Edgar Filing: Accredited Mortgage Loan REIT Trust

Percentages determined by reference to the total principal balance of the initial mortgage loans as of the cut-off date.

As used in this prospectus supplement, the loan-to-value ratio for any second lien mortgage loan will mean the combined original loan-to-value ratio.

Accredited Mortgage Loan Trust 2006-2

Filed pursuant to Rule 424(b)(5)

Registration No. 333-129972

PROSPECTUS SUPPLEMENT

(For Use with Base Prospectus dated April 18, 2006)

$1,397,200,000

Accredited Mortgage Loan Trust 2006-2

(Issuing Entity)

Asset-Backed Notes, Series 2006-2

LOGO

Accredited Home Lenders, Inc.

(Sponsor and Servicer)

Accredited Mortgage Loan REIT Trust

(Depositor)

You should read the section entitled “Risk Factors” starting on page S-16 of this prospectus supplement and on page 1 of the accompanying prospectus and consider these factors before making a decision to invest in the notes.

The notes represent non-recourse obligations of the issuing entity only and are not interests in or obligations of the sponsor, the depositor, any of their affiliates, or any other person.

Neither the notes nor the mortgage loans will be insured or guaranteed by any governmental agency or instrumentality.

The trust -estate —

• The trust estate consists of residential mortgage loans, first and second lien fixed- and adjustable-rate conforming and non-conforming mortgage loans.

The notes —

• The issuing entity will issue and offer four classes of senior notes and nine classes of subordinate notes.

• Payments on the notes will be made monthly. The first expected payment date for the notes is July 25, 2006.

Credit enhancement and other support —

• The class A notes will be supported by the class M notes. Each class of class M notes will be supported by the classes of class M notes having a lower payment priority, with the most subordinate class being supported by overcollateralization.

• Excess interest will be used to increase and maintain a required level of overcollateralization.

• Prepayment penalties will be used to absorb losses and to achieve overcollateralization and then to maintain a required level of overcollateralization.

• The issuing entity will enter into an interest rate swap agreement with Barclays Bank PLC.

Pre-Funding —

• The trust estate has a pre-funding feature.

Class

Original

Note

Principal

Balance

Interest

Rate

Expected Final

Payment Date

Final Stated

Maturity Date

Price to

Public

Underwriting

Discount

Proceeds to

the

Depositor(3)

A-1

559,514,000

1 Month LIBOR + 0.04%(1)(2)

April 2008

September 2036

100.00000%

0.21000%

99.79000%

A-2

158,862,000

1 Month LIBOR + 0.09%(1)(2)

September 2008

September 2036

100.00000%

0.21000%

99.79000%

A-3

289,467,000

1 Month LIBOR + 0.15%(1)(2)

June 2011

September 2036

100.00000%

0.21000%

99.79000%

A-4

181,457,000

1 Month LIBOR + 0.26%(1)(2)

May 2013

September 2036

100.00000%

0.21000%

99.79000%

M-1

41,300,000

1 Month LIBOR + 0.27%(1)(2)

May 2013

September 2036

100.00000%

0.21000%

99.79000%

M-2

37,100,000

1 Month LIBOR + 0.29%(1)(2)

May 2013

September 2036

100.00000%

0.21000%

99.79000%

M-3

23,800,000

1 Month LIBOR + 0.33%(1)(2)

May 2013

September 2036

100.00000%

0.21000%

99.79000%

M-4

20,300,000

1 Month LIBOR + 0.35%(1)(2)

May 2013

September 2036

100.00000%

0.21000%

99.79000%

M-5

20,300,000

1 Month LIBOR + 0.38%(1)(2)

May 2013

September 2036

100.00000%

0.21000%

99.79000%

M-6

17,500,000

1 Month LIBOR + 0.45%(1)(2)

May 2013

September 2036

100.00000%

0.21000%

99.79000%

M-7

15,400,000

1 Month LIBOR + 0.85%(1)(2)

May 2013

September 2036

100.00000%

0.21000%

99.79000%

M-8

10,500,000

1 Month LIBOR + 1.05%(1)(2)

May 2013

September 2036

100.00000%

0.21000%

99.79000%

M-9

21,700,000

1 Month LIBOR + 1.90%(1)(2)

May 2013

September 2036

100.00000%

0.21000%

99.79000%

Total

1,397,200,000

(1)

Subject to increase as described herein and subject to an available funds cap rate described herein.

(2)

This rate is variable based on LIBOR. Further disclosure of how LIBOR is determined is included in the summary.

(3)

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

Each of the underwriters will purchase a portion of the notes listed in the table above from the depositor and will offer the notes purchased by it only after such notes have been issued, delivered to and accepted by the underwriters. See “Plan of Distribution” in this prospectus supplement.

Neither the Securities and Exchange Commission nor any state securities commission has approved or

disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement.

Any representation to the contrary is a criminal offense.

GOLDMAN, SACHS & CO.


*BEAR, STEARNS & CO. INC.*		*CREDIT SUISSE*		*MERRILL LYNCH & CO.*		*UBS INVESTMENT BANK*

The date of this Prospectus Supplement is June 16, 2006.

Important notice about the information presented in this

prospectus supplement and the accompanying prospectus

We provide information to you about the notes in two separate documents that provide progressively more detail:

•

the accompanying prospectus, which provides general information, some of which may not apply to your series or class of notes, and

•

this prospectus supplement, which describes the specific terms of your series or class of notes.

If the accompanying prospectus contemplates multiple options, you should rely on the information in this prospectus supplement as to the applicable option.

We cannot sell the notes to you unless you have received both this prospectus supplement and the accompanying prospectus.

Dealers will deliver a prospectus supplement and prospectus when acting as underwriters of the notes and with respect to their unsold allotments or subscriptions. In addition, all dealers selling the notes will be required to deliver a prospectus supplement and prospectus for ninety days following the date of the prospectus supplement.

Annex I and Schedule 1 are incorporated into and are a part of this prospectus supplement as if fully set forth herein.

We include cross-references in this prospectus supplement and the accompanying prospectus to captions in these materials where you can find further information concerning a particular topic. The following table of contents provides the pages on which these captions are located.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), the underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of notes to the public in that Relevant Member State prior to the publication of a prospectus in relation to the notes which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of notes to the public in that Relevant Member State at any time:

(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

(c) in any other circumstances which do not require the publication by the issuing entity of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of notes to the public” in relation to any notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe the notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

United Kingdom

Each underwriter has represented and agreed that:

(a) it has only communicated or caused to be communicates and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act (the “FSMA”)) received by it in connection with the issue or sale of the notes in circumstances in which Section 21(1) of the FSMA does not apply to the issuing entity; and

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the notes in, from or otherwise involving the United Kingdom.

Table of Contents



Summary		S-2

Risk Factors		S-16

Transaction Overview		S-27

Formation of the Issuing Entity and Issuance of the Trust Certificates		S-27
Sale and Servicing of the Mortgage Loans		S-27
Issuance of the Notes		S-27

The Mortgage Loans		S-28

General		S-28
Conveyance of Subsequent Mortgage Loans and the Pre-Funding Account		S-30
The Mortgage Loans		S-31

The Sponsor		S-51

Underwriting		S-53

Delinquency and Loss Information for the Initial Mortgage Loans		S-56

Static Pool Information		S-57

The Depositor		S-57

The Issuing Entity		S-58

The Servicer		S-60

Mortgage Loan Servicing		S-61
Delinquency and Loan Loss Experience⁽¹⁾		S-65

The Owner Trustee		S-66

The Indenture Trustee		S-67

The Swap Provider		S-70

Description of the Notes and the Trust Certificates		S-71

Book-Entry Notes		S-71
Assignment and Pledge of Mortgage Loans		S-72
Delivery of Mortgage Loan Documents		S-72
Representations and Warranties of the Sponsor		S-74
Payments on the Mortgage Loans		S-75
Payments of Interest		S-77
Payments of Principal		S-78
Allocation of Net Monthly Excess Cashflow		S-80
Fees and Expenses		S-80
Interest Rate Swap Agreement		S-81
Calculation of LIBOR		S-84
Overcollateralization Provisions		S-84
Events of Default		S-85
Notice of Default		S-87
Reports to Noteholders		S-87
Optional Clean-up Call		S-88
Step-Up Rates		S-88
Optional Purchase of Delinquent Mortgage Loans		S-88
Amendment		S-88
Termination		S-89

Servicing of the Mortgage Loans		S-89

Collection and Other Servicing Procedures		S-89
Delinquency and Loss Procedures		S-90
Servicing Fees and Other Compensation and Payment of Expenses		S-91
Delinquency Advances, Servicing Advances and Compensating Interest		S-91
Relief Act Interest Shortfalls and Prepayment Interest Shortfalls		S-92
Evidence as to Compliance		S-92
Removal and Resignation of the Servicer		S-93

Prepayment and Yield Consequences		S-95

Expected Final Scheduled Payment Date		S-96
Final Payment Dates		S-97
Modeling Assumptions		S-97

Material Federal Income Tax Consequences		S-117

Treatment of the Notes		S-117

ERISA Consequences		S-120

Legal Investment		S-121

Plan of Distribution		S-121

Incorporation of Information by Reference		S-124

Additional Information		S-125

Legal Matters		S-125

Ratings		S-125

Glossary		S-127

iii

LOGO

S-1

Summary

This section gives a brief summary of the information contained herein. The summary does not include all of the important information about the notes. We encourage you to review carefully the more detailed information in this prospectus supplement and in the attached prospectus.

Capitalized terms used in this prospectus supplement are defined under the caption “Glossary.”


Sponsor and Servicer		Accredited Home Lenders, Inc.

Depositor		Accredited Mortgage Loan REIT Trust.

Issuing Entity		Accredited Mortgage Loan Trust 2006-2.

Indenture Trustee		Deutsche Bank National Trust Company.

Owner Trustee		U.S. Bank Trust National Association.

Swap Provider		Barclays Bank PLC.

The Trust Estate		The notes represent obligations of the issuing entity and will be secured by conventional, first and second lien, fixed and adjustable rate, fully amortizing, interest only and balloon, residential mortgage loans having a total principal balance as of the closing date, of approximately $1,050,000,000. The initial mortgage loans have an aggregate principal balance as of their initial cut-off date of approximately $835,719,121, or approximately 79.59% of the closing date mortgage loan pool. The depositor expects the additional mortgage loans to be added to the issuing entity on the closing date to have an aggregate principal balance as of their cut-off date of approximately $214,280,879, or approximately 20.41% of the closing date mortgage loan pool. On the closing date, the depositor will deposit approximately $350,000,000 into a pre-funding account which will be used from time to time before the end of the pre-funding period to acquire subsequent mortgage loans to include in the mortgage pool.

The Mortgage Loans		The mortgage loans will be secured by first and second mortgages or deeds of trust on residential properties. The mortgage loans will be fixed and adjustable rate, level pay, fully amortizing, interest-only and balloon loans that may or may not conform to certain agency investment guidelines.

		The mortgage loans consist of loans used to purchase a new home, to refinance an existing mortgage loan, to consolidate debt and/or to obtain cash proceeds by borrowing against the mortgagor’s equity in the property. The issuing entity will purchase the closing date mortgage loans on the closing date.

S-2


		The initial mortgage loans have the following characteristics, each as of the cut-off date:


Number of Loans		Initial Pool Balance
4,766		$835,719,121

The initial mortgage loans have the following approximate characteristics as of the cut-off date:

Adjustable-rate mortgage loans (1): 49.00%

Fixed-rate mortgage loans (1): 51.00%

Interest only mortgage loans (1): 9.49%

Second lien mortgage loans (1): 1.61%

Balloon mortgage loans (1): 31.10%

Range of mortgage rates: 5.125% - 15.990%

Weighted average mortgage rate: 7.829%

Range of gross margins of the adjustable-rate mortgage loans: 2.000% - 10.000%

Weighted average gross margin of the adjustable-rate mortgage loans: 5.373%

Range of minimum mortgage rates of the adjustable-rate mortgage loans: 5.950% - 13.125%

Weighted average minimum mortgage rate of the adjustable-rate mortgage loans: 8.230%

Range of maximum mortgage rates of the adjustable-rate mortgage loans: 12.199% - 20.125%

Weighted average maximum mortgage rate of the adjustable-rate mortgage loans: 15.229%

Weighted average next adjustment date of the adjustable-rate mortgage loans: September 2008

Weighted average remaining term to stated maturity: 351 Range of principal balances: $12,375 - $749,253

Average principal balance: $175,350 Range of loan- to-value ratios (2): 7.26% - 100.00%

Weighted average loan-to-value ratio (2): 76.78% Geographic concentrations in excess of 5%:


California (1)	15.36	%
Florida (1)	15.23	%
Illinois (1)	5.90	%
Texas (1)	5.12	%

S-3


Cut-off Date	With respect to the initial mortgage loans, the close of business on June 1, 2006, with respect to the additional mortgage loans, the later of the close of business on June 1, 2006 or the date of origination of such additional mortgage loans and with respect to the subsequent mortgage loans, the later of the first day of the month of the transfer to the issuing entity and the date of origination of such subsequent mortgage loan.

Closing Date	On or about June 29, 2006.

Record Date	For any payment date, the last business day immediately preceding the related payment date so long as the notes are in book-entry form and for notes in definitive form, the last business day of the month immediately preceding the month in which the payment date occurs.

Classes of Notes	The issuing entity will issue the following classes of notes (also listed in the table on the front cover of this prospectus supplement), under an indenture, dated as of June 1, 2006, between the issuing entity and the indenture trustee.

	Offered Notes:	Class A and Class M Notes

	Class A Notes:	Class A-1, Class A-2, Class A-3 and Class A-4 Notes.

	Class M Notes:	Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8 and Class M-9 Notes.

	As used in this prospectus supplement, the preceding terms refer to the respective classes of notes.

Trust Certificates	The issuing entity will also issue a class of trust certificates representing the entire beneficial ownership interest in the issuing entity. The trust certificates are not offered by this prospectus supplement.

Pre-Funding Feature	On the closing date, the depositor will deposit approximately $350,000,000 into a pre-funding account which will be used from time to time before the end of the pre-funding period to acquire subsequent mortgage loans to include in the mortgage pool.

S-4


	The pre-funding period commences on the closing date and ends on the earlier of (i) the date on which the amount on deposit in the pre-funding account is less than $185,000 and (ii) August 28, 2006. Purchases of subsequent mortgage loans are subject to the same criteria as the initial mortgage loans and additional restrictions related to the composition of the aggregate loan pool following the acquisition of the subsequent mortgage loans, as described in this prospectus supplement. To the extent that the issuing entity does not fully use amounts on deposit in the pre-funding account to purchase subsequent mortgage loans by the end of the pre-funding period, the issuing entity will apply the remaining amounts as a prepayment of principal to the related classes of notes on the payment date immediately following the end of the pre-funding period. Although no assurance is possible, we do not anticipate that a material amount of principal will be prepaid on the notes from amounts in the pre-funding account.

Capitalized Interest Account	If required by the rating agencies, a capitalized interest account will be established and funded on the closing date. Funds so deposited will be used to cover shortfalls in collections of interest due to the pre-funding feature. Any amounts remaining in the capitalized interest account (including investment earnings) and not needed for such purpose will be paid to the depositor and will not thereafter be available for payment to the noteholders.

Expected Final Payment Date	The expected final scheduled payment date for each class of offered notes is the last date on which the initial Class Note Balance set forth on the cover page hereof for that class is expected to be reduced to zero. This expectation is based on the assumptions that the mortgage loans prepay at 100% of the Prepayment Assumption, that a 10% optional termination occurs, that no defaults in the payment by the mortgagors of the principal of and interest on the mortgage loans are experienced and that the levels of one-month LIBOR and six-month LIBOR remain constant at 5.199% and 5.420%, respectively. The expected final scheduled payment date for each class of offered notes is as follows:

	Class A-1	April 2008

	Class A-2	September 2008

	Class A-3	June 2011

	Class A-4	May 2013

	Class M	May 2013

	See “Prepayment and Yield Consequences—Expected Final Scheduled Payment Date” in this prospectus supplement.

S-5


Final Scheduled Payment Date		The last possible date on which the principal of the notes is payable in full is the payment date occurring in September 2036 and is referred to as the final scheduled payment date. The notes could be retired before the final scheduled payment date.

Registration of Notes		The notes will be issued only in book-entry form, in denominations of $25,000 initial principal balance and integral multiples of $1,000 in excess thereof, except that one note of each class may be issued in a different amount; provided, however, that the underwriters will only sell offered notes to initial investors in minimum total investment amounts of $100,000.

Denominations		The issuing entity will initially issue the notes in book-entry form. You may elect to hold your interest in the notes through The Depository Trust Company in the United States, or Clearstream Banking, société anonyme or the Euroclear Bank, S.A./N.V. in Europe, or indirectly through participants in these systems. You will not be entitled to receive a definitive note representing your interest except under limited circumstances.

		See “Description of the Notes and the Trust Certificates” for a discussion of the minimum denominations and the incremental denominations of each class of notes and “Description of the Notes and the Trust Certificates—Book-Entry Notes” in this prospectus supplement.

Payment Date		The 25th day of each month, or if such day is not a business day, on the next business day, beginning in July 2006.

		The right of the holders of each class of the Class M Notes to receive payments is subordinate to the right of the holders of each class of the Class A Notes to receive payments, as well as to the rights of the holders of more senior classes of Class M Notes to receive payments.

