The Series A Certificates

Class

Initial Class Balance (I>

Pass-Through Rate

Principal Types'2'

Interest Types'2'

Initial Rating of Certificates'31 Moody's Fitch

Offered Certificates

Class 1-A-l

$ 99.118,000

(4)

Senior, Pass-Through

Variable Rate

Aaa

AAA

Class 1-A-R

$ 50

<4>

Senior, Sequential Pay

Variable Kate

None

AAA

Class 1-A-LR

$ 50

(4)

Senior, Sequenlial Pay

Variable Rale

None

AAA

Class 2-A-l

$240.784,000

(5)

Senior, Pass-Throush

Variable Rate

Aaa

AAA

Class 2-A-2

$141.000.000

(5)

Super Senior, Pass-

Variable Rate

Aaa

AAA

Through

Class 2-A-3

$ 4.963.000

(5)

Super Senior Support,

Variable Rate

Aal

AAA

Pass-Through

Class 3-A-l

$ 38460,000

<6)

Senior, Pass-Throuah

Variable Rate

Aaa

AAA

Class 4-A-1

$ 43.554,000

(7)

Senior, Pass-Through

Variable Rate

Aaa

AAA

Class B-!

$ 10.583.000

(8)

Subordinated

Variable Rate

None

AA

Class B-2

$ 3.8^1,000

<8)

Subordinated

Variable Rate

None

A

Class B-3

$ 2.057,000

(8)

Subordinated

Variable Rate

None

BBB

Non-Offered Certificates

Class I-IO

(9)

(10)

Senior, Notional

Fixed Rate,

N/A

N/A

Amount

Interest Only

Class 2-IO

(9)

(ID

Senior, Notional

Fixed Rate,

N/A

N/A

Amount

Interest Only

Class 4-IO

(9)

(12)

Senior, Notional

Fixed Rate,

N/A

N/A

Amount

Interest Only

Class B-4

$ 1.470.000

(8)

Subordinated

Variable Rate

None

BB

Class B-5

$ 882,000

(8)

Subordinated

Variable Rate

None

B

Class B-6

$ 1.175,905

(8)

Subordinated

Variable Rate

None

None

Source: Banc of America Mortgage Securities, Inc., Mortgage Pass-Through Certificates, Series 2005-A, Prospectus filed pursuant to rule 424, available at the Securities and Exchange Commission Web site: http://www.sec.gov, central index key (CIK) number 0001315171.

The temporary reduction in the class 1-A-1 interest rate allows the creation of the class 1-IO certificate, which is described as an interest-only class.8 The interest rate of the 1-IO certificate is fixed at 0.3170% for the first 23 periods, as explained in footnote 10. The base prospectus defines the interest-only type as a Class of Certificates that is entitled to receive some or all of the interest payments made on the Mortgage Loans and little or no principal. Interest Only Certificates have either a nominal principal balance or a notional amount. A nominal principal balance represents actual principal that will be paid to the Class. It is referred to as nominal since it is generally very small in comparison to other Classes. The notional amount is used to calculate the amount of Interest due on a Class of Interest Only Certificates that is not entitled to any distributions in respect of principal.

A similar examination of the footnotes for class 2-A-1, class 3-A-1, and class 4-A-1 reveals that the interest rates for these classes are linked to the net mortgage interest rates of the group 2, group 3, and group 4 loans, respectively. The linkage of the interest rate between the collateral and the notes focuses the investor on the characteristics of the collateral for the pool supporting the various classes.

The class nomenclature generally is designed to provide investors with guidance about subordination and pool association. In our example, class names that begin with a number represent interests primarily in that group of mortgage loans. Classes that are designated with the letter B are subordinate to those designated

8. See Chapter 19 for more information about the characteristics of interest-only and principal-only securities.

EXHIBIT 7-4

Principal Balances of the Group" I Mortgage Loans on the due date in the month preceding the month of such Distribution Date) minus

0.3170%. For each Distribution Date occurring on and after the Distribution Date in January 2008. interest will accrue on these Certificates at a

