Common use of Undercollateralization Clause in Contracts

Undercollateralization. Because losses on a mortgage loan may be allocated in part to the subordinated component classes of a different group, the scheduled principal balance of a pool’s target-rate strip could differ from the aggregate principal balance of the related group’s target-rate classes. If the scheduled principal balance of a pool’s target-rate strip is less than the aggregate principal balance of the related group’s target-rate classes, the group will be undercollateralized by the amount of the difference; conversely, if the scheduled principal balance of a pool’s target-rate strip is more than the aggregate principal balance of the related group’s target-rate classes, the group will be overcollateralized by the amount of the difference. If a group is undercollateralized, the normal distribution rules will be adjusted as follows: (1) To the extent that scheduled interest payments on the target-rate strip of a pool related to an overcollateralized group exceed the aggregate interest allocations to that groups’ target-rate classes, plus any insurance premium due to an Insurer, that excess, up to the amount of any interest allocation carryforwards that the undercollateralized group would otherwise experience on that distribution day and the insurance premium, will be deducted from the pool distribution amount for the overcollateralized group and added to the pool distribution amounts for the undercollateralized group. If there is more than one such undercollateralized group, or more than one overcollateralized group, then (a) amounts will be deducted from the pool distribution amounts for the groups that are overcollateralized in proportion to such excess interest payments, up to the aggregate amount of such interest allocation carryforwards and the insurance premium for the undercollateralized groups, and (b) amounts will be added to the pool distribution amounts of the undercollateralized groups in proportion to the amount of such interest allocation carryforwards and insurance premium. (2) Before the subordination depletion date, if one or more groups is undercollateralized and the principal balance of each of the groups’ subordinated component classes has been reduced to zero, then (a) all amounts that (after required reimbursements to any ratio-stripped PO classes) would otherwise be distributed as principal to the subordinated component classes of the other groups, up to the aggregate amount by which such undercollateralized groups are undercollateralized, will, in proportion to the aggregate principal balance of the subordinated component classes of such other groups, be deducted from the pool distribution amount and the principal allocations to the subordinated component classes of such other groups, and (b) such amount will be added to the pool distribution amounts and the principal allocations of the target-rate classes of such undercollateralized groups, in proportion to the amount by which such groups are undercollateralized. (3) After the subordination depletion date, if a group is undercollateralized, then · once a group’s target-rate classes are all reduced to zero, principal payments on the related pool’s target-rate strip will be added to the pool distribution amount and to the principal allocations of the target-rate classes of the undercollateralized groups, in proportion to the amount by which they are undercollateralized, and · realized losses on the target-rate strips of the pools related to the overcollateralized groups will, up to the amount by which the group is overcollateralized, not reduce the principal balances of the target-rate classes of those groups, but will instead reduce the principal balances of the target-rate classes of the undercollateralized groups, in proportion to the amount by which they are undercollateralized, and in accordance with “Adjustments to class balances” above. If there is more than one overcollateralized group, the losses that will not reduce principal balance will be in proportion to the amount by which each group is overcollateralized. If there is more than one undercollateralized group, the aggregate reductions in principal balances for each group will be in proportion to the amounts by which such groups are undercollateralized.