Payments of Interest		On each payment date, the indenture trustee will distribute Available Funds representing interest collections on the mortgage loans in the following order of priority:

		• to payment of certain limited indemnification liabilities to certain of the transaction parties and net swap payments and swap termination payments under the circumstances described in this prospectus supplement;

		• from the Distributable Interest Amount, interest payments to each class of Class A Notes; and

S-6


		• from the remaining Distributable Interest Amount, to make current interest payments to the Class M Notes, to each such class in ascending numerical order.

		See “Description of the Notes and Trust Certificates—Payments of Interest” in this prospectus supplement.

		Interest Accrual Periods. The interest accrual period for the Offered Notes for each payment date is the period from and including the prior payment date (or, in the case of the first payment date, from and including the closing date) to but excluding the current payment date. Interest will accrue on the Offered Notes on the basis of a 360-day year and the actual number of days elapsed in the interest accrual period.

Payments of Principal		The amount of principal payable to the notes will be determined by (1) funds received on the mortgage loans and under the interest rate swap agreement (including excess interest as described herein) that are available to make principal payments on the notes, as well as in the case of the first payment date after the pre-funding period has ended, the funds on deposit in the pre-funding account at the end of the pre-funding period and (2) formulas that allocate portions of principal payments received or advanced on the mortgage loans and under the interest rate swap agreement that are available to make principal payments to specified classes of notes. Funds received on the mortgage loans may consist of monthly scheduled payments, unscheduled payments resulting from prepayments by borrowers, liquidation of defaulted mortgage loans and repurchases of mortgage loans under the circumstances described in this prospectus supplement or prepayment penalties. The manner of distributing principal among the classes of notes will differ, as described in this prospectus supplement, depending upon whether a payment date occurs before the step-down date, or on or after that date, and depending on whether a trigger event is in effect. The step-down date for each class of notes will be the earlier of the date on which the aggregate class note balances of the Class A Notes have been reduced to zero and the later to occur of the payment date occurring in July 2009, and the first payment date on which the credit enhancement percentage for the Class A Notes would be greater than or equal to approximately 34.60%. On each payment date (A) prior to the step-down date or (B) on which a trigger event is in effect, the indenture trustee will distribute Available Funds representing principal collections on the mortgage loans in the following order of priority:

		• to make principal payments to the Class A Notes, to each such class in ascending numerical order; and

S-7



		• to make principal payments to the Class M Notes, to each such class in ascending numerical order.

		On each payment date (A) on or after the step-down date and (B) on which a trigger event is not in effect, the indenture trustee will distribute Available Funds representing principal collections on the mortgage loans in the following order of priority:

		• to make principal payments to the Class A Notes, to each such class in ascending numerical order, in the amount required to achieve the level of credit enhancement described in this prospectus supplement; and

		• to make principal payments to the Class M Notes, to each such class in ascending numerical order, in the amount required to achieve the level of credit enhancement for each class described in this prospectus supplement.

		However, on any payment date on which the overcollateralization amount has been reduced to zero, and the aggregate outstanding principal balance of the Class M Notes has been reduced to zero, then any payments of principal to be made on the Class A Notes shall be made to such holders on a pro rata basis, rather than sequentially as described above. See “Description of the Notes and the Trust Certificates—Payments of Principal” in this prospectus supplement. See “Prepayment and Yield Consequences” in this prospectus supplement for a discussion of the factors that could affect when the principal of each class of notes will be paid in full. For any payment date, any Available Funds for such payment date remaining after making all payments of interest and principal described above shall be paid as described in “Description of the Notes and the Trust Certificates—Allocation of Net Monthly Excess Cashflow” in this prospectus supplement.

Limited Recourse		The only source of funds available to make interest and principal payments on the notes will be the assets of the issuing entity. The issuing entity will have no source of funds other than collections and recoveries on the mortgage

S-8


		loans through insurance or otherwise and payments received under the interest rate swap agreement. No other entity will be required or expected to make any payments on the notes. See “Risk Factors—The issuing entity assets are the only source of payments on the notes” in this prospectus supplement.

Optional Clean-up Call by the Depositor		The depositor may, at its option, terminate the issuing entity on any payment date when the outstanding principal balance of the notes is equal to or less than 10% of the original principal balance of the notes, after giving effect to distributions on that payment date.

Events of Default		The following events are events of default under the indenture: • default for a specified period of time in the payment of any principal or interest on any note; or • the issuing entity is in breach or default of any one or more of the covenants under the indenture, and the breach or default continues beyond any applicable grace period; or • the issuing entity consents to the appointment of a custodian, receiver, trustee or liquidator, or other similar official, of itself, or of a substantial part of its property, or shall admit in writing its inability to pay its debts generally as they come due, or a court of competent jurisdiction shall determine that the issuing entity is generally not paying its debts as they come due, or the issuing entity shall make a general assignment for the benefit of creditors; or • certain events of bankruptcy relating to the issuing entity or the issuing entity’s property. See “Description of the Notes and Trust Certificates—Events of Default” in this prospectus supplement.

Acceleration after Event of Default		Upon the occurrence of an event of default, the indenture trustee may, or shall at the direction of noteholders representing at least 51% of the aggregate principal balance of the notes, declare the aggregate outstanding principal balance of all the notes to be due and payable together with all accrued and unpaid interest thereon without presentment, demand, protest or other notice of any kind, all of which are waived by the issuing entity. Such declaration may be rescinded by noteholders representing at least 51% of the aggregate principal balance of the notes.

S-9


		Amounts collected following the acceleration of the notes will not be distributed in accordance with the priorities set forth above under “Payments of Interest” and “Payments of Principal” but will instead be distributed in accordance with the priorities set forth under “Description of the Notes and the Trust Certificates—Events of Default” in this prospectus supplement. See “Description of the Notes and Trust Certificates—Events of Default” in this prospectus supplement.

Credit Enhancement		Credit enhancement includes subordination, excess interest, overcollateralization and prepayment penalties. See “Risk Factors— Credit enhancement is limited and may be inadequate to cover shortfalls and losses,” and “Description of the Notes and the Trust Certificates” in this prospectus supplement for a more detailed description of the excess interest, overcollateralization, subordination and prepayment penalties. Subordination of Payments. The right of the holders of the more junior classes of notes to receive payments is subordinated to the right of the holders of the more senior classes of notes to receive payments. Therefore, each subordinate class of notes is more likely to experience losses than any class that is senior to such subordinate class. In general, the protection afforded the holders of more senior classes of notes by means of this subordination will be affected by the preferential right of the holders of the more senior classes to receive, prior to any payment being made on any payment date to the holders of the more junior classes of notes, the amount of interest and principal due on such more senior classes of notes and, if necessary, by the right of such more senior holders to receive future payments on the mortgage loans that would otherwise have been allocated to the holders of the more junior classes of notes. See “Risk Factors—Credit Enhancement is limited and may be inadequate to cover shortfalls and losses” in this prospectus supplement. Excess Interest. The mortgage loans bear interest each month that, in the aggregate, is expected to exceed the amount needed to pay monthly interest on the related notes and certain fees and expenses of the issuing entity. The “excess interest” received from the mortgage loans each month will be available, after taking into account certain payments received by or paid out from the issuing entity under the

S-10

interest rate swap agreement as described in this prospectus supplement, to absorb realized losses on the mortgage loans and to achieve and maintain overcollateralization at required levels.

See “Risk Factors—Credit enhancement is limited and may be inadequate to cover shortfalls and losses” in this prospectus supplement.

Overcollateralization. The overcollateralization amount is the excess of the sum of the aggregate scheduled principal balance of the mortgage loans plus the amount on deposit in the pre-funding account over the aggregate principal balance of the notes. On the closing date, overcollateralization will be equal to approximately $2,800,000, and excess interest will be used to achieve and maintain the target overcollateralization amount.

Generally, because more interest is required to be paid by the mortgagors than is necessary to pay the interest accrued on the notes and the expenses of the issuing entity, there is expected to be excess interest. The issuing entity will apply some or all of this excess interest as principal payments on those classes of notes then entitled to receive payments of principal, until the overcollateralization target is initially met, resulting in an acceleration of amortization of such notes relative to the mortgage loans. This acceleration feature is intended to achieve the overcollateralization target. Once the required level of overcollateralization is met, the acceleration feature will cease, unless it becomes necessary again to restore the required level of overcollateralization. In addition, once the overcollateralization target is initially met, if the overcollateralization amount is reduced below the target overcollateralization amount as a result of losses on the mortgage loans, the issuing entity will apply some or all of this excess interest as principal payments on those classes of notes then entitled to receive payments of principal, until the overcollateralization target is restored, resulting in an acceleration of amortization of such notes relative to the mortgage loans. This acceleration feature is intended to restore overcollateralization. Once the required level of overcollateralization is restored, the acceleration feature will cease, unless it becomes necessary again to restore the required level of overcollateralization. The actual level of overcollateralization may increase or decrease over time. This could result in a temporarily faster or slower amortization of the notes.

See “Risk Factors— Credit enhancement is limited and may be inadequate to cover shortfalls and losses” and “Description of the Notes and the Trust Certificates—Overcollateralization Provisions” in this prospectus supplement.

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		Prepayment Penalties. Some of the mortgage loans contain prepayment penalty fee clauses pursuant to which prepayment penalty fees are chargeable on prepayments occurring during the first six months to five years after origination. Any prepayment penalties will be used, if necessary on any payment date, to absorb losses on the mortgage loans and to achieve or maintain overcollateralization. See “Risk Factors—Credit enhancement is limited and may be inadequate to cover shortfalls and losses” in this prospectus supplement.

Interest Rate Swap Agreement		As of the closing date, the issuing entity will have entered into an interest rate swap agreement with Barclays Bank PLC. The purpose of the interest rate swap agreement is to minimize the risk to noteholders of adverse changes in interest rates. Under the interest rate swap agreement, on each payment date the issuing entity will pay to the swap provider a fixed payment at a rate of 5.250% per annum (on the basis of an actual/360 day count fraction), and the swap provider will pay to the issuing entity a floating payment at LIBOR (as determined pursuant to the interest rate swap agreement) (on the basis of an actual/360 day count fraction), in each case calculated on a scheduled notional amount and, in each case adjusted on a monthly basis. To the extent that the fixed payment exceeds the floating payment on any payment date, amounts otherwise available to noteholders will be applied to make a net payment to the swap provider, and to the extent that the floating payment exceeds the fixed payment on any payment date, the swap provider will owe a net payment to the issuing entity. Any net amounts received by or paid out from the issuing entity under the interest rate swap agreement will either increase or reduce the amount available to make payments on the notes, as described in this prospectus supplement. The interest rate swap agreement terminates after the payment date in June 2011. See “Description of the Notes and the Trust Certificates -- Interest Rate Swap Agreement” in this prospectus supplement.

Allocation of Losses		All realized losses on the mortgage loans will be allocated on each payment date, sequentially as follows: first to the excess cash flow, second to prepayment penalties and third in reduction of the overcollateralization amount. Realized losses on the mortgage loans will not be allocated to reduce the note principal balance of any class of notes. However, investors in the notes should realize that under certain loss

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		scenarios, there may not be enough principal and interest on the mortgage loans to distribute to the notes all principal and interest amounts to which such notes are then entitled. If realized losses are incurred with respect to the mortgage loans, to the extent that the aggregate principal balance of the notes exceeds the aggregate principal balance of the mortgage loans, the Class M Notes may never receive principal or interest in respect of such excess. The amount of interest accrued on the portion of the balance of the notes in excess of the balance of the mortgage loans will be deferred and such deferral will be allocated to the Class M Notes, sequentially in ascending numerical order. The amount of interest so deferred will be paid only after certain other payments are made from excess interest to restore overcollateralization and to pay basis risk shortfalls. See “Risk Factors—Credit enhancement is limited and may be inadequate to cover shortfalls and losses—Subordination” and “Description of the Notes and the Trust Certificates” in this prospectus supplement.

Removal and Substitution of Mortgage Loans		Upon the earlier of discovery or receipt of notice by the depositor of a breach of any of the representations and warranties contained in the sale and servicing agreement which materially and adversely affects the value of the related mortgage loan or the interests of the noteholders in the related mortgage loan, the depositor will have a period of sixty days to effect a cure. If the breach is not cured within the sixty-day period, the depositor will, and if the depositor fails to, then the sponsor will either (a) substitute for such mortgage loan a Qualified Substitute Mortgage Loan or (b) purchase such mortgage loan from the issuing entity. See “Description of the Notes and Trust Certificates—Representations and Warranties of the Sponsor” in this prospectus supplement. The indenture trustee shall review each mortgage loan file and if during the process of reviewing the mortgage files, finds any document constituting a part of a mortgage file which is not executed, has not been received, is unrelated to the mortgage loan, or does not conform to the requirements in the sale and servicing agreement, the indenture trustee will promptly so notify the servicer and the sponsor in writing with details thereof. If, within sixty days after the indenture trustee’s notice of such defect, the depositor or the sponsor has not caused the defect to be remedied and the defect materially and adversely affects the value of the related mortgage loan or the interest of the noteholders in the related mortgage loan, the depositor or the sponsor will either (a) substitute such mortgage loan with a Qualified Substitute Mortgage Loan or (b) purchase such mortgage loan. See “Description of the Notes and Trust Certificates—Delivery of Mortgage Loan Documents” in this prospectus supplement.

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Servicing Fee		The servicer will receive a servicing fee on each payment date in an amount equal to interest at the servicing fee rate for a mortgage loan on the outstanding principal balance of that mortgage loan. The servicing fee rate with respect to each mortgage loan will be 0.500% per annum. The servicing fee will be paid out of Available Funds on each payment date prior to any payments on the notes.

Advancing		The servicer will be required to advance amounts representing delinquent payments of scheduled principal and interest, other than balloon payments, as well as expenses to preserve and to protect the value of collateral, in each case to the extent considered recoverable. Reimbursement of these advances is senior to payments to noteholders.

Step-Up Rates		If the depositor does not elect to exercise the clean-up call, the margins with respect to each class of Class A Notes will increase to twice their initial margins, and the margins with respect to each class of Class M Notes will increase to 1.5 times their initial margins, in each case on the next payment date.

Calculation of LIBOR		The London interbank offered rate (“LIBOR”) with respect to any payment date will be determined by the indenture trustee (provided that, in the case of the interest rate swap agreement, it will be determined by the swap provider) and will equal the posted rate for United States dollar deposits for one month that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the second LIBOR Business Day prior to the immediately preceding payment date (or, in the case of the first payment date, the second LIBOR business day preceding the closing date). If no such posted rate appears, LIBOR will be determined on the basis of the offered quotation of the reference banks (which shall be four major banks that are engaged in transactions in the London interbank market) identified in the indenture for United States dollar deposits for one month to prime banks in the London interbank market as of 11:00 a.m., London time, on such date. See “Description of the Notes and the Trust Certificates-Calculation of LIBOR” in this prospectus supplement.

ERISA Consequences		Subject to the conditions and considerations described in this prospectus supplement and in the accompanying prospectus, the notes may be purchased by pension, profit-sharing and other employee benefit plans, as well as individual retirement accounts and Keogh plans, and by persons investing on behalf of or with plan assets of such plans.

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Federal Income Tax Status		It is the opinion of Dewey Ballantine LLP, federal tax counsel to the issuing entity, that for federal income tax purposes:

		• the notes, other than notes held by the owner of the trust certificates, will be characterized as indebtedness, and

		• as long as the issuing entity is wholly-owned either directly by a REIT, or by another qualified REIT subsidiary, that maintains its REIT status, the issuing entity will be treated as a qualified REIT subsidiary and will not be characterized as an association (or publicly traded partnership) taxable as a corporation.

		Each noteholder, by the acceptance of a note, will agree to treat the notes as indebtedness.

Legal Investment		The notes will not be “mortgage related securities” under the Secondary Mortgage Market Enhancement Act of 1984.

Ratings		In order to be issued, the notes must receive at least the following ratings from Standard & Poor’s Rating Services, a division of the McGraw-Hill Companies, Inc. and Moody’s Investors Service, Inc.:


		Class				Ratings (S&P/Moody’s)
		A				AAA/Aaa
		M-1				AA+/Aa1
		M-2				AA+/Aa2
		M-3				AA/Aa3
		M-4				AA/A1
		M-5				AA-/A2
		M-6				A+/A3
		M-7				BBB+/Baa1
		M-8				BBB/Baa2
		M-9				BBB-/Baa3



		These ratings subsequently may be lowered, qualified or withdrawn by the rating agencies. These ratings do not cover any payment of Basis Risk Carry-Forward Amounts.

Use of Proceeds		The net proceeds to be received from the sale of the notes will be applied primarily to repay financing for the mortgage loans and to purchase the interest rate swap agreement. The underwriters or affiliates of the underwriters have provided financing for certain of the mortgage loans.

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Risk Factors

An investment in the notes involves significant risks. Before you decide to invest in the notes, we recommend that you carefully consider the following risk factors and the risk factors discussed under the heading “Risk Factors” beginning on page 1 of the prospectus.

The statistical information presented in this prospectus supplement is computed based on the Initial Pool Balance. All percentages are measured by the aggregate Initial Cut-off Date Principal Balance of the applicable initial mortgage loans in relation to the Initial Pool Balance.

