date is expected to be approximately 5.8904%. With respect to each distribution date for each class of certificates, the interest accrual period will be the calendar month preceding the month of the distribution date. Interest will be calculated on the basis of a 360-day year consisting of twelve 30 day months. As to any distribution date and any mortgage loan with respect to which a prepayment in full has occurred during the period from the sixteenth day of the month preceding the distribution date through the last day of such month, the resulting “Interest Shortfall” generally will equal the difference between (a) one month’s interest at the Net Mortgage Rate on the Stated Principal Balance of such mortgage loan, and (b) the amount of interest at the Net Mortgage Rate actually received with respect to such mortgage loan during such period. In the case of a partial prepayment, the resulting “Interest Shortfall” will equal the amount, if any, by which one month’s interest at the related Net Mortgage Rate on such prepayment exceeds the amount of interest actually paid in connection with such prepayment. The interest entitlement described in this prospectus supplement for each class of certificates for any distribution date will be reduced by the amount of Net Interest Shortfalls experienced by the mortgage loans in (a) the related mortgage pool, with respect to the senior certificates of a certificate group, or (b) both mortgage pools, with respect to the subordinated certificates. On each distribution date, any Net Interest Shortfall will be allocated among all the outstanding classes of senior certificates of the related certificate group entitled to distributions of interest and all outstanding classes of the subordinated S-31 certificates, proportionally based on (1) in the case of such senior certificates, the Accrued Certificate Interest that would have been allocated thereto otherwise, and (2) in the case of the subordinated certificates, interest accrued on their related Apportioned Principal Balances, in the absence of such shortfalls and losses. See “Servicing of the Mortgage Loans — Adjustment to Master Servicing Fee in Connection with Prepaid Mortgage Loans” in this prospectus supplement. The interest portion of any Realized Losses (other than Excess Losses) occurring prior to the Cross-over Date will not be allocated among any certificates, but will reduce the amount of Available Funds for the related mortgage pool on the related distribution date. As a result of the subordination of the subordinated certificates in right of distribution, such losses will be borne first by the outstanding subordinated certificates in inverse order of priority. Principal Distributions in reduction of the class certificate balance of each class of certificates entitled to principal distributions will be made on each distribution date from the related mortgage pool or pools. All payments and other amounts received in respect of principal of the mortgage loans of a mortgage pool will be allocated first to the senior certificates of the related certificate group entitled to principal distributions and then to the subordinated certificates as described under “—Allocation of Available Funds” above. Distributions in reduction of the class certificate balance of each class of senior certificates will be made on each distribution date as described under “—Allocation of Available Funds” above. In accordance with prioritythird of the Available Funds Allocation, the Available Funds for a mortgage pool remaining after the distribution of interest to the senior certificates of the related certificate group will be allocated to such senior certificates in an aggregate amount not to exceed the related Senior Optimal Principal Amount for such mortgage pool. Distributions in reduction of the class certificate balances of the Class B-l, Class B-2 and Class B-3 Certificates will be made pursuant to prioritiesfourth, fifth andsixth, respectively, of the Available Funds Allocation. In accordance with each such priority, the Available Funds for each mortgage pool, if any, remaining after distributions of principal and interest on the senior certificates will be allocated to each class of the Class B Certificates in an amount equal to each such class’ Allocable Share for such distribution date, provided that no distribution of principal will be made on any such class until any class ranking prior thereto has received distributions of interest and principal, and such class has received distributions of interest, on such distribution date. If, on any distribution date, the class certificate balance of any class of Class B Certificates (other than the subordinated class with the highest priority of distribution, to which it is not applicable) for which the related Class Prepayment Distribution Trigger was satisfied on such distribution date is reduced to zero, any amounts distributable to such class or classes under clauses (2), (3) and (5) of the definition of Subordinated Optimal Principal Amount, to the extent of that class’ remaining Allocable Share, will be distributed to the remaining classes of subordinated certificates in reduction of their respective class certificate balances in order of the priority of payments described in this prospectus supplement. If the Class Prepayment Distribution Trigger is not satisfied for any class of Class B Certificates (other than the subordinated class with the highest priority of distribution, to which it is not applicable) on any distribution date, this may have the effect of accelerating the amortization of more senior ranking classes of subordinated certificates because the amount otherwise distributable to such class or classes under clauses (2), (3) and (5) of the definition of Subordinated Optimal Principal Amount will be distributable,pro rata, among the outstanding classes of the Class B Certificates as to which the related Class Prepayment Distribution Trigger has been satisfied subject to the priority of payments described in this prospectus supplement. If on any distribution date the total class certificate balance of the senior certificates of a certificate group (after giving effect to distributions to be made on that distribution date) is greater than the aggregate Stated Principal Balance of all mortgage loans in the related mortgage pool (any such group of senior certificates, the “Undercollateralized Group”), all amounts otherwise distributable as principal to the subordinated certificates, in reverse order of priority (or, following the Cross-over Date, the amounts described in the following sentence) will be distributed as principal to the senior certificates of the Undercollateralized Group, until the total class certificate balance of the senior certificates (after giving effect to distributions to be made on that distribution date) of the Undercollateralized Group equals the Stated Principal Balance of the related mortgage pool (such distribution, an “Undercollateralization Distribution”). If the senior certificates of a certificate S-32 group constitute an Undercollateralized Group on any distribution date following the Cross-over Date, Undercollateralization Distributions will be made from the excess of the Available Funds for the other mortgage pool remaining after all required amounts for that distribution date have been distributed to the senior certificates of the other certificate group. In addition, the amount of any unpaid Accrued Certificate Interest with respect to an Undercollateralized Group (including any Accrued Certificate Interest for the related distribution date) will be distributed to the senior certificates of the Undercollateralized Group prior to the payment of any Undercollateralization Distributions from amounts otherwise distributable as principal on the subordinated certificates, in reverse order of priority (or, following the Cross-over Date, as provided in the preceding sentence). Except as provided otherwise in the preceding paragraph, the subordinated certificates will not receive distributions of principal until each Undercollateralized Group is no longer undercollateralized. In addition, if on any distribution date the total class certificate balance of the senior certificates of a certificate group (after giving effect to distributions to be made on that distribution date) has been reduced to zero, all amounts otherwise distributable as prepayments of principal to the subordinated certificates with respect to the mortgage pool related to such certificate group will instead be distributed as principal to the senior certificates of the other certificate group,pro rata, on the basis of the aggregate class certificate balance of the related senior certificates, unless (a) the Aggregate Subordinated Percentage for such distribution date is at least two times the initial Aggregate Subordinated Percentage, (b) the aggregate stated principal balance of all the mortgage loans in the mortgage pools delinquent 60 days or more (including for this purpose any mortgage loans in foreclosure or subject to bankruptcy proceedings and mortgage loans with respect to which the related mortgaged property has been acquired by the trust), averaged over the preceding six month period, as a percentage of the then current aggregate class certificate balance of the subordinated certificates, is less than 50%, and (c) the cumulative Realized Losses in both mortgage pools do not exceed (i) 20% of the Original Subordinated Principal Balance if such distribution date occurs between and including December 2005 and November 2008, and 30% of the Original Subordinated Principal Balance if such distribution date occurs on or after December 2008. All distributions described above will be made in accordance with the priorities set forth under “—Distributions on the Certificates — Allocation of Available Funds” above. Losses Allocable to the Certificates Prior to the Cross-over Date (and on that date under certain circumstances), the principal portion of any Non-Excess Loss for each mortgage pool will be allocated among the outstanding classes of subordinated certificates, in inverse order of priority, until the class certificate balance of each such class has been reduced to zero (i.e., Non-Excess Losses will be allocated first to the Class B-6 Certificates while those certificates are outstanding, second to the Class B-5 Certificates, and so on). The principal portion of any Fraud Losses, Special Hazard Losses and Deficient Valuations of each mortgage pool occurring prior to the reduction of the Fraud Loss Coverage Amount, the Special Hazard Loss Coverage Amount and the Bankruptcy Loss Coverage Amount, respectively, to zero will also be allocated to the subordinated certificates in the manner described in the preceding sentence. From and after the Cross-over Date, the principal portion of any Realized Loss for a mortgage pool will be allocated among the outstanding classes of senior certificates of the related certificate group entitled to principal distributions,pro rata, based upon their class certificate balances within that certificate group. Fraud Losses, Special Hazard Losses and Deficient Valuations occurring after the Fraud Loss Coverage Amount, Special Hazard Loss Coverage Amount and the Bankruptcy Loss Coverage Amount, respectively, have been reduced to zero will be Excess Losses. The principal portion of any Excess Loss on a mortgage loan for any distribution date (whether occurring before, on or after the Cross-over Date) will be allocatedpro rata among all outstanding classes of the related senior certificates and the subordinated certificates, on the basis of their certificate principal balances, in the case of the senior certificates, or the related Apportioned Principal Balances, in the case of the subordinated certificates. Upon the initial issuance of the certificates, the Fraud Loss Coverage Amount will equal approximately $5,999,582 (approximately 2.0% of the aggregate Stated Principal Balances of the mortgage loans as of the cut-off date). As of any distribution date from the first anniversary of the cut-off date and prior to the fifth anniversary of the cut-off date, the Fraud Loss Coverage Amount will equal approximately $2,959,582 minus the aggregate amount of Fraud Losses that would have S-33 been allocated to the subordinated certificates in the absence of the Loss Allocation Limitation since the cut-off date. As of any distribution date on or after the earlier of the Cross-over Date or the fifth anniversary of the cut-off date, the Fraud Loss Coverage Amount shall be zero. Upon the initial issuance of the certificates, the Special Hazard Loss Coverage Amount will equal approximately $5,460,000 (representing approximately 1.82% of the outstanding principal balance of all the mortgage loans as of the cut-off date). As of any distribution date, the Special Hazard Loss Coverage Amount will equal the greater of less, in each case, the aggregate amount of Special Hazard Losses that would have been previously allocated to the subordinated certificates in the absence of the Loss Allocation Limitation. As of any distribution date on or after the Cross-over Date, the Special Hazard Loss Coverage Amount will be zero. On each distribution date, the Bankruptcy Loss Coverage Amount will equal approximately $150,000, subject to reduction as described in the pooling and servicing agreement, minus the aggregate amount of previous Deficient Valuations and Debt Service Reductions. As of any distribution date on or after the Cross-over Date, the Bankruptcy Loss Coverage Amount will be zero. The Bankruptcy Loss Coverage Amount and the manner of reduction thereof described in the pooling and servicing agreement may be reduced or modified upon written confirmation from each of the Rating Agencies that such reduction or modification will not adversely affect the then current ratings of the senior certificates. Any reduction may adversely affect the coverage provided by subordination with respect to Bankruptcy Losses. Method of Allocating Realized Losses All allocations of Realized Losses for a mortgage pool to a class of certificates of the related certificate group and the subordinated certificates will be accomplished on a distribution date by reducing their class certificate balance by the appropriate share of any such losses occurring during the month preceding the month of that distribution date and, accordingly, will be taken into account in determining the distributions of principal and interest on those certificates commencing on the following distribution date. The interest portion of all Realized Losses for a mortgage pool will be allocated among the outstanding classes of certificates entitled to distributions of interest of the related certificate group and the subordinated certificates to the extent described under “—Distributions on the Certificates — Interest” above. No reduction of the class certificate balance of any class of certificates will be made on any distribution date on account of any Realized Loss for a mortgage pool to the extent that that reduction would have the effect of reducing the aggregate class certificate balances of all classes of senior certificates in the related certificate group plus the related Apportioned Principal Balances of the subordinated certificates as of that distribution date to an amount less than the Pool Principal Balance of the related mortgage pool as of the first day of the month of such distribution date, less any Deficient Valuations occurring before the Bankruptcy Loss Coverage Amount has been reduced to zero (that limitation being the “Loss Allocation Limitation”). Debt Service Reductions are not treated as Realized Losses, and the related principal portion will not be allocated in reduction of the class certificate balance of any class of certificates. However, after the Bankruptcy Loss Coverage Amount has been reduced to zero, the amounts distributable under clause (1) of the definitions of Senior Optimal Principal Amount and Subordinated Optimal Principal Amount will be reduced by the amount of the principal portion of any Debt Service Reductions in the related mortgage pool. Regardless of when they occur, Debt Service Reductions may reduce the amount of Available Funds for a mortgage pool otherwise available for distribution on a distribution date. As a result of the subordination of the subordinated certificates in right of distribution, the reduction in Available Funds for a mortgage pool S-34 resulting from any Debt Service Reductions before the Bankruptcy Loss Coverage Amount has been reduced to zero will be borne by the subordinated certificates (to the extent then outstanding) in inverse order of priority. There are actions specified in the prospectus that may be taken by holders of certificates evidencing a specified percentage of all undivided interests in the trust and may be taken by holders of certificates entitled in the aggregate to that percentage of the voting rights. 99.0% of all voting rights will be allocated among all holders of the certificates, other than the Class I-A-R Certificates. In addition, 1.0% of all voting rights will be allocated among the holders of the Class I-A-R Certificates. The pooling and servicing agreement may be amended without the consent of the certificateholders in specified circumstances. See“The Agreements – Amendment” in the prospectus. Additional Rights of the Residual Certificateholders In addition to distributions of principal and interest the holders of the Residual Certificates will be entitled to receive: (a) the amount, if any, of Available Funds remaining in the related REMIC on any distribution date after distributions of interest and principal are made on the certificates on such date; and (b) the proceeds, if any, of the assets of the trust remaining in the related REMIC after the class certificate balances of all classes of the certificates have each been reduced to zero. It is not anticipated that any material assets will be remaining for these distributions on the Residual Certificates at any time. See “MaterialFederal Income Tax Consequences” in this prospectus supplement. Priority of Senior Certificates As of the date of the initial issuance of the certificates, the aggregate class certificate balance of the classes of subordinated certificates will equal approximately 5.75% of the aggregate class certificate balance of all the classes of certificates. The rights of the holders of the subordinated certificates to receive distributions with respect to the mortgage loans of a mortgage pool will be subordinate to the rights of the holders of the senior certificates of the related certificate group, to the extent described above. The subordination of the subordinated certificates is intended: (a) to enhance the likelihood of timely receipt by the holders of the senior certificates of a certificate group (to the extent of the subordination of the subordinated certificates) of the full amount of the scheduled monthly distributions of principal and interest allocable to the senior certificates of that certificate group; and (b) to afford the holders of the senior certificates of a certificate group (to the extent of the subordination of the subordinated certificates) protection against Realized Losses in the related mortgage pool, to the extent described above. If Realized Losses for a mortgage pool exceed the credit support provided to the senior certificates of the related certificate group through subordination, or if Excess Losses occur, all or a portion of those losses will be borne by the senior certificates of that certificate group. The protection afforded to the holders of senior certificates of a certificate group by means of the subordination feature will be accomplished by: S-35 The allocation of the principal portion of Realized Losses for a mortgage pool (as set forth herein) to the subordinated certificates on any distribution date will decrease the protection provided to the senior certificates of all certificate groups then outstanding on future distribution dates by reducing the aggregate class certificate balance of the classes of subordinated certificates then outstanding. In addition, in order to extend the period during which the subordinated certificates remain available as credit enhancement for the senior certificates, if with respect to any certificate group, the Two Times Test is not satisfied, the entire amount of any prepayment or other unscheduled recovery of principal with respect to a mortgage loan will be allocated to the outstanding senior certificates of the related certificate group as a group during the first seven years after the date of initial issuance of the certificates, with such allocation being subject to reduction thereafter as described in this prospectus supplement, except that those amounts will be allocatedpro rata among all the outstanding senior certificates of the related certificate group entitled to principal distributions on each distribution date after the Cross-over Date. This allocation has the effect of accelerating the amortization of the related outstanding senior certificates as a group while, in the absence of losses in respect of the related mortgage loans, increasing the percentage interest in the principal balance of the mortgage loans evidenced by the subordinated certificates. After the payment of amounts distributable in respect of the senior certificates of each certificate group on each distribution date, the subordinated certificates will be entitled on such date to the remaining portion, if any, of the Available Funds for the mortgage pools in an aggregate amount equal to the Accrued Certificate Interest on the subordinated certificates for such date, any remaining undistributed Accrued Certificate Interest on the subordinated certificates from previous distribution dates and the sum of the Allocable Shares of the classes of subordinated certificates. Amounts so distributed to subordinated certificateholders will not be available to cover any delinquencies or any Realized Losses in respect of subsequent distribution dates. Priority Among Subordinated Certificates As of the date of the initial issuance of the certificates, the aggregate class certificate balance of the Class B-4, Class B-5 and Class B-6 Certificates, all of which are subordinate in right of distribution to the subordinated certificates offered by this prospectus supplement, will equal approximately 1.35% of the initial aggregate class certificate balance of all the classes of certificates and approximately 23.48% of the initial aggregate class certificate balance of all the classes of subordinated certificates. On each distribution date, the holders of any particular class of subordinated certificates, other than the Class B-6 Certificates, will have a preferential right to receive the amounts due them on that distribution date out of Available Funds for the mortgage pools, prior to any distribution being made on that date on each class of certificates ranking subordinate to such class. In addition, except as described in this prospectus supplement, the principal portion of any Non-Excess Loss with respect to a mortgage loan will be allocated, to the extent set forth in this prospectus supplement, in reduction of the class certificate balances of the subordinated certificates in inverse order of priority of those certificates. See “—Losses Allocable to the Certificates” in this prospectus supplement. The effect of the allocation of such Realized Losses to a class of subordinated certificates will be to reduce future distributions allocable to that class and increase the relative portion of distributions allocable to more senior classes of certificates. In order to maintain the relative levels of subordination among the subordinated certificates, prepayments and certain other unscheduled recoveries of principal in respect of the mortgage loans (which will not be distributable to the subordinated certificates for at least the first seven years after the date of initial issuance of the certificates, except as otherwise described in this prospectus supplement on or following a Senior Final Distribution Date) will not be distributable to the holders of the Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates on any distribution date for which the related Class Prepayment Distribution Trigger is not satisfied, except as described above. See “—Distributions on the Certificates—Principal” in this prospectus supplement. If the applicable Class Prepayment Distribution Trigger is not satisfied with respect to any such class of Class B Certificates, the amortization of more senior ranking classes of subordinated certificates may occur more rapidly than would otherwise have been the case and, in the absence of losses in S-36 respect of the mortgage loans, the percentage interest in the principal balance of the mortgage loans evidenced by those Class B Certificates may increase. As a result of the subordination of any class of certificates, that class of certificates will be more sensitive than more senior ranking classes of certificates to the rate of delinquencies and defaults on the related mortgage loans, and under certain circumstances investors in those certificates may not recover their initial investment. Unless otherwise specified, the information in the tables in this prospectus supplement has been prepared on the basis of the following Structuring Assumptions: S-37 S-38 While it is assumed that each of the mortgage loans prepays at the specified constant percentages of CPR, this is not likely to be the case. Moreover, discrepancies may exist between the characteristics of the actual mortgage loans which will be delivered to the trustee and characteristics of the mortgage loans used in preparing the tables in this prospectus supplement. Prepayments on mortgage loans are commonly measured relative to a prepayment standard or model. The prepayment model used in this prospectus supplement is CPR, which represents an assumed rate of principal prepayment each year relative to the then-outstanding principal balance of a pool of mortgage loans for the life of such mortgage loans. A prepayment assumption of 10% CPR assumes constant prepayment rates of 10% per annum of the then-outstanding principal balance of such mortgage loans. 0% CPR assumes prepayment rates equal to 0% of CPR,i.e., no prepayments. Correspondingly, 25% CPR assumes prepayment rates equal to 25% of CPR, and so forth. CPR does not purport to be a historical description of prepayment experience or a prediction of the anticipated rate of prepayment of any pool of mortgage loans. Optional Purchase of Defaulted Loans The master servicer may, at its option and with the consent of the trustee, purchase from the trust fund any mortgage loan which is delinquent in payment by 91 days or more. Any purchase shall be at a price equal to 100% of the Stated Principal Balance of the mortgage loan plus accrued interest at the applicable mortgage rate from the date through which interest was last paid by the related mortgagor or advanced, and not reimbursed, to the first day of the month in which the amount is to be distributed. The master servicer will have the right to repurchase all remaining mortgage loans in the mortgage pools and thereby effect early retirement of the certificates, subject to the aggregate Stated Principal Balance of the mortgage loans in respect of the mortgage pools at the time of repurchase being less than 10% of the aggregate Pool Principal Balance of the mortgage pools as of the cut-off date. In the event the master servicer exercises its repurchase option, the purchase price distributed with respect to each class of certificates will be 100% of its then outstanding class certificate balance, and, in the case of an interest bearing certificate, any unpaid accrued interest at the applicable pass-through rate, in each case subject to reduction as provided in the pooling and servicing agreement if the purchase price is based in part on the appraised value of any foreclosed or otherwise repossessed properties in the corresponding mortgage pool and the appraised value is less than the Stated Principal Balance of the related mortgage loans. Distributions on the certificates with respect to any optional termination will first be paid to the senior certificates of each certificate group, then to the subordinated certificates in the order of priority specified in“ – Distributions on the Certificates – Allocation of Available Funds” in this prospectus supplement. The proceeds from any distribution may not be sufficient to distribute the full amount to which each class of certificates is entitled if the purchase price is based in part on the appraised value of any foreclosed or otherwise repossessed property and the appraised value is less than the Stated Principal Balance of the related mortgage loan. No holder of any certificates will be entitled to any Unanticipated Recoveries received with respect to any mortgage loan after the termination of the trust. See “Servicing of the Mortgage Loans — Unanticipated Recoveries of Losses on the Mortgage Loans” in this prospectus supplement. S-39 The Bank of New York will be the trustee under the pooling and servicing agreement. The depositor and the master servicer may maintain other banking relationships in the ordinary course of business with The Bank of New York. Offered certificates may be surrendered at the Corporate Trust Office of the trustee located at 101 Barclay Street, 8W, New York, New York 10286, Attention: Corporate Trust Administration or at any other address the trustee designates. Restrictions on Transfer of the Residual Certificates The Residual Certificates will be subject to the restrictions on transfer described in the prospectus under “Material Federal Income Tax Consequences — Taxation of Holders of Residual Interest Securities — Restrictions on Ownership and Transfer of Residual Securities” and “—Tax Treatment of Foreign Investors.” The pooling and servicing agreement provides that the Residual Certificates, in addition to certain other ERISA restricted classes of certificates, may not be acquired by an ERISA Plan. See “ERISA Considerations” in this prospectus supplement and the prospectus. Each Residual Certificate will contain a legend describing these restrictions. YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS The effective yield to the holders of each class of certificates will be lower than the yield otherwise produced by the applicable pass-through rate and the purchase price of the certificates because monthly distributions will not be payable to the holders until the 25th day (or, if that day is not a business day, the following business day) of the month after the applicable interest accrual period without any additional distribution of interest or earnings to compensate for the delay. Delinquencies on the mortgage loans in a mortgage pool which are not advanced by or on behalf of the master servicer because such amounts, if advanced, would not be recoverable, will adversely affect the yield on the related certificates. Because of the priority of distributions, shortfalls resulting from delinquencies in a mortgage pool not so advanced will be borne first by the subordinated certificates, in the reverse order of their numerical class designations, and then by the senior certificates of the related certificate group. If, as a result of shortfalls, the aggregate of the class certificate balances of all classes of the certificates exceeds the aggregate of the Pool Principal Balances of both mortgage pools, the class certificate balance of the class of subordinated certificates then outstanding with the highest numerical class designation will be reduced by the amount of the excess. Net Interest Shortfalls for a mortgage pool will adversely affect the yields on the classes of senior certificates in the related certificate group and the subordinated certificates. In addition, although all losses (other than Excess Losses) for a mortgage pool initially will be borne by the subordinated certificates in the reverse order of their numerical class designations, Excess Losses for a mortgage pool for any distribution date will be borne by the related senior certificates and the subordinated certificates,pro rata. As a result, the yields on the certificates of a certificate group will depend on the rate and timing of Realized Losses, including Excess Losses for the related mortgage pool or mortgage pools. Excess Losses could occur at a time when one or more classes of subordinated certificates are still outstanding and otherwise available to absorb other types of Realized Losses. General Prepayment Considerations and Risks The rate of principal payments, the aggregate amount of distributions and the yield to maturity of the certificates will be related to the rate and timing of payments of principal on the mortgage loans in the related mortgage pool (or in the case of the subordinated certificates, the mortgage pools). The rate of principal payments on the mortgage loans will in turn be affected by the amortization schedules of the mortgage loans and by the rate of principal prepayments, including for this purpose, prepayments resulting from refinancing, liquidations of the mortgage loans due to defaults, casualties, condemnations and repurchases by the seller or master servicer. The mortgage loans may be prepaid by the mortgagors at any time without a prepayment penalty. The mortgage loans may also be subject to “due-on-sale” provisions. See “The Mortgage Pools” in this prospectus supplement. S-40 Prepayments, liquidations and purchases of the mortgage loans in a mortgage pool will result in distributions to the related certificates of principal amounts which would otherwise be distributed over the remaining terms of the mortgage loans. Because the rate of payment of principal of the mortgage loans will depend on future events and a variety of factors, no assurance can be given as to the rate of payment of principal on the mortgage loans or the rate of principal prepayments. The extent to which the yield to maturity of a class of offered certificates may vary from the anticipated yield will depend upon the degree to which the class of offered certificates is purchased at a discount or premium, and the degree to which the timing of payments on the offered certificates is sensitive to prepayments, liquidations and purchases of the mortgage loans in the related mortgage pool or mortgage pools. You should consider the risk that, The rate of principal payments, including prepayments, on pools of mortgage loans may vary significantly over time and may be influenced by a variety of economic, geographic, social and other factors, including changes in mortgagors’ housing needs, job transfers, unemployment, mortgagors’ net equity in the mortgaged properties, servicing decisions, as well as the characteristics of the mortgage loans included in the mortgage pool as described under “The Mortgage Pools — General” in this prospectus supplement. In addition, refinancing programs, including First Horizon’s Streamlined Documentation Program, may affect the rate of prepayments on the mortgage loans. In general, if prevailing interest rates were to fall significantly below the mortgage rates on the mortgage loans, the mortgage loans could be subject to higher prepayment rates than if prevailing interest rates were to remain at or above the mortgage rates on the mortgage loans. Conversely, if prevailing interest rates were to rise significantly, the rate of prepayments on the mortgage loans would generally be expected to decrease. No assurances can be given as to the rate of prepayments on the mortgage loans in stable or changing interest rate environments. Furthermore, with respect to up to 25% of the mortgage loans of each mortgage pool, the depositor may deliver all or a portion of each related mortgage file to the trustee not later than thirty days after the closing date, a delayed delivery. If the seller fails to deliver all or a portion of any mortgage file to the depositor or other designee of the depositor or, at the depositor’s direction, to the trustee within the 30-day period, the seller will be required to use its best efforts to deliver a substitute mortgage loan for the related delayed delivery mortgage loan or repurchase the related delayed delivery mortgage loan. Any repurchases pursuant to this provision would also have the effect of accelerating the rate of prepayments on the mortgage loans in the related mortgage pool. The mortgage loans will consist of adjustable rate mortgage loans subject to an initial fixed rate period of five years. Adjustable rate mortgage loans may be subject to a greater rate of principal prepayments in a declining interest rate environment. For example, if prevailing interest rates fall significantly, adjustable rate mortgage loans could be subject to higher prepayment rates than if prevailing interest rates remain constant because the availability of fixed rate mortgage loans at lower interest rates may encourage mortgagors to refinance their adjustable rate mortgage loans to a lower fixed interest rate. Prepayments on the 5/6 mortgage loans may differ as they approach their respective first Adjustment Dates. No assurance can be given as to the level of prepayment that the mortgage loans will experience. As described in this prospectus supplement, approximately 85.29% of the mortgage loans in Pool I and approximately 89.16% of the mortgage loans in Pool II do not provide for monthly payments of principal for the first ten years following origination. Instead, only monthly payments of interest are due during each period. Other considerations aside, due to such characteristics, borrowers may be disinclined to prepay such loans during such ten-year periods. In addition, because no principal is due on such loans for their initial ten-year period, the related certificates will amortize at a slower rate during such period than would otherwise be the case. Thereafter, when the monthly payments on such loans are recalculated on the basis of a twenty- year level payment amortization schedule, principal payments on such certificates are expected to increased correspondingly, and, in any case, at a faster rate than if payments on the underlying mortgage loans were calculated on the basis of a thirty year amortization schedule. Notwithstanding the foregoing, no assurance can be given as to any prepayment rate on the mortgage loans. S-41 The mortgage rate applicable to all the mortgage loans and any Adjustment Date will be based on the Mortgage Index value most recently announced as of a date generally 45 days prior to such Adjustment Date. Thus, if the Mortgage Index value rises, the lag in time before the corresponding Mortgage Rate increases will, all other things being equal, slow the upward adjustment of the pass-through rate on the related certificates. In addition, the mortgage loans in each mortgage pool will have mortgage rates which will not adjust for a substantial period of time after origination although certain mortgage rates will begin adjusting earlier due to the length of time that has passed since origination. See “The Mortgage Pools” in this prospectus supplement. The weighted average net mortgage rate on the mortgage loans in a mortgage pool may decrease, and may decrease significantly, after the mortgage rates on the mortgage loans in such mortgage pool begin to adjust as a result of, among other facts, the dates of adjustment, the gross margins and changes in the Mortgage Index. If as a result of such interest rate adjustments, the weighted average net mortgage rate on the mortgage loans in a mortgage pool is reduced, investors in the certificates of the related certificate group will experience a lower yield. In addition, if, despite increases in the index, the mortgage rate on any mortgage loan in a mortgage pool cannot increase due to a maximum mortgage interest limitation or a periodic cap, the yield on the certificates of the related certificate group could be adversely affected. Finally because the pass-through rate on each certificate will be based on the weighted average net mortgage rate on all the mortgage loans in the related mortgage pool, disproportionate principal payments on the mortgage loans in such mortgage pool having net mortgage rates higher or lower than the then-current pass-through rate on such certificate will affect the pass-through rate for such certificate for future periods and the yield on such certificate. Voluntary prepayments in full of principal on the mortgage loans received by the master servicer from the first day through the fifteenth day of each month (other than the month of the cut-off date) are passed through to the certificateholders in the month of receipt or payment. Voluntary prepayments of principal in full received from the sixteenth day (or, in the case of the month of the cut-off date, from the cut-off date) through the last day of each month, and all voluntary partial prepayments of principal on the mortgage loans are passed through to the certificateholders in the month following the month of receipt or payment. Any prepayment of a mortgage loan or liquidation of a mortgage loan (by foreclosure proceedings or by virtue of the purchase of a mortgage loan in advance of its stated maturity as required or permitted by the pooling and servicing agreement) will generally have the effect of passing through to the certificateholders principal amounts which would otherwise be passed through (or reduced) in amortized increments over the remaining term of such mortgage loan. 