  • 5) For each Di stri buiion Date occurrin g pri or to and i nchid in g the Dístri bu ti on Date in December 2009, in terest wi 11 accrue on these Certi ficates at
  • 7) For each Distribution Date occurring prior to and including the Distribution Date in December 20i 4* interest will accrue on these Certificates at

Principal Balances of the Group 4 Mortgage Loans on the due date in the month preceding the month of such Distribution Date) minus 0.0323%. For each Distribution Date occurring on and after the Distribution Date in January 2015, interest will accrue on these Certificates at a rate equal to the weighted average of the Net Mortgage Interest Rates of the Group 4 Mortgage Loans (based upon the Stated Principal Balances of the Group 4 Mortgage Loans on the due date in the month preceding the month of such Distribution Date). For the initial Distribution Date in

Group Subordinate Amount for each Loan Group) of (i) with respect to Loan Group I, prior to and in eluding Üie Distribution Date in December the Net Mortgage interest Rates of the Group 2 Mortgage Loans (based on the Stated Principal Balances of the Group 2 Mortgage Loans on the

Mortgage Interest Rates of the Group 3 Mortgage Loans (based on the Stated Principal Balances of the Group 3 Mortgage Loans on the due date in the month preceding the month of such Distribution Date) and (iv) with respect to Loan Group 4. prior to and including the Distribution Date

Balances of the Group 4 Mortgage Loans on the due date in the month preceding the month of such Distribution Date) minus 0.0323% and on and after the Distribution Dale in January 2015. the weighted average of the Net Mortgage Interest Rates of the Group 4 Mortgage Loans (based on the Stated Principal Balances of the Group 4 Mortgage Loans on the due date in the month preceding the month of such Distribution Date). For the initial Distribution Date in February 2005, this rate is expected to be approximately 4.520506% per annum.

  • 9) The Class I-10, Class 2-IO and Class 4-10 Certificates are Interest Only Certificates, have no class balance and will bear interest on their notional amounts (initially approximately $102,606,810, $400,360,057 and $45,087,084, respectively) as described in this
  • 10) Interest will accrue on the Class 1-10 Certificates through the Distribution Date in December 2007 at a per annum rate equal to 0.3170%. The pass-through rate on the Class MO Certificates will be zero on and after the Distribution Date in January 2008.
  • 11) Interest will accrue on the Class 2-TO Certificates through the Distribution Date in December 2009 at a per annum rate equal to 0.1710%. The pass-through rate on the Class 2-TO Certificates will be zero on and after the Distribution Date in January 2010.
  • 12) Interest will accrue on the Class 4-10 Certificates through the Distribution Date in December 2014 at a per annum rate equal to 0.0323%. The pass-through rate on the Class 4-IO Certificates will be zero on and after the Distribution Date in January 2015.

Source: Banc of America Mortgage Securities, Inc., Mortgage Pass-Through Certificates, Series 2005-A, Prospectus filed pursuant to rule 424, available at the Securities and Exchange Commission Web site: http://www.sec.gov, central index key (CIK) number 0001315171.

with the letter A. Securitization transactions where all the offered securities represent interests in all the assets, the class names usually do not begin with a number. Readers are cautioned to examine the full description of the securities presented in the prospectus and prospectus supplement when assessing and evaluating subordination and pool characteristics.

Asset Pool Information

Information about the composition and characteristics of the asset pool is a fundamental disclosure considered by investors in making an informed investment decision regarding an MBS. The asset pool is often the only or the principal source of cash flows to service the MBS.

The material characteristics of each pool will vary depending on the nature of the pool assets. Different issuers present different information to facilitate an analysis of the collateral pool. However, there are certain general categories of disclosure that are provided for pool characteristics. The pool is often divided or stratified into ranges of values or characteristics. Typically, the number and balance of each type of loan will be displayed. Exhibit 7-5 provides an example

EXHIBIT 7-5

EXHIBIT 7-5

Mortgage Backed Security Certificatehttp://www.sec.gov, central index key (CIK) number 0001315171."/>
Source: Banc of America Mortgage Securities, Inc., Mortgage Pass-Through Certificates, Series 2005-A, Prospectus filed pursuant to rule 424, available at the Securities and Exchange Commission Web site: http://www.sec.gov, central index key (CIK) number 0001315171.