Certain features of the mortgage loans may result in losses or cash flow shortfalls

There are a number of features of the mortgage loans that create additional risk of loss, including the following:

•

The borrowers have less than perfect credit and may be more likely to default. The sponsor’s underwriting standards are less restrictive than those of Fannie Mae or Freddie Mac with respect to a borrower’s credit history and other factors. A derogatory credit history or a lack of credit history will not necessarily prevent the sponsor from making a loan but may reduce the size and the loan-to-value ratio of the loan the sponsor will make. As a result of these less restrictive standards, the issuing entity may experience higher rates of delinquencies and defaults than if the mortgage loans were underwritten in a more traditional manner.

•

Newly originated mortgage loans may be more likely to default which may cause losses. Defaults on mortgage loans tend to occur at higher rates during the early years of the mortgage loans. Substantially all of the mortgage loans will have been originated within 12 months prior to the sale to the issuing entity. As a result, the issuing entity may experience higher rates of default than if the mortgage loans had been outstanding for a longer period of time.

•

Balloon loans may have higher rates of default which may cause losses. Based on the Initial Pool Balance of the initial mortgage loans, approximately 31.10% of all of the initial mortgage loans are “balloon loans,” which are loans originated with a stated maturity scheduled to occur prior to the expiration of the corresponding amortization schedule. Upon the maturity of a balloon loan, the borrower will be required to make a “balloon” payment that will be significantly larger than the borrower’s previous scheduled payments. The ability of such a borrower to repay a balloon loan at maturity frequently will depend on such borrower’s ability to refinance the loan. The ability of a borrower to refinance such a loan will be affected by a number of factors, including the level of available mortgage rates at the time, the value of the related mortgaged property, the borrower’s equity in the mortgaged property, the financial condition of the borrower, the tax laws and general economic conditions at the time. A high interest rate environment may make it more difficult for the borrower to accomplish a refinancing and may result in an increased rate of delinquencies, foreclosures and/or losses. If the borrower is unable to repay the unpaid principal amount of a balloon loan on its maturity date, the servicer will not be obligated to advance that amount. Instead, the servicer will be obligated to advance an amount equal to the assumed monthly payment that would have been due on the balloon loan based upon the original amortization schedule for that loan. If the borrower is unable to repay the loan balance by its maturity date or refinance the balloon loan, you will suffer a loss if the collateral for such loan is insufficient, or if other forms of credit enhancement are insufficient to cover such loss. Neither the servicer nor the sponsor will be obligated to refinance a balloon loan.

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•

The rate of default of mortgage loans secured by second-liens may be greater than that of mortgage loans secured by first-liens on comparable properties. The initial mortgage pool includes mortgage loans secured by second-liens on the related mortgaged property. Approximately 1.61% of the initial mortgage loans were secured by a second lien on the related mortgaged property. The proceeds from any liquidation, insurance or condemnation proceedings will be available to satisfy the outstanding balance of such mortgage loans only to the extent that the claims of the related senior mortgages have been satisfied in full, including any related foreclosure costs. In circumstances when it has been determined to be uneconomical to foreclose on the mortgaged property, the servicer may write off the entire balance of such mortgage loan as a bad debt. The foregoing considerations will be particularly applicable to mortgage loans secured by second-liens that have high combined loan-to-value ratios because it is comparatively more likely that the servicer would determine foreclosure to be uneconomical in the case of such mortgage loans.

•

The concentration of mortgage loans in specific geographic areas may increase the risk of loss. Economic conditions in the states where borrowers reside may affect the delinquency, loss and foreclosure experience of the issuing entity with respect to the mortgage loans. Based on the Initial Pool Balance of the initial mortgage loans, approximately 15.36%, 15.23%, 5.90% and 5.12% of the initial mortgage loans are secured by properties in California, Florida, Illinois and Texas, respectively. These states may suffer economic problems or reductions in market values for residential properties that are not experienced in other states. Because of the concentration of mortgage loans in these states, those types of problems may have a greater effect on the notes than if borrowers and properties were more spread out in different geographic areas. For example, some of the mortgaged properties may be more susceptible to certain types of special hazards, such as earthquakes, hurricanes, floods, mudslides, wildfires and other natural disasters and major civil disturbances, than residential properties located in other parts of the country.

•

The concentration of mortgage loans in California and Florida may increase the risk of loss. Approximately 15.36% of the aggregate principal balance of the initial mortgage loans are secured by mortgaged properties located in California. Property in California may be more susceptible than homes located in other parts of the country to some types of uninsurable hazards, such as earthquakes, mudslides, floods, wildfires and eruptions, and civil disturbances such as riots. Since 2001, California has experienced intermittent energy shortages that have resulted in unpredictable rolling blackouts and higher energy costs. Such obligors could potentially become delinquent in making monthly payments or default if they were unable to make payments due to increased energy or fuel bills or unemployment. The issuing entity’s ability to make payments on the notes could be adversely affected if the related obligors were unable to make timely payments. The depositor cannot predict whether, or to what extent or for how long, such events may occur.

Approximately 15.23% of the aggregate principal balance of the initial mortgage loans are secured by mortgaged properties located in Florida. Property in Florida may be more susceptible than homes located in other parts of the country to some types of uninsurable hazards, such as hurricanes and floods. In 2005, hurricanes Katrina and Wilma caused substantial devastation to parts of Florida. Additional hurricanes may strike the region. Such hazards may increase the rate of delinquencies and losses on the mortgage loans secured by mortgaged properties that are or may be affected by the hurricanes because they may have

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an impact on the ability of borrowers to make payments on their mortgage loans, the ability of the servicer to make collections on mortgage loans and the level of forbearance afforded by the servicer to borrowers. Other economic effects include localized areas of nearly complete destruction of the economic infrastructure and cessation of economic activity, regional interruptions in travel and transportation, tourism and economic activity generally. Any adverse impact as a result of such events may be borne by the holders of the notes.

In addition, there are also concentrations of mortgage loans in other states as described under “The Mortgage Loans” in this prospectus supplement. Consequently, losses and prepayments on the mortgage loans and the resultant payments on the notes may be affected significantly by changes in the housing markets and the regional economies in any of these areas and by the occurrence of natural disasters, such as earthquakes, hurricanes, tornadoes, tidal waves, mudslides, fires and floods in these areas.

•

Interest-only mortgage loans may have an increased risk of loss. Approximately 9.49% of all of the initial mortgage loans do not provide for any payments of principal during the first five years of their term. These mortgage loans may involve a greater degree of risk because, if the related mortgagor defaults, the outstanding principal balance of that mortgage loan will be higher than for a mortgage loan that does not have an interest-only period.

Simultaneous second lien risk

With respect to approximately 24.92% of all of the first lien initial mortgage loans (by aggregate principal balance as of the cut-off date), at the time of origination of the first lien initial mortgage loan, the originator also originated a second lien mortgage loan which may or may not be included in the initial mortgage pool. The weighted average loan-to-value ratio of such initial mortgage loans is approximately 79.52%, and the weighted average combined loan-to-value ratio of such initial mortgage loans (including the second lien) is approximately 98.47%. With respect to a first lien mortgage loan where the mortgaged property is also encumbered by a second lien mortgage loan, foreclosure frequency may be increased since mortgagors have less equity in the mortgaged property. In addition, the servicer may declare a default on the second lien loan, even though the first lien is current which would constitute a default on the first lien loan. Investors should also note that any mortgagor may obtain secondary financing at any time subsequent to the date of origination of their mortgage loan from the originator or from any other lender.

The assignment of certain of the mortgages in the name of MERS may result in delays and additional costs in commencing, prosecuting and completing foreclosure proceedings

The assignment of certain of the mortgages in the name of Mortgage Electronic Registration Systems, Inc. (“MERS”) is a relatively new practice in the mortgage lending industry. The sponsor expects that the servicer or successor servicer will be able to commence foreclosure proceedings on the mortgaged properties, when necessary and appropriate; however, public recording officers and others may have limited, if any, experience with lenders seeking to foreclose mortgages, assignments of which are registered with MERS. Accordingly, delays and additional costs in commencing, prosecuting and completing foreclosure proceedings, defending litigation commenced by third parties and conducting foreclosure sales of the mortgaged properties could result. Those delays and additional costs could in turn delay the distribution of liquidation proceeds to the noteholders and increase the amount of realized losses on the mortgage loans.

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Your yield to maturity may be reduced by prepayments and defaults

The pre-tax yield to maturity on your investment is uncertain and will depend on a number of factors, including the following:

•

Prepayments on fixed-rate mortgage loans. The mortgage loans allow the borrowers to prepay the loans in full or in part at any time. Approximately 51.00% of all of the initial mortgage loans are fixed-rate mortgage loans. Based on the Initial Pool Balance of the initial mortgage loans, approximately 84.85% of the fixed-rate initial mortgage loans have prepayment penalty fee clauses pursuant to which prepayment penalty fees are chargeable on prepayments occurring during the first six months to five years after origination. These fees may discourage borrowers from prepaying their mortgage loans during the prepayment penalty fee period and, accordingly, affect the rate of prepayment of such mortgage loans even in a declining interest rate environment. The servicer may waive a prepayment charge if a mortgage loan is in default or if a default is reasonably foreseeable.

The rate of prepayments on the mortgage loans is sensitive to prevailing interest rates. If prevailing interest rates fall significantly below the mortgage interest rates on the mortgage loans, the mortgage loans are likely to be subject to higher prepayment rates than if prevailing interest rates remain at or above the mortgage interest rates on the mortgage loans. Conversely, if prevailing interest rates rise significantly above the mortgage interest rates on the mortgage loans, the rate of prepayments is likely to decrease. The weighted average lives of the notes and, if purchased at other than par, the yields realized by owners of the notes, will be sensitive to rates of payment of principal on the mortgage loans. The yield on a note that is purchased at a premium from its outstanding principal balance may be adversely affected by higher than anticipated levels of prepayments on the mortgage loans. Conversely, the yield on a note that is purchased at a discount from its outstanding principal balance may be adversely affected by lower than anticipated levels of prepayments on the mortgage loans.

•

Prepayments on adjustable-rate mortgage loans. Approximately 49.00% of the initial mortgage loans are adjustable-rate mortgage loans which have fixed rates of interest for the first six months, two years (“2/28 loans”), three years (“3/27 loans”) or five years (“5/25 loans”) after origination and then convert to adjustable rates. This type of adjustable-rate mortgage loan is commonly referred to as a hybrid mortgage loan. Based on the Initial Pool Balance of the initial mortgage loans, approximately 67.76% of the adjustable-rate initial mortgage loans have prepayment penalty fee clauses pursuant to which prepayment penalty fees are chargeable on prepayments occurring during the first six months to five years after origination. The prepayment experience on the adjustable-rate loans may differ from the prepayment experience on fixed-rate mortgage loans due to provisions which provide for conversion to an adjustable mortgage interest rate, periodic coupon reset caps and a maximum mortgage interest rate. In particular, hybrid mortgage loans may be subject to higher prepayment rates as they approach the date they are scheduled to convert to an adjustable-rate mortgage loan. As a hybrid mortgage loan approaches its initial adjustment date, the borrower may become more likely to refinance that loan to avoid an increase in the loan rate, even if fixed-rate mortgage loans are only available at rates that are slightly lower or higher than the mortgage interest rate before adjustment. All adjustable-rate initial mortgage loans currently originated by the Sponsor have an initial period of time in which the interest rate on the note is fixed (six months, two years, three years or five years). For the first month after the expiration of the fixed interest rate period (month 25, for a 2/28 loan, for example), the borrower’s interest rate is calculated using the “Six Month LIBOR Index” plus the margin specified in the borrower’s note. With regard to substantially all of the adjustable-

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rate initial mortgage loans, for the initial six-month period after the change date, the borrower’s interest rate cannot be more than 1.500% greater than the fixed rate (2/28, 3/27 and 5/25 loans) or 1.000% for the “Six month fixed rate period” product. With regard to substantially all of the adjustable-rate initial mortgage loans, for each subsequent rate change, the borrower’s interest rate cannot be more than 1.500% greater than the previous interest rate (2/28, 3/27 and 5/25) and 1.000% for the “six month fixed rate period” product. At any time, the borrower’s interest rate cannot be more than 7.000% greater than the fixed rate which the borrower initially paid (2/28, 3/27 and 5/25) and 6.000% for the “six month fixed rate period” product.

•

Prepayments on interest-only mortgage loans. Approximately 9.49% of the initial mortgage loans provide for payment of interest at the related mortgage interest rate, but no payment of principal for approximately the first five years following the origination of the mortgage loan. Following such interest-only period, the monthly payment with respect to each of these mortgage loans will be increased to, and include a portion allocable to principal in, an amount sufficient to amortize the principal balance of the mortgage loan over the remaining term and to pay interest at the mortgage interest rate. If a recalculated monthly payment as described above is substantially higher than a borrower’s previous interest-only monthly payment, that loan may be subject to an increased risk of delinquency, loss and/or prepayment.

•

Defaults and delinquencies may cause shortfalls in cash available to make payments. There can be no assurance that the applicable credit enhancement will adequately cover any shortfalls in cash available to make payments on your notes as a result of delinquencies or defaults on the mortgage loans. If delinquencies or defaults occur on the mortgage loans, neither the servicer nor any other entity will advance scheduled monthly payments of interest on delinquent or defaulted mortgage loans if such advances are not likely to be recovered.

•

You may be unable to reinvest distributions in comparable investments. Asset-backed securities, like the notes, usually produce more returns of principal to investors when market interest rates fall below the mortgage interest rates on the mortgage loans and produce less returns of principal when market interest rates rise above the mortgage interest rates on the mortgage loans. If borrowers refinance their mortgage 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 notes, and are likely to receive less money to reinvest when other investments generally are producing a higher yield than that on the notes. You will bear the risk that the timing and amount of distributions on your notes will prevent you from attaining your desired yield.

•

Limitations on interest rates will affect your yield to maturity. The notes may be subject to an “available funds cap rate” on some payment dates, if the interest rate otherwise applicable to such notes exceeds the Available Funds Cap. The application of these caps would reduce the amount of interest you will receive. Any shortfall in interest on the notes due to these caps will be paid out of excess interest and amounts, if any, received, from the swap provider to the extent available in accordance with the priority of payments described herein. However, if the full amount of such shortfall is not paid, such unpaid amounts will be carried forward to subsequent payment dates. Further, increases and decreases in interest rates may be limited for any interest rate adjustment date (i.e., an initial or a periodic adjustment cap). In addition, the mortgage interest rates may be subject to an overall maximum and minimum interest rate.

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•

Mortgage loans with higher mortgage rates may affect the Available Funds Cap. If prepayments, defaults and liquidations occur more rapidly on the applicable mortgage loans with relatively higher mortgage rates than on the mortgage loans with relatively lower mortgage rates, it will have the effect of lowering the Available Funds Cap.

Additional mortgage loans may have characteristics that differ from those of the initial mortgage loans which may reduce your yield to maturity

Following the transfer of the additional mortgage loans (approximately $214,280,879 in aggregate principal balance) to the issuing entity on the closing date, the characteristics of the mortgage loans may differ from the information presented in this prospectus supplement, though we do not expect them to vary materially. The characteristics that may differ include, among others, the composition of the mortgage loans, the credit quality of the mortgage loans, the distribution by interest rate, the distribution by principal balance, the distribution by loan-to-value ratio and the distribution by remaining term to stated maturity. We recommend that you consider potential variances when making your investment decision concerning the offered notes.

The final pool of mortgage loans will include mortgage loans which will differ from the pool of initial mortgage loans described in this prospectus supplement

Subsequent mortgage loans may have characteristics different from those of the initial mortgage loans. However, each subsequent mortgage loan must satisfy the eligibility criteria referred to under the “The Mortgage Pool—Conveyance of Subsequent Mortgage Loans and the Pre-Funding Account” at the time of its conveyance to the issuing entity and must be underwritten in accordance with the criteria described under “The Sponsor” herein. The statistical information presented in this prospectus supplement under “The Mortgage Pool” describes a pool of mortgage loans consisting in the aggregate of the initial mortgage loans to be transferred to the issuing entity on the closing date.

The pre-funding feature could result in a significant prepayment on the Notes at the end of the pre-funding period.

If the amount in the pre-funding account with respect to a group of mortgage loans is not fully applied to the purchase of subsequent mortgage loans by the end of the pre-funding period, the remaining funds will be used to make a principal prepayment on the Notes. No assurances can be given that there will not be such a payment.

The use of an interest rate swap agreement creates risk to your yield if there are rapid prepayments on the mortgage loans or an early termination of the interest rate swap agreement occurs; there can be no assurance that any amounts will be received under the interest rate swap agreement

Any net payment payable to the swap provider under the terms of the interest rate swap agreement will reduce amounts available for distribution to noteholders, and may reduce the interest rates of the notes. If the rate of prepayments on the mortgage loans is faster than anticipated, the scheduled notional amount on which payments due under the interest rate swap agreement are calculated may exceed the Pool Balance, thereby increasing the relative proportion of interest collections on the loans that must be applied to make net payments to the swap provider. The combination of a rapid rate of prepayment and low prevailing interest rates could adversely affect the yields on the notes.

In addition, swap termination payments (other than Defaulted Swap Termination Payments) arising under the interest rate swap agreement are payable to the swap provider on a senior basis and such payments may reduce amounts available for distribution to noteholders.