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 an investor’s expectation. In general, the earlier a prepayment of principal on the mortgage loans, the greater the effect on an investor’s yield to maturity. The effect on an investor’s yield as a result of principal payments occurring at a rate higher or lower than the rate anticipated by the investor during the period immediately following the issuance of the offered certificates may not be offset by a subsequent like decrease or increase in the rate of principal payments. Prepayment Considerations and Risks for the Class B Certificates The rate of payment of principal, the aggregate amount of distributions and the yield to maturity of the Class B Certificates will be affected by the rate of prepayments on the mortgage loans in the mortgage pools, as well as the rate of mortgagor defaults resulting in Realized Losses, by the severity of those losses and by the timing thereof. See “Description of the Certificates — Losses Allocable to the Certificates” in this prospectus supplement for a description of the manner in which such losses are borne by the holders of the certificates. If the purchaser of a Class B Certificate calculates its anticipated yield based on an assumed rate of default and amount of Realized Losses that is lower than the default rate and the amount of losses actually incurred, its actual yield to maturity may be lower than that so calculated and could be negative. The timing of defaults and losses will also affect an investor’s actual yield to maturity, even if the average rate of defaults and severity of losses are consistent with an investor’s expectations. In general, the earlier a loss occurs, the greater the effect on an investor’s yield to maturity. The yields to maturity on the classes of Class B Certificates with higher numerical designations will be more sensitive to losses due to liquidations of defaulted mortgage loans than will the yields on such classes with lower numerical designations, and the yields to maturity on all the Class B Certificates will be more sensitive to such losses than will the yields on the other classes of certificates. The Class B Certificates will be more sensitive to losses due to liquidations of defaulted mortgage loans because the entire amount of such losses will be allocable to such certificates in inverse order of S-42 priority, except as provided in this prospectus supplement. To the extent not covered by the master servicer’s advances of delinquent monthly payments of principal and interest, delinquencies on the mortgage loans may also have a relatively greater effect: (1) on the yields to investors in the Class B Certificates with higher numerical designations than on the yields to investors in those Class B Certificates with lower numerical designations; and (2) on the yields to investors in the Class B Certificates than on the yields to investors in the senior certificates. As described above under “Description of the Certificates — Distributions on the Certificates — Interest” and“— Principal,” “ — Losses Allocable to the Certificates”and“— Subordination,” amounts otherwise distributable to holders of any class of Class B Certificates will be made available to protect the holders of the more senior ranking classes of the certificates against interruptions in distributions due to certain mortgagor delinquencies. Such delinquencies, even if subsequently cured, may affect the timing of the receipt of distributions by the holders of the Class B Certificates. To the extent that the Class B Certificates are being purchased at discounts from their initial class certificate balances, if the purchaser of such a certificate calculates its yield to maturity based on an assumed rate of payment of principal faster than that actually received on such certificate, its actual yield to maturity may be lower than that so calculated. The depositor intends to file certain additional yield tables and other computational materials with respect to one or more classes of offered certificates with the SEC in a report on Form 8-K. The tables and materials were prepared by UBS Securities LLC and Lehman Brothers Inc. at the request of one or more prospective investors, based on assumptions provided by, and satisfying the special requirements of, the prospective investors. The tables and assumptions may be based on assumptions that differ from the Structuring Assumptions. Accordingly, the tables and other materials may not be relevant to or appropriate for investors other than those specifically requesting them. Weighted Average Lives of the Offered Certificates The weighted average life of an offered certificate is determined by (a) multiplying the amount of the net reduction, if any, of the class certificate balance of the certificate on each distribution date by the number of years from the date of issuance to the distribution date, (b) summing the results and (c) dividing the sum by the aggregate amount of the net reductions in class certificate balance of the certificate referred to in clause (a). For a discussion of the factors which may influence the rate of payments, including prepayments, of the mortgage loans, see “— General Prepayment Considerations and Risks” in this prospectus supplement and “Yield and Prepayment Considerations” in the prospectus. The interaction of the foregoing factors may have different effects on various classes of offered certificates and the effects on any class may vary at different times during the life of the class. Accordingly, no assurance can be given as to the weighted average life of any class of offered certificates. Further, to the extent the prices of the offered certificates represent discounts or premiums to their respective original class certificate balances, variability in the weighted average lives of the classes of offered certificates will result in variability in the related yields to maturity. For an example of how the weighted average lives of the classes of offered certificates may be affected at various constant percentages of CPR, see the Decrement Tables below. The following tables indicate the percentages of the initial class certificate balances of the classes of offered certificates that would be outstanding after each of the distribution dates shown at various constant percentages of CPR and the corresponding weighted average lives of the classes. The tables have been prepared on the basis of the Structuring Assumptions. It is not likely that the mortgage loans of a mortgage pool will have the precise characteristics described in the Structuring Assumptions or that all the mortgage loans of a mortgage pool will prepay at the constant percentages of CPR S-43 specified in the tables below or at any other constant rate. Moreover, the diverse remaining terms to maturity and mortgage rates of the mortgage loans in each mortgage pool could produce slower or faster principal distributions than indicated in the tables, which have been prepared using the specified constant percentages of CPR, even if the weighted average remaining term to maturity and weighted average mortgage rate of the mortgage loans in each mortgage pool are consistent with the remaining term to maturity and weighted average mortgage rate specified in the Structuring Assumptions. [remainder of page intentionally left blank] S-44 Indicates an outstanding balance greater than 0% and less than 0.5% of the original principal balance. Determined as specified under “— Weighted Average Lives of the Certificates” above. S-45 Last Scheduled Distribution Date The last scheduled distribution date for each class of senior certificates and each class of subordinated certificates is the distribution date in January 2036, which is the distribution date in the month following the month of the latest scheduled maturity date for any of the mortgage loans. Because the rate of distributions in reduction of the class certificate balance of each class of offered certificates will depend on the rate of payment, including prepayments, of the mortgage loans in the related mortgage pool or mortgage pools, the class certificate balance of any such class of offered certificates could be reduced to zero significantly earlier or later than the last scheduled distribution date for such class. The rate of payments on the mortgage loans of a mortgage pool will depend on their particular characteristics, as well as on prevailing interest rates from time to time and other economic factors, and no assurance can be given as to the actual payment experience of the mortgage loans of a mortgage pool. See “— Prepayment Considerations and Risks” and “— Weighted Average Lives of the Offered Certificates” in this prospectus supplement and “Yield and Prepayment Considerations” in the prospectus. The depositor will use the net proceeds from the sale of the certificates to purchase the mortgage loans from the Seller. MATERIAL FEDERAL INCOME TAX CONSEQUENCES The following discussion is the opinion of Andrews Kurth LLP, counsel to the depositor, as to the material U.S. federal income tax aspects of the purchase, ownership and disposition of the certificates, and is based on the provisions of the Code, the Treasury Regulations thereunder, and published rulings and court decisions in effect as of the date hereof, all of which are subject to change, possibly retroactively. This discussion does not address every aspect of the U.S. federal income tax laws which may be relevant to certificateholders in light of their personal investment circumstances or to certain types of certificateholders subject to special treatment under the U.S. federal income tax laws (for example, banks and life insurance companies). Accordingly, investors should consult their tax advisors regarding U.S. federal, state, local, foreign and any other tax consequences to them of investing in the certificates. For federal income tax purposes, the trust fund will consist of one or more REMICs in a tiered structure. The highest REMIC will be referred to as the “Master REMIC,” and each REMIC below the Master REMIC (if any) will be referred to as an “underlying REMIC.” Each underlying REMIC (if any) will issue multiple classes of uncertificated, regular interests (the “underlying REMIC Regular Interests”) that will be held by another REMIC above it in the tiered structure. The assets of the lowest underlying REMIC (or the Master REMIC if there is no underlying REMIC) will consist of the mortgage loans and any other assets designated in the pooling and servicing agreement. The Master REMIC will issue the senior certificates and the subordinated certificates (together, excluding the Residual Certificates, the “Regular Certificates”). The Residual Certificates will represent the beneficial ownership of the residual interest in each underlying REMIC (if any) and the residual interest in the Master REMIC. The assets of the Master REMIC will consist of underlying REMIC regular interests issued by one or more underlying REMICs (if any). The Regular Certificates generally will be treated as debt instruments issued by the Master REMIC for federal income tax purposes. Income on the Regular Certificates must be reported under an accrual method of accounting. Under the accrual method of accounting, interest income may be required to be included in a holder’s gross income in advance of the holder’s actual receipt of that interest income. The discussion set out below concerning OID should be read in conjunction with the detailed discussion of OID in the prospectus under the caption “Material Federal Income Tax Consequences – Taxation of Debt Securities.” A debt instrument is treated as having been issued with OID to the extent its stated redemption price at maturity exceeds its issue price by more than a de minimis amount. The stated redemption price at maturity on a S-46 debt instrument includes all payments made under the debt instrument, other than payments of qualified stated interest. The Regular Certificates, depending on their respective issue prices, may be treated as having been issued with OID in an amount equal to the excess of their initial respective class certificate balance (plus accrued interest from the last day preceding the issue date corresponding to a distribution date through the issue date), over their respective issue prices (including all accrued interest). The prepayment assumption that is to be used in determining the rate of accrual of original issue discount and whether the original issue discount is consideredde minimis, and that may be used by a holder of a Regular Certificate to amortize premium, will be 25% of the CPR. No representation is made as to whether the mortgage loans in a mortgage pool will prepay at the foregoing rate or any other rate. See “Yield, Prepayment and Maturity Considerations” in this prospectus supplement and “Material Federal Income Tax Consequences” in the prospectus. Computing accruals of OID in the manner described in the prospectus and this prospectus supplement may, depending on the actual rate of prepayments during the accrual period, result in the accrual of negative amounts of OID on the certificates issued with OID in an accrual period. Holders will be entitled to offset negative accruals of OID only against future OID accrual on their certificates. If the holders of any Regular Certificates are treated as holding their certificates at a premium, they are encouraged to consult their tax advisors regarding the election to amortize bond premium and the method to be employed. See “Material Federal Income Tax Consequences —Taxation of Debt Securities” in the prospectus. The offered certificates will represent “real estate assets” under Section 856(c)(5)(B) of the Code and qualifying assets under Section 770l(a)(19)(C) in the same proportion that the assets of the trust fund would be so treated, and income on the offered certificates will represent “interests on obligations secured by mortgages on real property” in the same proportion that the income on the assets of the trust fund would be so treated. Moreover, if 95% or more of the assets of the trust fund are “real estate assets” within the meaning of Section 856(c)(5)(B) of the Code at all times during a calendar year, then all of an offered certificate will represent “real estate assets” and all the income on the offered certificate will qualify as “interest on obligations secured by mortgages on real property” for that calendar year. Similarly, if 95% or more of the assets of the trust fund are qualifying assets under Section 7701(a)(19)(C) of the Code at all times during the calendar year, then all of an offered certificate will represent assets qualifying under Section 7701(a)(19)(C) for that calendar year. The Regular Certificates will represent qualifying assets under Section 860G(a)(3) if acquired by a REMIC within the prescribed time periods of the Code. The holders of the Residual Certificates must include the taxable income of each REMIC in their federal taxable income. The resulting tax liability of the holders may exceed cash distributions to them during certain periods. All or a portion of the taxable income from a Residual Certificate recognized by a holder may be treated as “excess inclusion” income, which with limited exceptions, is subject to U.S. federal income tax. In computing alternative minimum taxable income, the special rule providing that taxable income cannot be less than the sum of the taxpayer’s excess inclusions for the year does not apply. However, a taxpayer’s alternative minimum taxable income cannot be less than the sum of the taxpayer’s excess inclusions for the year. In addition, the amount of any alternative minimum tax net operating loss is determined without regard to any excess inclusions. Purchasers of a Residual Certificate are encouraged to consider carefully the tax consequences of an investment in residual certificates discussed in the prospectus and consult their own tax advisors with respect to those consequences. See “Material Federal Income Tax Consequences — Taxation of Holders of Residual Interest Securities” in the prospectus. Specifically, prospective holders of a Residual Certificate should consult their tax advisors regarding whether, at the time of acquisition, a Residual Certificate will be treated as a “noneconomic” residual interest. See “Material Federal Income Tax Consequences — Taxation of Holders of Residual Interest Securities — Restrictions on Ownership and Transfer of Residual Interest Securities” and “Material Federal Income Tax Consequences — Tax Treatment of Foreign Investors” in the prospectus. S-47 Any fiduciary of a Plan that proposes to cause the Plan to acquire any of the offered certificates is encouraged to consult with its counsel with respect to the potential consequences of the Plan’s acquisition and ownership of the certificates under ERISA and Section 4975 of the Code. See “ERISA Considerations” in the prospectus. Section 406 of ERISA prohibits “parties in interest” with respect to an employee benefit plan subject to ERISA from engaging in various different types of transactions involving the plan and its assets unless a statutory, regulatory or administrative exemption applies to the transaction. Section 4975 of the Code imposes excise taxes on prohibited transactions involving “disqualified persons” and Plans described under that Section. ERISA authorizes the imposition of civil penalties for prohibited transactions involving Plans not subject to the requirements of Section 4975 of the Code. Some employee benefit plans, including governmental plans and some church plans, are not subject to ERISA’s requirements. Accordingly, assets of those plans may be invested in the offered certificates without regard to the ERISA considerations described in this prospectus supplement and in the prospectus, subject to the provisions of other applicable federal, state and local law. Any of those plans that are qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code may nonetheless be subject to the prohibited transaction rules set forth in Section 503 of the Code. Except as noted above, investments by Plans are subject to ERISA’s general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that a Plan’s investments be made in accordance with the documents governing the Plan. A fiduciary that decides to invest the assets of a Plan in the offered certificates should consider, among other factors, the extreme sensitivity of the investment to the rate of principal payments, including prepayments, on the mortgage loans. The U.S. Department of Labor has granted the underwriters individual administrative exemptions (collectively, the “Underwriting Exemption”). The Underwriting Exemption grants exceptions from some of the prohibited transaction rules of ERISA and the related excise tax provisions of Section 4975 of the Code with respect to the initial purchase, the holding and the subsequent resale by Plans of certificates in pass-through trusts that consist of specified receivables, loans and other obligations that meet the conditions and requirements of the exemption. The Underwriting Exemption applies to mortgage loans such as the mortgage loans in the trust fund. For a general description of the Underwriting Exemption and the conditions that must be satisfied for it to apply, see“ERISA Considerations” in the prospectus. On November 13, 2000, the U.S. Department of Labor published Prohibited Transaction Exemption 2000-58 (65 Fed. Reg. 67765, November 13, 2000) which amended, effective August 23, 2000, the Underwriter Exemption. Among other changes, the amended exemption generally provides that in the case of “designated transactions” a Plan would be permitted to purchase subordinate certificates rated in any of the four highest generic ratings categories of Fitch, S&P and Moody’s (provided that all other requirements are met). The designated transactions include residential mortgages. Because the ratings of a class of certificates are subject to change in the future by the rating agencies, classes of certificates eligible for purchase by Plans and pursuant to the Underwriter Exemption on the closing date may not be eligible for purchase by Plans pursuant to the Underwriter Exemption (although any Plan holding such a certificate would not be required to dispose of it solely because its rating had been lowered). However, a Plan investor which is an insurance company general account may purchase such classes of certificates in these circumstances pursuant to Sections I and III of PTCE 95-60. On August 22, 2002, the U.S. Department of Labor published Prohibited Transaction Exemption 2002-41 (67 Fed. Reg. 54487, August 22, 2002) which amended, effective January 1, 2001, the Underwriter Exemption to remove the requirement that a trustee not be affiliated with an underwriter in order to qualify for relief under the Underwriter Exemptions. It is expected that the Underwriter Exemption as amended by PTE 2000-58 will apply to the acquisition and holding by Plans of the offered certificates, excluding the Residual Certificates and that all applicable conditions of the Underwriter Exemption and PTE 2000-58 other than those within the control of the investors will be met. In S-48 addition, as of the date hereof, no single mortgagor is the obligor on five percent (5%) of the mortgage loans included in the trust fund by aggregate unamortized principal balance of the assets of the trust fund. Because the characteristics of the Residual Certificates may not meet the requirements of the Underwriter Exemption or any other issued exemption under ERISA, a Plan or an individual retirement account or other plan subject to Section 4975 of the Code may engage in a prohibited transaction or incur excise taxes or civil penalties if it purchases and holds the Residual Certificates. Consequently, transfers of the Residual Certificates will not be registered by the trustee unless the trustee receives: Prospective Plan investors are encouraged to consult with their legal advisors concerning the impact of ERISA and the Code, the applicability of the exemptions described above and PTE 83-1 described in the prospectus, and the potential consequences in their specific circumstances, before making an investment in any of the offered certificates. Moreover, each Plan fiduciary is encouraged to determine whether under the general fiduciary standards of investment prudence and diversification, an investment in any of the offered certificates is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan’s investment portfolio. Subject to the terms and conditions set forth in the Underwriting Agreements, the depositor has agreed to sell (i) the senior certificates to UBS Securities LLC, and (ii) the Class B-1, Class B-2 and Class B-3 Certificates to Lehman Brothers Inc. Distribution of the Underwritten Certificates will be made by UBS Securities LLC and Lehman Brothers Inc. from time to time in negotiated transactions or otherwise at varying prices to be determined at the time of sale. In connection with the sale of the Underwritten Certificates, the underwriters may be deemed to have received compensation from the depositor in the form of underwriting discounts. After the initial distribution of the certificates offered hereby, each of UBS Securities LLC, Lehman Brothers Inc. and FTN Financial Securities Corp. (an affiliate of the depositor, the seller and the master servicer) intends to make a secondary market in the Underwritten Certificates offered by it, but has no obligation to do so. FTN Financial Securities Corp. may act as principal or agent in these transactions. These transactions will be at market prices at the time of sale and not at the prices of the initial offering. There can be no assurance that a secondary market for the Underwritten Certificates will develop or, if it does develop, that it will continue or that it will provide certificateholders with a sufficient level of liquidity of investment. The depositor and the master servicer have agreed to indemnify the underwriters against, or make contributions to the underwriters with respect to, liabilities customarily indemnified against, including liabilities under the Securities Act of 1933, as amended. S-49 The validity of the certificates, including their material federal income tax consequences, will be passed upon for the depositor by Andrews Kurth LLP, Dallas, Texas. McKee Nelson LLP, Washington, DC, will pass upon certain legal matters on behalf of the underwriters. It is a condition to the issuance of the senior certificates that they be rated (i) “AAA” by Fitch and (ii) “Aaa” by Moody’s. It is a condition to the issuance of the Class B-1, Class B-2 and Class B-3 Certificates that they be rated at least “AA,” “A” and “BBB,” respectively, by Fitch. The ratings assigned by Fitch to the mortgage pass-through certificates address the likelihood of the receipt of all distributions on the mortgage loans by the related certificateholders under the agreements pursuant to which the certificates are issued. Fitch’s ratings take into consideration the credit quality of the related 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 by the certificates. If prepayments are faster than anticipated, investors may fail to recover their initial investment. The rating assigned by Fitch to the Class I-A-R Certificates only addresses the return of their class certificate balance and interest thereon at their pass-through rate. The ratings assigned by Moody’s to mortgage pass-through certificates address the likelihood of the receipt of all distributions on the mortgage loans by the related certificateholders under the agreements pursuant to which the certificates are issued. Moody’s’ rating takes into consideration the credit quality of the related 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 related mortgage pool is adequate to make the payments required by the certificates. The ratings of the certificates do not address the possibility that as a result of principal prepayments, certificateholders may receive a lower than anticipated yield. The rating assigned by Moody’s to the Class I-A-R Certificates only addresses the return of their class certificate balance and interest thereon at their pass-through rate. The security ratings assigned to the offered certificates should be evaluated independently from similar ratings on other types of securities. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating agencies. The depositor has not requested a rating of the offered certificates by any rating agency other than Fitch and Moody’s; there can be no assurance, however, as to whether any other rating agency will rate the offered certificates or, if it does, what rating would be assigned by the other rating agency. The rating assigned by the other rating agency to the offered certificates could be lower than the respective ratings assigned by either, or both, of Fitch and Moody’s. S-50 Accrued Certificate Interest — For any class of certificates for any distribution date will equal the interest accrued during the related interest accrual period at the applicable pass-through rate on the class certificate balance of such class of certificates immediately prior to such distribution date, less such class’ share of any Net Interest Shortfall. Aggregate Senior Percentage — For any distribution date, the percentage equal to (x) the sum of the class certificate balances of the Senior Certificates of all certificate groups, divided by (y) the aggregate Pool Principal Balance for both mortgage pools on such distribution date, in each case prior to giving effect to any distributions on such distribution date. Aggregate Subordinated Percentage —For any distribution date, the percentage equal to (x) the sum of the class certificate balances of the Subordinated Certificates on such distribution date, divided by (y) the aggregate Pool Principal Balance for both mortgage pools on such distribution date, in each case prior to giving effect to any distributions on such distribution date. Allocable Share — With respect to any class of subordinated certificates on any distribution date, such class’pro rata share (based on the class certificate balance of each class entitled thereto) of each of the components of the Subordinated Optimal Principal Amount for each mortgage pool described in this prospectus supplement; provided, that, except as provided in the pooling and servicing agreement, no Class B Certificates (other than the subordinated class with the highest priority of distribution) shall be entitled on any distribution date to receive distributions pursuant to clauses (2), (3) and (5) of the definition of each Subordinated Optimal Principal Amount unless the Class Prepayment Distribution Trigger for the related class is satisfied for such distribution date. Apportioned Principal Balance — For any class of subordinated certificates and any distribution date will equal the class certificate balance of that class immediately prior to that distribution date multiplied by a fraction, the numerator of which is the applicable Group Subordinate Amount for that date and the denominator of which is the sum of the Group Subordinate Amounts for that date. Available Funds — For each mortgage pool, with respect to any distribution date, an amount equal to the sum of: S-51 Available Funds Allocation — The allocation of Available Funds as described under “Distributions on the Certificates — Allocation of Available Funds” in the prospectus supplement. Bankruptcy Loss Coverage Amount —Approximately $150,000, subject to reduction as described in the pooling and servicing agreement, minus the aggregate amount of previous Bankruptcy Losses. Bankruptcy Losses — Deficient Valuations or Debt Service Reductions. Certificate Account — An account established and maintained by the master servicer, in the name of the trustee for the benefit of the holders of each series of certificates, for the disbursement of payments on the mortgage loans in a mortgage pool evidenced by each series of certificates of the related certificate group. Class B Certificates — The Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates, collectively. Class Prepayment Distribution Trigger — For a class of Class B Certificates (other than the subordinated class with the highest priority of distributions) any distribution date on which a fraction (expressed as a percentage), the numerator of which is the aggregate class certificate balance of such class and each class subordinate thereto, if any, and the denominator of which is the aggregate Pool Principal Balance for both of the mortgage pools with respect to such distribution date, equals or exceeds such percentage calculated as of the closing date. Code — The Internal Revenue Code of 1986, as amended. Compensating Interest — As to any distribution date and any principal prepayment in respect of a mortgage loan that is received during the period from the sixteenth day of the month (or, in the case of the first distribution date, from the cut-off date) prior to the month of such distribution date through the last day of such month, an additional payment to the related mortgage pool made by the master servicer, to the extent funds are available from the master servicing fee, equal to the amount of interest at the Net Mortgage Rate, for that mortgage loan from the date of the prepayment to the related due date; provided that such payment shall not exceed 0.0083% of the Pool Principal Balance of the related mortgage pool as of the related determination date. CPR — Constant prepayment rate, a prepayment standard or model which represents an assumed constant annual rate of prepayment each month of the then outstanding principal balance of a pool of new mortgage loans. Cross-over Date— The distribution date on which the class certificate balances of each class of subordinated certificates have been reduced to zero. Debt Service Reduction — With respect to any mortgage loan, a reduction by a court of competent jurisdiction in a proceeding under the Bankruptcy Code in the scheduled payment for such mortgage loan which became final and non-appealable, except such a reduction resulting from a Deficient Valuation or any reduction that results in a permanent forgiveness of principal. Deficient Valuation — With respect to any mortgage loan, a valuation by a court of competent jurisdiction of the related mortgaged property in an amount less than the then-outstanding indebtedness under the mortgage loan, or any reduction in the amount of principal to be paid in connection with any scheduled payment that results in a permanent forgiveness of principal, which valuation or reduction results from an order of such court which is final and non-appealable in a proceeding under the Bankruptcy Code. Determination Date — As to any distribution date, the earlier of (i) the third business day after the 15th day of each month, and (ii) the second business day prior to the related distribution date. S-52 Distribution Account— An account established and maintained with the trustee on behalf of the certificateholders which account shall consist of one subaccount for each mortgage pool, into which the master servicer will deposit the Available Funds for the related mortgage pool withdrawn from the Certificate Account. DTC — The Depository Trust Company. ERISA — The Employee Retirement Income Security Act of 1974, as amended. Excess Losses — Any Deficient Valuation, Fraud Loss or Special Hazard Loss (each a type of Realized Loss), or any part thereof, occurring after the Bankruptcy Loss Coverage Amount, Fraud Loss Coverage Amount or Special Hazard Loss Coverage Amount, respectively, has been reduced to zero. First Horizon— First Horizon Home Loan Corporation, a Kansas corporation and an indirect wholly owned subsidiary of First Horizon National Corporation, a Tennessee corporation. Fitch— Fitch Ratings and its successors and/or assigns. Fraud Loss Coverage Amount — The aggregate amount of Realized Losses which may be allocated in connection with Fraud Losses. Fraud Losses — Realized Losses incurred on Liquidated Mortgage Loans as to which there was fraud, dishonesty or misrepresentation in the origination of the mortgage loans. Group Subordinate Amount — For each mortgage pool and any distribution date is the excess of the Pool Principal Balance of that mortgage pool for such distribution date over the aggregate class certificate balance of the senior certificates of the related certificate group immediately prior to that distribution date. Insurance Proceeds — All proceeds of any primary mortgage guaranty insurance policies and any other insurance policies with respect to the mortgage loans, to the extent the proceeds are not applied to the restoration of the related mortgaged property or released to the mortgagor in accordance with the master servicer’s normal servicing procedures. Liquidated Mortgage Loan — A defaulted mortgage loan as to which the master servicer has determined that all recoverable liquidation and insurance proceeds have been received. Liquidation Proceeds — All cash amounts, other than Insurance Proceeds and Unanticipated Recoveries, received and retained in connection with the liquidation of defaulted mortgage loans, by foreclosure or otherwise during the calendar month before the distribution date. Moody’s — Moody’s Investors Service, Inc. and its successors and/or assigns. Net Interest Shortfall — For any distribution date, the sum of: Net Mortgage Rate or“NMR” — With respect to a mortgage loan, the mortgage rate thereof, less the Expense Fee Rate with respect to the mortgage loan, expressed as a per annum percentage of its Stated Principal Balance. S-53 Net Prepayment Interest Shortfall — For any distribution date, the amount by which the aggregate of Prepayment Interest Shortfalls during the applicable prepayment period applicable to that distribution date exceeds the available Compensating Interest, if any, for that period. Non-Excess Loss — Any Realized Loss other than an Excess Loss. OID — Original issue discount. Original Subordinated Principal Balance — The aggregate of the class certificate balances of the subordinated certificates as of the closing date. Plan— An employee benefit plan or arrangement (such as an individual retirement plan or Keogh plan) that is subject to ERISA or Section 4975 of the Code. Pool Principal Balance — For each mortgage pool, with respect to any distribution date, the aggregate of the Stated Principal Balances of the mortgage loans in such mortgage pool outstanding on the due date in the month before the distribution date. Prepayment Interest Excess — As to any principal prepayment in full received by the master servicer from the first day through the fifteenth day of any calendar month (other than the calendar month in which the cut-off date occurs), all amounts paid by the related mortgagor in respect of interest on such principal prepayment. All Prepayment Interest Excess shall be paid to the Master Servicer as additional master servicing compensation. Prepayment Interest Shortfall — As to any distribution date, mortgage loan and principal prepayment received (a) during the period from the sixteenth day of the month preceding the month of such distribution date (or, in the case of the first distribution date, from the cut-off date) through the last day of such month, in the case of a principal prepayment in full, or (b) during the month preceding the month of such distribution date, in the case of a partial principal prepayment, the amount, if any, by which one month’s interest at the related Net Mortgage Rate (exclusive of the trustee fee) on such principal prepayment exceeds the amount of interest actually paid by the borrower in connection with such principal prepayment. Prepayment Period — (a) With respect to any mortgage loan that was the subject of a voluntary prepayment in full and any distribution date, the period from the sixteenth day of the month preceding the month of such distribution date (or, in the case of the first distribution date, from the cut-off date) through the fifteenth day of the month of such distribution date, and (b) with respect to any other unscheduled prepayment of principal of any mortgage loan and any distribution date, the calendar month preceding the month of such distribution date. PTE — A prohibited transaction exemption issued by the U.S. Department of Labor. Realized Loss — (a) for a Liquidated Mortgage Loan, the unpaid principal balance thereof plus accrued and unpaid interest thereon at the Net Mortgage Rate through the last day of the month of liquidation, less the amount of any net Liquidation Proceeds, Insurance Proceeds and/or Unanticipated Recoveries received in respect of such mortgage loan and the related mortgaged property; and (b) for any mortgage loan other than a Liquidated Mortgage Loan, a Deficient Valuation. Regular Certificates — All classes of certificates, other than the Residual Certificates. Relief Act Reduction — A reduction in the amount of monthly interest payment on a mortgage loan pursuant to the Servicemembers Civil Relief Act or any similar state or local legislation or regulations. Residual Certificates — The Class I-A-R Certificates. S&P — Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. and its successors and/or assigns. S-54 Senior Final Distribution Date — For any certificate group, the distribution date on which the class certificate balance of the related class or classes of senior certificates has been reduced to zero. Senior Optimal Principal Amount — As to a mortgage pool and with respect to each distribution date, an amount equal to the sum of: Senior Percentage— On any distribution date for a certificate group, the lesser of 100% and the percentage (carried to six places) obtained by dividing the aggregate class certificate balances of all classes of senior certificates of such certificate group immediately preceding such distribution date by the Pool Principal Balance of the related mortgage pool for such distribution date. S-55 Senior Prepayment Percentage — On any distribution date occurring during the periods set forth below, and as to each certificate group, the Senior Prepayment Percentages described below: provided, however, (i) if on any distribution date, the Aggregate Senior Percentage exceeds such percentage calculated as of the closing date, then the Senior Prepayment Percentage for all certificate groups for such distribution date will equal 100%, (ii) if on any distribution date prior to the December 2008 distribution date, the Aggregate Subordinated Percentage is greater than or equal to twice such percentage calculated as of the closing date, then the Senior Prepayment Percentage for each certificate group for such distribution date will equal the Senior Percentage for such certificate group plus 50% of the Subordinated Percentage for such certificate group and (iii) if on or after the December 2008 distribution date, the Aggregate Subordinated Percentage is greater than or equal to twice such percentage calculated as of the closing date, then the Senior Prepayment Percentage for each certificate group for such distribution date will equal the Senior Percentage for such certificate group. The reductions in the Senior Prepayment Percentage for each certificate group described above will not occur, and the Senior Prepayment Percentage for each certificate group for such prior period will be calculated without regard to clause (ii) or (iii) of the paragraph above, unless both of the following step-down conditions are satisfied with respect to each mortgage pool, as of the last day of the month preceding the Distribution Date: Special Hazard Loss Coverage Amount — The aggregate amount of Realized Losses which may be allocated in connection with Special Hazard Losses. Special Hazard Losses — A Realized Loss incurred, to the extent that the loss was attributable to direct physical damage to a mortgaged property other than any loss of a type covered by a hazard insurance policy or a flood insurance policy, if applicable; and any shortfall in insurance proceeds for partial damage due to the application of the co-insurance clauses contained in hazard insurance policies. The amount of the Special Hazard Loss is limited to the lesser of the cost of repair or replacement of the mortgaged property; any loss above that amount would be a defaulted mortgage loan loss or other applicable type of loss. Special Hazard Losses do not include losses occasioned by war, civil insurrection, various governmental actions, errors in design, faulty workmanship or materials, except under some circumstances, nuclear reaction, chemical contamination or waste by the mortgagor. S-56 Stated Principal Balance — For any mortgage loan and due date, the unpaid principal balance of the mortgage loan as of the due date, as specified in its amortization schedule at the time, before any adjustment to the amortization schedule for any moratorium or similar waiver or grace period, after giving effect to any previous partial prepayments and liquidation proceeds received and to the payment of principal due on the due date and irrespective of any delinquency in payment by the related mortgagor. Structuring Assumptions — The assumptions listed beginning on page S-37, including assumed characteristics of the mortgage loans corresponding to each mortgage pool used for purposes of estimating decrement tables and the weighted average lives of the related certificates. Subordinated Certificate Writedown Amount — As of any distribution date, the amount by which (a) the sum of the class certificate balances of all the certificates after giving effect to the distribution of principal and the allocation of Realized Losses in reduction of the class certificate balances of all the certificates on such distribution date, exceeds (b) the aggregate of the Pool Principal Balances of both mortgage pools on the first day of the month of such distribution date less any Deficient Valuations occurring before the Bankruptcy Loss Coverage Amount has been reduced to zero. Subordinated Optimal Principal Amount — With respect to each mortgage pool and each distribution date, an amount equal to the sum of the following (but in no event greater than the aggregate class certificate balances of the subordinated certificates immediately prior to such distribution date): Subordinated Percentage — For any distribution date and each certificate group, 100% minus the related Senior Percentage. S-57 Subordinated Prepayment Percentage — For any distribution date and each certificate group, 100% minus the related Senior Prepayment Percentage. Substitution Adjustment Amount — The amount by which the principal balance of a substituted mortgage loan exceeds the principal balance of a replacement mortgage loan. Two Times Test— A test that is satisfied with respect to a certificate group and any distribution date if the related Senior Prepayment Percentage for such distribution date is determined in accordance with clauses (ii) and (iii) of the proviso in the definition of “Senior Prepayment Percentage.” Unanticipated Recovery — Any amount recovered by the Master Servicer in respect of principal of a mortgage loan which had previously been allocated as a Realized Loss to one or more classes of certificates. Underwriter Exemptions — Administrative exemptions, granted by the U.S. Department of Labor to certain underwriters, from certain of the prohibited transaction rules of ERISA and the related excise tax provisions of Section 4975 of the Code with respect to the initial purchase, the holding and the subsequent resale by Plans of certificates in pass-through trusts that consist of certain receivables, loans and other obligations that meet the conditions and requirements of such exemptions. Underwriting Agreements — Each of the underwriting agreements by and among First Horizon Asset Securities Inc., First Horizon Home Loan Corporation and each underwriter. Underwritten Certificates — The Class I-A-1, Class I-A-R, Class II-A-1, Class B-1, Class B-2 and Class B-3 Certificates. [remainder of page intentionally left blank] S-58 MORTGAGE RATES CURRENT MORTGAGE LOAN PRINCIPAL BALANCES ORIGINAL LOAN-TO-VALUE RATIOS GEOGRAPHIC DISTRIBUTION OF MORTGAGED PURPOSE OF MORTGAGE LOANS I-1 TYPES OF MORTGAGED PROPERTIES OCCUPANCY TYPES REMAINING TERMS TO MATURITY FICO SCORES LOAN PROGRAMS GROSS MARGIN INITIAL PAYMENT ADJUSTMENT DATE MAXIMUM MORTGAGE RATES I-2 INITIAL PERIODIC RATE CAP SUBSEQUENT PERIODIC RATE CAP MINIMUM MORTGAGE RATES DOCUMENTATION TYPE I-3 [THIS PAGE INTENTIONALLY LEFT BLANK] MORTGAGE RATES As of the cut-off date, the weighted average mortgage rate of the mortgage loans in Pool II is expected to be approximately 6.357%. The mortgage interest rates on a per annum basis range between 4.750% and 7.500%. CURRENT MORTGAGE LOAN PRINCIPAL BALANCES As of the cut-off date, the average principal balance outstanding of the mortgage loans in Pool II is expected to be $322,277.91. ORIGINAL LOAN-TO-VALUE RATIOS The weighted average original loan-to-value ratio of the mortgage loans in Pool II is expected to be approximately 73.79%. GEOGRAPHIC DISTRIBUTION OF MORTGAGED No more than approximately 1.689% of the mortgage loans in Pool II are secured by mortgaged properties located in any one postal zip code area. II-1 PURPOSE OF MORTGAGE LOANS TYPES OF MORTGAGED PROPERTIES OCCUPANCY TYPES REMAINING TERMS TO MATURITY As of the cut-off date the weighted average remaining term to maturity of the mortgage loans in Pool II is expected to be approximately 360 months. FICO SCORES LOAN PROGRAMS *Fixed mortgage rate for 60 months after origination, and subject to adjustment based on the mortgage index thereafter. GROSS MARGIN As of the cut-off date, the weighted average gross margin of the mortgage loans in Pool II is expected to be approximately 2.250%. INITIAL PAYMENT ADJUSTMENT DATE II-2 MAXIMUM MORTGAGE RATES INITIAL PERIODIC RATE CAP SUBSEQUENT PERIODIC RATE CAP MINIMUM MORTGAGE RATES DOCUMENTATION TYPE II-3 [THIS PAGE INTENTIONALLY LEFT BLANK] MORTGAGE RATES CURRENT MORTGAGE LOAN PRINCIPAL BALANCES ORIGINAL LOAN-TO-VALUE RATIOS FOR GEOGRAPHIC DISTRIBUTION OF MORTGAGED III-1 PURPOSE OF MORTGAGE LOANS TYPES OF MORTGAGED PROPERTIES OCCUPANCY TYPES REMAINING TERMS TO MATURITY FICO SCORES LOAN PROGRAMS *Fixed mortgage rate for 60 months after origination, and subject to adjustment based on the mortgage index thereafter. GROSS MARGIN As of the cut-off date, the weighted average gross margin of the mortgage loans is expected to be approximately 2.250%. INITIAL PAYMENT ADJUSTMENT DATE III-2 MAXIMUM MORTGAGE RATES INITIAL PERIODIC RATE CAP MINIMUM MORTGAGE RATES DOCUMENTATION TYPE III-3 [THIS PAGE INTENTIONALLY LEFT BLANK] PROSPECTUS First Horizon Asset Securities Inc. Mortgage and Asset Backed Securities The Trusts Each trust will be established to hold assets in its trust fund transferred to it by First Horizon Asset Securities Inc. The assets in each trust fund will be specified in the prospectus supplement for the particular trust and will generally consist of: The Securities The securities of a series will consist of certificates which evidence beneficial ownership of a trust established by the depositor, and/or notes secured by the assets of a trust fund. The depositor or a trust established by the depositor will sell the securities pursuant to a prospectus supplement. The securities will be grouped into one or more series, each having its own distinct designation. Each series of securities will be issued in one or more classes and each class will evidence the right to receive a specified portion of future payments on the assets in the trust fund that the series relates to. A prospectus supplement for a series will specify all of the terms of the series and of each of the classes in the series. Offers of Securities The securities may be offered to the public through several different methods, including offerings through underwriters. The SEC and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. July 29, 2005 IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT The prospectus supplement will contain information about a particular series that supplements the information contained in this prospectus, and you should rely on that supplementary information in the prospectus supplement. You should rely only on the information in this prospectus and the accompanying prospectus supplement. We have not authorized anyone to provide you with information that is different from that contained in this prospectus and the accompanying prospectus supplement. _____________________________________ If you require additional information, the mailing address of our principal executive offices is First Horizon Asset Securities Inc., 4000 Horizon Way, Irving, Texas 75063 and the telephone number is (214) 441-4000. For other means of acquiring additional information about us or a series of securities, see “Incorporation of Certain Documents by Reference” beginning on page 25. -2- -3- -4- -5- You should carefully consider the following information since it identifies known material sources of risk associated with an investment in the securities. The applicable prospectus supplement may provide that securities will be payable from other trust funds in addition to their associated trust fund, but if it does not, they will be payable solely from their associated trust fund. If the trust fund does not have sufficient assets to distribute the full amount due to you as a securityholder, your yield will be impaired, and perhaps even the return of your principal may be impaired, without your having recourse to anyone else. Furthermore, at the times specified in the applicable prospectus supplement, some assets of the trust fund may be released and paid out to other people, such as the depositor, a servicer, a credit enhancement provider, or any other person entitled to payments from the trust fund. Those assets will no longer be available to make payments to you. Those payments are generally made after other specified payments that may be set forth in the applicable prospectus supplement have been made. You will not have any recourse against the depositor or any servicer if you do not receive a required distribution on the securities. Nor will you have recourse against the assets of the trust fund of any other series of securities. The securities will not represent an interest in the depositor, any servicer, any seller