of asset pool stratification. The typical categories of disclosure for residential MBS include

  • The type of residential property securing the mortgage
  • The purpose of the mortgage loan
  • The occupancy status of the mortgage property
  • The geographic location and concentration of the mortgaged properties
  • The range of mortgage loan principal balances
  • The range of loan-to-value ratios at the time of origination
  • The range of current interest rates
  • The range of remaining terms
  • The credit scores of the mortgagors at the time of loan origination

The categories of disclosure for commercial mortgage-backed securities9 also may include

  • The location and type of each mortgaged property
  • Net operating income and net cash-flow information for each mortgaged property
  • The occupancy rates for each mortgaged property
  • Information about the largest tenants at each mortgage property, including square feet occupied and lease expiration dates
  • The amount of all other material mortgages, liens, or encumbrances against the mortgaged property

In addition to the pool stratification information, the issuer also presents historic delinquency and loss information. Since most mortgage transactions only securitize nondelinquent mortgage loans, the issuer will disclose the delinquency and loss history of similar loans originated or acquired by the depositor. These disclosures are often stratified into distributional groupings, or "buckets," that present delinquency information and percentages.

The delinquency buckets are presented in 30- or 31-day increments through the point that assets are written off or charged off as uncollectible (Exhibit 7-6). Information is provided on how delinquencies, charge-offs, and uncollectible accounts are defined, as well as delinquency and default management practices such as grace periods, payment-skipping programs, reaging, restructuring, and other loss-mitigation strategies.

The combined data for the current asset pool, along with the historical information about delinquencies and defaults, provide the investor with information

9. See Section 7 for more information about commercial mortgage-backed securities.

EXHIBIT 7-6

Foreclosure and Delinquency Experience of Bank of America

The following table summarizes the delinquency and foreclosure experience on the portfolio of one-to four-family first mortgage loans originated or acquired by Bank of America or certain of its affiliates and serviced or subserviced by Bank of America, or serviced by Bank of America for others, other than (i) mortgage loans acquired through certain mergers with previously unaffiliated entities, (ii) mortgage loans with respect to which the servicing rights were acquired by Bank of America in bulk and (iii) certain mortgage loans originated at bank branches of Bank of America.

The portfolio of mortgage loans serviced by Bank of America includes both fixed and adjustable interest rate mortgage loans, including "buydown" mortgage loans, loans with balances conforming to FHLMC's and FNMA's limits as well as jumbo loans, loans with stated maturities of 10 to 40 years and other types of mortgage loans having a variety of payment characteristics, and includes mortgage loans secured by mortgaged properties in geographic locations that may not be representative of the geographic distribution or concentration of the mortgaged properties securing the Mortgage Loans in any Series. There can be no assurance that the delinquency, foreclosure and loss experience set forth below will be similar to the results that may be experienced with respect to the Mortgage Loans in a Series.

Bank of America, N,A Delinquency and Foreclosure Experience on Mortgage Loans

Al September 30,2004 At December 31,2003 At December 31,2002

Total Portfolio

Delinquencies*

One InstillImcnt delinquent

Percent Delinquent

Two Installments delinquent

Percent Delinquent

Three or more installments delinquent .

Percent Delinquent

In Foreclosure

Percent in Foreclosure

Delinquent and in Foreclosure

Percent Delinquent and in Foreclosure** .

Number/ Outstanding Number/ Outstanding Number/ Outstanding

% of Principal % of Principal % of Principal

Mortgage Amount Mortgage Amount Mortgage Amount

Loans (In Millions) Loans (In Millions) Loans (In Millions)

1,286,755 $190,647.9 1.229,050 $174.777.5 1,202.522 $168,063.2

Number/ Outstanding Number/ Outstanding Number/ Outstanding

% of Principal % of Principal % of Principal

Mortgage Amount Mortgage Amount Mortgage Amount

Loans (In Millions) Loans (In Millions) Loans (In Millions)