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Any amounts received under the interest rate swap agreement will be applied as described in this prospectus supplement to pay interest shortfalls, achieve, restore and maintain overcollateralization and cover losses. However, no amounts will be payable to the issuing entity by the swap provider unless the floating payment owed by the swap provider on a payment date exceeds the fixed payment owed to the swap provider on such payment date. This generally will not occur except in a period where one-month LIBOR (as determined pursuant to the interest rate swap agreement) exceeds 5.250% per annum. We cannot assure you that any amounts will be received under the interest rate swap agreement, or that any such amounts that are received will be sufficient to restore or maintain required overcollateralization or to cover interest shortfalls and losses on the mortgage loans.

See “Description of the Notes and the Trust Certificates—Distributions of Interest—Priority of Payment” “—Distributions of Principal” and “—Interest Rate Swap Agreement.”

The credit rating of the swap provider and its guarantor could affect rating of notes

The short term unsecured obligations of the swap provider are rated A-1+ by Standard & Poor’s, P-1 by Moody’s and F1+ by Fitch Ratings Limited. The long-term obligations of the swap provider are rated AA by Standard & Poors, Aa1 by Moody’s and AA+ by Fitch Ratings Limited.

The ratings on the notes are dependent in part upon the credit ratings of the swap provider. If a credit rating of the swap provider is qualified, reduced or withdrawn and a substitute swap provider is not obtained or collateral is not posted in accordance with the terms of the interest rate swap agreement, the ratings of the notes may be qualified, reduced or withdrawn. In such event, the value and marketability of the notes may be adversely affected.

See “Description of the Notes and the Trust Certificates— Interest Rate Swap Agreement.”

The issuing entity assets are the only source of payments on the notes

All distributions on each class of notes will be made from payments by borrowers under the mortgage loans, net of payments made under the interest rate swap agreement and amounts received, if any, from the swap provider. The issuing entity has no other assets to make distributions on the notes and any shortfalls in collections on the mortgage loans may result in your receiving less than what is owed to you. The mortgage loans are not insured or guaranteed by any person. The issuing entity is the only person that is obligated to make distributions on the notes. The notes are not insured by any governmental agency.

Credit enhancement is limited and may be inadequate to cover shortfalls and losses

The excess interest, overcollateralization, subordination and prepayment penalties described in this prospectus supplement are intended to enhance the likelihood that holders of more senior classes will receive regular payments of interest and principal, but are limited in nature and may be insufficient to cover all shortfalls and all losses on the mortgage loans.

Excess Interest and Overcollateralization. In order to achieve or maintain overcollateralization, it will be necessary that the mortgage loans generate more interest than is needed to pay interest on the notes as well as the fees and expenses of the issuing entity. We expect that the mortgage loans will generate more interest than is needed to pay those amounts, at least during certain periods, because the weighted average of the interest rates on the mortgage loans is expected to be higher than the weighted average of the Interest Rates on the related notes. Any remaining interest generated by the mortgage loans will be used, if necessary on any payment date, to absorb losses on the mortgage loans, to achieve or maintain overcollateralization.

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On the closing date, the aggregate scheduled principal balance of the mortgage loans plus the pre-funding amount will exceed the aggregate principal balance of the notes. Such excess is referred to herein as “overcollateralization” and will be available to absorb losses. We cannot assure you, however, that the mortgage loans will generate enough excess interest in all periods to achieve and maintain the overcollateralization level required by the rating agencies. The following factors will affect the amount of excess interest that the mortgage loans will generate:

Prepayments. Every time a mortgage loan is prepaid in whole or in part, total excess interest after the date of prepayment will be reduced because that mortgage loan will no longer be outstanding and generating interest or, in the case of a partial prepayment, will be generating less interest. The effect on your notes of this reduction will be influenced by the amount of prepaid loans and the characteristics of the prepaid loans. Prepayment of a disproportionately high number of high interest rate mortgage loans would have a greater negative effect on future excess interest.

Delinquencies, Defaults and Liquidations. If the rates of delinquencies (to the extent not covered by advances made by the servicer), defaults or losses on the mortgage loans turn out to be higher than expected, excess interest will be reduced by the amount necessary to compensate for any shortfalls in cash available to pay noteholders. Every time a mortgage loan is liquidated or charged off, excess interest is reduced because such mortgage loan will no longer be outstanding and generating interest.

Increases in LIBOR with respect to mortgage loans. Based on the Initial Pool Balance of the initial mortgage loans, approximately 49.00% have interest rates that adjust based on a six-month LIBOR index (generally subject to an initial fixed rate period of six months, or two, three or five years after origination) and not the one-month LIBOR index used to determine the interest rates on the Offered Notes. The remainder of the mortgage loans have fixed rates of interest. As a result of an increase in one-month LIBOR, the Interest Rate on such notes may increase relative to interest rates on the mortgage loans, requiring that more of the interest generated by the mortgage loans be applied to cover interest on such notes which will accordingly reduce the amount of excess interest available.

See “Description of the Notes and the Trust Certificates –Overcollateralization Provisions” in this prospectus supplement.

Subordination. The rights of the holders of each class of the Class M Notes to receive payments will be subordinate to the rights of the holders of the Class A Notes to receive payments, as well as to the rights of the holders of more senior classes of Class M Notes to receive payments. This subordination is intended to enhance the likelihood of regular receipt by higher-ranking classes of notes of the full amount of the monthly payments allocable to them, and to afford protection against losses.

If realized losses are incurred with respect to the mortgage loans, to the extent that the aggregate principal balance of the notes exceeds the aggregate principal balance of the mortgage loans plus the remaining pre-funding amount, the Class M Notes may never receive principal or interest in respect of such excess. The amount of interest accrued on the portion of the balance of the notes in excess of the balance of the mortgage loans plus the remaining pre-funding amount will be deferred and such deferral will be allocated to the Class M Notes in reverse order of seniority. The amount of interest so deferred will be paid only after certain other payments are made from excess interest to restore overcollateralization and to pay basis risk shortfalls. Investors should fully consider the risks associated with an investment in the Class M Notes, including the possibility that investors may not fully recover their initial investment as a result of realized losses.

The Class M Notes have the following levels of priority with respect to payments and effects of realized losses:


Class M-1		more senior

Class M-2
Class M-3
Class M-4
Class M-5
Class M-6
Class M-7
Class M-8
Class M-9		less senior

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Prepayment Penalties. Some of the mortgage loans contain prepayment penalty fee clauses pursuant to which prepayment penalty fees are chargeable on prepayments occurring during the first six months to five years after origination. Any prepayment penalties will be used, if necessary on any payment date, to absorb losses on the mortgage loans and to achieve or maintain overcollateralization. The servicer may waive a prepayment charge if a mortgage loan is in default or if a default is reasonably foreseeable.

Bankruptcy of the servicer may adversely affect payments on the notes and servicing of the mortgage loans

In the event of a bankruptcy or insolvency of Accredited Home Lenders, Inc., as servicer, the bankruptcy trustee or receiver may have the power to prevent Deutsche Bank National Trust Company, as indenture trustee, or the noteholders (in the limited circumstances outlined in the sale and servicing agreement) from appointing a successor servicer. Regardless of whether a successor servicer is appointed, any termination of Accredited Home Lenders, Inc., as servicer (whether due to bankruptcy or insolvency or otherwise), could adversely affect the servicing of the mortgage loans, including the delinquency experience of the mortgage loans.

The notes are not suitable investments for all investors

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

Terrorist attacks and military action could adversely affect the yield on the notes

The terrorist attacks in the United States on September 11, 2001 suggest that there is an increased likelihood of future terrorist activity in the United States. In addition, current political and military tensions in the Middle East have resulted in a significant deployment of United States military personnel in the region. Investors should consider the possible effect of past and possible future terrorist attacks and any resulting military response by the United States on the delinquency, default and prepayment

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experience of the mortgage loans. In accordance with the servicing standard set forth in the sale and servicing agreement, the servicer may defer, reduce or forgive payments and delay foreclosure proceedings in respect of mortgage loans to borrowers affected in some way by past and possible future events.

In addition, the current deployment of United States military personnel in the Middle East and the activation of a substantial number of United States military reservists and members of the National Guard may significantly increase the proportion of mortgage loans whose mortgage rates are reduced by the application of the Servicemembers Civil Relief Act, as amended (the “Relief Act”) or a state law providing for similar relief. See “Legal Aspects of Loans— Relief Act” in the prospectus. Certain shortfalls in interest collection arising from the application of the Relief Act of any state law providing for similar relief will not be covered by the servicer or any subservicer.

Taxation of the issuing entity

It is anticipated that the issuing entity will be characterized as one or more taxable mortgage pools, or TMPs, for federal income tax purposes. In general, a TMP is treated as a separate corporation not includible with any other corporation in a consolidated income tax return, and is subject to corporate income taxation. However, it is anticipated that the issuing entity will be entirely owned by the depositor, that at all times that it owns the sole class of equity in the issuing entity, intends to qualify as a “real estate investment trust,” or REIT. So long as the issuing entity is owned by the depositor (or another REIT or “qualified REIT subsidiary”), and the depositor continues to qualify as a REIT, classification of the issuing entity as a TMP will not cause it to be subject to corporate income tax.

In the event that the issuing entity is not wholly owned by a REIT or a “qualified REIT subsidiary,” (for instance, as a consequence of the depositor losing its REIT status), the issuing entity would become subject to federal income taxation as a corporation and would not be permitted to be included in a consolidated income tax return of another corporate entity. No transfer of the owner trust certificates will be permitted to an entity that is not a REIT or a qualified REIT subsidiary.

In the event that federal income taxes are imposed on the issuing entity, the cash flow available to make payments on the offered notes would be reduced. In addition, the need for cash to pay such taxes could result in a liquidation of the issuing entity, with a consequential redemption of the offered notes at a time earlier than anticipated.

The sponsor may be adversely affected by litigation to which it is, or may become, a party

As more fully described under “The Sponsor—Legal Proceedings,” the sponsor currently is and may in the future become a defendant in class action or other lawsuits which seek to recover substantial amounts from the sponsor. No assurances can be given that the sponsor will be able to successfully defend all or any of such lawsuits, and adverse results in one or more of such lawsuits could have a material adverse effect on the sponsor’s ability to perform as the servicer and to repurchase defective mortgage loans. In addition to the class actions disclosed in Accredited’s public filings, Accredited is subject to the lawsuit described below.

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attorneys’ fees, and any other relief the court may grant. On April 13, 2006, Accredited removed the action to the United States District Court, District of Maryland. On May 15, 2006, Accredited filed a motion to dismiss plaintiffs’ second cause of action alleging a violation of the Maryland Consumer Protection Act on the basis that full disclosure of the fees cannot be an unfair or deceptive trade practice. A hearing date for the motion to dismiss has not been set. A motion to certify a class has not yet been filed, and there has been no ruling on the merits of either the plaintiff’s individual claims or the claims of the putative class, and the ultimate outcome of this matter and the amount of liability, if any, which may result is not presently determinable. Accredited intends to vigorously defend this matter and does not believe it will have a material adverse effect on its business.

High loan-to-value ratios increase risk of loss

Mortgage loans with higher loan-to-value ratios may present a greater risk of loss than mortgage loans with lower loan-to-value ratios. Based on the Initial Pool Balance of the initial mortgage loans, approximately 28.61% of the initial mortgage loans had loan-to-value ratios in excess of 80% (references to loan-to-value ratios in this prospectus supplement are references to combined loan-to-value ratios with respect to second-lien mortgage loans). Additionally, the determination of the value of a mortgaged property used to calculate the loan-to-value ratio of a mortgage loan may differ from the appraised value of such mortgaged properties if current appraisals were to be obtained.

Violation of lending laws could result in losses on the notes

In addition to federal law, some states have enacted laws or regulations that prohibit inclusion of some provisions in mortgage loans that have interest rates or origination costs in excess of prescribed levels, and require that mortgagors be given certain disclosures prior to the consummation of the mortgage loans and restrict the ability of the servicer to foreclose in response to the mortgagor’s default. The failure of the originator to comply with these laws could subject the issuing entity to significant monetary penalties, could result in the mortgagors rescinding the mortgage loans against the issuing entity and/or limit the servicer’s ability to foreclose upon the related mortgaged property in the event of a mortgagor’s default.

Under the anti-predatory lending laws of some states, the borrower is required to meet a net tangible benefits test in connection with the origination of the related mortgage loan. This test may be highly subjective and open to interpretation. As a result, a court may determine that a mortgage loan does not meet the test even if the originator reasonably believed that the test was satisfied. Any determination by a court that a mortgage loan does not meet the test will result in a violation of the state anti-predatory lending law, in which case the depositor or the sponsor will be required to purchase that mortgage loan from the trust estate in the manner described in this prospectus supplement.

The sponsor will represent that each mortgage loan at the time it was made was in compliance with applicable federal and state laws and regulations. In the event of a breach of such representation, the depositor or the sponsor will be obligated to cure such breach or repurchase or replace the affected mortgage loan in the manner described in this prospectus supplement. If the depositor and the sponsor are unable or otherwise fail to satisfy such obligations, the yield on the offered notes may be materially and adversely affected.

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Transaction Overview

Formation of the Issuing Entity and Issuance of the Trust Certificates

The issuing entity will be formed pursuant to the terms of a trust agreement between the owner trustee and the sponsor and upon the filing of a certificate of trust with the Secretary of State of the State of Delaware. Under the trust agreement, the issuing entity will also issue a class of trust certificates evidencing the entire beneficial ownership interest in the issuing entity.

The trust estate will consist of:

•

the initial mortgage loans and subsequent mortgage loans, together with the mortgage files relating thereto,

•

all scheduled collections on the mortgage loans and proceeds thereof due after the Cut-off Date and all unscheduled collections on the mortgage loans and proceeds thereof received on or after the Cut-off Date,

•

REO property acquired through the foreclosure or other realization upon defaulted mortgage loans, and collections on and proceeds of such REO property,

•

assets that are deposited in the accounts, including the pre-funding account and the capitalized interest account, if any,

•

rights under all insurance policies required to be maintained pursuant to the sale and servicing agreement and any insurance proceeds thereof,

•

proceeds upon the liquidation of any mortgage loans,

•

the interest rate swap agreement, and

•

released mortgaged property proceeds.

Sale and Servicing of the Mortgage Loans

The mortgage loans have been originated or purchased by the sponsor pursuant to its underwriting guidelines, including the sponsor’s exception policy, as described under “The Sponsor and the Servicer.” The sponsor contributed the mortgage loans to its wholly-owned subsidiary, the depositor. The sponsor will direct the depositor to sell the mortgage loans to the issuing entity pursuant to a sale and servicing agreement, dated as of June 1, 2006, among the depositor, the issuing entity, the indenture trustee, the sponsor, and the servicer. The servicer will service the mortgage loans pursuant to the terms of the sale and servicing agreement.

Issuance of the Notes

Pursuant to the terms of an indenture, dated as of June 1, 2006, between the issuing entity and the indenture trustee, the issuing entity will pledge the trust estate to the indenture trustee, for the benefit of the noteholders, and issue the notes.

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The Mortgage Loans

General

Each of the mortgage loans will bear interest at a fixed or adjustable mortgage interest rate and be secured by a first or second lien on the related mortgaged property.

The mortgage loans were made for the purpose of purchasing a new home, obtaining construction-to-permanent financing, refinancing an existing mortgage loan, consolidating debt and/or obtaining cash proceeds by borrowing against the borrower’s equity in the mortgaged property. The mortgage loans are secured by first and second liens on single family residences, which may be detached, part of a one- to four-family dwelling, a condominium unit or a unit in a planned unit development. The mortgaged properties may be owner occupied or non-owner occupied investment properties. A substantial number of the mortgage loans were originated pursuant to the sponsor’s exception policy. See “The Sponsor and the Servicer – Underwriting” herein.

The sponsor currently sells a majority of the loans it originates to third parties through whole loan sales, with the remainder of the loans the sponsor originates being securitized from its own shelf registration. From time to time, the sponsor will designate certain loans for specific whole loan sales (loans having LTVs greater than 90% and second-lien loans, for example), as the sponsor believes that a higher value is received for these loans through whole loan sales. For loans not specifically designated for sale to third parties as described above, the sponsor uses a proprietary software program to determine best execution and allocates the remaining loans between whole loan bid packages and securitization.

The statistical information presented in this prospectus supplement is computed based on the Initial Pool Balance for the initial mortgage loans. The statistical information presented in this prospectus supplement describes only the initial mortgage loans included in the issuing entity on the closing date, and does not include the additional mortgage loans that will be included in the trust estate on the closing date and the subsequent mortgage loans which may be acquired through the pre-funding feature. All percentages are measured with respect to the aggregate Initial Pool Balance of all the initial mortgage loans.

This prospectus supplement contains information regarding the initial mortgage loans to be included in the issuing entity as of the closing date. The depositor will also transfer additional mortgage loans (collectively, the “additional mortgage loans”) to the issuing entity on the closing date. Although these additional mortgage loans will have characteristics that differ somewhat from the initial mortgage loans we describe in this prospectus supplement, the depositor does not expect that their characteristics will vary materially from the initial mortgage loans. In addition, all additional mortgage loans must conform to the representations and warranties in the sale and servicing agreement. The initial mortgage loans and the additional mortgage loans are collectively referred to as the “closing date mortgage loans”.

The depositor expects that the closing date mortgage loans will have an aggregate principal balance as of the date of their transfer to the issuing entity of approximately $1,050,000,000. The initial mortgage loans have an aggregate principal balance as of their initial cut-off date of approximately $835,719,121, or approximately 79.59% of the closing date mortgage loan pool. The depositor expects the additional mortgage loans to be added to the issuing entity on the closing date to have an aggregate principal balance as of their cut-off date of approximately $214,280,879, or approximately 20.41% of the closing date mortgage loan pool.