to the depositor, or anyone else except the trust fund. The only obligation of the depositor to a trust fund comes from certain representations and warranties made by it about assets transferred to the trust fund. If these representations and warranties turn out to be untrue, the depositor may be required to repurchase some of the transferred assets. First Horizon Asset Securities Inc., which is the depositor, does not have significant assets and is unlikely to have significant assets in the future. So if the depositor were required to repurchase a loan because of a breach of a representation, its only sources of funds for the repurchase would be: -6- required repurchase or substitution. The only obligations to a trust fund of a seller of loans to the depositor comes from certain representations and warranties made by it in connection with its sale of the loans and certain document delivery requirements. If these representations and warranties turn out to be untrue, or the seller fails to deliver required documents, it may be required to repurchase or substitute for some of the loans. However, the seller may not have the financial ability to make the required repurchase or substitution. Credit enhancement is intended to reduce the effect of loan losses. But credit enhancements may benefit only some classes of a series of securities and the amount of any credit enhancement will be limited as described in the applicable prospectus supplement. Furthermore, the amount of a credit enhancement may decline over time pursuant to a schedule or formula or otherwise, and could be depleted from payments or for other reasons before the securities covered by the credit enhancement are paid in full. In addition, a credit enhancement may not cover all potential sources of loss. For example, a credit enhancement may or may not cover fraud or negligence by a loan originator or other parties. Also, the trustee may be permitted to reduce, substitute for, or even eliminate all or a portion of a credit enhancement so long as the rating agencies that have rated the securities at the request of the depositor indicate that the reduction would not cause them to change adversely their rating of the securities. Consequently, securityholders may suffer losses even though a credit enhancement exists and its provider does not default. The mortgage and deeds of trust securing the home equity loans will be primarily junior liens subordinate to the rights of the mortgagee under the related senior mortgage(s) or deed(s) of trust. Accordingly, the proceeds from any liquidation, insurance or condemnation proceeds will be available to satisfy the outstanding balance of the junior lien only to the extent that the claims of the related senior mortgagees have been satisfied in full, including any related foreclosure costs. In addition, if a junior mortgagee forecloses on the property securing a junior mortgage, it forecloses subject to any senior mortgage and must take one of the following steps to protect its interest in the property: -7- The trust fund may effectively be prevented from foreclosing on the related property since it will have no funds to satisfy any senior mortgages or make payments due to any senior mortgagees. Some states have imposed legal limits on the remedies of a secured lender in the event that the proceeds of any sale under a deed of trust or other foreclosure proceedings are insufficient to pay amounts owed to that secured lender. In some states, including California, if a lender simultaneously originates a loan secured by a senior lien on a particular property and a loan secured by a junior lien on the same property, that lender as the holder of the junior lien may be precluded from obtaining a deficiency judgment with respect to the excess of: In the case of home equity loans, declining property values could diminish or extinguish the value of a junior mortgage before reducing the value of a senior mortgage on the same property. If property values decline, the actual rates of delinquencies, foreclosures, and losses on all underlying loans could be higher than those currently experienced in the mortgage lending industry in general. These losses, to the extent not otherwise covered by a credit enhancement, will be borne by the holder of one or more classes of securities. -8- complete. Furthermore, in some states if the proceeds of the foreclosure are insufficient to repay the loan, the borrower is not liable for the deficit. Thus, if a borrower defaults, these restrictions may impede the trust’s ability to dispose of the property and obtain sufficient proceeds to repay the loan in full. In addition, the servicer will be entitled to deduct from liquidation proceeds all expenses reasonably incurred in attempting to recover on the defaulted loan, including legal fees and costs, real estate taxes, and property maintenance and preservation expenses. Federal, state and local laws extensively regulate various aspects of brokering, originating, servicing and collecting mortgage loans. Among other things, these laws may regulate interest rates and other charges, require disclosure, impose financial privacy requirements, mandate specific business practices, and prohibit unfair and deceptive trade practices. In addition, licensing requirements may be imposed on persons that broker, originate, service or collect mortgage loans. Additional requirements may be imposed under federal, state or local laws on so-called “high cost” mortgage loans, which typically are defined as loans that have interest rates or origination costs in excess of prescribed levels. These laws may limit certain loan terms, such as prepayment penalties, or the ability of a creditor to refinance a loan unless it is in the borrower’s interest. In addition, certain of these laws may allow claims against loan brokers or mortgage originators, including claims based on fraud or misrepresentation, to be asserted against person acquiring the mortgage loans, such as the trust fund. The federal laws that may apply to loans held in the trust fund include the following: -9- -10- The trust fund may also include loans that were originated under standards that were less stringent than the standards generally acceptable to Freddie Mac and Fannie Mae with regard to the borrower’s credit standing and repayment ability. The related borrowers may have payment histories and debt-to-income ratios which would not satisfy Freddie Mac and Fannie Mae underwriting guidelines and may have a record of major derogatory credit items such as outstanding judgments or prior bankruptcies. On a case by case basis, the related seller may determine that, based upon compensating factors, a prospective borrower not strictly qualifying under its applicable underwriting risk category guidelines warrants an underwriting exception. As a result of the application of less stringent underwriting standards, certain mortgage loans in a mortgage pool may experience rates of delinquency, foreclosure and bankruptcy that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner. Furthermore, changes in the values of the related mortgaged properties may have a greater effect on the delinquency, foreclosure, bankruptcy and loss experience of these mortgage loans than on mortgage loans originated in a more -11- Home equity loans and home improvement contracts have been originated in significant volume only during the past few years and the depositor is not aware of any publicly available studies or statistics on the rate of prepayment of these types of loans. Generally, if prevailing interest rates fall significantly below the coupon rates on the loans, the loans are likely to be subject to higher prepayment rates than if prevailing rates remain at or above the coupon rates on the loans. Conversely, if prevailing interest rates rise significantly above the coupon rate on the home equity loans, the rate of prepayments is likely to decrease. The average life of your securities and, if purchased at other than par, the yields realized by you will be sensitive to levels of payment (including prepayments) on the loans. In general, if you purchase a security at a premium to the outstanding principal amount of the security, the yield on your security may be adversely affected by a higher than anticipated level of prepayments of the loans. Conversely, if you purchase a security at a discount to the outstanding principal balance of the security, the yield on your security may be adversely affected by a lower than anticipated level of prepayments. -12- Federal, state, and local laws and regulations impose a wide range of requirements on activities that may affect the environment, health, and safety. In some circumstances, these laws and regulations impose obligations on owners or operators of residential properties such as those that secure the loans held in the trust fund. Failure to comply with these laws and regulations can result in fines and penalties that could be assessed against the trust as owner of the related property. In some states, a lien on the property due to contamination has priority over the lien of an existing mortgage. Also, a mortgage lender may be held liable as an “owner” or “operator” for costs associated with the release of petroleum from an underground storage tank under some circumstances. If the trust is considered the owner or operator of a property, it will suffer losses as a result of any liability imposed for environmental hazards on the property. Any class of securities issued under this prospectus and the accompanying prospectus supplement may be rated by one or more nationally recognized rating agencies. A rating is based on the adequacy of the value of the trust assets and any credit enhancement for that class, and reflects the rating agency’s assessment of how likely it is that holders of the class of securities will receive the payments to which they are entitled. A rating does not constitute an assessment of how likely it is that principal prepayments on the underlying loans will be made, the degree to which the rate of prepayments might differ from that originally anticipated, or the likelihood that the securities will be redeemed early. A rating is not a recommendation to purchase, hold, or sell securities because it does not address the market price of the securities or the suitability of the securities for any particular investor. A rating may not remain in effect for any given period of time and the rating agency could lower or withdraw the rating entirely in the future. For example, the rating agency could lower or withdraw its rating due to: -13- Illiquidity can have a severely adverse effect on the prices of securities that are especially sensitive to prepayment, credit, or interest rate risk. Illiquidity can also have an adverse effect on the price of securities that have been structured to support other classes of certificates or that have been structured to meet the investment requirements of limited categories of investors. For example, a particular investor may require a security with a specified maturity date, a call protection feature, or a specific type of amortization feature. The unique nature of the security may inhibit its marketability to other investors. -14- The seller and the depositor will treat the transfer of the loans held in the trust fund by the seller to the depositor as a sale for accounting purposes. The depositor and the trust fund will treat the transfer of the loans from the depositor to the trust fund as a sale for accounting purposes. If these characterizations are correct, then if the seller were to become bankrupt, the loans would not be part of the seller’s bankruptcy estate and would not be available to the seller’s creditors. On the other hand, if the seller becomes bankrupt, its bankruptcy trustee or one of its creditors may attempt to recharacterize the sale of the loans as a borrowing by the seller, secured by a pledge of the loans. Presenting this position to a bankruptcy court could prevent timely payments on the securities and even reduce the payments on the securities. Similarly, if the characterizations of the transfers as sales are correct, then if the depositor were to become bankrupt, the loans would not be part of the depositor’s bankruptcy estate and would not be available to the depositor’s creditors. On the other hand, if the depositor becomes bankrupt, its bankruptcy trustee or one of its creditors may attempt to recharacterize the sale of the loans as a borrowing by the depositor, secured by a pledge of the loans. Presenting this position to a bankruptcy court could prevent timely payments on the securities and even reduce the payments on the securities. If the master servicer becomes bankrupt, the bankruptcy trustee may have the power to prevent the appointment of a successor master servicer. The period during which cash collections may be commingled with the master servicer’s own funds before each distribution date for securities will be specified in the applicable prospectus supplement. If the master servicer becomes bankrupt and cash collections have been commingled with the master servicer’s own funds for at least ten days, the trust fund will likely not have a perfected interest in those collections. In this case the trust might be an unsecured creditor of the master servicer as to the commingled funds and could recover only its share as a general creditor, which might be nothing. Collections commingled less than ten days but still in an account of the master servicer might also be included in the bankruptcy estate of the master servicer even though the trust may have a perfected security interest in them. Their inclusion in the bankruptcy estate of the master servicer may result in delays in payment and failure to pay amounts due on the securities. Federal and state statutory provisions affording protection or relief to distressed borrowers may affect the ability of the secured -15- Some capitalized terms are used in this prospectus to assist you in understanding the terms of the securities. The capitalized terms used in this prospectus are defined on the pages indicated under the caption “Index of Defined Terms” beginning on page 117. The securities of each series will represent interests in the assets of the related trust fund, and the notes of each series will be secured by the pledge of the assets of the related trust fund. The trust fund for each series will be held by the trustee for the benefit of the related securityholders. Each trust fund will consist of the trust fund assets (the “Trust Fund Assets”) consisting of a pool comprised of loans as specified in the related prospectus supplement, together with payments relating to those loans as specified in the related prospectus supplement.1 The pool will be created on the first day of the month of the issuance of the related series of securities or another date as may be specified in the related prospectus supplement. The securities will be entitled to payment from the assets of the related trust fund or funds or other assets pledged for the benefit of the securityholders, as specified in the related prospectus supplement and will not be entitled to payments in respect of the assets of any other trust fund established by the depositor. ____________________________________ -16- The Trust Fund Assets will be acquired by the depositor, either directly or through affiliates, from originators or sellers which may be affiliates of the depositor (the “Sellers”), and conveyed without recourse by the depositor to the related trust fund. Loans acquired by the depositor will have been originated in accordance with the underwriting criteria specified below under “Loan Program — Underwriting Standards” or as otherwise described in the related prospectus supplement. See “Loan Program — Underwriting Standards.” The depositor will cause the Trust Fund Assets to be assigned to the trustee named in the related prospectus supplement for the benefit of the holders of the securities of the related series. The master servicer named in the related prospectus supplement will service the Trust Fund Assets, either directly or through other servicing institutions called sub-servicers, pursuant to a pooling and servicing agreement (each, a “Pooling and Servicing Agreement”) among the depositor, the master servicer and the trustee with respect to a series consisting of certificates, or a sale and servicing agreement (each, a “Sale and Servicing Agreement”) among the trustee, the seller, the issuer, the depositor and the master servicer with respect to a series consisting of certificates and notes, and will receive a fee for those services. See “Loan Program” and “The Agreements.” With respect to loans serviced by the master servicer through a sub-servicer, the master servicer will remain liable for its servicing obligations under the related Agreement as if the master servicer alone were servicing the loans. As used in this prospectus, “Agreement” means, with respect to a series consisting of certificates, the Pooling and Servicing Agreement, and with respect to a series consisting of certificates and notes, the Trust Agreement, the Indenture (as defined below) and the Sale and Servicing Agreement, as the context requires. If so specified in the related prospectus supplement, a trust fund relating to a series of securities may be a statutory trust formed under the laws of the state specified in the related prospectus supplement pursuant to a trust agreement (each, a “Trust Agreement”) between the depositor and the trustee of the trust fund. With respect to each trust fund, prior to the initial offering of the related series of securities, the trust fund will have no assets or liabilities. No trust fund is expected to engage in any activities other than acquiring, managing and holding of the related Trust Fund Assets and other assets contemplated in this prospectus and in the related prospectus supplement and the proceeds thereof, issuing securities and making payments and distributions thereon and certain related activities. No trust fund is expected to have any source of capital other than its assets and any related credit enhancement. The applicable prospectus supplement may provide for additional obligations of the depositor, but if it does not, the only obligations of the depositor with respect to a series of securities will be to obtain certain representations and warranties from the sellers and to assign to the trustee for that series of securities the depositor’s rights with respect to those representations and warranties. See “The Agreements — Assignment of the Trust Fund Assets.” The obligations of the master servicer with respect to the loans will consist principally of its contractual servicing obligations under the related Agreement (including its obligation to enforce the obligations of the sub-servicers or sellers, or both, as more fully described in this prospectus under “Loan Program — Representations by Sellers; Repurchases” and “The Agreements — Sub-Servicing By Sellers” and “ — Assignment of the Trust Fund Assets”) and its obligation, if any, to make certain cash advances in the event of delinquencies in payments on or with respect to the loans in the amounts described in this prospectus under “Description of the Securities — Advances.” The obligations of the master servicer to make advances may be subject to limitations, to the extent provided in this prospectus and in the related prospectus supplement. The following is a brief description of the assets expected to be included in the trust funds. If specific information respecting the Trust Fund Assets is not known at the time the related series of securities initially is offered, more general information of the nature described below will be provided in the related prospectus supplement, and specific information will be set forth in a report on Form 8-K to be filed with the Securities and Exchange Commission after the initial issuance of the securities (the “Detailed Description”). A copy of the Agreement with respect to each series of securities will be attached to the Form 8-K and will be available for inspection at the corporate trust office of the trustee specified in the related prospectus supplement. A schedule of the loans relating to the series will be attached to the Agreement delivered to the trustee upon delivery of the securities. No more than 5% of the loans relative to the pool principal balance as of the related cut-off date will deviate from the loan characteristics described in the related prospectus supplement. -17- The loans will consist of single family mortgage loans, home equity loans or home improvement contracts. For purposes hereof, “home equity loans” includes “closed-end loans” and “revolving credit line loans.” If so specified, the loans may include cooperative apartment loans (“cooperative loans”) secured by security interests in shares issued by private, non-profit, cooperative housing corporations (“cooperatives”) and in the related proprietary leases or occupancy agreements granting exclusive rights to occupy specific dwelling units in the cooperatives’ buildings. As more fully described in the related prospectus supplement, the loans may be “conventional” loans or loans that are insured or guaranteed by a governmental agency such as the Federal Housing Administration (the “FHA”) or the Department of Veterans’ Affairs (the “VA”). In addition, the loans may have been underwritten to standards that are less stringent than the standards generally acceptable to Freddie Mac and Fannie Mae with regard to the borrower’s credit standing and repayment ability because the standards focus more on the value of the mortgaged property. The applicable prospectus supplement may specify the day on which monthly payments on the loans in a pool will be due, but if it does not, all of the mortgage loans in a pool will have monthly payments due on the first day of each month. The payment terms of the loans to be included in a trust fund will be described in the related prospectus supplement and may include any of the following features or combination thereof or other features described in the related prospectus supplement: -18- A trust fund may contain buydown loans that include provisions whereby a third party partially subsidizes the monthly payments of the obligors on the loans during the early years of the loans, the difference to be made up from a buydown fund contributed by the third party at the time of origination of the loan. A buydown fund will be in an amount equal either to the discounted value or full aggregate amount of future payment subsidies. Thereafter, buydown funds are applied to the applicable loan upon receipt by the master servicer of the mortgagor’s portion of the monthly payment on the loan. The master servicer administers the buydown fund to ensure that the monthly allocation from the buydown fund combined with the monthly payment received from the mortgagor equals the scheduled monthly payment on the applicable loan. The underlying assumption of buydown plans is that the income of the mortgagor will increase during the buydown period as a result of normal increases in compensation and inflation, so that the mortgagor will be able to meet the full mortgage payments at the end of the buydown period. To the extent that this assumption as to increased income is not fulfilled, the possibility of defaults on buydown loans is increased. The related prospectus supplement will contain information with respect to any buydown loan concerning limitations on the interest rate paid by the mortgagor initially, on annual increases in the interest rate and on the length of the buydown period. The loans will be secured by mortgages or deeds of trust or other similar security instruments creating a lien on a mortgaged property. In the case of home equity loans, the liens generally will be subordinated to one or more senior liens on the related mortgaged properties as described in the related prospectus supplement. In addition to being secured by mortgages on real estate the home improvement contracts may also be secured by purchase money security interests in the home improvements financed thereby. If so specified in the related prospectus supplement, the home equity loans may include loans (primarily for home improvement or debt consolidation purposes) that are in amounts in excess of the value of the related mortgaged properties at the time of origination. The mortgaged properties and the home improvements are collectively referred to in this prospectus as the “Properties.” The Properties may be located in any one of the fifty states, the District of Columbia, Guam, Puerto Rico or any other territory of the United States. Loans with certain Loan-to-Value Ratios (as defined below) and/or certain principal balances may be covered wholly or partially by primary mortgage guaranty insurance policies (each, a “Primary Mortgage Insurance Policy”). The existence, extent and duration of coverage under a Primary Mortgage Insurance Policy will be described in the applicable prospectus supplement. The aggregate principal balance of loans secured by Properties that are owner-occupied will be disclosed in the related prospectus supplement. The applicable prospectus supplement may provide for the basis for representations relating to Single Family Properties (as defined below), but if it does not, the sole basis for a representation that a given percentage of the loans is secured by Single Family Properties that are owner-occupied will be either (i) the making of a representation by the borrower at origination of the loan either that the underlying Property will be used by the borrower for a period of at least six months every year or that the borrower intends to use the Property as a primary residence or (ii) a finding that the address of the underlying Property is the borrower’s mailing address. Single Family Loans. The mortgaged properties relating to single family loans will consist of detached or semi-detached one- to four-family dwelling units, townhouses, rowhouses, individual condominium units, individual units in planned unit developments, manufactured housing that is permanently affixed and treated as real property under local law, and certain other dwelling units (“Single Family Properties”). Single Family Properties may include vacation and second homes, investment properties and leasehold interests. In the case of leasehold interests, the applicable prospectus supplement may provide for the leasehold term, but if it does not, the term of the leasehold will exceed the scheduled maturity of the loan by at least five years. Home Equity Loans. The mortgaged properties relating to home equity loans will consist of Single Family Properties. As more fully described in the related prospectus supplement, interest on each revolving credit line loan, excluding introductory rates offered from time to time during promotional periods, is computed and payable monthly on the average daily outstanding principal balance of the loan. Principal amounts on a revolving credit line loan may be drawn down (up to a maximum amount as set forth in the related prospectus supplement) or repaid under each revolving credit line loan from time to time, but may be subject to a minimum periodic payment. Except to the extent provided in the related prospectus supplement, the trust fund will not include any amounts borrowed under a revolving credit line loan after the cut-off date. The full amount of a closed-end loan is advanced at the -19- inception of the loan and generally is repayable in equal (or substantially equal) installments of an amount to fully amortize the loan at its stated maturity. Except to the extent provided in the related prospectus supplement, the original terms to stated maturity of closed-end loans will not exceed 360 months. Under some circumstances, under either a revolving credit line loan or a closed-end loan, a borrower may choose an interest only payment option and is obligated to pay only the amount of interest which accrues on the loan during the billing cycle. An interest only payment option may be available for a specified period before the borrower must begin paying at least the minimum monthly payment of a specified percentage of the average outstanding balance of the loan. Home Improvement Contracts. The Trust Fund Assets for a series of securities may consist, in whole or in part, of home improvement contracts originated by a home improvement contractor, a thrift or a commercial mortgage banker in the ordinary course of business. The home improvements securing the home improvement contracts may include, but are not limited to, replacement windows, house siding, new roofs, swimming pools, satellite dishes, kitchen and bathroom remodeling goods and solar heating panels. The home improvement contracts will be secured by mortgages on Single Family Properties which are generally subordinate to other mortgages on the same Property. In general, the home improvement contracts will be fully amortizing and may have fixed interest rates or adjustable interest rates and may provide for other payment characteristics as described below and in the related prospectus supplement. The initial Loan-to-Value Ratio of a home improvement contract is computed in the manner described in the related prospectus supplement. Additional Information. Each prospectus supplement will contain information, as of the date of the prospectus supplement and to the extent then specifically known to the depositor, with respect to the loans contained in the related pool, including: If specific information respecting the loans is not known to the depositor at the time the related securities are initially offered, more general information of the nature described above will be provided in the detailed description of Trust Fund Assets. The “Loan-to-Value Ratio” of a loan at any given time is the fraction, expressed as a percentage, the numerator of which is the original principal balance of the related loan and the denominator of which is the Collateral Value of the related Property. The “Combined Loan-to-Value Ratio” of a loan at any given time is the ratio, expressed as a percentage, of (i) the sum of (a) the original principal balance of the loan (or, in the case of a -20- revolving credit line loan, the maximum amount thereof available) and (b) the outstanding principal balance at the date of origination of the loan of any senior mortgage loan(s) or, in the case of any open-ended senior mortgage loan, the maximum available line of credit with respect to the mortgage loan, regardless of any lesser amount actually outstanding at the date of origination of the loan, to (ii) the Collateral Value of the related Property. The “Collateral Value” of the Property, other than for loans the proceeds of which were used to refinance an existing mortgage loan (each, a “Refinance Loan”), is the lesser of (a) the appraised value determined in an appraisal obtained by the originator at origination of the loan and (b) the sales price for the Property. In the case of Refinance Loans, the “Collateral Value” of the related Property is generally the appraised value thereof determined in an appraisal obtained at the time of refinancing. No assurance can be given that values of the Properties have remained or will remain at their levels on the dates of origination of the related loans. If the residential real estate market should experience an overall decline in property values such that the outstanding principal balances of the loans, and any secondary financing on the Properties, in a particular pool become equal to or greater than the value of the Properties, the actual rates of delinquencies, foreclosures and losses could be higher than those now generally experienced in the mortgage lending industry. In addition, adverse economic conditions and other factors (which may or may not affect real property values) may affect the timely payment by borrowers of scheduled payments of principal and interest on the loans and, accordingly, the actual rates of delinquencies, foreclosures and losses with respect to any pool. To the extent that the losses are not covered by subordination provisions or alternative arrangements, the losses will be borne, at least in part, by the holders of the securities of the related series. The Trust Fund Assets may include participation certificates evidencing interests in loans or contracts, including: If those participation certificates were issued by an issuer that is not affiliated with the depositor, the depositor must have acquired them from one or more entities unaffiliated with the depositor in one or more bona fide secondary market transactions and they must either have been previously registered under the Securities Act of 1933, as amended (the “Securities Act”), or have been held for at least the holding period required to be eligible for sale under Rule 144(k) under the Securities Act. If those participation certificates were issued by the depositor or an affiliate of the depositor, they must be registered under the Securities Act concurrently with the offering of the securities under the related prospectus supplement. Agency securities are mortgage pass-through securities issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac. All of the agency securities will be registered in the name of the trustee or its nominee or, in the case of agency securities issued only in book-entry form, a financial intermediary that is a member of the Federal Reserve System or of a clearing corporation on the books of which the security is held. The financial intermediary may be the same entity as the trustee for a series of certificates. Each agency security will evidence an interest in a pool of mortgage loans or cooperative loans and in principal distributions and interest distributions on those loans. -21- The descriptions of Ginnie Mae, Freddie Mac and Fannie Mae Certificates that are set forth below are descriptions of certificates representing proportionate interests in a pool of mortgage loans and in the payments of principal and interest thereon. Ginnie Mae, Freddie Mac or Fannie Mae may also issue mortgage-backed securities representing a right to receive distributions of interest only or principal only or disproportionate distributions of principal or interest or to receive distributions of principal or interest prior or subsequent to distributions on other certificates representing interests in the same pool of mortgage loans. In addition, any of the issuers may issue certificates representing interests in mortgage loans having characteristics that are different from the types of mortgage loans described below. The terms of any certificates to be included in a trust fund and of the underlying mortgage loans will be described in the related prospectus supplement, and the descriptions that follow are subject to modification as appropriate to reflect the terms of any certificates that are actually included in a trust fund. Ginnie Mae. Ginnie Mae is a wholly-owned corporate instrumentality of the United States within HUD. Section 306(g) of the Housing Act authorizes Ginnie Mae to guarantee the timely payment of the principal of and interest on certificates representing interests in a pool of mortgages insured by the FHA, under the Housing Act or under Title V of the Housing Act of 1949, or partially guaranteed by the VA under the Servicemen’s Readjustment Act of 1944, as amended, or under Chapter 37 of Title 38, United States Code. Section 306(g) of the Housing Act provides that “the full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under any guarantee under this subsection.” In order to meet its obligations under this guarantee, Ginnie Mae may, under Section 306(d) of the Housing Act, borrow from the United States Treasury an amount that is at any time sufficient to enable Ginnie Mae to perform its obligations under its guarantee. Ginnie Mae Certificates. Each Ginnie Mae Certificate relating to a series, which may be a “Ginnie Mae I Certificate” or a “Ginnie Mae II Certificate” as referred to by Ginnie Mae, will be a “fully modified pass-through” mortgage-backed certificate issued and serviced by a mortgage banking company or other financial concern approved by Ginnie Mae, except with respect to any stripped mortgage-backed securities guaranteed by Ginnie Mae or any real estate mortgage investment conduit (“REMIC”) securities issued by Ginnie Mae. The characteristics of any Ginnie Mae Certificates included in the trust fund for a series of certificates will be set forth in the related prospectus supplement. Freddie Mac. Freddie Mac is a corporate instrumentality of the United States created pursuant to the Freddie Mac Act. Freddie Mac was established primarily for the purpose of increasing the availability of mortgage credit for the financing of needed housing. The principal activity of Freddie Mac currently consists of purchasing first-lien, conventional, residential mortgage loans or participation interests in mortgage loans and reselling the mortgage loans so purchased in the form of guaranteed mortgage securities, primarily Freddie Mac Certificates. In 1981, Freddie Mac initiated its Home Mortgage Guaranty Program under which it purchases mortgage loans from sellers with Freddie Mac Certificates representing interests in the mortgage loans so purchased. All mortgage loans purchased by Freddie Mac must meet specific standards set forth in the Freddie Mac Act. Freddie Mac is confined to purchasing, so far as practicable, mortgage loans that it deems to be of such quality and type as to meet generally the purchase standards imposed by private institutional mortgage investors. Neither the United States nor any agency thereof is obligated to finance Freddie Mac’s operations or to assist Freddie Mac in any other manner. Freddie Mac Certificates. Each Freddie Mac Certificate relating to a series will represent an undivided interest in a pool of mortgage loans that typically consists of conventional loans, FHA Loans or VA Loans purchased by Freddie Mac, except with respect to any stripped mortgage-backed securities issued by Freddie Mac. Each pool will consist of mortgage loans, substantially all of which are secured by one- to four-family residential properties or, if specified in the related prospectus supplement, are secured by five or more family residential properties. The characteristics of any Freddie Mac Certificates included in the trust fund for a series of certificates will be set forth in the related prospectus supplement. Fannie Mae. Fannie Mae is a federally chartered and privately owned corporation organized and existing under the Federal National Mortgage Association Charter Act (12 U.S.C. §1716 et. Seq.). It is the nation’s largest supplier of residential mortgage funds. Fannie Mae was originally established in 1938 as a United States -22- government agency to provide supplemental liquidity to the mortgage market and was transformed into a stockholder-owned and privately managed corporation by legislation enacted in 1968. Fannie Mae provides funds to the mortgage market primarily by purchasing home mortgage loans from local lenders, thereby replenishing their funds for additional lending. Although the Secretary of the Treasury of the United States has authority to lend Fannie Mae up to $2.25 billion outstanding at any time, neither the United States nor any agency thereof is obligated to finance Fannie Mae’s operations or to assist Fannie Mae in any other manner. Fannie Mae Certificates. Each Fannie Mae Certificate relating to a series will represent a fractional undivided interest in a pool of mortgage loans formed by Fannie Mae, except with respect to any stripped mortgage-backed securities issued by Fannie Mae. Mortgage loans underlying Fannie Mae Certificates will consist of fixed, variable or adjustable rate conventional mortgage loans or fixed-rate FHA Loans or VA Loans. Those mortgage loans may be secured by either one- to four-family or multi-family residential properties. The characteristics of any Fannie Mae Certificates included in the trust fund for a series of certificates will be set forth in the related prospectus supplement. Private Mortgage-Backed Securities Private mortgage-backed securities may consist of mortgage pass-through certificates or participation certificates evidencing an undivided interest in a pool of mortgage loans or collateralized mortgage obligations secured by mortgage loans. Private mortgage-backed securities may include stripped mortgage-backed securities representing an undivided interest in all or a part of either the principal distributions (but not the interest distributions) or the interest distributions (but not the principal distributions) or in some specified portion of the principal and interest distributions (but not all the distributions) on some mortgage loans. Private mortgage-backed securities will have been issued pursuant to a Pooling and Servicing Agreement, an indenture or similar agreement. The applicable prospectus supplement may provide that the seller/servicer of the underlying mortgage loans will not have entered into a Pooling and Servicing Agreement with a private trustee, but if it does not, the seller/servicer of the underlying mortgage loans will have entered into the Pooling and Servicing Agreement with a private trustee. The private trustee or its agent, or a custodian, will possess the mortgage loans underlying the private mortgage-backed security. Mortgage loans underlying a private mortgage-backed security will be serviced by a private servicer directly or by one or more subservicers who may be subject to the supervision of the private servicer. The issuer of the private mortgage-backed securities will be a financial institution or other entity engaged generally in the business of mortgage lending, a public agency or instrumentality of a state, local or federal government, or a limited purpose corporation organized for the purpose of establishing trusts and acquiring and selling housing loans to the trusts and selling beneficial interests in the trusts. If so specified in the related prospectus supplement, the issuer of private mortgage-backed securities may be an affiliate of the depositor. The obligations of the issuer of private mortgage-backed securities will generally be limited to its representations and warranties with respect to the assets conveyed by it to the related trust fund. The issuer of private mortgage-backed securities will not have guaranteed any of the assets conveyed to the related trust fund or any of the private mortgage-backed securities issued under the Pooling and Servicing Agreement. Additionally, although the mortgage loans underlying the private mortgage-backed securities may be guaranteed by an agency or instrumentality of the United States, the private mortgage-backed securities themselves will not be so guaranteed. Distributions of principal and interest will be made on the private mortgage-backed securities on the dates specified in the related prospectus supplement. The private mortgage-backed securities may be entitled to receive nominal or no principal distributions or nominal or no interest distributions. Principal and interest distributions will be made on the private mortgage-backed securities by the private trustee or the private servicer. The issuer of private mortgage-backed securities or the private servicer may have the right to repurchase assets underlying the private mortgage-backed securities after a specific date or under other circumstances specified in the related prospectus supplement. The mortgage loans underlying the private mortgage-backed securities may consist of fixed rate, level payment, fully amortizing loans or graduated payment mortgage loans, buydown loans, adjustable rate mortgage loans or loans having balloon or other special payment features. The mortgage loans may be secured by single -23- family property or by an assignment of the proprietary lease or occupancy agreement relating to a specific dwelling within a cooperative and the related shares issued by the cooperative. The prospectus supplement for a series for which the trust fund includes private mortgage-backed securities will specify the aggregate approximate principal amount and type of the private mortgage-backed securities to be included in the trust fund and specific characteristics of the mortgage loans that comprise the underlying assets for the private mortgage-backed securities, including: Private mortgage-backed securities included in the trust fund for a series of securities that were issued by an issuer of private mortgage-backed securities that is not affiliated with the depositor must be acquired from one or more entities unaffiliated with the depositor in one or more bona fide secondary market transactions and they must either have been previously registered under the Securities Act or have been held for at least the holding period required to be eligible for sale under Rule 144(k) under the Securities Act. Private mortgaged-backed securities included in the trust fund for a series of securities that were issued by the depositor or an affiliate of the depositor must be registered under the Securities Act concurrently with the offering of the securities under the related prospectus supplement. Substitution of Trust Fund Assets Substitution of Trust Fund Assets will be permitted in the event of breaches of representations and warranties with respect to any original Trust Fund Asset or in the event the documentation with respect to any Trust Fund Asset is determined by the trustee to be incomplete. The period during which substitution will be permitted generally will be indicated in the related prospectus supplement. -24- The depositor has filed with the Securities and Exchange Commission (“SEC”) a Registration Statement under the Securities Act covering the securities. This prospectus, which forms a part of the Registration Statement, and the prospectus supplement relating to each series of certificates contain summaries of the material terms of the documents referred to in this prospectus and in the prospectus supplement, but do not contain all of the information in the Registration Statement pursuant to the rules and regulations of the SEC. For further information, reference is made to the Registration Statement and its exhibits. The Registration Statement and exhibits can be inspected and copied at prescribed rates at the public reference facilities maintained by the SEC at its 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 maintains an Internet Web site that contains reports, information statements and other information regarding the registrants that file electronically with the SEC, including the depositor. The address of that Internet Web site is http://www.sec.gov. This prospectus and any applicable prospectus supplement do not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered by this prospectus and the prospectus supplement nor an offer of the securities to any person in any state or other jurisdiction in which the offer would be unlawful. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE All documents filed under the name of First Horizon Asset Securities Inc. and/or the name of the trust referred to in the accompanying prospectus supplement after the date of this prospectus and before the end of the related offering with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, are incorporated by reference in this prospectus and are a part of this prospectus from the date of their filing. Any statement contained in a document incorporated by reference in this prospectus is modified or superseded for all purposes of this prospectus to the extent that a statement contained in this prospectus (or in the accompanying prospectus supplement) or in any other subsequently filed document that also is incorporated by reference differs from that statement. Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this prospectus. The trustee on behalf of any trust fund will provide without charge to each person to whom this prospectus is delivered, on the person’s written or oral request, a copy of any or all of the documents referred to above that have been or may be incorporated by reference in this prospectus (not including exhibits to the information that is incorporated by reference unless the exhibits are specifically incorporated by reference into the information that this prospectus incorporates). Requests should be directed to the corporate trust office of the trustee specified in the accompanying prospectus supplement. Periodic and annual reports concerning the trust fund will be forwarded to securityholders. However, these reports will neither be examined nor reported on by an independent public accountant. See “Description of the Securities — Reports to Securityholders.” The net proceeds to be received from the sale of the securities will be applied by the depositor to acquire the related Trust Fund Assets and for other general corporate purposes consistent with the limitations set forth in its charter documents. See “The Depositor.” The depositor expects to sell securities in series from time to time, but the timing and amount of offerings of securities will depend on a number of factors, including the volume of Trust Fund Assets acquired by the depositor, prevailing interest rates, availability of funds and general market conditions. -25- First Horizon Asset Securities Inc., a Delaware corporation, the depositor, was incorporated in March 9, 1999 for the limited purpose of acquiring, owning and transferring mortgage collateral and selling interests in mortgage collateral or bonds secured by mortgage collateral. The depositor is a wholly owned limited purpose finance subsidiary of First Horizon Home Loan Corporation, a Kansas corporation (“First Horizon”). The depositor maintains its principal office at 4000 Horizon Way, Irving, Texas 75063. Its telephone number is (214) 441-4000. Neither the depositor nor any of the depositor’s affiliates will insure or guarantee distributions on the securities of any series. The loans will have been purchased by the depositor, either directly or through affiliates, from sellers. The applicable prospectus supplement may provide for the underwriting criteria used in originating the loans, but if it does not, the loans so acquired by the depositor will have been originated in accordance with the underwriting criteria specified below under “Underwriting Standards.” General Standards for First Lien Mortgage Loans. First Horizon’s underwriting standards with respect to first lien mortgage loans will generally conform to those published in First Horizon’s guide for alternative documentation programs for first lien mortgage loans (the “Guide”). The underwriting standards as set forth in the Guide are continuously revised based on opportunities and prevailing conditions in the residential mortgage market and the market for the depositor’s mortgage pass-through certificates. The mortgage loans may be underwritten by First Horizon or by a designated third party. See “ — Qualifications of Sellers.” First Horizon may perform only sample quality assurance reviews to determine whether the mortgage loans in any mortgage pool were underwritten in accordance with applicable standards. First Horizon’s underwriting standards, as well as any other underwriting standards that may be applicable to any first lien mortgage loans, generally include a set of specific criteria pursuant to which the underwriting evaluation is made. However, the application of those underwriting standards does not imply that each specific criterion was satisfied individually. Rather, a mortgage loan will be considered to be originated in accordance with a given set of underwriting standards if, based on an overall qualitative evaluation, the loan substantially complies with the underwriting standards. For example, a mortgage loan may be considered to comply with a set of underwriting standards, even if one or more specific criteria included in the underwriting standards were not satisfied, if other factors compensated for the criteria that were not satisfied or if the mortgage loan is considered to be in substantial compliance with the underwriting standards. The level of review by First Horizon, if any, of any mortgage loan for conformity with the applicable underwriting standards will vary depending on any one of a number of factors, including: Generally, credit scoring models provide a means for evaluating the information about a prospective borrower that is available from a credit reporting agency. The underwriting criteria applicable to any program under which the mortgage loans may be originated and reviewed may provide that qualification for the loan, or the availability of specific loan features, such as maximum loan amount, maximum Loan-to-Value Ratio, property type and use, and documentation level, may depend on the borrower’s credit score. -26- First Horizon’s underwriting standards are intended to evaluate the prospective mortgagor’s credit standing and repayment ability, and the value and adequacy of the proposed property as collateral. Due to the variety of underwriting standards and review procedures that may be applicable to the mortgage loans included in any mortgage pool, the related prospectus supplement generally will not distinguish among the various underwriting standards applicable to the mortgage loans nor describe any review for compliance with applicable underwriting standards performed by First Horizon. Moreover, there can be no assurance that every mortgage loan was originated in conformity with the applicable underwriting standards in all material respects, or that the quality or performance of mortgage loans underwritten pursuant to varying standards as described above will be equivalent under all circumstances. In the loan application process, prospective mortgagors will be required to provide information regarding such factors as their assets, liabilities income, credit history, employment history and other related items. Each prospective mortgagor will also provide an authorization to apply for a credit report which summarizes the mortgagor’s credit history. With respect to establishing the prospective mortgagor’s ability to make timely payments, First Horizon will require evidence regarding the mortgagor’s employment and income, and of the amount of deposits made to financial institutions where the mortgagor maintains demand or savings accounts. In some instances, mortgage loans which were originated under a limited documentation origination program may be sold to or originated by First Horizon. For a mortgage loan originated under a limited documentation origination program to qualify for First Horizon, the prospective mortgagor must have a good credit history and be financially capable of making a larger cash down payment, in a purchase, or be willing to finance less of the appraised value, in a refinancing, than would otherwise be required by First Horizon. Currently, First Horizon’s underwriting standards provide that only mortgage loans with certain Loan-to-Value ratios will qualify. If the mortgage loan qualifies, First Horizon waives some of its documentation requirements and may eliminate verification of income, employment or assets for the prospective mortgagor. First Horizon’s underwriting standards generally follow guidelines acceptable to Fannie Mae and Freddie Mac, except for maximum loan size. In determining the adequacy of the property as collateral, an independent appraisal is made of each property considered for financing. The appraiser is required to inspect the property and verify that it is in good condition and that construction, if new, has been completed. The appraisal is based on the appraiser’s judgment of values, giving appropriate weight to both the market value of comparable homes and the cost of replacing the property. The mortgaged properties may be located in states where, in general, a lender providing credit on a single-family property may not seek a deficiency judgment against the mortgagor but rather must look solely to the Property for repayment in the event of foreclosure. See “Legal Aspects of the Loans — Anti-Deficiency Legislation and Other Limitations on Lenders.” First Horizon’s underwriting standards applicable to all states, including anti-deficiency states, require that the value of the Property being financed, as indicated by the appraisal, currently supports and is anticipated to support in the future the outstanding loan balance, although there can be no assurance that the value of the Property will continue to support the loan balance in the future. General Standards for Home Equity and Home Improvement Loans. The applicable prospectus supplement may provide for the seller’s representations and warranties relating to the home equity/home improvement loans, but if it does not, each seller will represent and warrant that all home equity/home improvement loans originated and/or sold by it to the depositor or one of its affiliates will have been underwritten in accordance with standards consistent with those utilized by mortgage lenders generally during the period of origination for similar types of loans. Underwriting standards are applied by or on behalf of a lender to evaluate the borrower’s credit standing and repayment ability, and the value and adequacy of the related Property as collateral. In general, a prospective borrower applying for a home equity/home improvement loan is required to fill out a detailed application designed to provide to the underwriting officer pertinent credit information, including the principal balance and payment history with respect to any senior mortgage, if any. The applicable prospectus supplement may specify whether that credit information will be verified by the seller, but if it does not, the credit information supplied by the borrower will be verified by the related seller. As part of the description of the borrower’s financial condition, the borrower generally is required to provide a current list of assets and liabilities and a statement of income and expenses, as well as an authorization to apply for a credit report which summarizes the borrower’s credit history with local merchants and lenders and any record of bankruptcy. In most cases, an employment verification is obtained from an independent source (typically the borrower’s employer) which verification reports, among other things, the length of employment with that organization and the borrower’s current salary. If a prospective borrower is self-employed, -27- the borrower may be required to submit copies of signed tax returns. The borrower may also be required to authorize verification of deposits at financial institutions where the borrower has demand or savings accounts. In determining the adequacy of the Property to be used as collateral, an appraisal will generally be made of each Property considered for financing. The appraiser is generally required to inspect the Property, issue a report on its condition and, if applicable, verify construction, if new, has been completed. The appraisal is generally based on the market value of comparable homes, the estimated rental income (if considered applicable by the appraiser) and the cost of replacing the home. The value of the Property being financed, as indicated by the appraisal, must be such that it currently supports, and is anticipated to support in the future, the outstanding loan balance. The maximum loan amount will vary depending upon a borrower’s credit grade and loan program but will not generally exceed $1,000,000. Variations in maximum loan amount limits will be permitted based on compensating factors. Compensating factors may generally include, to the extent specified in the related prospectus supplement, low Loan-to-Value Ratio, low debt-to-income ratio, stable employment, favorable credit history and the nature of the underlying first mortgage loan, if applicable. Each seller’s underwriting standards will generally permit home equity/home improvement loans with Loan-to-Value Ratios at origination of up to 125% depending on the loan program, type and use of the Property, creditworthiness of the borrower and debt-to-income ratio. If so specified in the related prospectus supplement, a seller’s underwriting criteria may permit home equity/home improvement loans with Loan-to-Value Ratios at origination in excess of 125%, such as for debt consolidation or home improvement purposes. Loan-to-Value Ratios may not be evaluated in the case of Title I loans. After obtaining all applicable employment, credit and Property information, the related seller will use a debt-to-income ratio to assist in determining whether the prospective borrower has sufficient monthly income available to support the payments of principal and interest on the mortgage loan in addition to other monthly credit obligations. The “debt-to-income ratio” is the ratio of the borrower’s total monthly payments to the borrower’s gross monthly income. The maximum monthly debt-to-income ratio will vary depending upon a borrower’s credit grade and loan program but will not generally exceed 55%. Variations in the monthly debt-to-income ratio limit will be permitted based on compensating factors to the extent specified in the related prospectus supplement. In the case of a home equity/home improvement loan secured by a leasehold interest in Property, the title to which is held by a third party lessor, the applicable prospectus supplement may provide for the related representations and warranties of the seller, but if it does not, the related seller will represent and warrant, among other things, that the remaining term of the lease and any sublease is at least five years longer than the remaining term on the home equity/home improvement loan. Certain of the types of home equity/home improvement loans that may be included in a trust fund are recently developed and may involve additional uncertainties not present in traditional types of loans. For example, certain of the loans may provide for escalating or variable payments by the borrower. These types of home equity/home improvement loans are underwritten on the basis of a judgment that the borrowers have the ability to make the monthly payments required initially. In some instances, a borrower’s income may not be sufficient to permit continued loan payments as those payments increase. These types of loans may also be underwritten primarily upon the basis of Loan-to-Value Ratios or other favorable credit factors. Each seller will be required to satisfy the following qualifications. Each seller must be an institution experienced in originating and servicing loans of the type contained in the related pool in accordance with accepted practices and prudent guidelines, and must maintain satisfactory facilities to originate and service those loans. Each seller must be a seller/servicer approved by either Fannie Mae or Freddie Mac. Each seller must be a mortgagee approved by the FHA or an institution the deposit accounts of which are insured by the FDIC. -28- Representations by Sellers; Repurchases Each seller will have made representations and warranties in respect of the loans sold by that seller and evidenced by all, or a part, of a series of securities. These representations and warranties may include, among other things: In addition, if any required payment on a mortgage loan was more than 31 days delinquent at any time during the twelve months before the cut-off date, the related prospectus supplement shall so indicate. As to any mortgage loan insured by the FHA or partially guaranteed by the VA, the seller will represent that it has complied with underwriting policies of the FHA or the VA, as the case may be. If so specified in the related prospectus supplement, the representations and warranties of a seller in respect of a loan will be made not as of the cut-off date but as of the date on which the seller sold the loan to the depositor or one of its affiliates. Under those circumstances, a substantial period of time may have elapsed between the sale date and the date of initial issuance of the series of securities evidencing an interest in the loan. Since the representations and warranties of a seller do not address events that may occur following the sale of a loan by the seller, its repurchase obligation described below will not arise if the relevant event that would otherwise have given rise to such an obligation with respect to a loan occurs after the date of sale of the loan by the seller to the depositor or its affiliates or after the origination of the mortgage loan, as the case may be. In addition, certain representations, including the condition of the related Property, will be limited to the extent the seller has knowledge and the seller will be under no obligation to investigate the substance of the representation. However, the depositor will not include any loan in the trust fund for any series of securities if anything has come to the depositor’s attention that would cause it to believe that the representations and warranties of a seller will not be accurate and complete in all material respects in respect of the loan as of the date of initial issuance of the related series of securities. If the master servicer is also a seller of loans with respect to a particular series of securities, the representations will be in addition to the representations and warranties made by the master servicer in its capacity as a master servicer. The master servicer or the trustee, if the master servicer is the seller, will promptly notify the relevant seller of any breach of any representation or warranty made by it in respect of a loan which materially and adversely affects the interests of the securityholders in the loan. If the seller cannot cure the breach within 90 days following -29- notice from the master servicer or the trustee, as the case may be, the applicable prospectus supplement may provide for the seller’s obligations under those circumstances, but if it does not, then the seller will be obligated either If a REMIC election is to be made with respect to a trust fund, the applicable prospectus supplement may provide for the obligations of the master servicer or residual certificateholder, but if it does not, the master servicer or a holder of the related residual certificate generally will be obligated to pay any prohibited transaction tax which may arise in connection with any repurchase or substitution and the trustee must have received a satisfactory opinion of counsel that the repurchase or substitution will not cause the trust fund to lose its status as a REMIC or otherwise subject the trust fund to a prohibited transaction tax. The master servicer may be entitled to reimbursement for these tax payments from the assets of the related trust fund or from any holder of the related residual certificates. See “Description of the Securities — General.” Except in those cases in which the master servicer is the seller, the master servicer will be required under the applicable Agreement to enforce this obligation for the benefit of the trustee and the holders of the securities, following the practices it would employ in its good faith business judgment were it the owner of the loan. This repurchase or substitution obligation will constitute the sole remedy available to holders of securities or the trustee for a breach of representation by a seller. Neither the depositor nor the master servicer (unless the master servicer is the seller) will be obligated to purchase or substitute a loan if a seller defaults on its obligation to do so, and no assurance can be given that sellers will carry out their respective repurchase or substitution obligations with respect to loans. However, to the extent that a breach of a representation and warranty of a seller may also constitute a breach of a representation made by the master servicer, the master servicer may have a repurchase or substitution obligation as described below under “The Agreements — Assignment of the Trust Fund Assets.” Each series of certificates will be issued pursuant to separate agreements (each, a Pooling and Servicing Agreement or a “Trust Agreement”) among the depositor, the master servicer and the trustee. A form of Pooling and Servicing Agreement and Trust Agreement has been filed as an exhibit to the Registration Statement of which this prospectus forms a part. Each series of notes will be issued pursuant to an indenture (the “Indenture”) between the related trust fund and the entity named in the related prospectus supplement as trustee with respect to the series, and the related loans will be serviced by the master servicer pursuant to a Sale and Servicing Agreement. A form of Indenture and Sale and Servicing Agreement has been filed as an exhibit to the Registration Statement of which this prospectus forms a part. A series of securities may consist of both notes and certificates. Each Agreement, dated as of the related cut-off date, will be among the depositor, the master servicer and the trustee for the benefit of the holders of the securities of the series. The provisions of each Agreement will vary depending upon the nature of the securities to be issued thereunder and the nature of the related trust fund. The following are descriptions of the material provisions which may appear in each Agreement. The depositor will provide a copy of the Agreement (without exhibits) relating to any series without charge upon written request of a holder of record of a security of the series addressed to First Horizon Asset Securities Inc., 4000 Horizon Way, Irving, Texas 75063, Attention: Secretary. The securities of each series will be issued in book-entry or fully registered form, in the authorized denominations specified in the related prospectus supplement, will, in the case of certificates, evidence specified beneficial ownership interests in, and in the case of notes, be secured by, the assets of the related trust fund created pursuant to each Agreement and will not be entitled to payments in respect of the assets included in any other trust -30- fund established by the depositor. The applicable prospectus supplement may provide for guarantees or insurance obtained from a governmental entity or other person, but if it does not, the Trust Fund Assets will not be guaranteed or insured by any governmental entity or other person. Each trust fund will consist of, to the extent provided in the related Agreement, If so specified in the related prospectus supplement, a trust fund may also include one or more of the following: reinvestment income on payments received on the Trust Fund Assets, a reserve fund, a mortgage pool insurance policy, a special hazard insurance policy, a bankruptcy bond, one or more letters of credit, a surety bond, guaranties or similar instruments. Each series of securities will be issued in one or more classes. Each class of certificates of a series will evidence beneficial ownership of a specified percentage (which may be 0%) or portion of future interest payments and a specified percentage (which may be 0%) or portion of future principal payments on, and each class of notes of a series will be secured by, the related Trust Fund Assets. A series of securities may include one or more classes that are senior in right to payment to one or more other classes of securities of the series. Certain series or classes of securities may be covered by insurance policies, surety bonds or other forms of credit enhancement, in each case as described under “Credit Enhancement” in this prospectus and in the related prospectus supplement. One or more classes of securities of a series may be entitled to receive distributions of principal, interest or any combination thereof. Distributions on one or more classes of a series of securities may be made prior to one or more other classes, after the occurrence of specified events, in accordance with a schedule or formula or on the basis of collections from designated portions of the related Trust Fund Assets, in each case as specified in the related prospectus supplement. The timing and amounts of distributions may vary among classes or over time as specified in the related prospectus supplement. Distributions of principal and interest (or, where applicable, of principal only or interest only) on the related securities will be made by the trustee on each distribution date (i.e., monthly, quarterly, semi-annually or at such other intervals and on the dates as are specified in the related prospectus supplement) in proportion to the percentages specified in the related prospectus supplement. Distributions will be made to the persons in whose names the securities are registered at the close of business on the dates specified in the related prospectus supplement (each, a “Record Date”). Distributions will be made in the manner specified in the related prospectus supplement to the persons entitled thereto at the address appearing in the register maintained for holders of securities (the “Security Register”); provided, however, that the final distribution in retirement of the securities will be made only upon presentation and surrender of the securities at the office or agency of the trustee or other person specified in the notice to securityholders of the final distribution. The securities will be freely transferable and exchangeable at the corporate trust office of the trustee as set forth in the related prospectus supplement. No service charge will be made for any registration of exchange or transfer of securities of any series, but the trustee may require payment of a sum sufficient to cover any related tax or other governmental charge. Under current law the purchase and holding of a class of securities entitled only to a specified percentage of payments of either interest or principal or a notional amount of either interest or principal on the related loans or a class of securities entitled to receive payments of interest and principal on the loans only after payments to other -31- classes or after the occurrence of certain specified events by or on behalf of any employee benefit plan or other retirement arrangement (including individual retirement accounts and annuities, Keogh plans and collective investment funds in which the plans, accounts or arrangements are invested) subject to provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or the Internal Revenue Code of 1986, as amended (the “Code”), may result in prohibited transactions, within the meaning of ERISA and the Code. See “ERISA Considerations.” The applicable prospectus supplement may provide for the conditions for transferring a security of that type of class, but if it does not, the transfer of securities of that class will not be registered unless the transferee (i) represents that it is not, and is not purchasing on behalf of, any plan, account or arrangement or (ii) provides an opinion of counsel satisfactory to the trustee and the depositor that the purchase of securities of that class by or on behalf of a plan, account or arrangement is permissible under applicable law and will not subject the trustee, the master servicer or the depositor to any obligation or liability in addition to those undertaken in the Agreements. As to each series, an election may be made to treat the related trust fund or designated portions thereof as a “real estate mortgage investment conduit” or REMIC as defined in the Code. The related prospectus supplement will specify whether a REMIC election is to be made. Alternatively, the Agreement for a series may provide that a REMIC election may be made at the discretion of the depositor or the master servicer and may only be made if certain conditions are satisfied. As to any series for which a REMIC election will be made, the terms and provisions applicable to the making of the REMIC election will be set forth in the related prospectus supplement. If a REMIC election is made with respect to a series, one of the classes will be designated as evidencing the sole class of “residual interests” in the related REMIC, as defined in the Code. All other classes of securities in the series will constitute “regular interests” in the related REMIC, as defined in the Code. As to each series with respect to which a REMIC election is to be made, the master servicer or a holder of the related residual certificate will be obligated to take all actions required in order to comply with applicable laws and regulations and will be obligated to pay any prohibited transaction taxes. The master servicer, unless otherwise provided in the related prospectus supplement, will be entitled to reimbursement for these payments from the assets of the trust fund or from any holder of the related residual certificate. General. In general, the method of determining the amount of distributions on a particular series of securities will depend on the type of credit support, if any, that is used with respect to the series. See “Credit Enhancement.” Set forth below are descriptions of various methods that may be used to determine the amount of distributions on the securities of a particular series. The prospectus supplement for each series of securities will describe the method to be used in determining the amount of distributions on the securities of the series. Distributions allocable to principal and interest on the securities will be made by the trustee out of, and only to the extent of, funds in the related Security Account, including any funds transferred from any reserve fund. As between securities of different classes and as between distributions of principal (and, if applicable, between distributions of Principal Prepayments, as defined below, and scheduled payments of principal) and interest, distributions made on any distribution date will be applied as specified in the related prospectus supplement. The prospectus supplement will also describe the method for allocating distributions among securities of a particular class. Available Funds. All distributions on the securities of each series on each distribution date will be made from the Available Funds described below, in accordance with the terms described in the related prospectus supplement and specified in the Agreement. “Available Funds” for each distribution date will generally equal the amount on deposit in the related Security Account on the distribution date (net of related fees and expenses payable by the related trust fund) other than amounts to be held in the Security Account for distribution on future distribution dates. Distributions of Interest. Interest will accrue on the aggregate principal balance of the securities (or, in the case of securities entitled only to distributions allocable to interest, the aggregate notional amount) of each class of securities (the “Class Security Balance”) entitled to interest from the date, at the Pass-Through Rate or interest rate, as applicable (which in either case may be a fixed rate or rate adjustable as specified in the prospectus supplement), and for the periods specified in the prospectus supplement. To the extent funds are available therefor, interest -32- accrued during each specified period on each class of securities entitled to interest (other than a class of securities that provides for interest that accrues, but is not currently payable) will be distributable on the distribution dates specified in the related prospectus supplement until the aggregate Class Security Balance of the securities of the class has been distributed in full or, in the case of securities entitled only to distributions allocable to interest, until the aggregate notional amount of the securities is reduced to zero or for the period of time designated in the related prospectus supplement. The original Class Security Balance of each security will equal the aggregate distributions allocable to principal to which the security is entitled. Distributions allocable to interest on each security that is not entitled to distributions allocable to principal will be calculated based on the notional amount of the security. The notional amount of a security will not evidence an interest in or entitlement to distributions allocable to principal but will be used solely for convenience in expressing the calculation of interest and for certain other purposes. Interest payable on the securities of a series on a distribution date will include all interest accrued during the period specified in the related prospectus supplement. In the event interest accrues over a period ending two or more days prior to a distribution date, the effective yield to securityholders will be reduced from the yield that would otherwise be obtainable if interest payable on the security were to accrue through the day immediately preceding the distribution date, and the effective yield (at par) to securityholders will be less than the indicated coupon rate. With respect to any class of accrual securities, if specified in the related prospectus supplement, any interest that has accrued but is not paid on a given distribution date will be added to the aggregate Class Security Balance of the class of securities on that distribution date. Distributions of interest on any class of accrual securities will commence only after the occurrence of the events specified in the prospectus supplement. Prior to that time, the beneficial ownership interest in the trust fund or the principal balance, as applicable, of the class of accrued securities, as reflected in the aggregate Class Security Balance of the class of accrual securities, will increase on each distribution date by the amount of interest that accrued on the class of accrual securities during the preceding interest accrual period but that was not required to be distributed to that class on the distribution date. The class of accrual securities will thereafter accrue interest on its outstanding Class Security Balance as so adjusted. Distributions of Principal. The related prospectus supplement will specify the method by which the amount of principal to be distributed on the securities on each distribution date will be calculated and the manner in which the amount will be allocated among the classes of securities entitled to distributions of principal. The aggregate Class Security Balance of any class of securities entitled to distributions of principal generally will be the aggregate original Class Security Balance of the class of securities specified in the prospectus supplement, reduced by all distributions reported to the holders of the securities as allocable to principal and, If so provided in the related prospectus supplement, one or more classes of securities will be entitled to receive all or a disproportionate percentage of the payments of principal which are received from borrowers in advance of their scheduled due dates and are not accompanied by amounts representing scheduled interest due after the month of the payments (“Principal Prepayments”) in the percentages and under the circumstances or for the periods specified in the prospectus supplement. The allocation of Principal Prepayments to a class or classes of securities will have the effect of accelerating the amortization of those securities while increasing the interests evidenced by one or more other classes of securities in the trust fund. Increasing the interests of the other classes of securities relative to that of certain securities is intended to preserve the availability of the subordination provided by the other securities. See “Credit Enhancement — Subordination.” Unscheduled Distributions. If specified in the related prospectus supplement, the securities will be subject to receipt of distributions before the next scheduled distribution date under the circumstances and in the manner described below and in the prospectus supplement. If applicable, the trustee will be required to make unscheduled distributions on the day and in the amount specified in the related prospectus supplement if, due to substantial payments of principal (including Principal Prepayments) on the Trust Fund Assets, the trustee or the master servicer determines that the funds available or anticipated to be available from the Security Account and, if applicable, any -33- reserve fund, may be insufficient to make required distributions on the securities on that distribution date. The applicable prospectus supplement may provide for limits on the amount of an unscheduled distribution, but if it does not, the amount of any unscheduled distribution that is allocable to principal will not exceed the amount that would otherwise have been required to be distributed as principal on the securities on the next distribution date. The applicable prospectus supplement may specify whether the unscheduled distribution will include interest, but if it does not, the unscheduled distributions will include interest at the applicable Pass-Through Rate (if any) or interest rate (if any) on the amount of the unscheduled distribution allocable to principal for the period and to the date specified in the prospectus supplement. To the extent provided in the related prospectus supplement, the master servicer will be required to advance on or before each distribution date (from its own funds, funds advanced by sub-servicers or funds held in the Security Account for future distributions to the holders of securities of the related series), an amount equal to the aggregate of payments of interest and/or principal that were delinquent on the related Determination Date (as that term is defined in the related prospectus supplement) and were not advanced by any sub-servicer, subject to the master servicer’s determination that those advances may be recoverable out of late payments by borrowers, Liquidation Proceeds, Insurance Proceeds (as defined below) or otherwise. In the case of cooperative loans, the master servicer also may be required to advance any unpaid maintenance fees and other charges under the related proprietary leases as specified in the related prospectus supplement. In making advances, the master servicer will endeavor to maintain a regular flow of scheduled interest and principal payments to holders of the securities, rather than to guarantee or insure against losses. If advances are made by the master servicer from cash being held for future distribution to securityholders, the master servicer will replace those funds on or before any future distribution date to the extent that funds in the applicable Security Account on the future distribution date would be less than the amount required to be available for distributions to securityholders on that distribution date. Any master servicer funds advanced will be reimbursable to the master servicer out of recoveries on the specific loans with respect to which those advances were made (e.g., late payments made by the related borrower, any related Insurance Proceeds, Liquidation Proceeds or proceeds of any loan purchased by the depositor, a sub-servicer or a seller pursuant to the related Agreement). Advances by the master servicer (and any advances by a sub-servicer) also will be reimbursable to the master servicer (or sub-servicer) from cash otherwise distributable to securityholders (including the holders of Senior securities) to the extent that the master servicer determines that the advances previously made are not ultimately recoverable as described above. To the extent provided in the related prospectus supplement, the master servicer also will be obligated to make advances, to the extent recoverable out of Insurance Proceeds, Liquidation Proceeds or otherwise, in respect of certain taxes and insurance premiums not paid by borrowers on a timely basis. Funds so advanced are reimbursable to the master servicer to the extent permitted by the related Agreement. The obligations of the master servicer to make advances may be supported by a cash advance reserve fund, a surety bond or other arrangement of the type described in this prospectus under “Credit Enhancement,” in each case as described in the related prospectus supplement. In the event the master servicer or a sub-servicer fails to make a required advance, the applicable prospectus supplement may specify whether another party will have advancing obligations, but if it does not, the trustee will be obligated to make the advance in its capacity as successor servicer. If the trustee makes an advance, it will be entitled to be reimbursed for the advance to the same extent and degree as the master servicer or a sub-servicer is entitled to be reimbursed for advances. See “Description of the Securities — Distributions on Securities.” Prior to or concurrently with each distribution on a distribution date the master servicer or the trustee will furnish to each securityholder of record of the related series a statement setting forth, to the extent applicable to the related series of securities, among other things: -34- Where applicable, any amount set forth above may be expressed as a dollar amount per single security of the relevant class having the percentage interest specified in the related prospectus supplement. The report to -35- securityholders for any series of securities may include additional or other information of a similar nature to that specified above. In addition, within a reasonable period of time after the end of each calendar year, the master servicer or the trustee will mail to each securityholder of record at any time during that calendar year a report as to (a) the aggregate of amounts reported pursuant to (i) and (ii) above for that calendar year or, in the event the person was a securityholder of record during a portion of that calendar year, for the applicable portion of that calendar year and (b) such other customary information as may be deemed necessary or desirable for securityholders to prepare their tax returns. Categories of Classes of Securities The securities of any series may be comprised of one or more classes. These classes, in general, fall into different categories. The following chart identifies and generally defines certain of the more typical categories. The prospectus supplement for a series of securities may identify the classes which comprise the series by reference to the following categories. -36- -37- Indices Applicable to Floating Rate and Inverse Floating Rate Classes LIBOR The applicable prospectus supplement may specify some other basis for determining LIBOR, but if it does not, on the LIBOR determination date (as defined in the related prospectus supplement) for each class of certificates of a series for which the applicable interest rate is determined by reference to an index denominated as LIBOR, the person designated in the related Pooling and Servicing Agreement as the calculation agent will determine LIBOR in accordance with one of the two methods described below (which method will be specified in the related prospectus supplement): -38- LIBO Method If using this method to calculate LIBOR, the calculation agent will determine LIBOR by reference to the quotations, as set forth on the Reuters Screen LIBO Page, offered by the principal London office of each of four reference banks meeting the criteria set forth in this prospectus for making one-month United States dollar deposits to prime banks in the London interbank market, as of approximately 11:00 a.m. (London time) on the LIBOR determination date. In lieu of relying on the quotations for those reference banks that appear at the time on the Reuters Screen LIBO Page, the calculation agent will request each of the reference banks to provide the offered quotations at the time. Under this method LIBOR will be established by the calculation agent on each LIBOR determination date as follows: (a) If on any LIBOR determination date two or more reference banks provide offered quotations, LIBOR for the next interest accrual period shall be the arithmetic mean of the offered quotations (rounded if necessary to the nearest one hundred-thousandth of a percentage point). (b) If on any LIBOR determination date only one or none of the reference banks provides offered quotations, LIBOR for the next interest accrual period shall be the reserve interest rate. The reserve interest rate shall be the rate per annum which the calculation agent determines to be the arithmetic mean (rounded if necessary to the nearest one hundred-thousandth of a percentage point) of the one-month United States dollar lending rates that major New York City banks selected by the calculation agent are quoting, at approximately 11.00 a.m. New York City time on the relevant LIBOR determination date, to leading European banks to which the quotations are, in the opinion of the calculation agent being so made. Each reference bank shall be a major bank in the London interbank market. BBA Method If using this method of determining LIBOR, the calculation agent will determine LIBOR on the basis of the British Bankers’ Association “Interest Settlement Rate” for one-month deposits in United States dollars as found on Telerate page 3750 as of 11:00 a.m. London time on each LIBOR determination date. Interest Settlement Rates currently are based on rates quoted by eight British Bankers’ Association designated banks as being, in the view of the banks, the offered rate at which deposits are being quoted to prime banks in the London interbank market. The Interest Settlement Rates are calculated by eliminating the two highest rates and the two lowest rates, averaging the four remaining rates, carrying the result (expressed as a percentage) out to six decimal places, and rounding to five decimal places. If on any LIBOR determination date, the calculation agent is unable to calculate LIBOR in accordance with the method set forth in the immediately preceding paragraph, LIBOR for the next interest accrual period shall be calculated in accordance with the LIBOR method described under “LIBO Method.” The establishment of LIBOR on each LIBOR determination date by the calculation agent and its calculation of the rate of interest