1,286,755 $190,647.9 1.229,050 $174.777.5 1,202.522 $168,063.2

17,810 $

1.961.6

20.406

$

2.219.3

25.415

S

2,971.5

1.4%

1.0%

1.7%

1.3%

2.1%

1.8%

4,374 $

447.5

5.399

$

549.9

5.952

$

625.2

0.3%

0.2%

0.4%

0.3%

0.5%

0.4%

5.240 $

502.4

6.294

$

615.8

6.373

$

649.5

0.4%

0.3%

0.5%

0.4%

0.5%

0.4%

4.054 S

397.0

5.449

S

548.2

5.855

S

590.1

0.3%

0.2%

0.4%

0.3%

0.5%

0.4%

31.478 $

3,308.5

37.548

S

3,933.2

43.595

s

4,836.4

2.4%

1.7%

3.1%

2.3%

3.6%

2.9%

A mortgage loan is deemed to have "one installment delinquent" if any scheduled payment of principal or interest is delinquent past the end of the month in which such payment was due, "two installments delinquent" if such delinquency persists past the end of the month following the month in which such payment was due, and so forth.

The sums of the Percent Delinquent and Percent in Foreclosure set forth in this table may not equal the Percent Delinquent and in Foreclosure due to rounding.

Source: Banc of America Mortgage Securities, Inc., Mortgage Pass-Through Certificates, Series 2005-A, Prospectus filed pursuant to rule 424, available at the Securities and Exchange Commission Web site: http://www.sec.gov, central index key (CIK) number 0001315171.

to make certain assumptions about the future performance of the collateral pool. For those investors who choose to reverse engineer10 a transaction, the collateral pool data is used to establish the ranges of prepayment, loss, and recovery assumptions.

10. In general, reverse engineering is to ascertain the functional basis of something by taking it apart and studying how it works. In the context of MBS, reverse engineering a transaction refers to the process by which an investor or other party creates a mathematical model to calculate future payments of principal and interest to one or more of the securities in a transaction. In a two-step process, both known information about the asset pool (balance, coupon, term) is combined with assumed information (prepayment speed, default, recovery, and interest-rate

Description of the Certificates

The core of each prospectus is the description of the offered certificates. Section 220 of Regulation S-K11 defines the required description. The issuer must disclose such information as

  • Provisions with respect to maturity, conversion, redemption, amortization, or retirement
  • Denominations and form (see Exhibit 7-7)
  • Terms and conditions of book-entry securities
  • Date and frequency of distributions
  • The source of cash flow available for distribution—often the "Pool Distribution Amount" (see Exhibit 7-8)
  • The priority of distributions (see Exhibit 7-9)
  • The method of calculating and distributing interest
  • The method of calculating and distributing principal

A clear description of the flow of funds for the transaction is important. The description includes allocations of payments and distribution priorities among all classes of the securities. The issuer should clearly communicate the credit enhancement and any other structural features in the transaction that are designed to protect investor interests. The description includes any requirements that direct or redirect cash flows to reserve accounts, along with a description of the purpose of those requirements. In addition to the narrative description, many issuers present the flow of funds graphically to clearly communicate the sequence of distributions and cash-flow priorities.

In our example transaction in Exhibit 7-9, we can see that class 1-A-1's interest payment is third in priority, whereas its principal payment is fourth in priority. In other words, payments to class 1-A-1 are subordinate to payment of the trustee fee and payment of interest to the class IO certificates. The issuer has described the priority of payment among the senior and subordinate certificates graphically (see Exhibit 7-10).

Other disclosures explain when any early or accelerated amortization, performance, or other triggers or events may occur. In Exhibit 7-11 we see an example of such a trigger event. In this case, the senior prepayment percentage is used to determine the amount of collateral prepayments allocated to the senior securities and the prepayment allocations to the subordinate securities.12 The exhibit illustrates the shift in the percentage of prepayments depending on the date or timing of distributions.

  1. to project collateral cash flows. The second step uses the collateral cash flows for each period to make projected class cash flows. These projected class cash flows serve as the basis for valuing the mortgage-backed security.
  2. 17 Code of Federal Regulations 229.202 et seq.
  3. See Chapter 6 for more information about the shifting interest structure.

EXHIBIT 7-7

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