The Initial Pool Balances for the initial mortgage loans was approximately $835,719,121.

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As of the Initial Cut-off Date, no initial mortgage loan had a remaining term to maturity greater than 30 years. None of the initial mortgage loans were more than one payment past due. Each of the initial mortgage loans was an “actuarial” loan. See “Delinquency and Loss Information for the Mortgage Loans” herein.

Approximately 98.39% of the initial mortgage loans were secured by a first lien on the related mortgaged property and approximately 1.61% of the initial mortgage loans were secured by a second lien on the related mortgaged property.

As of the Initial Cut-off Date, approximately 9.49% of the initial mortgage loans were “interest only” loans. These loans provide for an initial payment period, which is typically five years, during which the mortgagor’s monthly payment consists only of interest. When this initial period ends, the loan will begin to amortize and will amortize fully over its remaining term.

As of the Initial Cut-off Date, the weighted average loan-to-value ratio was approximately 76.78% (references to loan-to-value ratios in this prospectus supplement are references to combined loan-to-value ratios with respect to second-lien mortgage loans), the weighted average interest rate of the initial mortgage loans was approximately 7.829% per annum and the weighted average remaining term to maturity was approximately 351 months, with a weighted average seasoning of approximately 2 months.

Approximately 76.48% of the initial mortgage loans impose a prepayment penalty for early full or partial prepayments during a period ranging from six months to five years from the date of origination. These prepayment penalties are generally calculated as a specified percentage of the original principal balance of the initial mortgage loans or of the outstanding principal balance of the initial mortgage loans, or a specified number of months of interest accrued at the related mortgage interest rate, or a specified percentage of the amount prepaid.

Approximately 4.85% of the initial mortgage loans were originated using an automated valuation model to provide an estimate of value for a specific property in lieu of a standard appraisal in accordance with Accredited’s underwriting guidelines in effect at the time of origination. See “The Sponsor-Underwriting” in this prospectus supplement.

Each initial mortgage loan, at the time it was made, complied in all material respects with applicable local, state and federal laws, including, but not limited to, all applicable predatory and abusive lending laws. None of the initial mortgage loans are “high cost” loans under the Home Ownership Equity Protection Act of 1994 (or other applicable predatory and abusive lending laws), none of the initial mortgage loans financed a single-premium credit insurance policy and none of the initial mortgage loans were originated on or after October 1, 2002 and before March 7, 2003 and encumber property located in Georgia.

The loan-to-value ratios (references to loan-to-value ratios in this prospectus supplement are references to combined loan-to-value ratios with respect to second-lien mortgage loans) (“LTVs”) described in this prospectus supplement were calculated based upon the lesser of (1) the appraised values of the related mortgaged properties at the time of origination and (2) the purchase prices of related mortgaged properties in the case of any mortgaged property purchased with a mortgage loan (or purchased within the twelve months preceding origination of the mortgage loan.) No assurance can be given that such values have remained or will remain at the levels that existed on the dates of origination of the related mortgage loans. If property values decline such that the outstanding principal balances of the mortgage loans become equal to or greater than the value of the mortgaged properties, investors may experience a loss.

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Conveyance of Subsequent Mortgage Loans and the Pre-Funding Account

On the closing date if required by the rating agencies, the depositor will deposit cash into the capitalized interest account for application to cover shortfalls in interest attributable to the pre-funding feature. This shortfall will exist during the pre-funding period because the aggregate class note balance of the notes, and interest accrued thereon, during the pre-funding period will be greater than the aggregate principal balance of the closing date mortgage loans, and interest accrued thereon, during such period. Funds on deposit in the capitalized interest account will be withdrawn monthly during the pre-funding period to fund shortfalls resulting from the pre-funding feature. Any amounts remaining in the capitalized interest account (including investment earnings) and not needed for such purpose will be paid to the depositor and will not thereafter be available for payment to the noteholders.

On the closing date, the depositor will deposit approximately $350,000,000, the original pre-funded amount, in a pre-funding account which will be in the name of the indenture trustee and which amount will be used to acquire subsequent mortgage loans. During the pre-funding period, the related original pre-funded amount will be reduced by the amount used to purchase subsequent mortgage loans. The “pre-funding period” is the period commencing on the closing date and ending on the earlier to occur of (i) the date on which the amount on deposit in the pre-funding account is less than $185,000 and (ii) August 28, 2006.

The indenture trustee will invest funds deposited in the pre-funding account and the capitalized interest account, if any, as directed by the servicer in writing in eligible investments with a maturity date (i) no later than the business day immediately preceding the date on which such funds are required to be withdrawn from such account pursuant to the sale and servicing agreement, if a person other than the indenture trustee or an affiliate manages or advises such investment, and (ii) no later than the date on which such funds are required to be withdrawn from such account pursuant to the sale and servicing agreement, if the indenture trustee or an affiliate manages or advises such investment. If the indenture trustee does not receive such written investment instructions it will retain such funds uninvested. All income and gain realized from investment of funds deposited in the pre-funding account will be withdrawn and deposited in the collection account.

The purchase price for each subsequent mortgage loan will be 100% of the then outstanding principal balance.

With respect to the subsequent mortgage loans, none of the subsequent mortgage loans may be between 30 and 59 days delinquent as of the applicable cut-off date.

Each subsequent mortgage loan will be acquired from the sponsor, and will have been underwritten in accordance with the criteria applicable to the sponsor, as described under “The Sponsor.”

Confirmation from the rating agencies that the acquisition of any subsequent mortgage loans will not result in a downgrade, withdrawal or qualification of the ratings then in effect for the outstanding notes will be required in connection with the subsequent transfer of mortgage loans. The consent of the rating agencies will be required for all subsequent transfers and an officer’s certificate from the sponsor will be required confirming that each subsequent mortgage loan satisfies the following criteria (among other criteria described in the sale and servicing agreement):

•

the remaining stated term to maturity of the any subsequent mortgage loan will not exceed 360 months;

•

the subsequent mortgage loan must have an outstanding principal balance of at least $10,000;

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•

the subsequent mortgage loan must have a loan-to-value ratio equal to or less than 100%;

•

the stated maturity of the subsequent mortgage loans will be no later than October 2036;

•

the acquisition of any subsequent mortgage loans will not result in a weighted average current Mortgage Rate of at least 7.780% per annum;

•

the acquisition of any subsequent mortgage loans will not result in a weighted average Original Loan-to-Value Ratio of not more than 79.00%;

•

the acquisition of any subsequent mortgage loans will not result in a weighted average Credit Score of less than 625; and

•

each Subsequent Mortgage Loan will be secured by a first lien or second lien on a mortgaged property.

Following the purchase of the subsequent mortgage loans by the issuing entity, all mortgage loans must have a weighted average mortgage rate and a weighted average loan-to-value ratio which will not vary materially from those statistics with respect to the pool of initial mortgage loans.

Changes to the mortgage loan pool as a result of the purchase of the subsequent mortgage loans by the issuing entity will be disclosed on a Form 10-D report filed with the Securities and Exchange Commission.

To the extent that the issuing entity does not fully use amounts on deposit in the pre-funding account to purchase subsequent mortgage loans by the end of the pre-funding period, the issuing entity will apply the remaining amounts as a prepayment of principal to the related classes of notes on the payment date immediately following the end of the pre-funding period. Although no assurance is possible, we do not anticipate that a material amount of principal will be prepaid on the notes from amounts in the pre-funding account.

The Mortgage Loans

The following section describes the statistical characteristics of the mortgage loans (the “initial mortgage loans”). The statistical information does not describe the additional mortgage loans that will be included in the trust estate on the closing date and the subsequent mortgage loans which may be acquired through the pre-funding feature using the remainder of the funds on deposit in the pre-funding account. Unless otherwise noted, all statistical percentages in this section are approximate and are measured by the aggregate Initial Cut-off Date Principal Balance of the applicable initial mortgage loans in relation to the Initial Pool Balance of the initial mortgage loans.

As of the Initial Cut-off Date, the initial mortgage loans had the following characteristics:

•

the aggregate Initial Pool Balance was approximately $835,719,121.

•

there were 4,766 initial mortgage loans under which the related mortgaged properties are located in 49 states,

•

the minimum Initial Cut-off Date Principal Balance was approximately $12,375, the maximum Initial Cut-off Date Principal Balance was approximately $749,253 and the average Initial Cut-off Date Principal Balance was approximately $175,350,

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•

the mortgage interest rate ranged from 5.125% to 15.990% per annum, and the weighted average mortgage interest rate was approximately 7.829% per annum,

•

approximately 51.00% of the initial mortgage loans are fixed-rate mortgage loans, and approximately 49.00% of the initial mortgage loans are adjustable-rate mortgage loans,

•

the gross margin for the adjustable-rate initial mortgage loans in ranged from 2.000% to 10.000% per annum and the weighted average gross margin was approximately 5.373% per annum,

•

the maximum rate for the adjustable-rate initial mortgage loans ranged from 12.199% to 20.125% per annum and the weighted average maximum rate was approximately 15.229% per annum,

•

the minimum rate for the adjustable-rate initial mortgage loans ranged from 5.950% to 13.125% per annum and the weighted average minimum rate was approximately 8.230% per annum,

•

approximately 0.65% of the adjustable-rate initial mortgage loans had an initial periodic cap of 1.000% per annum, approximately 99.35% of the adjustable-rate mortgage loans had an initial periodic cap of 1.500% per annum,

•

approximately 0.65% of the adjustable-rate initial mortgage loans had a subsequent periodic cap of 1.000% per annum, approximately 99.35% of the adjustable-rate mortgage loans had a subsequent periodic cap of 1.500% per annum,

•

the original term to stated maturity ranged from 120 months to 360 months and the weighted average original term to stated maturity was approximately 353 months,

•

the remaining term to stated maturity ranged from 115 months to 360 months and the weighted average remaining term to stated maturity was approximately 351 months,

•

the age of the initial mortgage loans ranged from 0 months to 14 months and the weighted average age was approximately 2 months,

•

approximately 51.00% of the initial mortgage loans were fixed-rate loans, approximately 26.92% of the initial mortgage loans were 2 Year adjustable rate loans, approximately 21.27% of the initial mortgage loans were 3 Year adjustable rate loans, approximately 0.80% of the initial mortgage loans were 5 Year adjustable rate loans and approximately 0.02% of the initial mortgage loans were six-month LIBOR loans,

•

approximately 59.41% of the initial mortgage loans require monthly payments of principal that will fully amortize these mortgage loans by their respective maturity dates, approximately 9.49% of the initial mortgage loans have a five year interest only period, after which such loans will fully amortize over their remaining terms and approximately 31.10% of the initial mortgage loans are balloon loans,

•

the LTVs (which includes the senior balance for second liens) ranged from approximately 7.26% to approximately 100.00% and the weighted average LTV was approximately 76.78%,

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•

approximately 98.39% of the initial mortgage loans are secured by first liens on the related mortgaged properties and approximately 1.61% of the initial mortgage loans are secured by second liens on the related mortgaged properties,

•

approximately 15.36%, 15.23%, 5.90% and 5.12% of the initial mortgage loans are secured by mortgaged properties located in the states of California, Florida, Illinois and Texas, respectively, and

•

approximately 4.85% of the initial mortgage loans were originated using an insured automated valuation model.

The following tables set forth certain information with respect to the initial mortgage loans based on the aggregate Initial Cut-off Date Principal Balance of the initial mortgage loans in relation to the Initial Pool Balance of the initial mortgage loans. Due to rounding, the percentages shown may not precisely total 100.00%.

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Geographical Distribution of Mortgaged Properties

Aggregate Initial Mortgage Loans


State	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
California	476	$	128,341,624	15.36	%	7.262	%	350	71.54	%	654
Florida	757		127,311,948	15.23		7.705		354	75.41		624
Illinois	269		49,291,636	5.90		8.244		352	80.21		636
Texas	380		42,799,781	5.12		7.950		335	77.51		614
Arizona	225		41,042,902	4.91		7.610		351	75.81		619
Maryland	191		40,710,362	4.87		8.010		353	77.43		605
Washington	183		36,520,222	4.37		7.610		354	79.05		636
Maine	139		36,289,794	4.34		7.978		356	77.35		642
New Jersey	121		33,449,051	4.00		7.852		355	75.38		638
Georgia	193		27,521,341	3.29		8.492		348	80.27		620
Other	1,832		272,440,460	32.60		8.007		350	78.64		629

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

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Range of Initial Cut-off Date Principal Balances ($)

Aggregate Initial Mortgage Loans


Range of Initial Cut- off Date Principal Balances ($)	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
$ 25,000 & Below	34	$	721,039	0.09	%	11.306	%	179	97.08	%	635
$ 25,001 - $ 50,000	137		5,667,515	0.68		10.034		238	76.24		628
$ 50,001 - $ 75,000	510		33,613,197	4.02		8.749		320	71.39		610
$ 75,001 - $100,000	733		64,680,518	7.74		8.503		339	75.66		611
$100,001 - $125,000	520		58,543,128	7.01		8.290		344	76.68		613
$125,001 - $150,000	542		74,679,707	8.94		7.966		347	76.88		614
$150,001 - $175,000	461		74,923,232	8.97		7.752		352	76.31		617
$175,001 - $200,000	395		74,253,742	8.89		7.739		355	76.85		625
$200,001 - $225,000	307		65,201,202	7.80		7.651		356	76.29		627
$225,001 - $250,000	231		55,080,376	6.59		7.634		358	77.66		631
$250,001 - $275,000	153		40,141,710	4.80		7.517		355	79.27		637
$275,001 - $300,000	149		43,017,389	5.15		7.539		358	75.86		639
$300,001 - $325,000	111		34,854,252	4.17		7.771		355	78.05		634
$325,001 - $350,000	101		34,263,832	4.10		7.790		358	77.04		636
$350,001 - $375,000	56		20,233,717	2.42		7.655		358	77.38		657
$375,001 - $400,000	58		22,554,524	2.70		7.622		356	79.90		650
$400,001 - $425,000	46		19,040,206	2.28		7.415		358	76.42		636
$425,001 - $450,000	57		25,011,035	2.99		7.474		358	76.46		646
$450,001 - $475,000	34		15,810,289	1.89		7.304		358	78.50		659
$475,001 - $500,000	42		20,522,822	2.46		7.503		354	77.72		651
$500,001 - $750,000	89		52,905,690	6.33		7.388		358	77.29		684

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-35

Range of LTV Ratios (%)^(*)

Aggregate Initial Mortgage Loans


Range of LTV Ratios (%)	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
15.00 & Below	4	$	260,256	0.03	%	7.946	%	319	11.58	%	659
15.01 - 20.00	12		844,260	0.10		7.321		287	16.79		640
20.01 - 25.00	19		1,877,661	0.22		7.530		291	23.14		626
25.01 - 30.00	17		1,517,523	0.18		7.235		341	27.97		609
30.01 - 35.00	50		6,608,422	0.79		6.856		349	32.96		659
35.01 - 40.00	40		4,357,441	0.52		7.055		317	37.20		658
40.01 - 45.00	82		11,771,180	1.41		7.168		346	42.93		622
45.01 - 50.00	85		12,692,486	1.52		7.206		345	48.06		638
50.01 - 55.00	128		19,911,424	2.38		7.080		346	52.80		625
55.01 - 60.00	166		26,173,190	3.13		7.429		347	57.64		617
60.01 - 65.00	214		35,064,804	4.20		7.423		350	63.05		624
65.01 - 70.00	300		47,559,356	5.69		7.611		350	68.23		609
70.01 - 75.00	446		80,096,667	9.58		7.666		353	73.53		624
75.01 - 80.00	1,691		347,915,786	41.63		7.879		356	79.59		646
80.01 - 85.00	501		88,284,530	10.56		7.811		354	83.82		612
85.01 - 90.00	796		138,043,372	16.52		8.048		354	89.13		618
90.01 - 95.00	18		864,088	0.10		11.615		177	94.98		645
95.01 - 100.00	197		11,876,676	1.42		11.310		181	99.96		646

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

*	The loan-to-value ratio for any second lien mortgage loan will mean the combined original loan-to-value ratio.