for the applicable classes for the related interest accrual period shall (in the absence of manifest error) be final and binding. COFI The Eleventh District Cost of Funds Index is designed to represent the monthly weighted average cost of funds for savings institutions in Arizona, California and Nevada that are member institutions of the Eleventh Federal Home Loan Bank District (the “Eleventh District”). The Eleventh District Cost of Funds Index for a particular month reflects the interest costs paid on all types of funds held by Eleventh District member institutions and is calculated by dividing the cost of funds by the average of the total amount of those funds outstanding at the end of that month and of the prior month and annualizing and adjusting the result to reflect the actual number of days in the -39- particular month. If necessary, before these calculations are made, the component figures are adjusted by the Federal Home Loan Bank of San Francisco (“FHLBSF”) to neutralize the effect of events such as member institutions leaving the Eleventh District or acquiring institutions outside the Eleventh District. The Eleventh District Cost of Funds Index is weighted to reflect the relative amount of each type of funds held at the end of the relevant month. The major components of funds of Eleventh District member institutions are: savings deposits, time deposits, FHLBSF advances, repurchase agreements and all other borrowings. Because the component funds represent a variety of maturities whose costs may react in different ways to changing conditions, the Eleventh District Cost of Funds Index does not necessarily reflect current market rates. A number of factors affect the performance of the Eleventh District Cost of Funds Index, which may cause it to move in a manner different from indices tied to specific interest rates, such as United States Treasury bills or LIBOR. Because the liabilities upon which the Eleventh District Cost of Funds Index is based were issued at various times under various market conditions and with various maturities, the Eleventh District Cost of Funds Index may not necessarily reflect the prevailing market interest rates on new liabilities of similar maturities. Moreover, as stated above, the Eleventh District Cost of Funds Index is designed to represent the average cost of funds for Eleventh District savings institutions for the month prior to the month in which it its due to be published. Additionally, the Eleventh District Cost of Funds Index may not necessarily move in the same direction as market interest rates at all times, since as longer term deposits or borrowings mature and are renewed at prevailing market interest rates, the Eleventh District Cost of Funds Index is influenced by the differential between the prior and the new rates on those deposits or borrowings. In addition, movements of the Eleventh District Cost of Funds Index, as compared to other indices tied to specific interest rates, may be affected by changes instituted by the FHLBSF in the method used to calculate the Eleventh District Cost of Funds Index. The FHLBSF publishes the Eleventh District Cost of Funds Index in its monthly Information Bulletin. Any individual may request regular receipt by mail of Information Bulletins by writing the Federal Home Loan Bank of San Francisco, P.O. Box 7948, 600 California Street, San Francisco, California 94120, or by calling (415) 616-1000. The Eleventh District Cost of Funds Index may also be obtained by calling the FHLBSF at (415) 616-2600. The FHLBSF has stated in its Information Bulletin that the Eleventh District Cost of Funds Index for a month “will be announced on or near the last working day” of the following month and also has stated that it “cannot guarantee the announcement” of the index on an exact date. So long as the index for a month is announced on or before the tenth day of the second following month, the interest rate for each class of securities of a series as to which the applicable interest rate is determined by reference to an index denominated as COFI (each, a class of “COFI securities”) for the Interest Accrual Period commencing in the second following month will be based on the Eleventh District Cost of Funds Index for the second preceding month. If publication is delayed beyond the tenth day, the interest rate will be based on the Eleventh District Cost of Funds Index for the third preceding month. The applicable prospectus supplement may specify some other basis for determining COFI, but if it does not, then if on the tenth day of the month in which any interest accrual period commences for a class of COFI certificates the most recently published Eleventh District Cost of Funds Index relates to a month before the third preceding month, the index for the current interest accrual period and for each succeeding interest accrual period will, except as described in the next to last sentence of this paragraph, be based on the National Monthly Median Cost of Funds Ratio to SAIF-Insured Institutions (the “National Cost of Funds Index”) published by the Office of Thrift Supervision (the “OTS”) for the third preceding month (or the fourth preceding month if the National Cost of Funds Index for the third preceding month has not been published on the tenth day of an interest accrual period). Information on the National Cost of Funds Index may be obtained by writing the OTS at 1700 G Street, N.W., Washington, D.C. 20552 or calling (202) 906-6677, and the current National Cost of Funds Index may be obtained by calling (202) 906-6988. If on the tenth day of the month in which an interest accrual period commences the most recently published National Cost of Funds Index relates to a month before the fourth preceding month, the applicable index for the interest accrual period and each succeeding interest accrual period will be based on LIBOR, as determined by the calculation agent in accordance with the Agreement relating to the series of certificates. A change of index from the Eleventh District Cost of Funds Index to an alternative index will result in a change in the index level and could increase its volatility, particularly if LIBOR is the alternative index. The establishment of COFI by the calculation agent and its calculation of the rates of interest for the applicable classes for the related interest accrual period shall (in the absence of manifest error) be final and binding. -40- Treasury Index The applicable prospectus supplement may specify some other basis for determining and defining the Treasury index, but if it does not, on the Treasury index determination date for each class of securities of a series for which the applicable interest rate is determined by reference to an index denominated as a Treasury index, the calculation agent will ascertain the Treasury index for Treasury securities of the maturity and for the period (or, if applicable, date) specified in the related prospectus supplement. The Treasury index for any period means the average of the yield for each business day during the specified period (and for any date means the yield for the date), expressed as a per annum percentage rate, on U.S. Treasury securities adjusted to the “constant maturity” specified in the prospectus supplement or if no “constant maturity” is so specified, U.S. Treasury securities trading on the secondary market having the maturity specified in the prospectus supplement, in each case as published by the Federal Reserve Board in its Statistical Release No. H.15 (519). Statistical Release No. H.15 (519) is published on Monday or Tuesday of each week and may be obtained by writing or calling the Publications Department at the Board of Governors of the Federal Reserve System, 21st and C Streets, Washington, D.C. 20551 (202) 452-3244. If the calculation agent has not yet received Statistical Release No. H.15 (519) for a week, then it will use the Statistical Release from the preceding week. Yields on U.S. Treasury securities at “constant maturity” are derived from the U.S. Treasury’s daily yield curve. This curve, which relates the yield on a security to its time to maturity, is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations reported by five leading U.S. Government securities dealers to the Federal Reserve Bank of New York. This method provides a yield for a given maturity even if no security with that exact maturity is outstanding. In the event that the Treasury Index is no longer published, a new index based upon comparable data and methodology will be designated in accordance with the Agreement relating to the particular series of securities. The Calculation Agent’s determination of the Treasury Index, and its calculation of the rates of interest for the applicable classes for the related Interest Accrual Period shall (in the absence of manifest error) be final and binding. Prime Rate The applicable prospectus supplement may specify the party responsible for determining the Prime Rate, but if it does not, on the Prime Rate Determination Date (as that term is defined in the related prospectus supplement) for each class of securities of a series as to which the applicable interest rate is determined by reference to an index denominated as the Prime Rate, the calculation agent will ascertain the Prime Rate for the related interest accrual period. The applicable prospectus supplement may provide for the means of determining the Prime Rate, but if it does not, the Prime Rate for an interest accrual period will be the “Prime Rate” as published in the “Money Rates” section of The Wall Street Journal (or if not so published, the “Prime Rate” as published in a newspaper of general circulation selected by the calculation agent in its sole discretion) on the related Prime Rate Determination Date. If a prime rate range is given, then the average of the range will be used. In the event that the Prime Rate is no longer published, a new index based upon comparable data and methodology will be designated in accordance with the Agreement relating to the particular series of securities. The calculation agent’s determination of the Prime Rate and its calculation of the rates of interest for the related interest accrual period shall (in the absence of manifest error) be final and binding. Book-entry Registration of Securities As described in the related prospectus supplement, if not issued in fully registered form, each class of securities will be registered as book-entry securities. Persons acquiring beneficial ownership interests in the securities (“Security Owners”) will hold their securities through the Depository Trust Company (“DTC”) in the United States, or Clearstream, Luxembourg or Euroclear (in Europe) if they are participants of those systems, or indirectly through organizations which are participants in those systems. The book-entry securities will be issued in one or more certificates which equal the aggregate principal balance of the securities and will initially be registered in the name of Cede & Co., the nominee of DTC. Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf of their participants through customers’ securities accounts in Clearstream, Luxembourg’s and Euroclear’s names on the books of their respective depositories which in turn will hold those positions in customers’ securities accounts in the depositories’ names on the books of DTC. Citibank, N.A., will act as depositary for -41- Clearstream, Luxembourg and JP Morgan Chase Bank will act as depositary for Euroclear (in those capacities, individually the “Relevant Depositary” and collectively the “European Depositories”). Except as described below, no person acquiring a book-entry security (each, a “beneficial owner”) will be entitled to receive a physical certificate representing the security (a “Definitive Security”). Unless and until Definitive Securities are issued, it is anticipated that the only “securityholders” of the securities will be Cede & Co., as nominee of DTC. Security Owners are only permitted to exercise their rights indirectly through the participating organizations that use the services of DTC, including securities brokers and dealers, banks and trust companies and clearing corporations and certain other organizations and DTC. A Security Owner’s ownership of a book-entry security will be recorded on the records of the brokerage firm, bank, thrift institution or other financial intermediary (each, a “Financial Intermediary”) that maintains the beneficial owner’s account for that purpose. In turn, the Financial Intermediary’s ownership of the book-entry security will be recorded on the records of DTC (or of a participating firm that acts as agent for the Financial Intermediary, whose interest will in turn be recorded on the records of DTC, if the beneficial owner’s Financial Intermediary is not a DTC participant, and on the records of Clearstream, Luxembourg or Euroclear, as appropriate). Security Owners will receive all distributions of principal of, and interest on, the securities from the applicable trustee through DTC and DTC participants. While the securities are outstanding (except under the circumstances described below), under the rules, regulations and procedures creating and affecting DTC and its operations (the “Rules”), DTC must make book-entry transfers among participants on whose behalf it acts with respect to the securities and is required to receive and transmit distributions of principal of, and interest on, the securities. Participants and organizations that have indirect access to the DTC system, such as banks, brokers, dealers, trust companies and other indirect participants that clear through or maintain a custodial relationship with a participant, with whom Security Owners have accounts for securities are similarly required to make book-entry transfers and receive and transmit those distributions on behalf of their respective Security Owners. Accordingly, although Security Owners will not possess physical certificates, the Rules provide a mechanism by which Security Owners will receive distributions and will be able to transfer their interest. Security Owners will not receive or be entitled to receive certificates representing their respective interests in the book-entry securities, except under the limited circumstances described below. Unless and until Definitive Securities are issued, Security Owners who are not participants may transfer ownership of securities only through participants and indirect participants by instructing them to transfer securities, by book-entry transfer, through DTC for the account of the purchasers of the securities, which account is maintained with their respective participants. Under the Rules and in accordance with DTC’s normal procedures, transfers of ownership of securities will be executed through DTC and the accounts of the respective Participants at DTC will be debited and credited. Similarly, the participants and indirect participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing Security Owners. Because of time zone differences, credits of securities received in Clearstream, Luxembourg or Euroclear as a result of a transaction with a participant will be made during subsequent securities settlement processing and dated the business day following the DTC settlement date. Those credits or any transactions in those securities will be reported to the relevant Euroclear or Clearstream, Luxembourg participants on the business day following the DTC settlement date. Cash received in Clearstream, Luxembourg or Euroclear as a result of sales of securities by or through a Clearstream, Luxembourg participant or Euroclear participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream, Luxembourg or Euroclear cash account only as of the business day following settlement in DTC. For information with respect to tax documentation procedures relating to the notes, see “Material Federal Income Tax Consequences — Tax Treatment of Foreign Investors” and “ — Tax Consequences to Holders of the Notes — Backup Withholding” in this prospectus and “Global Clearance, Settlement and Tax Documentation Procedures — Certain U.S. Federal Income Tax Documentation Requirements” in Annex I attached to this prospectus. Transfers between participants will occur in accordance with DTC rules. Transfers between Clearstream, Luxembourg participants and Euroclear participants will occur in accordance with their respective rules and operating procedures. -42- Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream, Luxembourg participants or Euroclear participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of the relevant European international clearing system by the Relevant Depositary. However, these cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in that system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to the Relevant Depositary to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same day funds settlement applicable to DTC. Clearstream, Luxembourg participants and Euroclear participants may not deliver instructions directly to the European Depositories. DTC, which is a New York-chartered limited purpose trust company, performs services for its participants, some of which (or their representatives) own DTC. In accordance with its normal procedures, DTC is expected to record the positions held by each DTC participant in the book-entry securities, whether held for its own account or as a nominee for another person. In general, beneficial ownership of book-entry securities will be subject to the rules, regulations and procedures governing DTC and DTC participants as in effect from time to time. Clearstream Banking, societe anonyme, 67 Bd Grande-Duchesse Charlotte, L-2967 Luxembourg (“Clearstream, Luxembourg”), was incorporated in 1970 as “Cedel S.A,” a company with limited liability under Luxembourg law (a societe anonyme). Cedel S.A. Subsequently changed its name to Cedelbank. On January 10, 2000, Cedelbank’s parent company, Cedel International, societe anonyme merged its clearing, settlement and custody business with that of Deutsche Borse Clearing AG. The merger involved the transfer by Cedel International of substantially all of its assets and liabilities to a new Luxembourg company, New Cedel International, societe anonyme, which is 50% owned by Cedel International and 50% owned by Deutsche Borse Clearing AG’s parent company Deutsche Borse AG. The shareholders of these two entities are banks, securities dealers and financial institutions. Cedel International currently has 92 shareholders, including U.S. financial institutions or their subsidiaries. No single entity may own more than 5 percent of Cedel International’s stock. Further to the merger, the Board of Directors of New Cedel International decided to re-name the companies in the group to give them a cohesive brand name. The new brand name that was chosen is “Clearstream.” With effect from January 14, 2000 New Cedel International has been renamed “Clearstream International, societe anonyme.” On January 18, 2000, Cedelbank was renamed “Clearstream Banking, societe anonyme,” and Cedel Global Services was renamed “Clearstream Services, societe anonyme.” On January 17, 2000 Deutsche Borse Clearing AG was renamed “Clearstream Banking AG.” This means that there are now two entities in the corporate group headed by Clearstream International which share the name “Clearstream Banking,” the entity previously named “Cedelbank” and the entity previously named “Deutsche Borse Clearing AG.” Clearstream, Luxembourg holds securities for its customers and facilitates the clearance and settlement of securities transactions between Clearstream, Luxembourg participants through electronic book-entry changes in accounts of Clearstream, Luxembourg participants, thereby eliminating the need for physical movement of securities. Transactions may be settled in Clearstream, Luxembourg in any of 36 currencies, including United States dollars. Clearstream, Luxembourg provides to its participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream, Luxembourg also deals with domestic securities markets in over 30 countries through established depository and custodial relationships. Clearstream, Luxembourg is registered as a bank in Luxembourg, and as such is subject to regulation by the Commission de Surveillance du Secteur Financier, which supervises Luxembourg banks. Clearstream, Luxembourg’s participants are world-wide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Clearstream, Luxembourg’s U.S. participants are limited to securities brokers and dealers and banks. Currently, Clearstream, Luxembourg has approximately 2,000 customers located in over 80 countries, including all major European countries, Canada and the United States. Indirect access to Clearstream, Luxembourg is also available to other institutions that clear through or maintain a custodial relationship with an account holder of Clearstream, Luxembourg. Clearstream, Luxembourg has established an electronic bridge with Morgan Guaranty Trust Company -43- of New York as the operator of the Euroclear System (“MGT/EOC”) in Brussels to facilitate settlement of trades between Clearstream, Luxembourg and MGT/EOC. Euroclear was created in 1968 to hold securities for its participants and to clear and settle transactions between Euroclear participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of securities and any risk from lack of simultaneous transfers of securities and cash. Transactions may be settled in any of 32 currencies, including United States dollars. Euroclear includes various other services, including securities lending and borrowing and deals with domestic securities markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. Euroclear is operated by MGT/EOC under contract with Euroclear Clearance Systems S.C., a Belgian cooperative corporation. All operations are conducted by MGT/EOC, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator, not Euroclear Clearance Systems, S.C. Euroclear Clearance Systems S.C. establishes policy for Euroclear on behalf of Euroclear participants. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly. MGT/EOC is the Belgian branch of a New York banking corporation which is a member bank of the Federal Reserve System. As such, it is regulated and examined by the Board of Governors of the Federal Reserve System and the New York State Banking Department, as well as the Belgian Banking Commission. Securities clearance accounts and cash accounts with MGT/EOC are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System and applicable Belgian law (collectively, the “Terms and Conditions”). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. MGT/EOC acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no record of or relationship with persons holding through Euroclear Participants. Under a book-entry format, beneficial owners of the book-entry securities may experience some delay in their receipt of payments, since those payments will be forwarded by the trustee to Cede & Co., as nominee of DTC. Distributions with respect to securities held through Clearstream, Luxembourg or Euroclear will be credited to the cash accounts of Clearstream, Luxembourg participants or Euroclear participants in accordance with the relevant system’s rules and procedures, to the extent received by the Relevant Depositary. Those distributions will be subject to tax reporting in accordance with relevant United States tax laws and regulations. See “Material Federal Income Tax Consequences — Tax Treatment of Foreign Investors” and “ — Tax Consequences to Holders of the Notes — Backup Withholding” in this prospectus and “Global Clearance, Settlement and Tax Documentation Procedures — Certain U.S. Federal Income Tax Documentation Requirements” in Annex I attached to this prospectus. Because DTC can only act on behalf of Financial Intermediaries, the ability of a Security Owner to pledge book-entry securities to persons or entities that do not participate in the depository system may be limited due to the lack of physical certificates for the book-entry securities. In addition, issuance of the book-entry securities in book-entry form may reduce the liquidity of those securities in the secondary market since certain potential investors may be unwilling to purchase securities for which they cannot obtain physical certificates. Monthly and annual reports on the Trust will be provided to Cede & Co., as nominee of DTC, and may be made available by Cede & Co. to Security Owners upon request, in accordance with the Rules, and to the Financial Intermediaries to whose DTC accounts the book-entry securities of those Security Owners are credited. DTC has advised the depositor and the trustee that, unless and until Definitive Securities are issued, DTC will take any action permitted to be taken by the holders of the book-entry securities under the applicable Agreement only at the direction of one or more Financial Intermediaries to whose DTC accounts the book-entry securities are credited, to the extent that the actions are taken on behalf of Financial Intermediaries whose holdings include the book-entry securities. Clearstream, Luxembourg or MGT/EOC, as the case may be, will take any other action permitted to be taken by a securityholder under the Agreement on behalf of a Clearstream, Luxembourg participant or Euroclear participant only in accordance with its relevant rules and procedures and subject to the ability of the -44- Relevant Depositary to effect the actions on its behalf through DTC. DTC may take actions, at the direction of the related participants, with respect to some securities which conflict with actions taken with respect to other securities. The applicable prospectus supplement may specify when and for what reasons Definitive Securities may be issued, but if it does not, Definitive Securities will be issued to Security Owners or their nominees, rather than to DTC, only if Upon the availability of Definitive Securities, the applicable trustee will be required to notify all Security Owners of the occurrence of the event resulting in their availability and the availability through DTC of Definitive Securities. Upon surrender by DTC of the global certificate or certificates representing the book-entry securities and instructions for re-registration, the applicable trustee will issue Definitive Securities, and thereafter the applicable trustee will recognize the holders of Definitive Securities as securityholders under the applicable Agreement. Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of securities among participants of DTC, Clearstream, Luxembourg and Euroclear, they are under no obligation to perform or continue to perform those procedures and those procedures may be discontinued at any time. The foregoing information with respect to DTC, Clearstream, Luxembourg and Euroclear has been provided for informational purposes only and is not a representation, warranty or contract modification of any kind by DTC, Clearstream, Luxembourg or Euroclear. None of the master servicer, the depositor or the trustee will have any responsibility for any aspect of the records relating to or payments made on account of beneficial ownership interests of the book-entry securities held by Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests. Credit enhancement may be provided with respect to one or more classes of a series of securities or with respect to the related Trust Fund Assets. Credit enhancement may be in the form of a limited financial guaranty policy issued by an entity named in the related prospectus supplement, the subordination of one or more classes of the securities of the series, the establishment of one or more reserve funds, the use of a cross-collateralization feature, use of a mortgage pool insurance policy, FHA Insurance, VA Guarantee, bankruptcy bond, special hazard insurance policy, surety bond, letter of credit, guaranteed investment contract, overcollateralization, or another method of credit enhancement contemplated in this prospectus or described in the related prospectus supplement, or any combination of the foregoing. See “The Agreements — Realization upon Defaulted Loans — FHA Insurance; VA Guaranties” for a description of FHA Insurance and VA Guaranties and “— Insurance Policies, Surety Bonds and Guaranties” for a description of guaranteed investment contracts. The applicable prospectus supplement may provide for credit enhancement which covers all the classes of securities, but if it does not, credit enhancement will not provide protection against all risks of loss and will not guarantee repayment of the entire principal balance of the -45- securities and interest thereon. If losses occur which exceed the amount covered by credit enhancement or which are not covered by the credit enhancement, securityholders will bear their allocable share of any deficiencies. If so specified in the related prospectus supplement, protection afforded to holders of one or more classes of securities of a series by means of the subordination feature may be accomplished by the preferential right of holders of one or more other classes of the series (the “Senior Securities”) to distributions in respect of scheduled principal, Principal Prepayments, interest or any combination thereof that otherwise would have been payable to holders of subordinated securities under the circumstances and to the extent specified in the related prospectus supplement. Protection may also be afforded to the holders of Senior Securities of a series by: (i) reducing the ownership interest (if applicable) of the related subordinated securities; (ii) a combination of the immediately preceding sentence and clause (i) above; or (iii) as otherwise described in the related prospectus supplement. If so specified in the related prospectus supplement, delays in receipt of scheduled payments on the loans and losses on defaulted loans may be borne first by the various classes of subordinated securities and thereafter by the various classes of Senior Securities, in each case under the circumstances and subject to the limitations specified in the prospectus supplement. The aggregate distributions in respect of delinquent payments on the loans over the lives of the securities or at any time, the aggregate losses in respect of defaulted loans which must be borne by the Subordinated Securities by virtue of subordination and the amount of the distributions otherwise distributable to the Subordinated Securityholders that will be distributable to Senior Securityholders on any distribution date may be limited as specified in the related prospectus supplement. If aggregate distributions in respect of delinquent payments on the loans or aggregate losses in respect of the loans were to exceed an amount specified in the related prospectus supplement, holders of Senior Securities would experience losses on the securities. In addition to or in lieu of the foregoing, if so specified in the related prospectus supplement, all or any portion of distributions otherwise payable to holders of Subordinated Securities on any distribution date may instead be deposited into one or more reserve funds established with the trustee or distributed to holders of Senior Securities. Those deposits may be made on each distribution date, for specified periods or until the balance in the reserve fund has reached a specified amount and, following payments from the reserve fund to holders of Senior Securities or otherwise, thereafter to the extent necessary to restore the balance in the reserve fund to required levels, in each case as specified in the related prospectus supplement. Amounts on deposit in the reserve fund may be released to the holders of certain classes of securities at the times and under the circumstances specified in the prospectus supplement. If specified in the related prospectus supplement, various classes of Senior Securities and Subordinated Securities may themselves be subordinate in their right to receive certain distributions to other classes of Senior and Subordinated Securities, respectively, through a cross-collateralization mechanism or otherwise. As between classes of Senior Securities and as between classes of Subordinated Securities, distributions may be allocated among those classes (i) in the order of their scheduled final distribution dates, (ii) in accordance with a schedule or formula, (iii) in relation to the occurrence of events, or (iv) otherwise, in each case as specified in the related prospectus supplement. As between classes of Subordinated Securities, payments to holders of Senior Securities on account of delinquencies or losses and payments to any reserve fund will be allocated as specified in the related prospectus supplement. The letter of credit, if any, with respect to a series of securities will be issued by the bank or financial institution specified in the related prospectus supplement (the “L/C Bank”). Under the letter of credit, the L/C Bank will be obligated to honor drawings thereunder in an aggregate fixed dollar amount, net of unreimbursed payments thereunder, equal to the percentage specified in the related prospectus supplement of the aggregate principal balance of the loans on the related cut-off date or of one or more classes of securities (the “L/C Percentage”). If so specified in the related prospectus supplement, the letter of credit may permit drawings in the event of losses not covered by insurance policies or other credit support, such as losses arising from damage not covered by standard hazard insurance policies, losses resulting from the bankruptcy of a borrower and the application of certain provisions of -46- the federal Bankruptcy Code, or losses resulting from denial of insurance coverage due to misrepresentations in connection with the origination of a loan. The amount available under the letter of credit will, in all cases, be reduced to the extent of the unreimbursed payments thereunder. The obligations of the L/C Bank under the letter of credit for each series of securities will expire at the earlier of the date specified in the related prospectus supplement or the termination of the trust fund. See “The Agreements — Termination; Optional Termination.” A copy of the letter of credit for a series, if any, will be filed with the Securities and Exchange Commission (the “SEC”) as an exhibit to a Current Report on Form 8-K to be filed after the issuance of the securities of the related series. Insurance Policies, Surety Bonds and Guaranties If so provided in the prospectus supplement for a series of securities, deficiencies in amounts otherwise payable on the securities or certain classes thereof will be covered by insurance policies and/or surety bonds provided by one or more insurance companies or sureties. Those instruments may cover, with respect to one or more classes of securities of the related series, timely distributions of interest and/or full distributions of principal on the basis of a schedule of principal distributions set forth in or determined in the manner specified in the related prospectus supplement. In addition, if specified in the related prospectus supplement, a trust fund may also include bankruptcy bonds, special hazard insurance policies, other insurance or guaranties (including guaranteed investment contracts) for the purpose of (i) maintaining timely payments or providing additional protection against losses on the assets included in the trust fund, (ii) paying administrative expenses or (iii) establishing a minimum reinvestment rate on the payments made in respect of those assets or a principal payment rate on those assets. These arrangements may include agreements under which securityholders are entitled to receive amounts deposited in various accounts held by the trustee upon the terms specified in the prospectus supplement. A copy of any related instrument for a series will be filed with the SEC as an exhibit to a Current Report on Form 8-K to be filed with the SEC after the issuance of the securities of the related series. If so provided in the prospectus supplement for a series of securities, a portion of the interest payment on each loan may be applied as an additional distribution in respect of principal to reduce the principal balance of a certain class or classes of securities and, thus, accelerate the rate of payment of principal on that class or those classes of securities. Reducing the principal balance of the securities without a corresponding reduction in the principal balance of the underlying Trust Fund Assets will result in over-collateralization. If specified in the related prospectus supplement, credit support with respect to a series of securities will be provided by the establishment and maintenance with the trustee for the series of securities, in trust, of one or more reserve funds for the series. The related prospectus supplement will specify whether or not any reserve funds will be included in the trust fund for a series. The reserve fund for a series will be funded (i) by the deposit of cash, United States Treasury securities, instruments evidencing ownership of principal or interest payments thereon, letters of credit, demand notes, certificates of deposit or a combination thereof in the aggregate amount specified in the related prospectus supplement, (ii) by the deposit from time to time of certain amounts, as specified in the related prospectus supplement to which the Subordinate Securityholders, if any, would otherwise be entitled or (iii) in such other manner as may be specified in the related prospectus supplement. Any amounts on deposit in the reserve fund and the proceeds of any other instrument upon maturity will be held in cash or will be invested in “Permitted Investments” which may include -47- If a letter of credit is deposited with the trustee, that letter of credit will be irrevocable and will name the trustee, in its capacity as trustee for the holders of the securities, as beneficiary and will be issued by an entity acceptable to each Rating Agency that rates the securities of the related series. Additional information with respect to the instruments deposited in the reserve funds will be set forth in the related prospectus supplement. Any amounts so deposited and payments on instruments so deposited will be available for withdrawal from the reserve fund for distribution to the holders of securities of the related series for the purposes, in the manner and at the times specified in the related prospectus supplement. -48- If specified in the related prospectus supplement, a separate pool insurance policy (“Pool Insurance Policy”) will be obtained for the pool and issued by the insurer (the “Pool Insurer”) named in the prospectus supplement. Each Pool Insurance Policy will, subject to the limitations described below, cover loss by reason of default in payment on loans in the pool in an amount equal to a percentage specified in the prospectus supplement of the aggregate principal balance of the loans on the cut-off date which are not covered as to their entire outstanding principal balances by Primary Mortgage Insurance Policies. As more fully described below, the master servicer will present claims thereunder to the Pool Insurer on behalf of itself, the trustee and the holders of the securities of the related series. The Pool Insurance Policies, however, are not blanket policies against loss, since claims thereunder may only be made respecting particular defaulted loans and only upon satisfaction of certain conditions precedent described below. The applicable prospectus supplement may provide for the extent of coverage provided by the related Pool Insurance Policy, but if it does not, the Pool Insurance Policies will not cover losses due to a failure to pay or denial of a claim under a Primary Mortgage Insurance Policy. The applicable prospectus supplement may provide for the conditions for the presentation of claims under a Pool Insurance Policy, but if it does not, the Pool Insurance Policy will provide that no claims may be validly presented unless (i) any required Primary Mortgage Insurance Policy is in effect for the defaulted loan and a claim thereunder has been submitted and settled; (ii) hazard insurance on the related Property has been kept in force and real estate taxes and other protection and preservation expenses have been paid; (iii) if there has been physical loss or damage to the Property, it has been restored to its physical condition (reasonable wear and tear excepted) at the time of issuance of the policy; and (iv) the insured has acquired good and merchantable title to the Property free and clear of liens except certain permitted encumbrances. Upon satisfaction of these conditions, the Pool Insurer will have the option either (a) to purchase the Property securing the defaulted loan at a price equal to the principal balance thereof plus accrued and unpaid interest at the Loan Rate to the date of purchase and certain expenses incurred by the master servicer on behalf of the trustee and securityholders, or (b) to pay the amount by which the sum of the principal balance of the defaulted loan plus accrued and unpaid interest at the Loan Rate to the date of payment of the claim and the aforementioned expenses exceeds the proceeds received from an approved sale of the Property, in either case net of certain amounts paid or assumed to have been paid under the related Primary Mortgage Insurance Policy. If any Property securing a defaulted loan is damaged and proceeds, if any, from the related hazard insurance policy or the applicable special hazard insurance policy are insufficient to restore the damaged Property to a condition sufficient to permit recovery under the Pool Insurance Policy, the master servicer will not be required to expend its own funds to restore the damaged Property unless it determines that (i) the restoration will increase the proceeds to securityholders on liquidation of the loan after reimbursement of the master servicer for its expenses and (ii) the expenses will be recoverable by it through proceeds of the sale of the Property or proceeds of the related Pool Insurance Policy or any related Primary Mortgage Insurance Policy. The applicable prospectus supplement may provide for a Pool Insurance Policy covering losses resulting from defaults, but if it does not, the Pool Insurance Policy will not insure (and many Primary Mortgage Insurance Policies do not insure) against loss sustained by reason of a default arising from, among other things, A failure of coverage attributable to one of the foregoing events might result in a breach of the related seller’s representations described above and might give rise to an obligation on the part of the related seller to repurchase the defaulted loan if the breach cannot be cured by the related seller. No Pool Insurance Policy will cover (and many Primary Mortgage Insurance Policies do not cover) a claim in respect of a defaulted loan occurring when the servicer of the loan, at the time of default or thereafter, was not approved by the applicable insurer. The applicable prospectus supplement may provide for a Pool Insurance Policy featuring a fixed amount of coverage over the life of the policy, but if it does not, the original amount of coverage under each Pool Insurance Policy will be reduced over the life of the related securities by the aggregate dollar amount of claims paid less the -49- aggregate of the net amounts realized by the Pool Insurer upon disposition of all foreclosed properties. The applicable prospectus supplement may provide for the exclusion of specified expenses from the coverage of the Pool Insurance Policy, but if it does not, the amount of claims paid will include certain expenses incurred by the master servicer as well as accrued interest on delinquent loans to the date of payment of the claim. Accordingly, if aggregate net claims paid under any Pool Insurance Policy reach the original policy limit, coverage under that Pool Insurance Policy will be exhausted and any further losses will be borne by the related securityholders. Special Hazard Insurance Policies If specified in the related prospectus supplement, a separate special hazard insurance policy will be obtained for the mortgage pool and will be issued by the insurer named in the prospectus supplement. Each special hazard insurance policy will, subject to policy limitations, protect holders of the related securities from loss caused by the application of the coinsurance clause contained in hazard insurance policies and loss from damage to mortgaged properties caused by certain hazards not insured against under the standard form of hazard insurance policy in the states where the mortgaged properties are located or under a flood insurance policy if the Property is located in a federally designated flood area. Some of the losses covered include earthquakes and, to a limited extent, tidal waves and related water damage and other losses that may be specified in the related prospectus supplement. See “The Agreements — Hazard Insurance.” No special hazard insurance policy will cover losses from fraud or conversion by the trustee or master servicer, war, insurrection, civil war, certain governmental action, errors in design, faulty workmanship or materials (except under certain circumstances), nuclear or chemical reaction, flood (if the Property is located in a federally designated flood area), nuclear or chemical contamination and certain other risks. The amount of coverage under any special hazard insurance policy will be specified in the related prospectus supplement. Each special hazard insurance policy will provide that no claim may be paid unless hazard and, if applicable, flood insurance on the Property securing the mortgage loan have been kept in force and other protection and preservation expenses have been paid. The applicable prospectus supplement may provide for other payment coverage, but if it does not, each special hazard policy will insure against damage to mortgaged properties caused by special hazard losses in an amount equal to the lesser of: If the unpaid principal balance of a mortgage loan, plus accrued interest and expenses, is paid by the special hazard insurer, the amount of further coverage under the related special hazard insurance policy will be reduced by that amount less any net proceeds from the sale of the Property. In addition, any amount paid to repair or replace the Property will further reduce special hazard coverage by that amount. No special hazard policy will insure against damage that is covered by a hazard insurance policy or flood insurance policy, if any, maintained by the mortgagor or the master servicer. So long as a mortgage pool insurance policy remains in effect, the payment by the special hazard insurer of the cost of repair or of the unpaid principal balance of the related mortgage loan plus accrued interest and certain expenses will not affect the total insurance proceeds paid to certificateholders, but will affect the relative amounts of coverage remaining under the related special hazard insurance policy and mortgage pool