S-36

Range of Gross Interest Rates (%)

Aggregate Initial Mortgage Loans


Range of Gross Interest Rates (%)	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
5.000 - 5.999	146	$	33,462,426	4.00	%	5.876	%	349	64.45	%	711
6.000 - 6.999	970		212,617,179	25.44		6.672		351	73.53		666
7.000 - 7.999	1,462		270,434,921	32.36		7.625		354	77.43		628
8.000 - 8.999	1,340		222,621,717	26.64		8.570		354	78.62		607
9.000 - 9.999	563		73,445,259	8.79		9.526		351	80.17		585
10.000 - 10.999	147		14,294,737	1.71		10.531		311	83.84		594
11.000 - 11.999	68		4,692,208	0.56		11.709		234	93.85		618
12.000 - 12.999	54		3,390,592	0.41		12.565		182	99.16		632
13.000 - 13.999	13		652,620	0.08		13.626		206	95.78		633
14.000 - 14.999	2		61,485	0.01		14.555		179	97.19		627
15.000 - 15.999	1		45,978	0.01		15.990		176	100.00		634

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-37

Range of Gross Margins (%)

Aggregate Initial Mortgage Loans


Range of Gross Margins (%)	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
Fixed Rate Loans	2,715	$	426,186,401	51.00	%	7.445	%	344	74.50	%	638
3.499 & Below	119		27,265,090	3.26		7.175		358	77.17		657
3.500 - 3.999	125		32,470,895	3.89		7.057		358	78.04		657
4.000 - 4.499	217		50,965,388	6.10		7.650		358	78.57		643
4.500 - 4.999	269		58,964,034	7.06		7.930		358	79.17		635
5.000 - 5.499	283		56,493,921	6.76		8.362		358	79.46		623
5.500 - 5.999	337		63,092,912	7.55		8.636		358	79.91		608
6.000 - 6.499	234		40,629,013	4.86		8.508		357	78.98		613
6.500 - 6.999	212		37,077,557	4.44		8.951		358	79.98		604
7.000 - 7.499	149		26,629,808	3.19		9.008		357	78.90		596
7.500 - 7.999	59		8,717,842	1.04		9.423		357	82.25		580
8.000 - 8.499	31		5,557,149	0.66		9.611		357	80.42		591
8.500 - 8.999	9		957,634	0.11		10.039		357	81.61		558
9.000 - 9.499	2		142,986	0.02		10.649		355	77.01		536
9.500 - 9.999	4		480,577	0.06		11.686		357	83.95		573
10.000 & Above	1		87,915	0.01		11.500		357	80.00		524

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-38

Range of Maximum Mortgage Interest Rates (%)

Aggregate Initial Mortgage Loans


Range of Maximum Mortgage Interest Rates (%)	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
Fixed Rate Loans	2,715	$	426,186,401	51.00	%	7.445	%	344	74.50	%	638
12.000 - 12.499	1		160,186	0.02		6.199		357	90.00		678
12.500 - 12.999	4		974,550	0.12		5.983		359	65.20		717
13.000 - 13.499	17		4,502,987	0.54		6.311		359	76.57		709
13.500 - 13.999	142		37,068,651	4.44		6.871		358	77.34		668
14.000 - 14.499	178		42,227,484	5.05		7.301		358	78.98		644
14.500 - 14.999	464		103,032,851	12.33		7.813		358	78.99		636
15.000 - 15.499	306		64,069,334	7.67		8.272		358	79.41		623
15.500 - 15.999	518		96,310,954	11.52		8.769		358	79.44		605
16.000 - 16.499	167		25,786,848	3.09		9.281		358	80.54		593
16.500 - 16.999	176		26,295,957	3.15		9.751		358	80.24		582
17.000 - 17.499	40		5,212,749	0.62		10.321		358	78.69		581
17.500 - 17.999	28		2,807,629	0.34		10.733		358	82.09		566
18.000 - 18.499	3		366,368	0.04		11.288		355	77.67		546
18.500 - 18.999	5		552,661	0.07		11.878		359	81.51		581
19.500 - 19.999	1		64,600	0.01		12.990		360	85.00		605
20.000 - 20.499	1		98,910	0.01		13.125		360	90.00		594

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-39

Range of Minimum Mortgage Interest Rates (%)

Aggregate Initial Mortgage Loans


Range of Minimum Mortgage Interest Rates (%)	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
Fixed Rate Loans	2,715	$	426,186,401	51.00	%	7.445	%	344	74.50	%	638
5.501 - 6.000	4		974,550	0.12		5.983		359	65.20		717
6.001 - 6.500	23		5,328,111	0.64		6.331		359	76.52		714
6.501 - 7.000	144		38,226,093	4.57		6.884		358	77.59		667
7.001 - 7.500	208		50,685,213	6.06		7.352		358	78.21		644
7.501 - 8.000	444		96,166,897	11.51		7.853		358	79.39		634
8.001 - 8.500	356		73,621,462	8.81		8.325		358	79.28		622
8.501 - 9.000	456		84,354,997	10.09		8.813		358	79.49		604
9.001 - 9.500	198		31,474,945	3.77		9.336		358	80.73		592
9.501 - 10.000	141		19,726,004	2.36		9.838		358	80.14		579
10.001 - 10.500	50		5,978,649	0.72		10.355		358	79.26		578
10.501 - 11.000	17		1,913,260	0.23		10.842		358	81.12		568
11.001 - 11.500	4		454,283	0.05		11.329		356	78.12		541
11.501 - 12.000	4		464,747	0.06		11.949		359	81.79		592
12.501 - 13.000	1		64,600	0.01		12.990		360	85.00		605
13.001 - 13.500	1		98,910	0.01		13.125		360	90.00		594

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-40

Month and Year of Next Rate Change Date

Aggregate Initial Mortgage Loans


Month and Year of Next Rate Change Date	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
Fixed Rate Loans	2,715	$	426,186,401	51.00	%	7.445	%	344	74.50	%	638
April 2007	1		126,037	0.02		7.200		346	99.61		601
April 2008	160		33,004,551	3.95		8.248		358	78.82		622
April 2009	279		50,715,523	6.07		8.229		358	79.38		622
April 2011	6		1,354,521	0.16		7.214		358	82.05		664
August 2008	1		44,093	0.01		8.679		350	85.00		634
December 2007	19		3,832,503	0.46		8.264		354	81.15		632
December 2008	2		252,015	0.03		8.804		354	77.83		527
December 2010	2		199,539	0.02		8.276		354	81.38		604
February 2008	50		9,718,882	1.16		8.413		356	78.98		609
February 2009	11		2,576,081	0.31		8.617		356	83.45		618
February 2011	3		852,633	0.10		8.300		356	82.48		630
January 2008	29		7,963,864	0.95		8.542		355	80.77		637
January 2009	1		63,576	0.01		9.500		355	75.00		582
June 2007	1		137,167	0.02		7.500		348	65.00		521
June 2008	168		37,564,354	4.49		8.249		360	79.13		629
June 2009	176		38,198,191	4.57		8.180		360	79.71		630
June 2011	5		848,800	0.10		8.439		360	75.73		573
March 2008	480		98,426,974	11.78		8.196		357	78.47		620
March 2009	271		52,271,638	6.25		8.351		357	79.49		620
March 2011	13		2,715,934	0.32		8.591		357	78.29		583
May 2008	162		33,433,456	4.00		8.105		359	78.87		628
May 2009	201		33,597,562	4.02		8.148		359	79.12		632
May 2011	4		699,848	0.08		7.824		359	83.73		629
November 2007	4		700,382	0.08		7.714		353	84.17		627
November 2008	1		74,407	0.01		10.150		353	84.89		533
September 2006	1		160,186	0.02		6.199		357	90.00		678

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-41

Range of Original Terms to Maturity (in months)

Aggregate Initial Mortgage Loans


Original Term to Maturity (in months)	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
120	25	$	2,026,652	0.24	%	7.184	%	118	70.36	%	657
180	330		25,115,722	3.01		9.416		177	81.28		643
240	85		8,803,899	1.05		7.645		238	70.54		633
300	17		1,948,039	0.23		7.311		299	70.34		631
360	4,309		797,824,810	95.47		7.784		358	76.74		630

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-42

Range of Remaining Terms to Maturity (in months)

Aggregate Initial Mortgage Loans


Range of Remaining Terms to Maturity (in months)	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
1 - 140	25	$	2,026,652	0.24	%	7.184	%	118	70.36	%	657
161 - 180	330		25,115,722	3.01		9.416		177	81.28		643
221 - 240	85		8,803,899	1.05		7.645		238	70.54		633
281 - 300	17		1,948,039	0.23		7.311		299	70.34		631
341 - 360	4,309		797,824,810	95.47		7.784		358	76.74		630

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-43

Distribution by Lien Position

Aggregate Initial Mortgage Loans


Lien Position	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
First Lien	4,541	$	822,273,942	98.39	%	7.772	%	354	76.43	%	631
Second Lien	225		13,445,180	1.61		11.338		179	98.11		647

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

Distribution by Occupancy Status

Aggregate Initial Mortgage Loans


Occupancy Status	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
Owner Occupied	4,498	$	798,841,645	95.59	%	7.809	%	351	76.97	%	630
Investor Property	231		30,163,611	3.61		8.368		353	74.87		653
Second Home	37		6,713,865	0.80		7.797		343	62.87		650

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-44

Distribution by Property Types

Aggregate Initial Mortgage Loans


Property Types	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
Single Family Residence	3,749	$	619,700,770	74.15	%	7.840	%	350	76.51	%	627
Planned Unit Development	469		103,692,329	12.41		7.697		353	77.47		636
Condominium	286		47,057,597	5.63		7.890		351	77.51		645
Two-to-Four Unit Residence	212		57,149,773	6.84		7.921		353	77.47		653
Townhouse	43		7,274,168	0.87		7.538		354	78.41		634
Modular Home	7		844,484	0.10		9.084		315	89.10		620

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

Distribution of Seasoning (in months)

Aggregate Initial Mortgage Loans


Months Elapsed Since Origination (in months)	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
0	777	$	148,071,402	17.72	%	7.859	%	355	76.70	%	637
1	1,167		198,613,052	23.77		7.640		349	75.69		635
2	1,092		186,197,297	22.28		7.690		352	77.20		632
3	1,359		251,376,560	30.08		7.945		353	76.78		625
4	140		22,754,373	2.72		8.336		345	77.98		617
5	92		14,634,941	1.75		8.440		333	78.25		630
6	78		8,023,582	0.96		8.780		311	83.27		626
7	28		2,430,458	0.29		9.471		253	91.90		641
8	15		1,864,280	0.22		7.060		275	78.71		689
9	12		1,088,771	0.13		7.268		287	82.47		663
10	4		401,200	0.05		8.519		330	86.68		602
12	1		137,167	0.02		7.500		348	65.00		521
14	1		126,037	0.02		7.200		346	99.61		601

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-45

Initial Mortgage Loan Types

Aggregate Initial Mortgage Loans


Initial Mortgage Loan Types	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
2 Year ARM	596	$	106,208,405	12.71	%	8.432	%	358	78.04	%	614
2 Year ARM Balloon 40/30	401		93,734,207	11.22		8.153		358	79.77		619
2 Year ARM IO	78		25,009,653	2.99		7.562		358	78.95		678
3 Year ARM	533		83,282,390	9.97		8.533		358	79.37		616
3 Year ARM Balloon 40/30	322		68,097,209	8.15		8.208		358	80.19		612
3 Year ARM IO	87		26,369,396	3.16		7.443		358	78.06		684
5 Year ARM	21		4,125,253	0.49		8.074		358	80.48		624
5 Year ARM Balloon 40/30	11		2,404,022	0.29		8.368		358	78.85		584
5 Year ARM IO	1		142,000	0.02		7.375		354	81.94		618
6 Month ARM	1		160,186	0.02		6.199		357	90.00		678
Fixed	1,998		302,763,752	36.23		7.386		346	72.89		636
Fixed Balloon 30/15	211		12,929,041	1.55		11.320		177	98.36		648
Fixed Balloon 40/30	402		82,745,791	9.90		7.298		358	76.40		628
Fixed IO	104		27,747,817	3.32		6.723		358	75.20		675

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

S-46

Prepayment Penalty Terms (in months)

Aggregate Initial Mortgage Loans


Prepayment Penalty Terms (in months)	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
No Prepayment Penalty	1,145	$	196,569,468	23.52	%	8.256	%	349	77.66	%	626
6	63		13,374,260	1.60		7.841		358	79.87		631
12	165		35,516,228	4.25		8.013		346	77.79		643
18	24		6,329,015	0.76		7.102		358	78.76		671
24	374		67,715,542	8.10		8.214		350	78.41		623
30	18		3,500,391	0.42		7.572		358	80.59		636
36	1,449		264,261,083	31.62		7.821		354	76.76		633
42	10		1,764,739	0.21		7.454		358	76.08		641
48	15		2,835,135	0.34		8.033		358	78.25		631
54	2		429,115	0.05		7.947		360	87.61		633
60	1,501		243,424,144	29.13		7.383		349	75.19		632

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

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Loan Purpose

Aggregate Initial Mortgage Loans


Loan Purpose	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
Cashout Refinance	3,480	$	600,518,828	71.86	%	7.732	%	351	75.59	%	620
Purchase	1,123		206,620,824	24.72		8.162		350	80.41		662
Rate/Term Refinance	163		28,579,469	3.42		7.483		347	75.55		640

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

Loan Documentation Types

Aggregate Initial Mortgage Loans


Loan Documentation Types	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
Full Documentation	3,564	$	569,583,879	68.15	%	7.762	%	351	77.00	%	619
Stated Documentation	888		192,454,988	23.03		8.080		349	75.16		662
Alternative Documentation	314		73,680,254	8.82		7.699		350	79.32		642

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

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Range of FICO Scores

Aggregate Initial Mortgage Loans


Range of FICO Scores	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
No Score	1	$	124,616	0.01	%	8.500	%	355	22.32	%	0
500 - 524	206		31,182,236	3.73		8.783		356	70.82		517
525 - 549	293		43,207,591	5.17		8.532		352	71.17		536
550 - 574	654		97,831,418	11.71		8.443		353	77.90		562
575 - 599	642		103,897,893	12.43		8.191		353	78.08		587
600 - 624	674		106,194,680	12.71		7.980		349	76.99		613
625 - 649	801		138,000,560	16.51		7.900		347	78.82		637
650 - 674	589		116,943,784	13.99		7.532		350	77.74		661
675 - 699	373		82,637,420	9.89		7.248		351	77.79		686
700 - 724	254		53,798,984	6.44		7.021		352	76.03		712
725 - 749	135		30,379,306	3.64		7.043		350	74.96		736
750 - 774	77		17,599,153	2.11		6.756		354	72.89		761
775 - 799	53		11,276,297	1.35		6.834		342	67.13		786
800 & Above	14		2,645,183	0.32		6.636		348	63.31		805

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

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Prepayment Penalty Description

Aggregate Initial Mortgage Loans


Prepayment Penalty Description	Number of Mortgage Loans	Aggregate Initial Cut-off Date Principal Balance ($)		Percentage of Mortgage Pool Aggregate Initial Cut-off Date Principal Balance (%)		Weighted Average Coupon Interest Rate (%)		Weighted Average Remaining Term (in months)	Weighted Average LTV (%)		Weighted Average Credit Score
No prepayment penalty	1,145	$	196,569,468	23.52	%	8.256	%	349	77.66	%	626
1% of amount prepaid	94		11,886,267	1.42		8.344		352	80.03		619
1% of original balance	196		26,863,231	3.21		8.382		355	81.80		619
2 months interest/original balance/20% allowed	8		661,265	0.08		9.426		311	71.25		593
2 months interest/original balance/33.3% allowed	92		19,363,041	2.32		7.301		351	75.40		625
2% of amount prepaid	269		42,262,973	5.06		7.962		348	78.31		627
3 months or balance of 1st year’s interest (whichever is less). If refinanced, addit	2		362,672	0.04		8.030		358	63.76		626
5% of amount prepaid	93		13,438,072	1.61		8.448		329	78.67		612
6 months interest/amount prepaid/20% allowed	2,795		514,528,518	61.57		7.606		352	75.90		635
First year 5%/second year 4%/third year 3%/fourth year 2%/fifth year 1%/unpaid	46		4,987,973	0.60		8.518		348	81.69		609
Lessor of 2% or 2 months interest/amount prepaid	26		4,795,641	0.57		8.267		358	82.61		621

Total:	4,766	$	835,719,121	100.00	%	7.829	%	351	76.78	%	631

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The Sponsor

Accredited Home Lenders, Inc. (“Accredited”), a California corporation, is a nationwide mortgage banking company that originates, finances, sells, securitizes and services first and subordinate lien mortgage loans secured by single family residences, two-to-four-family residential properties, condominium units, units in planned unit developments, townhomes and modular housing units. Accredited focuses on originating mortgage loans which do not conform to credit and other criteria established by Fannie Mae and Freddie Mac, commonly referred to as “nonconforming” and “subprime” mortgage loans. Accredited is wholly owned by Accredited Home Lenders Holding Co., a publicly traded company traded under the ticker symbol LEND.

Accredited’s mortgage loan originations are primarily wholesale, i.e., conducted through mortgage brokers. On a smaller scale, Accredited makes retail originations directly to borrowers.

Accredited’s total annual mortgage loan production has increased steadily from approximately $2.3 billion in 2001, $4.3 billion in 2002, $8.0 billion in 2003, $12.4 billion in 2004 and $16.3 billion in 2005. In 2001, Accredited originated approximately 16,100 mortgage loans secured by first liens and approximately 4,500 mortgage loans secured by second liens. In 2002, Accredited originated approximately 26,600 mortgage loans secured by first liens and approximately 8,600 mortgage loans secured by second liens. In 2003, Accredited originated approximately 48,100 mortgage loans secured by first liens and approximately 14,400 mortgage loans secured by second liens. In 2004, Accredited originated approximately 67,200 mortgage loans secured by first liens and approximately 23,400 mortgage loans secured by second liens. In 2005, Accredited originated approximately 79,000 mortgage loans secured by first liens and approximately 28,200 mortgage loans secured by second liens. As of March 31, 2006, Accredited had 2,626 employees.

Accredited performs the servicing functions for its loan originations prior to sale or securitization, during an interim servicing period for mortgage loans sold on a whole loan basis, and for a portion of its loan originations sold or securitized on a servicing-retained basis. As of March 31, 2006, Accredited performed the servicing functions for residential mortgage loans with an aggregate unpaid principal balance of approximately $9.6 billion.

Accredited disposes of its loans primarily by selling them to third parties and through securitizations. The decision by Accredited to sell or to securitize loans depends upon a number of factors, including, but not limited to, premiums earned for whole loan sales and Accredited’s leverage targets.

Accredited completed its first securitization in 1996 and has closed additional securitizations in 2000, 2002, 2003, 2004, 2005 and 2006. The securitizations completed in 1996 and 2000 have both been terminated as a result of Accredited exercising a clean-up call. For the years 2002, 2003, 2004, 2005 and 2006, Accredited closed two, three, four, four and one securitizations, respectively, selling loans totaling approximately $749.3 million, $1,236.5 million, $3,271.6 million, $4,240.2 million and $1,003.8 million, respectively, from its own shelf registration statement. Accredited currently plans to close one securitization in each calendar quarter. Accredited retains the servicing for loans securitized from its own shelf registration statement. None of the pools that Accredited has securitized have defaulted or experienced an early amortization target.

These securitizations are structured legally as sales, but for accounting purposes are treated as financings under SFAS No. 140. These securitizations do not meet the qualifying special purpose entity criteria under SFAS No. 140 and related interpretations because after the loans are securitized, the securitization trusts may acquire derivatives relating to beneficial interests retained by Accredited and, Accredited, as servicer, subject to applicable contractual provisions, has discretion, consistent with prudent mortgage servicing practices, to determine whether or not to sell or work out any loans securitized through the securitization trusts that become troubled. Accordingly, the loans remain on the balance sheet as “loans held for investment”, retained interests are not recorded, and securitization bond

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financing replaces the short-term debt originally associated with the loans held for investment. Accredited records interest income on loans held for investment and interest expense on the bonds issued in the securitizations over the life of the securitizations. Deferred debt issuance costs and discounts related to the bonds are amortized on a level yield basis over the estimated life of the bonds.

Accredited serves in essentially three roles in connection with its securitization program. As the sponsor, Accredited works with the underwriters and the rating agencies to select the pool of mortgage loans and structure the transaction. Generally in structuring each transaction, the sponsor looks to achieve the most efficient execution, that is to achieve the lowest cost of funds. As the servicer, Accredited is responsible for servicing each pool of mortgage loans. As the administrator of the issuing entity, Accredited is responsible for causing the issuing entity to perform its duties under the transaction documents, which duties include the provision of notices of material events, reporting and monitoring and maintaining the security interest of the noteholders in the mortgage loans.

The notes issued in each securitization do not represent an interest in or obligation of, nor are the mortgage loans guaranteed by Accredited, nor are the securitized mortgage loans insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality.

Limitations on Liability

Accredited and its directors, officers, employees or agents are not under any liability to the issuing entity or the noteholders for any action taken, or for refraining from the taking of any action, in good faith pursuant to the sale and servicing agreement, or for errors in judgment. However, Accredited is not protected from liability for any breach of warranties or representations made by Accredited in the sale and servicing agreement, or against any specific liability imposed on Accredited pursuant to the sale and servicing agreement or against any liability which would otherwise be imposed upon Accredited by reason of willful misfeasance, bad faith or negligence in the performance of its duties or by reason of failure to perform its obligations or duties under the sale and servicing agreement.

Contemplated Transactions

On May 24, 2006, Accredited Home Lenders Holding Co., a Delaware corporation (“LEND”), Aames Investment Corp., a Maryland corporation, (“Aames”) and AHL Acquisition, LLC, a Maryland limited liability company and wholly owned subsidiary of LEND (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), under which Aames will be merged with and into Merger Sub, with Merger Sub continuing after the merger as the surviving company and a wholly owned subsidiary of LEND (the “Merger”).

Based on the closing price of LEND common stock on May 24, 2006, the aggregate consideration to be paid to holders of Aames common stock at the closing of the Merger is approximately $340 million, or $5.35 per share of Aames common stock. Approximately $109 million, or 32% of the consideration, will be paid in cash to Aames stockholders. The remainder will be paid in shares of LEND’s common stock on the basis of an exchange ratio equal to 0.070 shares of LEND’s common stock for each share of Aames common stock. The cash consideration paid to Aames will be reduced by the REIT dividends, if any, paid to Aames shareholders prior to the closing. Since Aames shareholders will have the ability to make a cash or stock election with respect to the consideration they receive after the closing of the Merger, the exchange ratio will be adjusted based on the cumulative elections received and the pro-ration provisions of the Merger Agreement.

The Merger Agreement has been unanimously approved by the Board of Directors of LEND. The Merger is subject to customary conditions, including compliance with the pre-merger notification requirements of the Hart-Scott-Rodino Act and approval by the stockholders of LEND and the shareholders of Aames. The Merger Agreement contains certain covenants regarding the operation of Aames prior to closing as well as the cooperation of both parties in meeting the conditions to closing. The Merger Agreement also contains termination rights in favor of both LEND and Aames upon the

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occurrence of certain events, including the right of either party to terminate the Merger Agreement after December 15, 2006 if the Merger has not been consummated by such date and such failure is not caused by a breach of the Merger Agreement by the terminating party.

Legal Proceedings

Because the nature of Accredited’s business involves the collection of numerous accounts and compliance with federal, state and local lending laws, the originator is subject to claims and legal actions in the ordinary course of its business. Like a number of other consumer finance companies, Accredited is subject to certain class-action lawsuits alleging violations of various federal and state consumer protection laws and other laws. Accredited intends to defend or seek other resolution of these lawsuits and, except as described below, Accredited either does not believe that their resolution will have a material adverse effect on its financial position or results of operations or has not been able to make a determination regarding the ultimate outcome of the matter or the amount of potential liability. In addition to the class actions disclosed in Accredited’s public filings, Accredited is subject to the lawsuit described below.

In March 2006, Accredited was served with a class action complaint, Cabrejas v. Accredited Home Lenders, Inc., brought in the Circuit Court for Prince George’s County, Maryland. The complaint alleges that fees charged and disclosed on second lien loans originated by Accredited in Maryland (i) violated the Maryland Secondary Mortgage Loan Law in that such fees exceeded 10% of the respective loan amounts and (ii) constituted unfair and deceptive trade practices in violation of the Maryland Consumer Protection Act. The plaintiffs seek to recover, on behalf of themselves and similarly situated individuals, damages, disgorgement of fees, pre-judgment interest, declaratory and injunctive relief, attorneys’ fees, and any other relief the court may grant. On April 13, 2006, Accredited removed the action to the United States District Court, District of Maryland. On May 15, 2006, Accredited filed a motion to dismiss plaintiffs’ second cause of action alleging a violation of the Maryland Consumer Protection Act on the basis that full disclosure of the fees cannot be an unfair or deceptive trade practice. A hearing date for the motion to dismiss has not been set. A motion to certify a class has not yet been filed, and there has been no ruling on the merits of either the plaintiff’s individual claims or the claims of the putative class, and the ultimate outcome of this matter and the amount of liability, if any, which may result is not presently determinable. Accredited intends to vigorously defend this matter and does not believe it will have a material adverse effect on its business.

Underwriting

General. Each mortgage loan originated or acquired by Accredited is underwritten prior to loan closing, or re-underwritten after loan closing but prior to purchase by Accredited, in accordance with Accredited’s underwriting guidelines. Accredited’s underwriting process is intended to assess a loan applicant’s credit standing and repayment ability and the value and adequacy of the real property security as collateral for the proposed loan. All underwriting and re-underwriting is performed by Accredited’s underwriting personnel, and Accredited does not delegate underwriting authority to any broker, correspondent or other mortgage loan provider. Accredited’s underwriting standards are applied in a standardized manner which complies with applicable federal and state laws and regulations.

Brokers and Correspondents. All of Accredited’s prospective mortgage brokers and correspondents are subjected to a pre-approval process, including verification that all required licenses are current, and are required to sign agreements pursuant to which they represent and warrant compliance with Accredited’s underwriting guidelines and all applicable laws and regulations. Accredited periodically reviews each of its mortgage broker’s and correspondent’s performance relative to issues disclosed by Accredited’s quality control review, and discontinues relationships with unacceptable performers.

Loan Applications and Credit Reports. Each prospective mortgagor completes a mortgage loan application that includes information with respect to the applicant’s liabilities, income, credit history, employment history and personal information. At least one credit report on each applicant from an

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independent, nationally recognized credit reporting company is required. The credit report typically contains information relating to such matters as credit history with local and national merchants and lenders, installment debt payments and any record of defaults, bankruptcies, repossessions, or judgments. All derogatory credit items occurring within the preceding two years and all credit inquiries within the preceding 90 days must be addressed by the applicant to the satisfaction of Accredited.

Property Appraisals. A full appraisal of the property proposed to be pledged as collateral is required in connection with the origination of each first priority loan and each second priority loan greater than $50,000. Appraisals are performed by licensed, third-party, fee-based appraisers and include, among other things, an inspection of the exterior and interior of the subject property. Appraisals are also required to address neighborhood conditions, site and zoning status and the condition and value of improvements. Following each appraisal, the appraiser prepares a report which includes a reproduction costs analysis (when appropriate) based on the current cost of constructing a similar home and market value analysis based on recent sales of comparable homes in the area. Appraisals generally conform to the Uniform Standards of Professional Appraisal Practice and must be on forms acceptable to Freddie Mac and Fannie Mae. Every appraisal is reviewed by a non-affiliated appraisal review firm or by Accredited’s Appraisal Review Department or a qualified underwriter before the mortgage loan is closed. The appraisal may not be more than 180 days old on the day the loan is funded. A second full appraisal is required for combined loan amounts and/or property values greater than $1,000,000. For second priority loans of $50,000 or less, “drive-by” appraisals alone are acceptable. The standard appraisal may be waived in favor of an Insured Automated Value Model (AVM) with a physical inspection, provided the loan meets certain criteria. The Insured AVM is effective for the life of the loan, is transferable, and provides an unbiased opinion of the property value. The Insured AVM process includes a Property Condition Report which is a drive-by inspection that verifies the collateral is conforming. The insurance certificate provides protection that may minimize loss severity in the event of foreclosure.

Income and Assets Verification. Accredited’s underwriting guidelines require verification or evaluation of the income of each applicant pursuant to Accredited’s “Full Documentation,” “Lite Documentation” or “Stated Income” programs. Under each of these programs, Accredited reviews the loan applicant’s source of income, calculates the amount of income from sources indicated on the loan application or similar documentation, and calculates debt service-to-income ratios to determine the applicant’s ability to repay the loan. Under the Full Documentation program, applicants are generally required to submit the most current year to date pay stub and written verification of income signed by the employer, Forms W-2 or 1040 and, in the case of self-employed applicants, most recent two years’ complete tax returns, signed year to date profit and loss statement, or bank statements. Personal bank statements are acceptable as Full Documentation, with bank statements for the preceding 24 months acceptable for “Alt2” documentation type or bank statements for the preceding 12 months acceptable for “Alt1.” Under the Lite Documentation program, applicants must be self-employed and are required to submit personal bank statements covering at least the preceding six months. Under the Stated Income program, applicants are evaluated based upon income as stated in the mortgage loan application. Under all programs, Accredited may verify by telephone employment, business and income, and self-employed applicants may be required to submit a business license.

Verification of the source of funds (if any) required to be paid by the applicant at closing is generally required under all documentation programs in the form of a standard verification of deposit, two months’ consecutive bank statements or other acceptable documentation. On Accredited’s core mortgage loan products and on some of its specialty products, twelve months’ mortgage payment or rental history must be verified by the related lender or landlord.

Credit Classifications. A critical function of Accredited’s underwriting process is to identify the level of credit risk associated with each applicant for a mortgage loan. Accredited has established five principal classifications, “A+” to “C,” with respect to the credit profile of potential borrowers, and a rating is assigned to each loan based upon these classifications. Accredited has a sixth, generally inactive credit classification, called “C-” which may be assigned to a borrower with a current or recent foreclosure or bankruptcy and can still be used on an exception basis with approval from executive management. Accredited assigns credit grades by analyzing mortgage payment history, consumer credit history, credit score, bankruptcy history, and debt-to-income ratio.

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Quality Control. Each month, Accredited’s internal audit and quality control department generally reviews and re-underwrites a sample of the loans originated by Accredited. The statistical sample of loans is chosen by random selection and based on the prior defect rates. In addition, targeted reviews are conducted, including but not limited to the following areas: regulatory compliance, non-performing assets, targeted and discretionary reviews, or where fraud is suspected. The quality control department re-underwrites these loans through an in-depth analysis of the following areas: application, income/employment, appraisals, credit decision, program criteria, net tangible benefits, re-verifications, and compliance. Specifically, these tests focus on verifying proper completion of borrower disclosures and other loan documentation, correct processing of all legally required documentation, and compliance with time frames imposed by applicable law. When fraud is suspected, the quality control department undertakes a comprehensive re-underwriting of not only the loan in question, but any related loans connected by broker, appraiser, or other parties to the transaction. All findings of the internal audit and quality control department are reported on a regular basis to members of senior management and the audit committee of the board of directors. The Chief Executive Officer and the Chief Operating Officer, along with the Director of Operations and others analyze the results of the monthly internal audit and quality control department audits as well as performance trends and servicing issues. Based upon this analysis, corrective actions are taken.

Loan Programs. Accredited’s mortgage loans are made for the purpose of enabling borrowers to purchase new homes, refinance existing mortgage loans, consolidate debt and/or obtain cash for whatever purposes the borrowers desire. Accredited’s single-family residence loans are secured by one- to four-unit primary residences, one-unit second homes, or one- to four-unit investment properties, and eligible property types are deemed to include single-family detached homes, semi-detached homes, row or townhomes, individual condominiums, individual units in planned-unit developments, and leasehold estates. These collateral types are consistent with the Freddie Mac Seller-Servicer Guide for describing mortgage eligibility requirements. The mortgaged properties may be owner-occupied, second or vacation homes, or non-owner occupied investment properties.

Accredited’s loans have payment schedules based primarily upon (1) an interest rate that is constant over the life of the loan, commonly referred to as “fixed-rate loans” or (2) generally, an interest rate that is fixed for the initial two, three or five years and adjusts after an initial fixed period of two, three or five years and every six months thereafter, sometimes referred to as “adjustable-rate loans”. Generally, the payments on Accredited’s fixed-rate loans are calculated to fully repay the loans in 15 or 30 years, or, in the case of so-called “balloon” loans, the payments are based on a 30-year repayment schedule, but all unpaid principal is due in a larger “balloon” payment at the end of 15 years. The payments on Accredited’s adjustable-rate loans are calculated to fully repay the loans in 30 years, and the payment amounts are adjusted whenever the interest rates are adjusted. Accredited’s adjustable-rate loans with a two-year initial fixed-rate period are commonly referred to as “2/28’s,” Accredited’s adjustable-rate loans with a three-year initial fixed-rate period are commonly referred to as “3/27’s” and Accredited’s adjustable-rate loans with a five-year initial fixed-rate period are commonly referred to as “5/25’s”. Accredited’s fixed-rate or adjustable-rate loans may have initial interest-only periods, typically five years, during which the monthly payments are limited to the amounts required to pay accrued interest due on the loans. After the interest-only periods, the monthly payments are adjusted to fully repay the loans over their remaining terms.

The interest rate adjustments on Accredited’s adjustable-rate loans are determined by adding a “margin” to an “index” rate, subject to certain adjustment limitations. The “margin” is a percentage established at origination of a loan, and the “index” for Accredited’s adjustable-rate loans is six-month LIBOR, and is determined as of a specified time prior to the interest adjustment date. It is common during the initial fixed-rate period of an adjustable-rate loan to allow the borrower to pay a rate lower than the margin plus the index at loan origination. Over time, the rate may adjust upward such that, eventually, the interest rate will equal the index plus the entire margin. Such adjustments are generally

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limited to no more than 1.5% at each adjustment date, and the interest rates may not be adjusted above or below a maximum and minimum amount specified in the loan documents. The goal is to acclimate the borrower to the repayment obligation, yet be able to achieve the fully indexed interest rate over time.

Accredited offers a full range of subprime mortgage loan programs, and the key distinguishing features of each program are the documentation required, the LTV, the mortgage and consumer credit payment history, the property type and the credit score necessary to qualify under a particular program. Nevertheless, each program relies upon Accredited’s analysis of each borrower’s ability to repay, the risk that the borrower will not repay the loan, the fees and rates Accredited charges, the value of the collateral, the benefit Accredited believes it is providing to the borrower, and the loan amounts relative to the risk Accredited believes it is taking.

In general, Accredited’s LTV maximums decrease with credit quality, and, within each credit classification, the LTV maximums vary depending on the property type. LTV maximums for loans secured by owner-occupied properties are higher than for loans secured by properties that are not owner-occupied. LTV maximums for Lite Documentation and Stated Income programs are generally lower than the LTV maximums for corresponding Full Documentation programs. Our maximum debt-to-income ratios range from 50% to 55% for Full Documentation programs, and maximum 45% for Lite Documentation and Stated Income Programs.

Accredited offers a variety of specialty programs that provide higher LTV’s and CLTV’s to borrowers in higher credit grades. Credit grades may be determined by the same criteria as in the core programs, but may also be determined only on the basis of mortgage credit or credit score. Specialty programs may be restricted as to property and occupancy types and documentation requirements.

Accredited also offers Alt-A mortgage loan programs with additional income documentation types, higher qualifying minimum credit scores and higher loan amounts than the non-prime programs. The same underwriting standards as described above for non-prime programs also apply to Alt-A mortgage loans. Alt-A documentation types requiring less documentation, such as “SISA,” defined as Stated Income Stated Assets, “No Ratio,” and “No Doc,” also receive close review and evaluation to determine whether the borrower’s ability to repay the mortgage debt is reasonable. Documentation and qualifying requirements vary depending on the product selected.