insurance policy. To the extent specified in the prospectus supplement, the master servicer may deposit cash, an irrevocable letter of credit, or any other instrument acceptable to each rating agency rating the securities of the related series at the request of the depositor in a special trust account to provide protection in lieu of or in addition to that provided by a special hazard insurance policy. The amount of any special hazard insurance policy or of the deposit to the -50- special trust account relating to the securities may be reduced so long as the reduction will not result in a downgrading of the rating of the securities by a rating agency rating securities at the request of the depositor. If specified in the related prospectus supplement, a bankruptcy bond to cover losses resulting from proceedings under the federal Bankruptcy Code with respect to a mortgage loan will be issued by an insurer named in the prospectus supplement. Each bankruptcy bond will cover, to the extent specified in the related prospectus supplement, certain losses resulting from a reduction by a bankruptcy court of scheduled payments of principal and interest on a mortgage loan or a reduction by the court of the principal amount of a mortgage loan and will cover certain unpaid interest on the amount of a principal reduction from the date of the filing of a bankruptcy petition. The required amount of coverage under each bankruptcy bond will be set forth in the related prospectus supplement. Coverage under a bankruptcy bond may be canceled or reduced by the master servicer if the cancellation or reduction would not adversely affect the then current rating or ratings of the related securities. See “Legal Aspects of the Loans — Anti-deficiency Legislation and Other Limitations on Lenders.” To the extent specified in the prospectus supplement, the master servicer may deposit cash, an irrevocable letter of credit or any other instrument acceptable to each nationally recognized rating agency rating the certificates of the related series at the request of the depositor in a special trust account to provide protection in lieu of or in addition to that provided by a bankruptcy bond. The amount of any bankruptcy bond or of the deposit to the special trust account relating to the certificates may be reduced so long as the reduction will not result in a downgrading of the rating of the certificates by a rating agency rating certificates at the request of the depositor. If specified in the related prospectus supplement, the beneficial ownership of separate groups of assets included in a trust fund may be evidenced by separate classes of the related series of securities. In that case, credit support may be provided by a cross support feature that requires that distributions be made on securities evidencing a beneficial ownership interest in other asset groups within the same trust fund. The related prospectus supplement for a series that includes a cross support feature will describe the manner and conditions for applying the cross support feature. If specified in the related prospectus supplement, the coverage provided by one or more forms of credit support may apply concurrently to two or more related trust funds. If applicable, the related prospectus supplement will identify the trust funds to which the credit support relates and the manner of determining the amount of the coverage provided by it and of the application of the coverage to the identified trust funds. If specified in the related prospectus supplement, the trust fund may include one or more swap arrangements or other financial instruments that are intended to meet the following goals: If a trust fund includes financial instruments of this type, the instruments may be structured to be exempt from the registration requirements of the Securities Act. -51- YIELD AND PREPAYMENT CONSIDERATIONS The yields to maturity and weighted average lives of the securities will be affected primarily by the amount and timing of principal payments received on or in respect of the Trust Fund Assets included in the related trust fund. The original terms to maturity of the loans in a given pool will vary depending upon the type of loans included the pool. Each prospectus supplement will contain information with respect to the type and maturities of the loans in the related pool. The related prospectus supplement will specify the circumstances, if any, under which the related loans will be subject to prepayment penalties. The prepayment experience on the loans in a pool will affect the weighted average life of the related series of securities. The rate of prepayment on the loans cannot be predicted. Home equity loans and home improvement contracts have been originated in significant volume only during the past few years and the depositor is not aware of any publicly available studies or statistics on the rate of prepayment of these types of loans. Generally, home equity loans and home improvement contracts are not viewed by borrowers as permanent financing. Accordingly, home equity loans and home improvement loans may experience a higher rate of prepayment than traditional first mortgage loans. On the other hand, because home equity loans such as the revolving credit line loans generally are not fully amortizing, the absence of voluntary borrower prepayments could cause rates of principal payments lower than, or similar to, those of traditional fully-amortizing first mortgage loans. The prepayment experience of the related trust fund may be affected by a wide variety of factors, including general economic conditions, prevailing interest rate levels, the availability of alternative financing, homeowner mobility and the frequency and amount of any future draws on any revolving credit line loans. Other factors that might be expected to affect the prepayment rate of a pool of home equity mortgage loans or home improvement contracts include the amounts of, and interest rates on, the underlying senior mortgage loans, and the use of first mortgage loans as long-term financing for home purchase and subordinate mortgage loans as shorter-term financing for a variety of purposes, including home improvement, education expenses and purchases of consumer durables such as automobiles. Accordingly, these loans may experience a higher rate of prepayment than traditional fixed-rate mortgage loans. In addition, any future limitations on the right of borrowers to deduct interest payments on home equity loans for federal income tax purposes may further increase the rate of prepayments of the loans. The enforcement of a “due-on-sale” provision (as described below) will have the same effect as a prepayment of the related loan. See “Legal Aspects of the Loans — Due-on-Sale Clauses.” The yield to an investor who purchases securities in the secondary market at a price other than par will vary from the anticipated yield if the rate of prepayment on the loans is actually different than the rate anticipated by the investor at the time the securities were purchased. Collections on revolving credit line loans may vary because, among other things, borrowers may (i) make payments during any month as low as the minimum monthly payment for that month or, during the interest-only period for certain revolving credit line loans and, in more limited circumstances, closed-end loans, with respect to which an interest-only payment option has been selected, the interest and the fees and charges for that month or (ii) make payments as high as the entire outstanding principal balance plus accrued interest and the fees and charges thereon. It is possible that borrowers may fail to make the required periodic payments. In addition, collections on the loans may vary due to seasonal purchasing and the payment habits of borrowers. Generally, all conventional loans will contain due-on-sale provisions permitting the mortgagee to accelerate the maturity of the loan upon sale or certain transfers by the borrower of the related Property. Loans insured by the FHA, and single family loans partially guaranteed by the VA, are assumable with the consent of the FHA and the VA, respectively. Thus, the rate of prepayments on those types of loans may be lower than that of conventional loans bearing comparable interest rates. The master servicer generally will enforce any due-on-sale or due-on-encumbrance clause, to the extent it has knowledge of the conveyance or further encumbrance or the proposed conveyance or proposed further encumbrance of the Property and reasonably believes that it is entitled to do so under applicable law; provided, however, that the master servicer will not take any enforcement action that would impair or threaten to impair any recovery under any related insurance policy. See “The Agreements — Collection Procedures” and “Legal Aspects of the Loans” for a description of certain provisions of each Agreement and certain legal developments that may affect the prepayment experience on the loans. The rate of prepayments with respect to conventional mortgage loans has fluctuated significantly in recent years. In general, if prevailing rates fall significantly below the Loan Rates borne by the loans, the loans are more -52- likely to be subject to higher prepayment rates than if prevailing interest rates remain at or above the Loan Rates. Conversely, if prevailing interest rates rise appreciably above the Loan Rates borne by the loans, the loans are more likely to experience a lower prepayment rate than if prevailing rates remain at or below the Loan Rates. However, there can be no assurance that this will be the case. When a full prepayment is made on a loan, the borrower is charged interest on the principal amount of the loan so prepaid only for the number of days in the month actually elapsed up to the date of the prepayment, rather than for a full month. The effect of prepayments in full will be to reduce the amount of interest passed through or paid in the following month to holders of securities because interest on the principal amount of any loan so prepaid will generally be paid only to the date of prepayment. Partial prepayments in a given month may be applied to the outstanding principal balances of the loans so prepaid on the first day of the month of receipt or in the month following receipt. In the latter case, partial prepayments will not reduce the amount of interest passed through or paid in the month of receipt. The applicable prospectus supplement may specify when prepayments are passed through to securityholders, but if it does not, neither full nor partial prepayments will be passed through or paid until the month following receipt. Even assuming that the Properties provide adequate security for the loans, substantial delays could be encountered in connection with the liquidation of defaulted loans and corresponding delays in the receipt of related proceeds by securityholders could occur. An action to foreclose on a Property securing a loan is regulated by state statutes and rules and is subject to many of the delays and expenses of other lawsuits if defenses or counterclaims are interposed, sometimes requiring several years to complete. Furthermore, in some states an action to obtain a deficiency judgment is not permitted following a nonjudicial sale of a Property. In the event of a default by a borrower, these restrictions among other things, may impede the ability of the master servicer to foreclose on or sell the Property or to obtain liquidation proceeds sufficient to repay all amounts due on the related loan. In addition, the master servicer will be entitled to deduct from related liquidation proceeds all expenses reasonably incurred in attempting to recover amounts due on defaulted loans and not yet repaid, including payments to senior lienholders, legal fees and costs of legal action, real estate taxes and maintenance and preservation expenses. Liquidation expenses with respect to defaulted mortgage loans generally do not vary directly with the outstanding principal balance of the loan at the time of default. Therefore, assuming that a servicer took the same steps in realizing upon a defaulted mortgage loan having a small remaining principal balance as it would in the case of a defaulted mortgage loan having a large remaining principal balance, the amount realized after expenses of liquidation would be smaller as a percentage of the remaining principal balance of the small mortgage loan than would be the case with the other defaulted mortgage loan having a large remaining principal balance. Applicable state laws generally regulate interest rates and other charges, require certain disclosures, and require licensing of certain originators and servicers of loans. In addition, most have other laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and practices which may apply to the origination, servicing and collection of the loans. Depending on the provisions of the applicable law and the specific facts and circumstances involved, violations of these laws, policies and principles may limit the ability of the master servicer to collect all or part of the principal of or interest on the loans, may entitle the borrower to a refund of amounts previously paid and, in addition, could subject the master servicer to damages and administrative sanctions. If the rate at which interest is passed through or paid to the holders of securities of a series is calculated on a loan-by-loan basis, disproportionate principal prepayments among loans with different Loan Rates will affect the yield on those securities. In most cases, the effective yield to securityholders will be lower than the yield otherwise produced by the applicable Pass-Through Rate or interest rate and purchase price, because while interest will generally accrue on each loan from the first day of the month, the distribution of the interest will not be made earlier than the month following the month of accrual. Under certain circumstances, the master servicer, the holders of the residual interests in a REMIC or any person specified in the related prospectus supplement may have the option to purchase the assets of a trust fund thereby effecting earlier retirement of the related series of securities. See “The Agreements — Termination; Optional Termination.” -53- The relative contribution of the various factors affecting prepayment may vary from time to time. There can be no assurance as to the rate of payment of principal of the Trust Fund Assets at any time or over the lives of the securities. The prospectus supplement relating to a series of securities will discuss in greater detail the effect of the rate and timing of principal payments (including prepayments), delinquencies and losses on the yield, weighted average lives and maturities of the securities.
prospectus supplement and the accompanying prospectus: Class Initial Class
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BalanceInitial
Approximate
Pass-
Through
RateType Class I-A-1 $ 128,755,000 5.7807%(1) Senior Class I-A-R $ 100 5.7807%(1) Senior/Residual Class II-A-1 $ 153,975,000 5.9822%(1) Senior Class B-1 $ 7,349,000 5.8904%(1) Subordinated Class B-2 $ 3,300,000 5.8904%(1) Subordinated Class B-3 $ 2,550,000 5.8904%(1) Subordinated Class Minimum Denomination Class I-A-1 $ 25,000 Class I-A-R $ 100 Class II-A-1 $ 25,000 Class B-1 $ 100,000 Class B-2 $ 100,000 Class B-3 $ 100,000 Ÿ Total current principal balance(1): $136,609,536 Ÿ Original term to maturity: 360 months Ÿ Range of remaining terms to maturity: between 355 to 360 months Ÿ Range of initial annual interest rates: between 5.125% to 7.500% Ÿ Largest geographic concentration: approximately 13.80% of the mortgage loans, by principal balance as of the cut-off date, are secured by property located in Arizona Ÿ Total current principal balance(1): $163,369,551 Ÿ Original term to maturity: 360 months Ÿ Range of remaining terms to maturity: between 350 to 360 months Ÿ Range of initial annual interest rates: between 4.750% to 7.500% Ÿ Largest geographic concentration: approximately 13.14% of the mortgage loans, by principal balance as of the cut-off date, are secured by property located in California Ÿ The actual amount of interest you receive on your certificates on each distribution date will depend on: – the amount of interest accrued on your certificates; – the total amount of funds in the corresponding mortgage pool available for distribution; and – the amount of any accrued interest not paid on your certificates on earlier distribution dates. Ÿ If you are the holder of a subordinated certificate, you will receive interest payments only after the trustee has paid interest and principal to: – all the senior certificates of each certificate group; and – each class of subordinated certificates that ranks higher than your certificates. Ÿ The trustee will calculate interest on the basis of a 360-day year consisting of twelve 30-day months for each class of certificates. Ÿ The interest accrual period for any distribution date will be the calendar month before that distribution date. Ÿ The subordinated certificates will accrue interest at an annual pass-through rate equal to the weighted average of the weighted average net mortgage rates of each mortgage pool, weighted on the basis of the Group Subordinate Amount for each mortgage pool. Ÿ After interest payments have been made on all senior certificates of a certificate group, each class of those senior certificates will also be entitled to receive a payment of principal. If you are the holder of subordinated certificates, you will receive principal payments after (1) interest and principal have been paid on all the senior certificates of each certificate group and the subordinated certificates ranking senior to yours (if any) and (2) interest has been paid on your certificates. You should refer to “Description of the Certificates —Distributions on the Certificates” in this prospectus supplement for a description of the amount of principal payable to you and the priority in which it will be paid. Ÿ The amount and timing of principal you receive on your certificates will depend on: – the various priorities and formulas described in this prospectus supplement that determine the allocation of principal payments to your certificates; and – the amounts actually available in the corresponding mortgage pool or mortgage pools for distribution as principal. Ÿ Because of the principal allocation formulas described in this prospectus supplement, the senior certificates will receive principal payments at a faster rate than the subordinated certificates for at least the first eleven years after the issuance of the certificates, except as otherwise described in this prospectus supplement. Ÿ The senior certificates of each certificate group will have a preferential right over the subordinated certificates to receive funds available from the related mortgage pool for interest and principal distributions. Ÿ The subordinated certificates will absorb losses on the mortgage loans up to their class certificate balances or, with respect to certain types of losses, up to the level described in this prospectus supplement. Class Fitch Rating Class B-l AA Class B-2 A Class B-3 BBB Earliest Date of Origination Earliest Stated Maturity Date Latest Stated Maturity Date Pool I May 27, 2005 June 1, 2035 December 1, 2035 Pool II December 15, 2004 January 1, 2035 December 1, 2035 Ÿ after the date on which the related loan-to-value ratio is 80% or less or, based on a new appraisal, the Stated Principal Balance of the mortgage loan represents 80% or less of the new appraised value, or Ÿ if maintaining the primary mortgage guaranty insurance policy is prohibited by applicable law. Ÿ in the case of a purchase, the lesser of the selling price of the mortgaged property or its appraised value at the time of sale, or Ÿ in the case of a refinancing, the appraised value of the mortgaged property at the time of refinancing, except in the case of a mortgage loan underwritten pursuant to First Horizon’s Streamlined Documentation Program as described in the prospectus under “Loan Program—Underwriting Standards.” Ÿ if the loan-to-value ratio at the time of the origination of the mortgage loan being refinanced was 90% or less, the loan-to-value ratio will be the ratio of the principal amount of the mortgage loan outstanding at the date of determination divided by the appraised value of the related mortgaged property at the time of the origination of the mortgage loan being refinanced, or Ÿ if the loan-to-value ratio at the time of the origination of the mortgage loan being refinanced was greater than 90%, then the loan-to-value ratio will be the ratio of the principal amount of the mortgage loan outstanding at the date of determination divided by the appraised value as determined by a limited appraisal report at the time of the origination of the mortgage loan. Ÿ the original mortgage note, including any modifications or amendments, endorsed in blank without recourse, except that the depositor may deliver or cause to be delivered a lost note affidavit in lieu of any original mortgage note that has been lost, Ÿ the original mortgage creating a first lien on the related mortgaged property with evidence of recording, Ÿ an assignment in recordable form of the mortgage, Ÿ the title policy with respect to the related mortgaged property, if available, provided that the title policy will be delivered as soon as it becomes available, and if the title policy is not available, and to the extent required in connection with the rating of the certificates, a written commitment or interim binder or preliminary report of the title issued by the title insurance or escrow company with respect to the mortgaged property, or in lieu of a title policy, provided the applicable mortgage loan meets required criteria, an alternative title insurance product (“alternative title product”), and Ÿ if applicable, all recorded intervening assignments of the mortgage and any riders or modifications to the mortgage note and mortgage, Ÿ have a principal balance, after deduction of all scheduled payments due in the month of substitution, not in excess of, and not more than 10% less than, the principal balance of the deleted mortgage loan, provided that the seller will deposit a Substitution Adjustment Amount into the Certificate Account for distribution to the certificateholders of the related certificate group on the related distribution date, Ÿ have a Net Mortgage Rate not lower than the Net Mortgage Rate of the deleted mortgage loan; provided that the master servicing fee for the replacement mortgage loan shall be the same as that of the deleted mortgage loan, Ÿ have a maximum mortgage rate not more than one percentage point per annum higher or lower than the maximum mortgage rate of the deleted mortgage loan, Ÿ have a minimum mortgage rate specified in its related mortgage note not more than one percentage point per annum higher or lower than the minimum mortgage rate of the deleted mortgage loan, Ÿ have the same Mortgage Index, reset period and periodic rate cap as the deleted mortgage loan and a gross margin not more than one percentage point per annum higher or lower than that of the deleted mortgage loan, Ÿ have a mortgage rate not lower than, and not more than one percentage point per annum higher than, that of the deleted mortgage loan, Ÿ have a loan-to-value ratio not higher than that of the deleted mortgage loan, Ÿ have a remaining term to maturity not greater than, and not more than one year less than, the remaining term to maturity of the deleted mortgage loan, and Ÿ comply with all the representations and warranties set forth in the MLPA as of the date of substitution.
of One-to-Four Family, Jumbo Residential Mortgage LoansAs of December 31, 2002 As of December 31, 2003 No. of
Loans% of
LoansPrincipal
Balance% of
BalanceNo. of
Loans% of
LoansPrincipal
Balance% of
Balance JUMBO LOAN
PORTFOLIO Total Portfolio 18,686 7,734,635 16,424 7,603,793 Period of Delinquency 30-59 Days 240 1.28 % 94,054 1.22 % 128 0.78 % 50,030 0.66 % 60-89 Days 25 0.13 % 7,733 0.10 % 22 0.13 % 7,690 0.10 % 90 Days or more 23 0.12 % 7,654 0.10 % 20 0.12 % 6,797 0.09 % Foreclosures Pending 26 0.14 % 9,551 0.12 % 25 0.15 % 9,894 0.13 % Total Delinquencies 314 1.68 % 118,991 1.54 % 195 1.19 % 74,411 0.98 % As of December 31, 2004 As of September 30, 2005 No. of
Loans% of
LoansPrincipal
Balance% of
BalanceNo. of
Loans% of
LoansPrincipal
Balance% of
Balance JUMBO LOAN
PORTFOLIO Total Portfolio 20,602 9,814,558 26,203 12,978,805 Period of Delinquency 30-59 Days 139 0.67 % 67,344 0.69 % 198 0.76 % 100,163 0.77 % 60-89 Days 20 0.10 % 8,100 0.08 % 30 0.11 % 13,298 0.10 % 90 Days or more 25 0.12 % 10,793 0.11 % 18 0.07 % 7,955 0.06 % Foreclosures Pending 19 0.09 % 8,121 0.08 % 22 0.08 % 9,596 0.07 % Total Delinquencies 203 0.99 % 94,358 0.96 % 268 1.02 % 131,011 1.01 %
of One-to-Four Family, Residential Mortgage LoansAs of December 31, 2002 As of December 31, 2003 No. of
Loans % of Loans Principal
Balance($) % of
Balance No. of
Loans % of Loans Principal
Balance($) % of
Balance TOTAL SERVICING
PORTFOLIO Total Portfolio 444,472 55,961,130 505,502 68,855,658 Period of Delinquency 30-59 Days 15,113 3.40 % 1,509,111 2.70 % 11,599 2.29 % 1,220,816 1.77 % 60-89 Days 3,514 0.79 % 325,279 0.58 % 2,677 0.53 % 263,125 0.38 % 90 Days or more 5,698 1.28 % 509,319 0.91 % 4,423 0.87 % 401,377 0.58 % Foreclosures Pending 3,523 0.79 % 264,764 0.47 % 3,093 0.61 % 252,608 0.37 % Total Delinquencies 27,848 6.27 % 2,608,474 4.66 % 21,792 4.31 % 2,137,926 3.10 % As of December 31, 2004 As of September 30, 2005 No. of
Loans% of Loans Principal
Balance($)% of
BalanceNo. of
Loans% of Loans Principal
Balance($)% of
Balance TOTAL SERVICING
PORTFOLIO Total Portfolio 556,185 79,738,340 614,115 93,465,166 Period of Delinquency 30-59 Days 11,363 2.04 % 1,278,625 1.60 % 12,999 2.12 % 1,535,966 1.64 % 60-89 Days 2,591 0.47 % 261,445 0.33 % 2,609 0.42 % 281,806 0.30 % 90 Days or more 4,079 0.73 % 386,851 0.49 % 4,078 0.66 % 397,239 0.43 % Foreclosures Pending 3,157 0.57 % 265,957 0.33 % 2,798 0.46 % 237,778 0.25 % Total Delinquencies 21,190 3.81 % 2,192,878 2.75 % 22,484 3.66 % 2,452,788 2.62 % (i) to the Class I-A-R Certificates, until the class certificate balance thereof has been reduced to zero; and (ii) to the Class I-A-1 Certificates, until the class certificate balance thereof has been reduced to zero.
InterestŸ 1.00% (or if greater than 1.00%, the highest percentage of mortgage loans by principal balance secured by mortgaged properties in any single California zip code) of the outstanding principal balance of all the mortgage loans as of the related Determination Date, and Ÿ twice the outstanding principal balance of the mortgage loan which has the largest outstanding principal balance as of the related Determination Date, (1) the preferential right of those holders to receive, prior to any distribution being made on a distribution date in respect of the subordinated certificates, in accordance with the paydown rules specified above under “—Distributions on the Certificates —Allocation of Available Funds,” the amounts due to the senior certificateholders of that certificate group on each distribution date out of the Available Funds for the related mortgage pool for that date and, if necessary, by the right of those holders to receive future distributions on the related mortgage loans that would otherwise have been payable to the holders of the subordinated certificates; and (2) the allocation to the subordinated certificates of the principal portion of any Non-Excess Loss to the extent set forth in this prospectus supplement. Ÿ Pool I consists of two mortgage loans with the following characteristics: Principal Balance Current Mortgage
Rate (%)Remaining
Term to Maturity
(Months)Original
Term to Maturity
(Months)Expense
Fee Rate (%)Initial Periodic Rate
Cap (%)Subsequent Periodic
Rate Cap (%) $ 20,096,709.54 6.1807060298 360 360 0.3750000000 6.000 2.000 Principal Balance Gross
Margin (%) Maximum
Mortgage Rate (%) Minimum
Mortgage
Rate (%) Months to Next
Rate Adjustment Months between
Rate
Adjustments Mortgage
Index $ 20,096,709,54 2.250 12.1807060298 2.250 60 6 Six-Month LIBOR Ÿ Pool I interest-only mortgage loan: Principal Balance Current Mortgage
Rate (%)Remaining
Term to Maturity
(Months)Original
Term to Maturity
(Months)Expense
Fee Rate (%)Initial Periodic
Rate Cap (%)Subsequent Periodic
Rate Cap (%) $ 116,512,826.15 6.1514015632 360 360 0.3750000000 6.000 2.000 Principal Balance Gross
Margin (%)Maximum
Mortgage Rate (%)Minimum
Mortgage Rate (%)Months to Next
Rate AdjustmentMonths between
Rate
AdjustmentsInterest-Only
Remaining Term
(Months)Mortgage Index $ 116,512,826.15 2.250 12.1514015632 2.250 60 6 120 Six-Month LIBOR Ÿ Pool II consists of two mortgage loans with the following characteristics: Principal Balance Current Mortgage
Rate (%)Remaining
Term to Maturity
(Months)Original
Term to Maturity
(Months)Expense
Fee Rate (%)Initial Periodic
Rate Cap (%)Subsequent Periodic
Rate Cap (%) $ 17,714,465.07 6.2086168343 360 360 0.3750000000 6.000 2.000 Principal Balance Gross
Margin (%)Maximum
Mortgage Rate
(%)Minimum
Mortgage
Rate (%)Months to Next
Rate AdjustmentMonths between
Rate
AdjustmentsMortgage
Index $ 17,714,465.07 2.250 12.2086168343 2.250 60 6 Six-Month LIBOR Ÿ Pool II interest-only mortgage loan: Principal Balance Current Mortgage
Rate (%)Remaining
Term to Maturity
(Months)Original
Term to Maturity
(Months)Expense
Fee Rate (%)Initial Periodic
Rate Cap (%)Subsequent Periodic
Rate Cap (%) $ 145,655,085.55 6.3752408252 360 360 0.3750000000 6.000 2.000 Principal Balance Gross
Margin (%)Maximum
Mortgage Rate
(%)Minimum
Mortgage
Rate (%)Months to Next
Rate AdjustmentMonths between
Rate
AdjustmentsInterest-Only
Remaining Term
(Months)Mortgage
Index $ 145,655,085.55 2.250 12.3752408252 2.250 60 6 120 Six-Month LIBOR Ÿ the mortgage loans in each mortgage pool prepay at the related specified constant percentages of CPR, Ÿ no defaults in the payment by mortgagors of principal of and interest on the mortgage loans are experienced, Ÿ scheduled payments on the mortgage loans are received on the first day of each month commencing in the calendar month following the closing date and are computed before giving effect to prepayments received on the last day of the prior month, Ÿ prepayments are allocated without giving effect to loss and delinquency tests, Ÿ there are no Net Interest Shortfalls and prepayments represent prepayments in full of individual mortgage loans and are received on the last day of each month, commencing in the calendar month of the closing date, Ÿ the scheduled monthly payment for each mortgage loan (other than the interest-only mortgage loans during such period) has been calculated so that each mortgage loan will amortize in amounts sufficient to repay the current balance of the mortgage loan by its respective remaining term to maturity, Ÿ the mortgage rate is calculated as described in this prospectus supplement, Ÿ the initial class certificate balance of each class of certificates is as set forth on page S-5, Ÿ the approximate initial class certificate balances of the Class B-4, Class B-5 and Class B-6 Certificates are $1,650,000, $1,200,000 and $1,199,986, respectively, Ÿ distributions in respect of the certificates are received in cash on the 25th day of each month commencing in the calendar month following the month of the closing date, Ÿ any interest-only mortgage loan with a remaining interest-only term greater than zero does not amortize during the remaining interest-only term. At the end of the remaining interest-only term, any such mortgage loan will amortize in amounts sufficient to repay the current balance of the mortgage loan over the remaining term to maturity calculated at the expiration of the remaining interest-only term, Ÿ the closing date of the sale of the certificates is November 30, 2005, Ÿ the seller is not required to repurchase or substitute for any mortgage loan, Ÿ the master servicer does not exercise the option to repurchase the mortgage loans described under “—Optional Purchase of Defaulted Loans” and “—Optional Termination” in this prospectus supplement, Ÿ the level of the Six-Month LIBOR Index remains constant at 4.57%, Ÿ the mortgage rate on each mortgage loan will be adjusted on each Adjustment Date (as necessary) to a rate equal to the Mortgage Index plus the Gross Margin, subject to Maximum Mortgage Rates, Minimum Mortgage Rates and Periodic Rate Caps (as applicable), and Ÿ scheduled monthly payments on each mortgage loan (other than the interest-only mortgage loans during such period) will be adjusted in the month immediately following the Adjustment Date (as necessary) for such mortgage loan to equal the fully amortizing payment described above. Ÿ if you purchase a certificate at a discount, a slower than anticipated rate of principal payments (including prepayments) on the mortgage loans in the related mortgage pool or mortgage pools could result in an actual yield on your certificates that is lower than the anticipated yield; and Ÿ if you purchase a certificate at a premium, a faster than anticipated rate of principal payments (including prepayments) on the mortgage loans in the related mortgage pool or mortgage pools could result in an actual yield on your certificates that is lower than the anticipated yield. PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
OF THE CLASS I-A-1 CERTIFICATES
AT THE FOLLOWING CONSTANT PERCENTAGES OF CPR Distribution Date 10% 20% 25% 35% 50% Initial Percentage 100 100 100 100 100 November 2006 89 79 73 63 47 November 2007 80 62 53 39 22 November 2008 71 48 39 24 10 November 2009 63 38 29 16 5 November 2010 56 30 22 10 3 November 2011 50 24 16 7 1 November 2012 44 19 12 4 1 November 2013 40 15 9 3 * November 2014 36 12 7 2 * November 2015 32 10 5 1 * November 2016 28 8 4 1 * November 2017 25 6 3 * * November 2018 22 5 2 * * November 2019 19 4 1 * * November 2020 16 3 1 * * November 2021 14 2 1 * * November 2022 12 2 1 * * November 2023 10 1 * * * November 2024 9 1 * * * November 2025 7 1 * * * November 2026 6 1 * * * November 2027 5 * * * * November 2028 4 * * * * November 2029 3 * * * * November 2030 3 * * * * November 2031 2 * * * * November 2032 1 * * * * November 2033 1 * * * * November 2034 * * * * * November 2035 0 0 0 0 0 Weighted Average Life (in years)** 7.99 4.22 3.30 2.20 1.36 PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
OF THE CLASS I-A-R CERTIFICATES
AT THE FOLLOWING CONSTANT PERCENTAGES OF CPR Distribution Date 10% 20% 25% 35% 50% Initial Percentage 100 100 100 100 100 November 2006 0 0 0 0 0 November 2007 0 0 0 0 0 November 2008 0 0 0 0 0 November 2009 0 0 0 0 0 November 2010 0 0 0 0 0 November 2011 0 0 0 0 0 November 2012 0 0 0 0 0 November 2013 0 0 0 0 0 November 2014 0 0 0 0 0 November 2015 0 0 0 0 0 November 2016 0 0 0 0 0 November 2017 0 0 0 0 0 November 2018 0 0 0 0 0 November 2019 0 0 0 0 0 November 2020 0 0 0 0 0 November 2021 0 0 0 0 0 November 2022 0 0 0 0 0 November 2023 0 0 0 0 0 November 2024 0 0 0 0 0 November 2025 0 0 0 0 0 November 2026 0 0 0 0 0 November 2027 0 0 0 0 0 November 2028 0 0 0 0 0 November 2029 0 0 0 0 0 November 2030 0 0 0 0 0 November 2031 0 0 0 0 0 November 2032 0 0 0 0 0 November 2033 0 0 0 0 0 November 2034 0 0 0 0 0 November 2035 0 0 0 0 0 Weighted Average Life (in years)** 0.07 0.07 0.07 0.07 0.07 PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
OF THE CLASS II-A-1 CERTIFICATES
AT THE FOLLOWING CONSTANT PERCENTAGES OF CPR Distribution Date 10% 20% 25% 35% 50% Initial Percentage 100 100 100 100 100 November 2006 89 79 73 63 47 November 2007 80 62 53 39 22 November 2008 71 48 39 24 10 November 2009 63 38 29 16 5 November 2010 56 30 22 10 3 November 2011 50 24 16 7 1 November 2012 44 19 12 4 1 November 2013 40 16 9 3 * November 2014 36 12 7 2 * November 2015 32 10 5 1 * November 2016 28 8 4 1 * November 2017 25 6 3 * * November 2018 22 5 2 * * November 2019 19 4 1 * * November 2020 16 3 1 * * November 2021 14 2 1 * * November 2022 12 2 1 * * November 2023 10 1 * * * November 2024 9 1 * * * November 2025 7 1 * * * November 2026 6 1 * * * November 2027 5 * * * * November 2028 4 * * * * November 2029 3 * * * * November 2030 3 * * * * November 2031 2 * * * * November 2032 1 * * * * November 2033 1 * * * * November 2034 * * * * * November 2035 0 0 0 0 0 Weighted Average Life (in years)** 8.02 4.23 3.30 2.20 1.36 PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
OF THE CLASS B-1, CLASS B-2 AND CLASS B-3 CERTIFICATES
AT THE FOLLOWING CONSTANT PERCENTAGES OF CPR Distribution Date 10% 20% 25% 35% 50% Initial Percentage 100 100 100 100 100 November 2006 100 100 100 100 100 November 2007 100 100 100 93 71 November 2008 100 100 92 75 50 November 2009 99 82 69 49 25 November 2010 99 66 51 32 13 November 2011 99 53 38 20 6 November 2012 95 42 29 13 3 November 2013 85 34 22 9 2 November 2014 76 27 16 6 1 November 2015 68 21 12 4 * November 2016 60 17 9 2 * November 2017 53 13 6 1 * November 2018 46 10 5 1 * November 2019 40 8 3 1 * November 2020 35 6 2 * * November 2021 30 5 2 * * November 2022 26 4 1 * * November 2023 22 3 1 * * November 2024 19 2 1 * * November 2025 16 2 * * * November 2026 13 1 * * * November 2027 11 1 * * * November 2028 9 1 * * * November 2029 7 * * * * November 2030 5 * * * * November 2031 4 * * * * November 2032 3 * * * * November 2033 2 * * * * November 2034 1 * * * 0 November 2035 0 0 0 0 0 Weighted Average Life (in years)** 13.75 7.48 6.12 4.57 3.20 * ** Ÿ a representation from the transferee of the certificate, acceptable to and in form and substance satisfactory to the trustee, that the transferee is not an employee benefit plan subject to Section 406 of ERISA or a plan or arrangement subject to Section 4975 of the Code, nor a person acting on behalf of any plan or arrangement or using the assets of any plan or arrangement to effect the transfer, or Ÿ an opinion of counsel satisfactory to the trustee that the purchase or holding of the certificate by a plan, or any person acting on behalf of a plan or using the plan’s assets, will not result in prohibited transactions under Section 406 of ERISA and Section 4975 of the Code and will not subject the trustee, the depositor or the master servicer to any obligation in addition to those undertaken in the pooling and servicing agreement. Ÿ all scheduled installments of interest, net of total expense fees, and all scheduled installments of principal due in respect of the mortgage loans in such mortgage pool on the due date in the month in which the distribution date occurs and received before the related determination date, together with any advances in respect thereof; Ÿ all Insurance Proceeds, Liquidation Proceeds and Unanticipated Recoveries received in respect of the mortgage loans in such mortgage pool during the calendar month before the distribution date, which in each case is the net of unreimbursed expenses incurred in connection with a liquidation or foreclosure and unreimbursed advances, if any; Ÿ all partial or full prepayments received in respect of the mortgage loans in such mortgage pool during the related Prepayment Period, net of any Prepayment Interest Excess; Ÿ any Compensating Interest in respect of full prepayments received in respect of the mortgage loans in such mortgage pool during the period from the sixteenth day (or, in the case of the first distribution date, from the cut-off date) of the month prior to the month of such distribution date through the last day of such month; and Ÿ any Substitution Adjustment Amount or the purchase price for any deleted mortgage loan in the related mortgage pool or a mortgage loan in the related mortgage pool repurchased by the seller or the master servicer as of such distribution date, reduced by amounts in reimbursement for advances previously made and other amounts that the master servicer is entitled to be reimbursed for out of the Certificate Account pursuant to the pooling and servicing agreement. Ÿ the amount of interest which would otherwise have been received for any mortgage loan that was the subject of (x) a Relief Act Reduction or (y) a Special Hazard Loss, Fraud Loss, or Bankruptcy Loss, after the exhaustion of the respective amounts of coverage provided by the subordinated certificates for those types of losses; and Ÿ any Net Prepayment Interest Shortfalls. (1) the related Senior Percentage of all scheduled payments of principal due on each mortgage loan in such mortgage pool on the first day of the month in which the distribution date occurs, as specified in the amortization schedule at the time applicable thereto after adjustment for previous principal prepayments and the principal portion of Debt Service Reductions after the Bankruptcy Loss Coverage Amount has been reduced to zero, but before any adjustment to such amortization schedule by reason of any other bankruptcy or similar proceeding or any moratorium or similar waiver or grace period; (2) the related Senior Prepayment Percentage of the Stated Principal Balance of each mortgage loan in such mortgage pool which was the subject of a prepayment in full received by the master servicer during the applicable Prepayment Period; (3) the related Senior Prepayment Percentage of (a) all partial prepayments of principal in respect of each mortgage loan in such mortgage pool received during the applicable Prepayment Period and (b) all Unanticipated Recoveries in respect of each mortgage loan in such mortgage pool received during the calendar month preceding such distribution date; (4) the lesser of: (a) the related Senior Prepayment Percentage of the sum of (x) the net liquidation proceeds allocable to principal on each mortgage loan in such mortgage pool which became a Liquidated Mortgage Loan during the related Prepayment Period, other than mortgage loans described in clause (y), and (y) the principal balance of each mortgage loan in such mortgage pool that was purchased by a private mortgage insurer during the related Prepayment Period as an alternative to paying a claim under the related mortgage insurance policy; and (b) (i) the related Senior Percentage of the sum of (x) the Stated Principal Balance of each mortgage loan in such mortgage pool which became a Liquidated Mortgage Loan during the related Prepayment Period, other than mortgage loans described in clause (y), and (y) the Stated Principal Balance of each mortgage loan in such mortgage pool that was purchased by a private mortgage insurer during the related Prepayment Period as an alternative to paying a claim under the related mortgage insurance policy minus (ii) the related Senior Percentage of the principal portion of Excess Losses (other than Debt Service Reductions) for such mortgage pool during the related Prepayment Period; and (5) the related Senior Prepayment Percentage of the sum of (a) the Stated Principal Balance of each mortgage loan in such mortgage pool which was repurchased by the seller in connection with such distribution date and (b) the difference, if any, between the Stated Principal Balance of a mortgage loan in such mortgage pool that has been replaced by the seller with a substitute mortgage loan pursuant to the pooling and servicing agreement in connection with such distribution date and the Stated Principal Balance of such substitute mortgage loan. Period (Dates Inclusive) Senior Prepayment Percentage December 2005 - November 2012 100% December 2012 - November 2013 related Senior Percentage plus 70% of the related Subordinated Percentage December 2013 - November 2014 related Senior Percentage plus 60% of the related Subordinated Percentage December 2014 - November 2015 related Senior Percentage plus 40% of the related Subordinated Percentage December 2015 - November 2016 related Senior Percentage plus 20% of the related Subordinated Percentage December 2016 and thereafter related Senior Percentage (1) the aggregate Stated Principal Balance of mortgage loans in both mortgage pools delinquent 60 days or more (including for this purpose any mortgage loans in foreclosure or subject to bankruptcy proceedings and mortgage loans with respect to which the related mortgaged property has been acquired by the trust) does not exceed 50% of the aggregate class certificate balances of the subordinated certificates as of that date; and (2) cumulative Realized Losses in both mortgage pools do not exceed: (a) 20% of the Original Subordinated Principal Balance if such distribution date occurs between and including December 2005 and November 2008; and (b) 30% of the Original Subordinated Principal Balance if such distribution date occurs on or after December 2008. (1) the related Subordinated Percentage of all scheduled payments of principal due on each outstanding mortgage loan in the related mortgage pool on the first day of the month in which the distribution date occurs, as specified in the amortization schedule at the time applicable thereto, after adjustment for previous principal prepayments and the principal portion of Debt Service Reductions after the Bankruptcy Loss Coverage Amount has been reduced to zero, but before any adjustment to such amortization schedule by reason of any other bankruptcy or similar proceeding or any moratorium or similar waiver or grace period; (2) the related Subordinated Prepayment Percentage of the Stated Principal Balance of each mortgage loan in the related mortgage pool which was the subject of a prepayment in full received by the master servicer during the related Prepayment Period; (3) the related Subordinated Prepayment Percentage of all partial prepayments of principal received in respect of each mortgage loan in the related mortgage pool during the related Prepayment Period, plus, on the Senior Final Distribution Date, 100% of any related Senior Optimal Principal Amount remaining undistributed on such date; (4) the amount, if any, by which the sum of (a) the net liquidation proceeds allocable to principal received during the related Prepayment Period in respect of each Liquidated Mortgage Loan in the related mortgage pool, other than mortgage loans described in clause (b) and (b) the principal balance of each mortgage loan in the related mortgage pool that was purchased by a private mortgage insurer during the related Prepayment Period as an alternative to paying a claim under the related mortgage insurance policy exceeds (c) the sum of the amounts distributable to the related senior certificateholders under clause (4) of the definition of applicable Senior Optimal Principal Amount on such distribution date; and (5) the related Subordinated Prepayment Percentage of the sum of (a) the Stated Principal Balance of each mortgage loan in the related mortgage pool which was repurchased by the seller in connection with such distribution date and (b) the difference, if any, between the Stated Principal Balance of each mortgage loan in the related mortgage pool that has been replaced by the seller with a substitute mortgage loan pursuant to the pooling and servicing agreement in connection with such distribution date and the Stated Principal Balance of each such substitute mortgage loan.
FOR THE MORTGAGE LOANS IN POOL ICurrent Gross Coupon
(%)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 5.125 3 $ 587,499.50 0.43 % 5.250 5 1,221,492.18 0.89 5.375 20 4,097,195.50 3.00 5.500 35 7,347,770.57 5.38 5.625 36 6,935,442.77 5.08 5.750 65 13,741,224.96 10.06 5.875 94 18,922,362.53 13.85 6.000 87 16,749,261.67 12.26 6.125 38 7,455,197.00 5.46 6.250 60 11,450,260.72 8.38 6.375 53 10,182,750.23 7.45 6.500 50 9,609,857.70 7.03 6.625 27 5,041,531.80 3.69 6.750 31 6,129,756.24 4.49 6.875 38 7,621,342.13 5.58 7.000 13 2,239,493.00 1.64 7.125 40 6,742,512.19 4.94 7.250 3 494,175.00 0.36 7.500 1 40,410.00 0.03 TOTAL: 699 $ 136,609,535.69 100.00 % As of the cut-off date, the weighted average mortgage rate of the mortgage loans in Pool I is expected to be approximately 6.156%. The mortgage interest rates on a per annum basis range between 5.125% and 7.500%.
FOR THE MORTGAGE LOANS IN POOL IRange of Current
Mortgage Loan Principal
Balances ($)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Less than 250,001 520 $ 81,328,734.33 59.53 % 250,001 - 300,000 88 24,125,550.69 17.66 300,001 - 350,000 49 15,946,558.71 11.67 350,001 - 400,000 40 14,340,691.96 10.50 400,001 - 450,000 2 868,000.00 0.64 TOTAL: 699 $ 136,609,535.69 100.00 % As of the cut-off date, the average principal balance outstanding of the mortgage loans in Pool I is expected to be $195,435.67.
FOR THE MORTGAGE LOANS IN POOL IRange of Original Loan-
to-Value Ratios (%)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 50.00 and Below 32 $ 6,255,655.00 4.58 % 50.01 to 55.00 22 4,723,203.73 3.46 55.01 to 60.00 18 4,328,429.96 3.17 60.01 to 65.00 80 19,287,823.18 14.12 65.01 to 70.00 74 15,485,174.25 11.34 70.01 to 75.00 54 11,422,739.57 8.36 75.01 to 80.00 403 72,741,825.00 53.25 80.01 to 85.00 3 280,032.00 0.20 85.01 to 90.00 9 1,432,251.00 1.05 90.01 to 95.00 4 652,402.00 0.48 TOTAL: 699 $ 136,609,535.69 100.00 % The weighted average original loan-to-value ratio of the mortgage loans in Pool I is expected to be approximately 72.57%.
PROPERTIES FOR THE MORTGAGE LOANS IN POOL IGeographic Area Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Arizona 99 $ 18,856,185.58 13.80 % Arkansas 1 248,000.00 0.18 California 57 15,355,441.73 11.24 Colorado 35 5,851,382.00 4.28 Delaware 2 508,800.00 0.37 District of Columbia 3 791,000.00 0.58 Florida 48 9,404,084.53 6.88 Georgia 56 8,723,031.34 6.39 Hawaii 6 1,742,982.73 1.28 Idaho 35 4,435,714.83 3.25 Illinois 10 2,064,668.00 1.51 Indiana 8 972,015.23 0.71 Iowa 1 168,000.00 0.12 Louisiana 2 163,419.66 0.12 Maine 3 735,800.00 0.54 Maryland 54 11,756,094.89 8.61 Massachusetts 24 6,265,691.35 4.59 Michigan 11 1,912,672.32 1.40 Minnesota 5 975,350.00 0.71 Mississippi 1 119,600.00 0.09 Missouri 3 745,600.00 0.55 Montana 2 336,800.00 0.25 Nevada 38 7,849,435.30 5.75 New Hampshire 1 245,000.00 0.18 New Jersey 10 2,481,707.38 1.82 New Mexico 5 847,500.00 0.62 New York 3 407,520.00 0.30 North Carolina 22 2,946,938.68 2.16 Ohio 6 535,906.00 0.39 Oklahoma 2 135,800.00 0.10 Oregon 19 3,650,508.00 2.67 Pennsylvania 4 597,600.00 0.44 Rhode Island 9 2,001,537.87 1.47 South Carolina 2 246,338.59 0.18 Tennessee 10 1,339,722.57 0.98 Texas 6 1,204,990.00 0.88 Utah 10 1,593,787.65 1.17 Vermont 2 483,860.00 0.35 Virginia 43 10,803,777.00 7.91 Washington 36 6,400,392.46 4.69 Wisconsin 5 704,880.00 0.52 TOTAL: 699 $ 136,609,535.69 100.00 % No more than approximately 0.775% of the mortgage loans in Pool I are secured by mortgaged properties located in any one postal zip code area.
FOR THE MORTGAGE LOANS IN POOL ILoan Purpose Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Purchase 345 $ 60,274,810.91 44.12 % Refinance (rate/term) 116 24,106,459.95 17.65 Refinance (cash out) 238 52,228,264.83 38.23 TOTAL: 699 $ 136,609,535.69 100.00 %
FOR THE MORTGAGE LOANS IN POOL IProperty Type Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Single Family 365 $ 69,397,113.13 50.80 % Planned Unit 200 41,357,426.17 30.27 Condominium 81 14,374,851.24 10.52 High Rise Condominium 9 2,314,085.00 1.69 2-4 Family 44 9,166,060.15 6.71 TOTAL: 699 $ 136,609,535.69 100.00 %
FOR THE MORTGAGE LOANS IN POOL IOccupancy Types Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Primary Residence 360 $ 73,229,949.75 53.61 % Second Residence 43 8,896,197.33 6.51 Investor Property 296 54,483,388.61 39.88 TOTAL: 699 $ 136,609,535.69 100.00 %
FOR THE MORTGAGE LOANS IN POOL IRemaining Term to
Maturity (Months)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 355 1 $ 298,490.38 0.22 % 356 1 312,000.00 0.23 357 3 973,650.00 0.71 358 12 1,636,608.93 1.20 359 156 30,894,014.57 22.61 360 526 102,494,771.81 75.03 TOTAL: 699 $ 136,609,535.69 100.00 % As of the cut-off date the weighted average remaining term to maturity of the mortgage loans in Pool I is expected to be approximately 360 months.
FOR THE MORTGAGE LOANS IN POOL IRange of FICO Scores Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 600-649 38 $ 7,730,877.28 5.66 % 650-659 21 4,101,979.31 3.00 660-669 23 5,001,221.00 3.66 670-679 49 9,598,431.55 7.03 680-689 52 10,544,341.90 7.72 690-699 49 10,330,208.00 7.56 700-709 57 11,194,670.63 8.19 710-719 58 10,925,631.91 8.00 720-729 60 11,692,138.73 8.56 730-739 43 7,472,341.38 5.47 740-749 59 12,021,337.21 8.80 750-759 43 8,006,756.79 5.86 760-769 50 9,207,012.28 6.74 770-779 25 5,141,449.00 3.76 780-789 30 5,214,569.81 3.82 790-799 31 6,570,806.73 4.81 800 or greater 11 1,855,762.18 1.36 TOTAL: 699 $ 136,609,535.69 100.00 %
FOR THE MORTGAGE LOANS IN POOL ILoan Programs Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 5/6* 111 $ 20,096,709.54 14.71 % 5/6 Year Interest-Only* 588 116,512,826.15 85.29 TOTAL: 699 $ 136,609,535.69 100.00 % *Fixed mortgage rate for 60 months after origination, and subject to adjustment based on the mortgage index thereafter.
FOR THE MORTGAGE LOANS IN POOL IGross Margin Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 2.250% 699 $ 136,609,535.69 100.00 % TOTAL: 699 $ 136,609,535.69 100.00 % As of the cut-off date, the weighted average gross margin of the mortgage loans in Pool I is expected to be approximately 2.250%.
FOR THE MORTGAGE LOANS IN POOL IInitial Payment
Adjustment DateNumber of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool July 1, 2010 1 $ 298,490.38 0.22 % August 1, 2010 1 312,000.00 0.23 September 1, 2010 3 973,650.00 0.71 October 1, 2010 12 1,636,608.93 1.20 November 1, 2010 156 30,894,014.57 22.61 December 1, 2010 518 100,982,903.81 73.92 January 1, 2011 8 1,511,868.00 1.11 TOTAL: 699 $ 136,609,535.69 100.00 %
FOR THE MORTGAGE LOANS IN POOL IMaximum Mortgage
Rates (%)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 11.125 3 $ 587,499.50 0.43 % 11.250 5 1,221,492.18 0.89 11.375 20 4,097,195.50 3.00 11.500 35 7,347,770.57 5.38 11.625 36 6,935,442.77 5.08 11.750 65 13,741,224.96 10.06 11.875 94 18,922,362.53 13.85 12.000 87 16,749,261.67 12.26 12.125 38 7,455,197.00 5.46 12.250 60 11,450,260.72 8.38 12.375 53 10,182,750.23 7.45 12.500 50 9,609,857.70 7.03 12.625 27 5,041,531.80 3.69 12.750 31 6,129,756.24 4.49 12.875 38 7,621,342.13 5.58 13.000 13 2,239,493.00 1.64 13.125 40 6,742,512.19 4.94 13.250 3 494,175.00 0.36 13.500 1 40,410.00 0.03 TOTAL: 699 $ 136,609,535.69 100.00 %
FOR THE MORTGAGE LOANS IN POOL IInitial Periodic Cap Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 6.000% 699 $ 136,609,535.69 100.00 % TOTAL: 699 $ 136,609,535.69 100.00 %
FOR THE MORTGAGE LOANS IN POOL ISubsequent
Periodic Rate CapNumber of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 2.000% 699 $ 136,609,535.69 100.00 % TOTAL: 699 $ 136,609,535.69 100.00 %
FOR THE MORTGAGE LOANS IN POOL IMinimum
Mortgage RateNumber of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 2.250% 699 $ 136,609,535.69 100.00 % TOTAL: 699 $ 136,609,535.69 100.00 %
FOR THE MORTGAGE LOANS IN POOL IDocumentation Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Full/Alt Doc 320 $ 56,275,202.92 41.19 % Stated Income 184 37,368,684.11 27.35 NINAE 105 23,121,854.88 16.93 No Ratio 90 19,843,793.78 14.53 TOTAL: 699 $ 136,609,535.69 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Current Gross Coupon
(%)Number of
Mortgage
LoansAggregate
Principal
Balance
OutstandingPercentage of
Mortgage Pool 4.750 1 $ 231,920.00 0.14 % 5.000 1 169,396.22 0.10 5.250 2 1,074,116.78 0.66 5.375 10 2,376,695.00 1.45 5.500 13 3,385,300.00 2.07 5.625 21 5,632,760.00 3.45 5.750 34 8,454,256.34 5.17 5.875 68 18,480,645.75 11.31 6.000 61 17,588,262.00 10.77 6.125 41 10,859,534.52 6.65 6.250 51 15,687,341.32 9.60 6.375 33 9,872,621.50 6.04 6.500 40 14,246,198.00 8.72 6.625 30 10,693,568.99 6.55 6.750 28 10,052,306.41 6.15 6.875 23 7,759,443.50 4.75 7.000 9 2,945,400.34 1.80 7.125 28 14,143,958.95 8.66 7.250 3 4,296,000.00 2.63 7.375 3 1,150,050.00 0.70 7.500 7 4,269,775.00 2.61 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Range of Current
Mortgage Loan Principal
Balances ($)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Less than 250,001 232 $ 41,155,858.30 25.19 % 250,001 - 300,000 76 20,892,791.00 12.79 300,001 - 350,000 47 15,339,597.09 9.39 350,001 - 400,000 39 14,393,271.00 8.81 400,001 - 450,000 23 9,863,700.00 6.04 450,001 - 500,000 26 12,510,138.00 7.66 500,001 - 550,000 9 4,708,617.95 2.88 550,001 - 600,000 14 8,075,623.50 4.94 600,001 - 650,000 13 8,177,387.00 5.01 650,001 - 700,000 4 2,702,300.00 1.65 700,001 - 750,000 5 3,634,766.78 2.22 750,001 - 800,000 2 1,525,300.00 0.93 800,001 - 850,000 3 2,486,450.00 1.52 850,001 - 900,000 2 1,757,500.00 1.08 900,001 - 950,000 2 1,851,250.00 1.13 950,001 - 1,000,000 5 4,955,000.00 3.03 1,300,001 - 1,400,000 1 1,400,000.00 0.86 1,400,001 - 1,500,000 1 1,425,000.00 0.87 Greater than 1,500,000 3 6,515,000.00 3.99 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Range of Original Loan-
to-Value Ratios (%)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 50.00 and Below 13 $ 6,273,106.03 3.84 % 50.01 to 55.00 9 2,915,801.00 1.78 55.01 to 60.00 14 6,718,378.00 4.11 60.01 to 65.00 45 20,118,150.00 12.31 65.01 to 70.00 38 17,873,081.50 10.94 70.01 to 75.00 30 12,416,714.00 7.60 75.01 to 80.00 332 90,035,420.09 55.11 80.01 to 85.00 3 919,010.00 0.56 85.01 to 90.00 20 5,288,697.00 3.24 90.01 to 95.00 3 811,193.00 0.50 TOTAL: 507 $ 163,369,550.62 100.00 %
PROPERTIES FOR THE MORTGAGE LOANS IN POOL II Geographic Area Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Alabama 1 $ 150,320.00 0.09 % Arizona 76 20,649,576.19 12.64 Arkansas 1 118,399.99 0.07 California 55 21,465,578.78 13.14 Colorado 16 4,253,577.00 2.60 Connecticut 1 359,650.00 0.22 Delaware 2 584,792.00 0.36 District of Columbia 3 1,412,708.00 0.86 Florida 29 8,984,569.50 5.50 Georgia 27 7,106,181.09 4.35 Hawaii 3 1,912,500.00 1.17 Idaho 13 5,137,470.00 3.14 Illinois 9 2,240,225.29 1.37 Indiana 8 936,600.00 0.57 Kansas 1 328,000.00 0.20 Kentucky 1 231,920.00 0.14 Louisiana 3 400,280.25 0.25 Maine 2 374,050.00 0.23 Maryland 38 11,494,944.99 7.04 Massachusetts 15 6,157,421.00 3.77 Michigan 7 1,404,447.22 0.86 Minnesota 4 812,200.00 0.50 Missouri 2 341,261.00 0.21 Montana 2 294,680.00 0.18 Nebraska 1 168,000.00 0.10 Nevada 25 10,074,815.00 6.17 New Hampshire 1 204,300.00 0.13 New Jersey 10 3,625,600.00 2.22 New Mexico 3 952,650.00 0.58 New York 2 917,500.00 0.56 North Carolina 13 3,777,126.00 2.31 Ohio 2 488,163.09 0.30 Oklahoma 1 359,650.00 0.22 Oregon 16 4,860,056.00 2.97 Pennsylvania 6 1,195,155.00 0.73 Rhode Island 4 1,447,534.00 0.89 South Carolina 3 991,340.00 0.61 Tennessee 7 2,108,250.00 1.29 Texas 15 8,221,645.00 5.03 Utah 5 2,225,735.32 1.36 Vermont 1 127,200.00 0.08 Virginia 44 17,150,456.91 10.50 Washington 23 5,339,638.00 3.27 West Virginia 4 1,190,284.00 0.73 Wisconsin 2 793,100.00 0.49 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Loan Purpose Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Purchase 390 $ 115,743,980.40 70.85 % Refinance (rate/term) 35 15,222,509.94 9.32 Refinance (cash out) 82 32,403,060.28 19.83 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Property Type Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Single Family 248 $ 78,790,408.59 48.23 % Planned Unit 196 64,671,824.62 39.59 Condominium 40 10,423,932.00 6.38 High Rise Condominium 6 4,205,296.41 2.57 2-4 Family 17 5,278,089.00 3.23 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Occupancy Types Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Primary Residence 413 $ 130,086,420.62 79.63 % Second Residence 22 11,517,682.00 7.05 Investor Property 72 21,765,448.00 13.32 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Remaining Term to
Maturity (Months)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 350 1 $ 153,600.00 0.09 % 355 1 213,486.34 0.13 357 1 470,000.00 0.29 358 6 2,308,049.99 1.41 359 83 27,072,448.01 16.57 360 415 133,151,966.28 81.50 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Range of FICO Scores Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 600-649 28 $ 8,975,970.00 5.49 % 650-659 19 5,416,024.00 3.32 660-669 31 10,924,569.50 6.69 670-679 23 7,623,154.75 4.67 680-689 49 14,728,795.31 9.02 690-699 37 12,805,685.00 7.84 700-709 38 11,959,474.09 7.32 710-719 42 12,133,567.95 7.43 720-729 41 13,176,192.34 8.07 730-739 31 10,828,227.00 6.63 740-749 29 10,748,581.75 6.58 750-759 34 11,754,740.71 7.20 760-769 31 11,014,083.00 6.74 770-779 32 10,158,690.00 6.22 780-789 17 4,396,943.00 2.69 790-799 9 2,466,414.00 1.51 800 or greater 16 4,258,438.22 2.61 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Loan Programs Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 5/6* 76 $ 17,714,465.07 10.84 % 5/6 Year Interest Only* 431 145,655,085.55 89.16 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Gross Margin Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 2.250% 507 $ 163,369,550.62 100.00 % TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL II Initial Payment
Adjustment DateNumber of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool February 1, 2010 1 $ 153,600.00 0.09 % July 1, 2010 1 213,486.34 0.13 September 1, 2010 1 470,000.00 0.29 October 1, 2010 6 2,308,049.99 1.41 November 1, 2010 83 27,072,448.01 16.57 December 1, 2010 396 126,218,794.28 77.26 January 1, 2011 19 6,933,172.00 4.24 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL IIMaximum Mortgage
Rates (%)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 10.750 1 $ 231,920.00 0.14 % 11.000 1 169,396.22 0.10 11.250 2 1,074,116.78 0.66 11.375 10 2,376,695.00 1.45 11.500 13 3,385,300.00 2.07 11.625 21 5,632,760.00 3.45 11.750 34 8,454,256.34 5.17 11.875 68 18,480,645.75 11.31 12.000 61 17,588,262.00 10.77 12.125 41 10,859,534.52 6.65 12.250 51 15,687,341.32 9.60 12.375 33 9,872,621.50 6.04 12.500 40 14,246,198.00 8.72 12.625 30 10,693,568.99 6.55 12.750 28 10,052,306.41 6.15 12.875 23 7,759,443.50 4.75 13.000 9 2,945,400.34 1.80 13.125 28 14,143,958.95 8.66 13.250 3 4,296,000.00 2.63 13.375 3 1,150,050.00 0.70 13.500 7 4,269,775.00 2.61 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL IIInitial Periodic Cap Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 6.000% 507 $ 163,369,550.62 100.00 % TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL IISubsequent
Periodic Rate CapNumber of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 2.000% 507 $ 163,369,550.62 100.00 % TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL IIMinimum
Mortage RateNumber of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 2.250% 507 $ 163,369,550.62 100.00 % TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANS IN POOL IIDocumentation Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Full/Alt Doc 197 $ 57,940,708.47 35.47 % Stated Income 159 58,369,932.67 35.73 NINAE 63 19,974,224.58 12.23 No Ratio 88 27,084,684.90 16.58 TOTAL: 507 $ 163,369,550.62 100.00 %
FOR THE MORTGAGE LOANSCurrent Gross Coupon
(%)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 4.750 1 $ 231,920.00 0.08 % 5.000 1 169,396.22 0.06 5.125 3 587,499.50 0.20 5.250 7 2,295,608.96 0.77 5.375 30 6,473,890.50 2.16 5.500 48 10,733,070.57 3.58 5.625 57 12,568,202.77 4.19 5.750 99 22,195,481.30 7.40 5.875 162 37,403,008.28 12.47 6.000 148 34,337,523.67 11.45 6.125 79 18,314,731.52 6.11 6.250 111 27,137,602.04 9.05 6.375 86 20,055,371.73 6.69 6.500 90 23,856,055.70 7.95 6.625 57 15,735,100.79 5.25 6.750 59 16,182,062.65 5.39 6.875 61 15,380,785.63 5.13 7.000 22 5,184,893.34 1.73 7.125 68 20,886,471.14 6.96 7.250 6 4,790,175.00 1.60 7.375 3 1,150,050.00 0.38 7.500 8 4,310,185.00 1.44 TOTAL: 1,206 $ 299,979,086.31 100.00 % As of the cut-off date, the weighted average mortgage rate of the mortgage loans is expected to be approximately 6.265%. The
mortgage interest rates on a per annum basis range between 4.750% and 7.500%.
FOR THE MORTGAGE LOANSRange of Current
Mortgage Loan Principal
Balances ($)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Less than 250,001 752 $ 122,484,592.63 40.83 % 250,001 - 300,000 164 45,018,341.69 15.01 300,001 - 350,000 96 31,286,155.80 10.43 350,001 - 400,000 79 28,733,962.96 9.58 400,001 - 450,000 25 10,731,700.00 3.58 450,001 - 500,000 26 12,510,138.00 4.17 500,001 - 550,000 9 4,708,617.95 1.57 550,001 - 600,000 14 8,075,623.50 2.69 600,001 - 650,000 13 8,177,387.00 2.73 650,001 - 700,000 4 2,702,300.00 0.90 700,001 - 750,000 5 3,634,766.78 1.21 750,001 - 800,000 2 1,525,300.00 0.51 800,001 - 850,000 3 2,486,450.00 0.83 850,001 - 900,000 2 1,757,500.00 0.59 900,001 - 950,000 2 1,851,250.00 0.62 950,001 - 1,000,000 5 4,955,000.00 1.65 1,300,001 -1,400,000 1 1,400,000.00 0.47 1,400,001 -1,500,000 1 1,425,000.00 0.48 Greater than 1,500,000 3 6,515,000.0 2.17 TOTAL: 1,206 $ 299,979,086.31 100.00 % As of the cut-off date, the average principal balance outstanding of the mortgage loans is expected to be $248,738.88.
THE MORTGAGE LOANSRange of Original Loan-
to-Value Ratios (%)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 50.00 and Below 45 $ 12,528,761.03 4.18 % 50.01 to 55.00 31 7,639,004.73 2.55 55.01 to 60.00 32 11,046,807.96 3.68 60.01 to 65.00 125 39,405,973.18 13.14 65.01 to 70.00 112 33,358,255.75 11.12 70.01 to 75.00 84 23,839,453.57 7.95 75.01 to 80.00 735 162,777,245.09 54.26 80.01 to 85.00 6 1,199,042.00 0.40 85.01 to 90.00 29 6,720,948.00 2.24 90.01 to 95.00 7 1,463,595.00 0.49 TOTAL: 1,206 $ 299,979,086.31 100.00 % The weighted average original loan-to-value ratio of the mortgage loans is expected to be approximately 73.23%
PROPERTIES FOR THE MORTGAGE LOANSGeographic Area Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Alabama 1 $ 150,320.00 0.05 % Arizona 175 39,505,761.77 13.17 Arkansas 2 366,399.99 0.12 California 112 36,821,020.51 12.27 Colorado 51 10,104,959.00 3.37 Connecticut 1 359,650.00 0.12 Delaware 4 1,093,592.00 0.36 District of Columbia 6 2,203,708.00 0.73 Florida 77 18,388,654.03 6.13 Georgia 83 15,829,212.43 5.28 Hawaii 9 3,655,482.73 1.22 Idaho 48 9,573,184.83 3.19 Illinois 19 4,304,893.29 1.44 Indiana 16 1,908,615.23 0.64 Iowa 1 168,000.00 0.06 Kansas 1 328,000.00 0.11 Kentucky 1 231,920.00 0.08 Louisiana 5 563,699.91 0.19 Maine 5 1,109,850.00 0.37 Maryland 92 23,251,039.88 7.75 Massachusetts 39 12,423,112.35 4.14 Michigan 18 3,317,119.54 1.11 Minnesota 9 1,787,550.00 0.60 Mississippi 1 119,600.00 0.04 Missouri 5 1,086,861.00 0.36 Montana 4 631,480.00 0.21 Nebraska 1 168,000.00 0.06 Nevada 63 17,924,250.30 5.98 New Hampshire 2 449,300.00 0.15 New Jersey 20 6,107,307.38 2.04 New Mexico 8 1,800,150.00 0.60 New York 5 1,325,020.00 0.44 North Carolina 35 6,724,064.68 2.24 Ohio 8 1,024,069.09 0.34 Oklahoma 3 495,450.00 0.17 Oregon 35 8,510,564.00 2.84 Pennsylvania 10 1,792,755.00 0.60 Rhode Island 13 3,449,071.87 1.15 South Carolina 5 1,237,678.59 0.41 Tennessee 17 3,447,972.57 1.15 Texas 21 9,426,635.00 3.14 Utah 15 3,819,522.97 1.27 Vermont 3 611,060.00 0.20 Virginia 87 27,954,233.91 9.32 Washington 59 11,740,030.46 3.91 West Virginia 4 1,190,284.00 0.40 Wisconsin 7 1,497,980.00 0.50 TOTAL: 1,206 $ 299,979,086.31 100.00 % No more than approximately 0.920% of the mortgage loans are secured by mortgaged properties located in any one postal zip code area
FOR THE MORTGAGE LOANSLoan Purpose Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Purchase 735 $ 176,018,791.31 58.68 % Refinance (rate/term) 151 39,328,969.89 13.11 Refinance (cash out) 320 84,631,325.11 28.21 TOTAL: 1,206 $ 299,979,086.31 100.00 %
FOR THE MORTGAGE LOANSProperty Type Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Single Family 613 $ 148,187,521.72 49.40 % Planned Unit 396 106,029,250.79 35.35 Condominium 121 24,798,783.24 8.27 High Rise Condominium 15 6,519,381.41 2.17 2-4 Family 61 14,444,149.15 4.82 TOTAL: 1,206 $ 299,979,086.31 100.00 %
FOR THE MORTGAGE LOANSOccupancy Types Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Primary Residence 773 $ 203,316,370.37 67.78 % Second Residence 65 20,413,879.33 6.81 Investor Property 368 76,248,836.61 25.42 TOTAL: 1,206 $ 299,979,086.31 100.00 %
FOR THE MORTGAGE LOANSRemaining Term to
Maturity (Months)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 350 1 $ 153,600.00 0.05 % 355 2 511,976.72 0.17 356 1 312,000.00 0.10 357 4 1,443,650.00 0.48 358 18 3,944,658.92 1.31 359 239 57,966,462.58 19.32 360 941 235,646,738.09 78.55 TOTAL: 1,206 $ 299,979,086.31 100.00 % As of the cut-off date the weighted average remaining term to maturity of the mortgage loans is expected to be approximately 360 months.
FOR THE MORTGAGE LOANSRange of FICO Scores Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 600-649 66 $ 16,706,847.28 5.57 % 650-659 40 9,518,003.31 3.17 660-669 54 15,925,790.50 5.31 670-679 72 17,221,586.30 5.74 680-689 101 25,273,137.21 8.42 690-699 86 23,135,893.00 7.71 700-709 95 23,154,144.72 7.72 710-719 100 23,059,199.86 7.69 720-729 101 24,868,331.07 8.29 730-739 74 18,300,568.38 6.10 740-749 88 22,769,918.96 7.59 750-759 77 19,761,497.50 6.59 760-769 81 20,221,095.28 6.74 770-779 57 15,300,139.00 5.10 780-789 47 9,611,512.81 3.20 790-799 40 9,037,220.73 3.01 800 or greater 27 6,114,200.40 2.04 TOTAL: 1,206 $ 299,979,086.31 100.00 %
FOR THE MORTGAGE LOANSLoan Programs Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 5/6* 187 $ 37,811,174.61 12.60 % 5/6 Year Interest-Only* 1,019 262,167,911.70 87.40 TOTAL: 1,206 $ 299,979,086.31 100.00 %
FOR THE MORTGAGE LOANSGross Margin Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 2.250% 1,206 $ 299,979,086.31 100.00 % TOTAL: 1,206 $ 299,979,086.31 100.00 %
FOR THE MORTGAGE LOANSInitial Payment
Adjustment DateNumber of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool February 1, 2010 1 $ 153,600.00 0.05 % July 1, 2010 2 511,976.72 0.17 August 1, 2010 1 312,000.00 0.10 September 1, 2010 4 1,443,650.00 0.48 October 1, 2010 18 3,944,658.92 1.31 November 1, 2010 239 57,966,462.58 19.32 December 1, 2010 914 227,201,698.09 75.74 January 1, 2011 27 8,445,040.00 2.82 TOTAL: 1,206 $ 299,979,086.31 100.00 %
FOR THE MORTGAGE LOANSMaximum Mortgage
Rates (%)Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 10.750 1 $ 231,920.00 0.08 % 11.000 1 169,396.22 0.06 11.125 3 587,499.50 0.20 11.250 7 2,295,608.96 0.77 11.375 30 6,473,890.50 2.16 11.500 48 10,733,070.57 3.58 11.625 57 12,568,202.77 4.19 11.750 99 22,195,481.30 7.40 11.875 162 37,403,008.28 12.47 12.000 148 34,337,523.67 11.45 12.125 79 18,314,731.52 6.11 12.250 111 27,137,602.04 9.05 12.375 86 20,055,371.73 6.69 12.500 90 23,856,055.70 7.95 12.625 57 15,735,100.79 5.25 12.750 59 16,182,062.65 5.39 12.875 61 15,380,785.63 5.13 13.000 22 5,184,893.34 1.73 13.125 68 20,886,471.14 6.96 13.250 6 4,790,175.00 1.60 13.375 3 1,150,050.00 0.38 13.500 8 4,310,185.00 1.44 TOTAL: 1,206 $ 299,979,086.31 100.00 %
FOR THE MORTGAGE LOANSInitial Periodic Cap Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 6.000% 1,206 $ 299,979,086.31 100.00 % TOTAL: 1,206 $ 299,979,086.31 100.00 %
SUBSEQUENT PERIODIC RATE CAP
FOR THE MORTGAGE LOANSSubsequent
Periodic Rate CapNumber of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 2.000% 1,206 $ 299,979,086.31 100.00 % TOTAL: 1,206 $ 299,979,086.31 100.00 %
FOR THE MORTGAGE LOANSMinimum
Mortgage RateNumber of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool 2.250% 1,206 $ 299,979,086.31 100.00 % TOTAL: 1,206 $ 299,979,086.31 100.00 %
FOR THE MORTGAGE LOANSDocumentation Number of
Mortgage
Loans Aggregate
Principal
Balance
Outstanding Percentage of
Mortgage Pool Full/Alt Doc 517 $ 114,215,911.39 38.07 % Stated Income 343 95,738,616.78 31.92 NINAE 168 43,096,079.46 14.37 No Ratio 178 46,928,478.68 15.64 TOTAL: 1,206 $ 299,979,086.31 100.00 %
Depositor
(Issuable in Series)You should carefully consider
the risk factors beginning on
page 6 of this prospectus. Ÿ first lien mortgage loans secured by one- to four-family residential properties or participations in that type of loan, or Ÿ mortgage pass-through securities issued or guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac, or Ÿ private mortgage-backed securities backed by first lien mortgage loans secured by one- to four-family residential properties or participations in that type of loan, or Ÿ closed-end and/or revolving home equity loans, secured in whole or in part by first and/or subordinate liens on one- to four-family residential properties or participations in that type of loan, or Ÿ home improvement installment sale contracts and installment loan agreements that are secured by first or subordinate liens on one- to four-family residential properties or participations in those types of contracts. Information about each series of securities is contained in two separate documents: Ÿ this prospectus, which provides general information, some of which may not apply to a particular series; and Ÿ the accompanying prospectus supplement for a particular series, which describes the specific terms of the securities of that series. LEGAL MATTERS 111 FINANCIAL INFORMATION 111 RATING 112 ANNEX I 113 INDEX OF DEFINED TERMS 117 Limited Source of Payments — No
Recourse To Sellers, Depositor or Servicer Ÿ funds obtained from enforcing a corresponding obligation of a seller or originator of the loan, or Ÿ funds from a reserve fund or similar credit enhancement established to pay for loan repurchases. The only obligations of the master servicer to a trust fund (other than its master servicing obligations) come from certain representations and warranties made by it in connection with its loan servicing activities. If these representations and warranties turn out to be untrue, the master servicer may be required to repurchase or substitute for some of the loans. However, the master servicer may not have the financial ability to make the Credit Enhancement May Not Be
Sufficient To Protect You from Losses Nature of Mortgages
Junior Status of Liens Securing
Home Equity Loans Could Adversely Affect You Ÿ pay the senior mortgage in full at or prior to the foreclosure sale, or Ÿ assume the payments on the senior mortgage in the event the mortgagor is in default under the senior mortgage. Ÿ the aggregate amount owed under both the senior and junior loans over Ÿ the proceeds of any sale under a deed of trust or other foreclosure proceedings. See “Legal Aspects of the Loans — Anti-Deficiency Legislation; Bankruptcy Laws; Tax Liens.” Declines in Property Values May
Adversely Affect You
The value of the properties underlying the loans held in the trust fund may decline over time. Among the factors that could adversely affect the value of the properties are: Ÿ an overall decline in the residential real estate market in the areas in which they are located, Ÿ a decline in their general condition from the failure of borrowers to maintain their property adequately, and Ÿ natural disasters that are not covered by insurance, such as earthquakes and floods. Delays In Liquidation May Adversely Affect You Even if the properties underlying the loans held in the trust fund provide adequate security for the loans, substantial delays could occur before defaulted loans are liquidated and their proceeds are forwarded to investors. Property foreclosure actions are regulated by state statutes and rules and are subject to many of the delays and expenses of other lawsuits if defenses or counterclaims are made, sometimes requiring several years to Disproportionate Effect of Liquidation Expenses May Adversely Affect You Liquidation expenses of defaulted loans generally do not vary directly with the outstanding principal balance of the loan at the time of default. Therefore, if a servicer takes the same steps for a defaulted loan having a small remaining principal balance as it does for a defaulted loan having a large remaining principal balance, the amount realized after expenses is smaller as a percentage of the outstanding principal balance of the small loan than it is for the defaulted loan having a large remaining principal balance. Consumer Protection Laws May Adversely Affect You Ÿ the Truth in Lending Act and regulations promulgated under that act, which (among other things) require disclosures to borrowers regarding the terms of mortgage loans and provide property owners in non-purchase money transactions with a right of rescission that generally extends for three days after proper disclosures are given (but in no event more than three years); Ÿ the Equal Credit Opportunity Act and regulations promulgated under that act, which (among other things) prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit; Ÿ the Fair Credit Reporting Act, which (among other things) regulates the use and reporting of information related to the borrower’s credit experience; Ÿ the Real Estate Settlement Procedures Act and its regulations, which (among other things) prohibit the payment of referral fees for real estate settlement services and regulate escrow accounts for taxes and insurance and billing inquiries made by borrowers; and Ÿ the Home Equity Loan Consumer Protection Act of 1988, which requires additional disclosures, limits changes that may be made to the loan documents without the borrower’s consent. This act also restricts a lender’s ability to declare or to suspend or reduce a borrower’s credit limit to certain enumerated events. Certain mortgage loans may be subject to the Home Ownership and Equity Protection Act of 1994. The provisions of this act may: Ÿ impose additional disclosure and other requirements on creditors with respect to non purchase money mortgage loans with high interest rates or high up-front fees and charges; Ÿ impose specific statutory liabilities on creditors who fail to comply with their provisions; and Ÿ affect the enforceability of the related loans. In addition, any assignee of the creditor, including the applicable trust fund, would generally be subject to all claims and defenses that the consumer could assert against the creditor, including, without limitation, the right to rescind the mortgage loan. The home improvement contracts are also subject to the so-called holder in due course rules which comprise the Preservation of Consumers’ Claims and Defenses regulations of the Federal Trade Commission and other similar federal and state statutes and regulations. These laws: Ÿ protect the homeowner from defective craftsmanship or incomplete work by a contractor; Ÿ permit the obligated party to withhold payment if the work does not meet the quality and durability standards agreed to by the homeowner and the contractor; and Ÿ subject any person to whom the seller assigns its consumer credit transaction to all claims and defenses which the obligor in a credit sale transaction could assert against the seller of the goods. Some violations of these federal laws may limit the ability to collect the principal or interest on the loans held in the trust fund, and in addition could subject the trust fund to damages and administrative enforcement. Losses on loans from the application of those laws that are not otherwise covered by a credit enhancement will be borne by the holders of one or more classes of securities. Losses on Balloon Payment Mortgages Are Borne by You Some of the mortgage loans held in the trust fund may not be fully amortizing over their terms to maturity and, thus, will require substantial principal payments (that is, balloon payments) at their stated maturity. Loans with balloon payments involve a greater degree of risk than fully amortizing loans because typically the borrower must be able to refinance the loan or sell the property to make the balloon payment at maturity. The ability of a borrower to do this will depend on factors such as mortgage rates at the time of sale or refinancing, the borrower’s equity in the property, the relative strength of the local housing market, the financial condition of the borrower, and tax laws. Losses on these loans that are not otherwise covered by a credit enhancement will be borne by the holders of one or more classes of certificates. Your Risk of Loss May Be
Higher than You Expect If Your Securities
Are Backed by Loans that Were
Underwritten to Standards which do
not Conform to the Standards of Freddie Mac or Fannie Mae traditional manner. No assurance can be given that the values of the related mortgage properties have remained or will remain at the levels in effect on the dates of origination of the related mortgage loans. Your Risk of Loss May Be Higher
than You Expect If Your Securities
Are Backed by Partially Unsecured Home Equity Loans The trust fund may also include home equity loans that were originated with loan-to-value ratios or combined loan-to-value ratios in excess of the value of the related mortgaged property. Under these circumstances, the trust fund could be treated as a general unsecured creditor as to any unsecured portion of any related loan. In the event of a default under a loan that is unsecured in part, the trust fund will have recourse only against the borrower’s assets generally for the unsecured portion of the loan, along with all other general unsecured creditors of the borrower. The Prepayment Rate on Home Equity
Loans and Home Improvement Contracts is Uncertain You May be Unable to Reinvest
Distributions in Comparable Investments Asset-backed securities usually produce more returns of principal to investors when market interest rates fall below the interest rates on the loans and produce less returns on principal when market interest rates rise above the interest rates on the loans. If borrowers refinance their loans as a result of lower interest rates, you will receive an unanticipated payment of principal. As a result, you are likely to receive more money to reinvest at a time when other investments generally are producing a lower yield than that on the securities, and are likely to receive less money to reinvest when other investments generally are producing a higher yield than that on the securities. You will bear the risk that the timing and amount of distributions on your securities will prevent you from obtaining your desired yield. You Could Be Adversely Affected by Violations of Environmental Laws Ratings of the Securities Do Not Assure Their Payment Ÿ a decrease in the adequacy of the value of the trust assets or any related credit enhancement, Ÿ an adverse change in the financial or other condition of a credit enhancement provider, or Ÿ a change in the rating of the credit enhancement provider’s long-term debt. The amount, type, and nature of credit enhancement established for a class of securities will be determined on the basis of criteria established by each rating agency rating classes of the securities. These criteria are sometimes based upon an actuarial analysis of the behavior of similar loans in a larger group. That analysis is often the basis upon which each rating agency determines the amount of credit enhancement required for a class. The historical data supporting any actuarial analysis may not accurately reflect future experience, and the data derived from a large pool of similar loans may not accurately predict the delinquency, foreclosure, or loss experience of any particular pool of mortgage loans. Mortgaged properties may not retain their values. If residential real estate markets experience an overall decline in property values such that the outstanding principal balances of the loans held in a particular trust fund and any secondary financing on the related mortgaged properties become equal to or greater than the value of the mortgaged properties, the rates of delinquencies, foreclosures, and losses could be higher than those now generally experienced in the mortgage lending industry. In addition, adverse economic conditions may affect timely payment by mortgagors on their loans whether or not the conditions affect real property values and, accordingly, the rates of delinquencies, foreclosures, and losses in any trust fund. Losses from this that are not covered by a credit enhancement will be borne, at least in part, by the holders of one or more classes of securities. You May Have Difficulty Reselling
Your Securities Due to a Lack of a
Secondary Market, Fluctuating
Market Values or Periods of
Illiquidity
No market for any of the securities will exist before they are issued. We cannot assure you that a secondary market will develop or, if it develops, that it will continue. Consequently, you may not be able to sell your securities readily or at prices that will enable you to realize your desired return or yield to maturity. The market values of the securities are likely to fluctuate; these fluctuations may be significant and could result in significant losses to you. The secondary markets for mortgage and asset backed securities have experienced periods of illiquidity and can be expected to do so in the future. Book-entry Registration Limited
Liquidity
Securities issued in book-entry form may have only limited liquidity in the resale market, since investors may be unwilling to purchase securities for which they cannot obtain physical instruments. Limit on Ability to Transfer or Pledge Transactions in book-entry securities can be effected only through The Depository Trust Company, its participating organizations, its indirect participants, and some banks. Therefore, your ability to transfer or pledge securities issued in book-entry form may be limited. Delays in Distributions You may experience some delay in the receipt of distributions on book-entry securities since the distributions will be forwarded by the trustee to The Depository Trust Company for it to credit the accounts of its participants. In turn, these participants will then credit the distributions to your account either directly or indirectly through indirect participants. Bankruptcy or Insolvency May Affect
the Timing and Amount of Distributions on The Securities mortgage lender to realize upon its security in other situations as well. For example, in a proceeding under the federal Bankruptcy Code, a lender may not foreclose on a mortgaged property without the permission of the bankruptcy court and in some instances a bankruptcy court may allow a borrower to reduce the monthly payments, change the rate of interest, and alter the mortgage loan repayment schedule for under collateralized mortgage loans. The effect of these types of proceedings can be to cause delays in receiving payments on the loans underlying securities and even to reduce the aggregate amount of payments on the loans underlying securities. The Principal Amount of Securities
May Exceed the Market Value of the Trust Fund Assets The market value of the assets relating to a series of securities at any time may be less than the principal amount of the securities of that series then outstanding, plus accrued interest. After an event of default and a sale of the assets relating to a series of securities, the trustee, the master servicer, the credit enhancer, if any, and any other service provider specified in the related prospectus supplement generally will be entitled to receive the proceeds of that sale to the extent of unpaid fees and other amounts owing to them under the related transaction document prior to distributions to securityholders. Upon any such sale, the proceeds may be insufficient to pay in full the principal of and interest on the securities of the related series.
1 Whenever the terms pool, certificates, notes and securities are used in this prospectus, those terms will be considered to apply, unless the context indicates otherwise, to one specific pool and the securities of one series including the certificates representing undivided interests in, and/or notes secured by the assets of, a single trust fund consisting primarily of the loans in that pool. Similarly, the term “Pass-Through Rate” will refer to the pass-through rate borne by the certificates and the term interest rate will refer to the interest rate borne by the notes of one specific series, as applicable, and the term trust fund will refer to one specific trust fund.Ÿ Interest may be payable at a fixed rate, a rate adjustable from time to time in relation to an index (which will be specified in the related prospectus supplement), a rate that is fixed for a period of time or under certain circumstances and is followed by an adjustable rate, a rate that otherwise varies from time to time, or a rate that is convertible from an adjustable rate to a fixed rate. Changes to an adjustable rate may be subject to periodic limitations, maximum rates, minimum rates or a combination of the limitations. Accrued interest may be deferred and added to the principal of a loan for the periods and under the circumstances as may be specified in the related prospectus supplement. Loans may provide for the payment of interest at a rate lower than the specified interest rate borne by the loan (the “Loan Rate”) for a period of time or for the life of the loan, and the amount of any difference may be contributed from funds supplied by the seller of the mortgaged property or another source. Ÿ Principal may be payable on a level debt service basis to fully amortize the loan over its term, may be calculated on the basis of an assumed amortization schedule that is significantly longer than the original term to maturity or on an interest rate that is different from the Loan Rate or may not be amortized during all or a portion of the original term. Payment of all or a substantial portion of the principal may be due on maturity, called balloon payments. Principal may include interest that has been deferred and added to the principal balance of the loan. Ÿ Monthly payments of principal and interest may be fixed for the life of the loan, may increase over a specified period of time or may change from period to period. The terms of a loan may include limits on periodic increases or decreases in the amount of monthly payments and may include maximum or minimum amounts of monthly payments. Ÿ The loans generally may be prepaid at any time. Prepayments of principal may be subject to a prepayment fee, which may be fixed for the life of the loan or may decline over time, and may be prohibited for the life of the loan or for certain periods, which are called lockout periods. Some loans may permit prepayments after expiration of the applicable lockout period and may require the payment of a prepayment fee in connection with any subsequent prepayment. Other loans may permit prepayments without payment of a fee unless the prepayment occurs during specified time periods. The loans may include “due-on-sale” clauses that permit the mortgagee to demand payment of the entire loan in connection with the sale or certain transfers of the related mortgaged property. Other loans may be assumable by persons meeting the then applicable underwriting standards of the seller. Ÿ the aggregate outstanding principal balance and the average outstanding principal balance of the loans as of the first day of the month of issuance of the related series of certificates or another date specified in the related prospectus supplement called a cut-off date, Ÿ the type of property securing the loans (e.g., single-family residences, individual units in condominium apartment buildings or in buildings owned by cooperatives other real property or home improvements), Ÿ the original terms to maturity of the loans, Ÿ the largest principal balance and the smallest principal balance of any of the loans, Ÿ the earliest origination date and latest maturity date of any of the loans, Ÿ the Loan-to-Value Ratios or Combined Loan-to-Value Ratios (as defined hereafter), as applicable, of the loans, Ÿ the Loan Rates or annual percentage rates (“APR”) or range of Loan Rates or APR’s borne by the loans, Ÿ the maximum and minimum per annum Loan Rates and Ÿ the geographical distribution of the loans. Ÿ first lien mortgage loans secured by one- to four-family residential properties, Ÿ private mortgage-backed securities backed by first lien mortgage loans secured by one- to four-family residential properties, Ÿ closed-end and/or revolving home equity loans, secured in whole or in part by first and/or subordinate liens on one- to four-family residential properties, or Ÿ home improvement installment sale contracts and installment loan agreements that are secured by first or subordinate liens on one- to four-family residential properties. Ÿ the payment features of the mortgage loans, Ÿ the approximate aggregate principal balance, if known, of underlying mortgage loans insured or guaranteed by a governmental entity, Ÿ the servicing fee or range of servicing fees with respect to the mortgage loans and Ÿ the minimum and maximum stated maturities of the underlying mortgage loans at origination; Ÿ the maximum original term-to-stated maturity of the private mortgage-backed securities; Ÿ the weighted average term-to stated maturity of the private mortgage-backed securities; Ÿ the pass-through or certificate rate of the private mortgage-backed securities; Ÿ the weighted average pass-through or certificate rate of the private mortgage-backed securities; Ÿ the issuer, the servicer and the trustee of the private mortgage-backed securities; Ÿ certain characteristics of credit support, if any, such as reserve funds, insurance policies, surety bonds, letters of credit or guaranties relating to the mortgage loans underlying the private mortgage-backed securities or to the private mortgage-backed securities themselves; Ÿ the terms on which the underlying mortgage loans for the private mortgage-backed securities may, or are required to, be purchased before their stated maturity or the stated maturity of the private mortgage-backed securities; and Ÿ the terms on which mortgage loans may be substituted for those originally underlying the private mortgage-backed securities. Ÿ factors relating to the experience and status of the seller, Ÿ characteristics of the specific mortgage loan, including the principal balance, the Loan-to-Value Ratio, the loan type or loan program, and Ÿ the applicable credit score of the related mortgagor used in connection with the origination of the mortgage loan, as determined based on a credit scoring model acceptable to First Horizon. Ÿ that title insurance (or in the case of Properties located in areas where title insurance policies are generally not available, an attorney’s certificate of title) and any required hazard insurance policy were effective at origination of each loan, other than cooperative loans and certain home equity loans, and that each policy (or certificate of title as applicable) remained in effect on the date of purchase of the loan from the seller by or on behalf of the depositor; Ÿ that the seller had good title to each loan and the loan was subject to no offsets, defenses, counterclaims or rights of rescission except to the extent that any buydown agreement may forgive certain indebtedness of a borrower; Ÿ that each loan constituted a valid lien on, or a perfected security interest with respect to, the Property (subject only to permissible liens disclosed, if applicable, title insurance exceptions, if applicable, and certain other exceptions described in the Agreement) and that the Property was free from damage and was in acceptable condition; Ÿ that there were no delinquent tax or assessment liens against the Property; Ÿ that no required payment on a loan was delinquent more than the number of days specified in the related prospectus supplement; and Ÿ that each loan was made in compliance with, and is enforceable under, all applicable local, state and federal laws and regulations in all material respects. Ÿ to repurchase the loan from the trust fund at a price (the “Purchase Price”) equal to 100% of the unpaid principal balance thereof as of the date of the repurchase plus accrued interest thereon to the first day of the month following the month of repurchase at the Loan Rate (less any advances or amount payable as related servicing compensation if the seller is the master servicer) or Ÿ substitute for the loan a replacement loan that satisfies the criteria specified in the related prospectus supplement. Ÿ the Trust Fund Assets, as from time to time are subject to the related Agreement (exclusive of any amounts specified in the related prospectus supplement (“Retained Interest”)), including all payments of interest and principal received with respect to the loans after the cut-off date (to the extent not applied in computing the principal balance of the loans as of the cut-off date (the “Cut-off Date Principal Balance”)); Ÿ the assets required to be deposited in the related Security Account from time to time; Ÿ Property which secured a loan and which is acquired on behalf of the securityholders by foreclosure or deed in lieu of foreclosure and any insurance policies or other forms of credit enhancement required to be maintained pursuant to the related Agreement. Ÿ in the case of accrual securities, in general, increased by all interest accrued but not then distributable on the accrual securities; and Ÿ in the case of adjustable rate securities, subject to the effect of negative amortization, if applicable. Ÿ the amount of the distribution allocable to principal, separately identifying the aggregate amount of any Principal Prepayments and if so specified in the related prospectus supplement, any applicable prepayment penalties included in the distribution; Ÿ the amount of the distribution allocable to interest; Ÿ the amount of any advance; Ÿ the aggregate amount (a) otherwise allocable to the Subordinated Securityholders on the distribution date, and (b) withdrawn from the reserve fund, if any, that is included in the amounts distributed to the Senior Securityholders; Ÿ the outstanding principal balance or notional amount of each class of the related series after giving effect to the distribution of principal on the distribution date; Ÿ the percentage of principal payments on the loans (excluding prepayments), if any, which each class will be entitled to receive on the following distribution date; Ÿ the percentage of Principal Prepayments on the loans, if any, which each class will be entitled to receive on the following distribution date; Ÿ the related amount of the servicing compensation retained or withdrawn from the Security Account by the master servicer, and the amount of additional servicing compensation received by the master servicer attributable to penalties, fees, excess Liquidation Proceeds and other similar charges and items; Ÿ the number and aggregate principal balances of loans (A) delinquent (exclusive of loans in foreclosure) 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 or more days and (B) in foreclosure and delinquent 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 or more days, as of the close of business on the last day of the calendar month preceding the distribution date; Ÿ the book value of any real estate acquired through foreclosure or grant of a deed in lieu of foreclosure; Ÿ the Pass-Through Rate or interest rate, as applicable, if adjusted from the date of the last statement, of any class expected to be applicable to the next distribution to that class; Ÿ if applicable, the amount remaining in any reserve fund at the close of business on the distribution date; Ÿ if applicable, the amount of the Pre-Funding Amount deployed by the trustee to purchase Subsequent Loans (as defined herein) during the preceding collection period; Ÿ the Pass-Through Rate or interest rate, as applicable, as of the day prior to the immediately preceding distribution date; Ÿ any amounts remaining under letters of credit, pool policies or other forms of credit enhancement; and Ÿ the servicing fee payable to the master servicer and any subservicer, if applicable. CATEGORIES OF CLASSES DEFINITION Principal Types Accretion Directed A class that receives principal payments from the accreted interest from specified Accrual classes. An accretion directed class also may receive principal payments from principal paid on the underlying Trust Fund Assets for the related series. Component Securities A class consisting of “components.” The components of a class of component securities may have different principal and/or interest payment characteristics but together constitute a single class. Each component of a class of component securities may be identified as falling into one or more of the categories in this chart. Non-Accelerated Senior or NAS A class that, for the period of time specified in the related prospectus supplement, generally will not receive (in other words, is locked out of) (1) principal prepayments on the underlying Mortgage Assets that are allocated disproportionately to the senior certificates because of the shifting interest structure of the certificates in the trust and/or (2) scheduled principal payments on the underlying Mortgage Assets, as specified in the related prospectus supplement. During the lock-out period, the portion of the principal distributions on the underlying Mortgage Assets that the NAS class is locked out of will be distributed to the other classes of senior certificates. Notional Amount Securities A class having no principal balance and bearing interest on the related notional amount. The notional amount is used for purposes of the determination of interest distributions. Planned Principal Class or PAC’S A class that is designed to receive principal payments using a predetermined principal balance schedule derived by assuming CATEGORIES OF CLASSES DEFINITION two constant prepayment rates for the underlying Trust Fund Assets. These two rates are the endpoints for the “structuring range” for the planned principal class. The planned principal classes in any series of certificates may be subdivided into different categories (e.g., primary planned principal classes, secondary planned principal classes and so forth) having different effective structuring ranges and different principal payment priorities. The structuring range for the secondary planned principal class of a series of certificates will be narrower than that for the primary planned principal class of the series. Scheduled Principal Class A class that is designed to receive principal payments using a predetermined principal balance schedule but is not designated as a Planned Principal Class or Targeted Principal class. In many cases, the schedule is derived by assuming two constant prepayment rates for the underlying Trust Fund Assets. These two rates are the endpoints for the “structuring range” for the scheduled principal class. Sequential Pay Classes that receive principal payments in a prescribed sequence, that do not have predetermined principal balance schedules and that under all circumstances receive payments of principal continuously from the first distribution date on which they receive principal until they are retired. A single class that receives principal payments before or after all other classes in the same series of securities may be identified as a sequential pay class. Super Senior A class that will not bear its proportionate share of realized losses (other than excess losses) as its share is directed to another class, referred to as the “support class” until the class certificate balance of the support class is reduced to zero. Strip A class that receives a constant proportion, or “strip,” of the principal payments on the underlying Trust Fund Assets. Support Class (also sometimes referred to as
“companion classes”) A class that receives principal payments on any distribution date only if scheduled payments have been made on specified planned principal classes, targeted principal classes and/or Scheduled Principal Classes. Targeted Principal Class or TACs A class that is designed to receive principal payments using a predetermined principal balance schedule derived by assuming a single constant prepayment rate for the underlying Trust Fund Assets. Interest Types Fixed Rate A class with an interest rate that is fixed throughout the life of the class. CATEGORIES OF CLASSES DEFINITION Floating Rate A class with an interest rate that resets periodically based upon a designated index and that varies directly with changes in the index. Inverse Floating Rate A class with an interest rate that resets periodically based upon a designated index and that varies inversely with changes in the index. Variable Rate A class with an interest rate that resets periodically and is calculated by reference to the rate or rates of interest applicable to specified assets or instruments (e.g., the Loan Rates borne by the underlying loans). Interest Only A class that receives some or all of the interest payments made on the underlying Trust Fund Assets and little or no principal. Interest Only classes have either a nominal principal balance or a notional amount. A nominal principal balance represents actual principal that will be paid on the class. It is referred to as nominal since it is extremely small compared to other classes. A notional amount is the amount used as a reference to calculate the amount of interest due on an Interest Only class that is not entitled to any distributions in respect of principal. Principal Only A class that does not bear interest and is entitled to receive only distributions in respect of principal. Partial Accrual A class that accretes a portion of the amount of accrued interest thereon, which amount will be added to the principal balance of that class on each applicable distribution date, with the remainder of the accrued interest to be distributed currently as interest on that class. This accretion may continue until a specified event has occurred or until the Partial Accrual class is retired. Accrual A class that accretes the amount of accrued interest otherwise distributable on that class, which amount will be added as principal to the principal balance of that class on each applicable distribution date. The accretion may continue until some specified event has occurred or until the Accrual class is retired. Ÿ DTC or the depositor advises the trustee in writing that DTC is no longer willing, qualified or able to discharge properly its responsibilities as nominee and depository with respect to the book-entry securities and the depositor or the trustee is unable to locate a qualified successor; Ÿ the depositor, at its sole option, elects to terminate the book-entry system through DTC; or Ÿ after the occurrence of an event of default under the applicable Agreement, beneficial owners of securities representing not less than 51% of the aggregate percentage interests evidenced by each class of securities of the related series issued as book-entry securities advise the trustee and the DTC through the financial intermediaries in writing that the continuation of a book-entry system through DTC, or a successor to it, is no longer in the best interests of the beneficial owners. (i) obligations of the United States or any agency thereof, provided those obligations are backed by the full faith and credit of the United States; (ii) general obligations of or obligations guaranteed by any state of the United States or the District of Columbia receiving the highest long-term debt rating of each Rating Agency (as defined herein) rating the related series of securities; (iii) commercial or finance company paper which is then receiving the highest commercial or finance company paper rating of each Rating Agency; (iv) certificates of deposit, demand or time deposits, or bankers’ acceptances issued by any depository institution or trust company incorporated under the laws of the United States or of any state thereof and subject to supervision and examination by federal and/or state banking authorities, provided that the commercial paper and/or long term unsecured debt obligations of the depository institution or trust company (or in the case of the principal depository institution in a holding company system, the commercial paper or long-term unsecured debt obligations of such holding company, but only if Moody’s Investors Service, Inc. (“Moody’s”) is not a Rating Agency) are then rated one of the two highest long-term and the highest short-term ratings of each Rating Agency for the securities; (v) demand or time deposits or certificates of deposit issued by any bank or trust company or savings institution to the extent that the deposits are fully insured by the FDIC and receiving the highest short-term debt rating of each Rating Agency; (vi) guaranteed reinvestment agreements issued by any bank, insurance company or other corporation receiving the highest short-term debt rating of each Rating Agency and containing, at the time of the issuance of the agreements, terms and conditions that will not result in the downgrading or withdrawal of the rating then assigned to the securities by any Rating Agency; (vii) repurchase obligations with respect to any security described in clauses (i) and (ii) above, in either case entered into with a depository institution or trust company (acting as principal) described in clause (iv) above; (viii) securities (other than stripped bonds, stripped coupons or instruments sold at a purchase price in excess of 115% of the face amount thereof) bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States or any state thereof which, at the time of the investment, have one of the two highest ratings of each Rating Agency (except if the Rating Agency is Moody’s or S&P (as defined herein), such rating shall be the highest commercial paper rating of Moody’s or S&P, as applicable, for any such securities); (ix) units of a taxable money-market portfolio having the highest rating assigned by each Rating Agency (except if Fitch is a Rating Agency and has not rated the portfolio, the highest rating assigned by Moody’s) and restricted to obligations issued or guaranteed by the United States of America or entities whose obligations are backed by the full faith and credit of the United States of America and repurchase agreements collateralized by such obligations; and (x) such other investments bearing interest or sold at a discount acceptable to each Rating Agency as will not result in the downgrading or withdrawal of the rating then assigned to the securities by either Rating Agency, as evidenced by a signed writing delivered by each Rating Agency. Ÿ fraud or negligence in the origination or servicing of a loan, including misrepresentation by the borrower, the originator or persons involved in the origination thereof, or Ÿ failure to construct a Property in accordance with plans and specifications. Ÿ the cost of repair to or replacement of the damaged Property, or Ÿ upon transfer of the Property to the special hazard insurer, the unpaid principal balance of the mortgage loan at the time of acquisition of the Property by foreclosure or deed in lieu of foreclosure, plus accrued interest to the date of claim settlement and certain expenses incurred by the master servicer with respect to the Property. Ÿ to convert the payments on some or all of the mortgage loans from fixed to floating payments, or from floating to fixed, or from floating based on a particular index to floating based on another index; Ÿ to provide payments in the event that any index rises above or falls below specified levels; or Ÿ to provide protection against interest rate changes, certain type of losses, including reduced market value, or other payment shortfalls to one or more classes of the related series.