Exceptions. Accredited may allow exceptions to its underwriting guidelines in accordance with Accredited’s established exception policy. Exceptions may be allowed based upon the presence of compensating factors such as a low LTV, demonstrated pride of ownership and stability of employment. A substantial number of the mortgage loans were originated pursuant to Accredited’s exception policy.

Delinquency and Loss Information for the Initial Mortgage Loans

During the previous twelve months from the Initial Cut-off Date, eighty-nine initial mortgage loans with an aggregate principal balance of approximately $15,825,630 were 30 or more days contractually delinquent one time. Five initial mortgage loans with an aggregate principal balance of approximately $832,375 were 30 or more days contractually delinquent three times in the twelve months prior to the Initial Cut-off Date. One initial mortgage loan with an aggregate principal balance of approximately $49,733 was 30 or more days contractually delinquent six times in the twelve months prior to the Initial Cut-off Date.

The following table sets forth certain information regarding the delinquency performance as of the Initial Cut-off Date for sixty-one initial mortgage loans with an aggregate principal balance of approximately $10,193,468 representing approximately 1.22% of the Initial Pool Balance.

In the following table, a mortgage loan is defined as 30 days contractually delinquent on the last day of the calendar month in which the payment is due and losses are recognized when collateral relating to a mortgage loan has been foreclosed and the mortgaged property has been liquidated, except in those instances in which management determines that the loss amount would be less by “walking away” from

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the property. The loss amount is equal to the principal amount on the loan, plus accrued and unpaid interest on the loan, plus any foreclosure expenses less proceeds received from the buyer of the foreclosed property. None of the initial mortgage loans had any losses as of the Initial Cut-Off Date.


	As of June 1, 2006
	Number of Initial Mortgage Loans	Percentage of Total Number of Mortgage Loans(1)		Initial Mortgage Loan Principal Balance		Percentage of Principal Balance(2)
Total mortgage loan pool	4,766			$	835,719,121
Delinquency 30 - 59 days	61	1.22	%	$	10,193,468	1.22	%
Foreclosures	—	—			—	—
Total delinquencies and foreclosures	61	1.22	%	$	10,193,468	1.22	%

(1)	Percentage of initial mortgage loan pool as of the Initial Cut-Off Date.

(2)	Percentage of the Initial Pool Balance as of the Initial Cut-Off Date.

Static Pool Information

Static pool information for Accredited’s amortizing asset pools is available at http://www.accredhome.com/regs/AHL_RegAB1105_2006-03.pdf. This website has unrestricted access, is free of charge and does not require user registration for immediate access. The static pool information will remain available on the website for a period of not less than five years from the date of this prospectus supplement and any subsequent modification or update to such information will be clearly indicated on the website as of the date of such modification or update.

The static pool information posted on this website that relates to securitizations sponsored by Accredited prior to January 1, 2006 and that relates to the pool of mortgage loans being securitized in the current transaction for periods prior to January 1, 2006 is not deemed to be part of this prospectus supplement or the accompanying prospectus or the registration statement related to the securities being offered pursuant to this prospectus supplement and the accompanying prospectus.

The Depositor

The depositor, a Maryland real estate investment trust, was formed in the State of Maryland on May 4, 2004. The depositor’s principal business objective is to acquire, hold and manage mortgage assets that will generate net income for distribution to its shareholders. All of the depositor’s outstanding common shares are owned by the sponsor. The depositor completed a public offering of preferred shares and they are publicly-traded on the New York Stock Exchange. The sponsor has contributed the closing date mortgage loans to the depositor, and on the closing date, the sponsor will direct the depositor to sell the closing date mortgage loans to the issuing entity.

Continuing Options

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computed at the related mortgage interest rate — plus the amount of any unreimbursed Delinquency Advances and Servicing Advances with respect to such mortgage loan in accordance with the provisions specified in the sale and servicing agreement. Pursuant to this option, the depositor may not purchase more than 10% of the mortgage loans in the pool, measured by the outstanding principal balance of the mortgage loans repurchased as a percentage of the Initial Pool Balance.

In addition, the depositor has the ongoing option to terminate the issuing entity on any payment date when the outstanding principal balance of the notes is less than or equal to 10% of the original principal balance of the notes, after giving effect to distributions on that payment date. In addition, pursuant to the sale and servicing agreement, if a breach related to a mortgage loan is not cured within the specified time period, the depositor will, and if the depositor fails to, then the sponsor will either (a) substitute for such mortgage loan a Qualified Substitute Mortgage Loan or (b) purchase such mortgage loan from the issuing entity, such repurchase amount to include any costs and damages incurred by the issuing entity in connection with a violation of a predatory or abusive lending law. See “Description of the Notes and Trust Certificates - Optional Clean-Up Call and -Representations and Warranties of the Sponsor” for more information regarding the depositor’s termination option and the removal or substitution of mortgage loans by the depositor.

The Issuing Entity

Accredited Mortgage Loan Trust 2006-2, a Delaware statutory trust, is the issuing entity of the Notes. The issuing entity’s fiscal year end will be December 31.

Permissible Activities

The purpose of the issuing entity is to engage in the following activities:

(a) to issue the Notes and to sell such Notes;

(b) with the proceeds of the sale of the Notes and the trust certificates and to purchase the mortgage loans to be included in the trust estate from the depositor with the balance of such funds pursuant to the sale and servicing agreement;

(c) to assign, grant, transfer, pledge, mortgage and convey the trust estate pursuant to the indenture and to hold, manage and distribute to the certificateholders any portion of the trust estate released from the lien of, and remitted to the issuing entity pursuant to, the indenture;

(d) to enter into and perform its obligations under the trust agreement, the sale and servicing agreement, the indenture and the interest rate swap agreement, to which it is or is to be a party;

(e) to engage in those activities, including entering into agreements, that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith;

(f) subject to compliance with the trust agreement, the sale and servicing agreement, the indenture and the interest rate swap agreement, to engage in such other activities as may be required in connection with conservation of the trust estate and the making of distributions and payments to the noteholders and the certificateholders; and

(g) to issue the trust certificates pursuant to the trust agreement.

Restrictions on Issuing Entity’s Activities

The issuing entity shall not engage in any activity other than in connection with the foregoing or other than as required or authorized by the terms of the trust agreement, the sale and servicing agreement, the indenture and the interest rate swap agreement.

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Modification of Governing Documents

The trust agreement may be amended by the sponsor, the depositor and the owner trustee, with prior written notice to the rating agencies, but without the consent of any of the noteholders, the certificateholders or the indenture trustee, to cure any ambiguity, to correct or supplement any provisions in the trust agreement or for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions in the trust agreement or of modifying in any manner the rights of the noteholders or the certificateholders; provided, however, such action shall not adversely affect in any material respect the interests of any noteholder, certificateholder or the swap provider (unless the consent of the swap provider is obtained) as evidenced by an opinion of counsel or satisfaction of the Rating Agency Condition.

The trust agreement may also be amended from time to time by the sponsor, the depositor and the owner trustee, with the prior written consent of the rating agencies and with the prior written consent of the indenture trustee, the holders of the majority of the percentage interest of the notes affected thereby and the certificateholders of the majority of the percentage interests of the issuing entity, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the trust agreement or of modifying in any manner the rights of the noteholders or the certificateholders; provided, however, no such amendment shall (a) increase or reduce in any manner the amount of, or accelerate or delay the timing of, collections of payments on the mortgage loans or distributions that shall be required to be made for the benefit of the noteholders or the certificateholders, (b) reduce the aforesaid percentage of the majority of the percentage interest of the notes or the percentage interests required to consent to any such amendment, in either case of clause (a) or (b) without the consent of the holders of all the outstanding notes affected thereby and the certificateholders of all the outstanding trust certificates.

See “Description of the Notes and the Trust Certificates—Amendment” in this prospectus supplement for information regarding the method the indenture may be amended.

Capitalization

The depositor will contribute to the issuing entity the sum of $1,000, to be held in trust, which shall constitute the initial trust estate and shall be deposited in the payment account. The depositor will pay organizational expenses of the issuing entity as they may arise or shall, upon the request of the owner trustee, promptly reimburse the owner trustee for any such expenses paid by the owner trustee. Pursuant to the sale and servicing agreement, the issuing entity will purchase the Mortgage Loans, which will comprise the remainder of the trust estate. Upon the transfer of the Mortgage Loans pursuant to the sale and servicing agreement, the owner trustee shall transfer the initial capital contribution, in the sum of $1,000, to the depositor. For more information regarding the sale and transfer of the Mortgage Loans to the issuing entity, see “Description of Note and Trust Certificates—Assignment and Pledge of Mortgage Loans” in this prospectus supplement.

Sale of Assets and Security Interest

The issuing entity will represent and warrant that the indenture trustee, acting on behalf of the noteholders, will have a first priority perfected security interest in the mortgage loans by reason of possession of the mortgage loans by the Indenture Trustee through a Custodian and by reason of the filing of a UCC-1 financing statement by the issuing entity in the State of Delaware which will give notice of the security interest in favor of the indenture trustee.

Bankruptcy

The owner trustee shall not have the power to (i) institute proceedings to have the issuing entity declared or adjudicated bankrupt or insolvent, (ii) consent to the institution of bankruptcy or insolvency proceedings against the issuing entity, (iii) file a petition or consent to a petition seeking reorganization or relief on behalf of the issuing entity under any applicable federal or state law relating to bankruptcy, (iv) consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or any similar official) of the issuing entity or a substantial portion of the property of the issuing entity, (v) make any assignment for the benefit of the issuing entity’s creditors, (vi) cause the issuing entity to admit in writing its inability to pay its debts generally as they become due, or (vii) take any action, or cause the issuing entity to take

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any action, in furtherance of any of the foregoing (any of the above, a “Bankruptcy Action”) without the unanimous prior written consent and approval of all certificateholders and the Rating Agency Condition shall have been satisfied and the delivery to the owner trustee by each such certificateholder of a certification that such Certificateholder reasonably believes that the issuing entity is insolvent. So long as the indenture remains in effect, no certificateholder shall have the power to take, and shall not take, any Bankruptcy Action with respect to the issuing entity or direct the owner trustee to take any Bankruptcy Action with respect to the issuing entity.

Furthermore, the issuing entity has structured this transaction so that the bankruptcy of either the depositor or the sponsor will not result in the consolidation of the issuing entity’s assets and liabilities with those of the depositor or the sponsor, respectively. The issuing entity has received a legal opinion, subject to various facts, assumptions and qualifications, opining that if the depositor or the sponsor was adjudged bankrupt, it would not be a proper exercise of a court’s equitable discretion to disregard the separate corporate existence of the issuing entity and to require the consolidation of the issuing entity’s assets and liabilities with those of the depositor or the sponsor, as appropriate. However, there can be no assurance that a court would not conclude that the assets and liabilities of the issuing entity should be consolidated with those of the depositor or sponsor, as appropriate.

The Servicer

Accredited performs the servicing functions for its loan originations prior to sale or securitization, during an interim servicing period for mortgage loans sold on a whole loan basis, and for a portion of its loan originations sold or securitized on a servicing-retained basis. See “Certain Matters Regarding the Servicer” in the prospectus for more information regarding the terms of the sale and servicing agreement and the servicer’s duties thereunder.

Accredited has been servicing non-prime mortgage loans since 1998 and as of March 31, 2006 was servicing approximately 59,815 mortgage loans totaling approximately $9.6 billion. All mortgage loans serviced by Accredited were originated by Accredited and are either: 1) owned by one of the Accredited Mortgage Loan Trusts in connection with a securitization, or 2) serviced for purchasers for an interim period (usually 30 to 60 days from the date the mortgage loan is sold to the purchaser) until servicing is transferred to the purchaser’s servicer of choice, or 3) serviced pending the sale or securitization of such mortgage loans. Accredited is rated “Average” by Standard and Poor’s, “SQ2” by Moody’s Investors Service, and “RPS3” by Fitch Investors Service. There have been no material changes to Accredited’s servicing policies and procedures during the last three years.

Currently, Accredited’s servicing portfolio consists of non-prime fixed and adjustable-rate mortgage loans, including first and second liens.

Servicing activities are performed at Accredited’s servicing centers in San Diego, California, and Orlando, Florida. In its capacity as servicer, Accredited handles various mortgage loan administration duties, including but not limited to, providing incoming phone lines for obligors to access Accredited customer service representatives, tracking property tax payments and hazard and flood insurance coverage on obligor’s accounts, and processing and recording obligor payments. Billing statements are sent monthly to obligors to assist them in making their scheduled payments.

Limitations on Liability

The servicer or any of its directors, officers, employees or agents shall not be under any liability to the issuing entity or the noteholders for any action taken, or for refraining from the taking of any action, in good faith pursuant to the sale and servicing agreement, or for errors in judgment; provided,

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however, that this provision shall not protect the servicer against liability for any breach of warranties or representations made by the servicer in the sale and servicing agreement, or against any specific liability imposed on the sponsor pursuant to the sale and servicing agreement or against any liability which would otherwise be imposed upon the servicer by reason of willful misfeasance, bad faith or negligence in the performance of its duties or by reason of failure to perform its obligations or duties under the sale and servicing agreement.

Custodial Responsibility

The servicer does not have custodial responsibility for the mortgage loans. The indenture trustee has custodial responsibility for the mortgage loans as described under “The Indenture Trustee-Custodial Responsibility” in this prospectus supplement.

In late 1998, Accredited began performing the delinquency collection and default resolution functions on its warehouse inventory of loans held for sale and on a pool of loans securitized by Accredited in 1996, which pool has since been terminated by Accredited exercising a clean-up call. In addition, in mid-1999, Accredited began retaining such servicing functions on loans sold into a facility under which Accredited also retains a residual interest in future payments on the loans. As of March 31, 2006, Accredited is servicing approximately $6.9 billion of loans which have been securitized in the fourteen Accredited securitizations closed in 2002, 2003, 2004, 2005 and 2006, in addition to approximately $2.6 billion of loans which are being held for sale or for securitization (as of March 31, 2006). These servicing activities include, but are not limited to, collections of borrower payments of principal and interest, property tax and flood zone tracking, handling tax and insurance collections and disbursements, initiating foreclosure activities in those situations in which such activity is warranted and liquidating foreclosure properties. In 2004, Accredited opened an additional telephone collection center in Orlando, Florida.

Mortgage Loan Servicing

Once Accredited originates or purchases a mortgage loan, Accredited’s servicing department begins the administrative process of servicing the loan, seeking to ensure that the loan is repaid in accordance with its terms. Accredited starts this process for every mortgage loan, whether Accredited will service the mortgage loan for a matter of weeks before it is sold servicing-released or for its life in a servicing-retained transaction. Accredited’s servicing department is divided into loan administration, loan servicing and asset management units. In addition, the investor reporting unit of Accredited’s finance and accounting department performs the servicing-related functions of reporting on all other servicing activities, and in the case of mortgage loans serviced for others, accounting for and remitting all funds collected through servicing activities.

Administration and Servicing. Accredited’s loan administration unit is responsible for boarding each loan into Accredited’s servicing operations and technology systems. For mortgage loans on which the monthly payments include amounts to be escrowed for the future payment of real estate taxes and insurance premiums, Accredited’s loan administration unit ensures the proper accounting for such funds and the timely payment of the taxes and premiums. For mortgage loans which do not have tax and insurance escrows, the loan administration unit ensures that the properties securing the loans are properly insured at all times and that real estate taxes are paid to avoid foreclosures by taxing authorities. For mortgage loans with adjustable interest rates, the loan administration unit ensures that the adjustments are properly made and timely identified to the related borrowers. This unit is also responsible for the various administrative tasks involved in the transfer of servicing when loans are sold servicing-released, including notifying borrowers, insurers and taxing authorities.

Accredited’s loan servicing unit is responsible for the physical receipt of and initial accounting for all loan payments from borrowers. Accredited encourages its borrowers to establish automatic payment from their bank accounts, which Accredited arranges at no cost to the borrower. Accredited’s loan servicing unit is also responsible for customer service, handling all inbound calls and other communications from borrowers.

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Accredited or any of its directors, officers, employees or agents shall not be under any liability to the issuing entity or the noteholders for any action taken, or for refraining from the taking of any action, in good faith pursuant to the sale and servicing agreement, or for errors in judgment; provided, however, that this provision shall not protect Accredited against liability for any breach of warranties or representations made by Accredited in the sale and servicing agreement, or against any specific liability imposed on Accredited pursuant to the sale and servicing agreement or against any liability which would otherwise be imposed upon Accredited by reason of willful misfeasance, bad faith or negligence in the performance of its duties or by reason of failure to perform its obligations or duties under the sale and servicing agreement.

Collection and Enforcement. Accredited’s asset management unit is responsible for all phases of the collection and enforcement of delinquent and defaulted loans. The inherent risk of delinquency and loss associated with subprime mortgage loans requires hands-on active communication with Accredited’s borrowers from origination through liquidation. Borrower contact is initiated through outbound telephone campaigns, monthly billing statements, and direct mail, and is tailored to reflect the borrower’s payment habit, the mortgage loan’s risk profile and the mortgage loan’s status. Accredited’s collection approach is designed to educate Accredited’s borrowers on managing their debts to maximize the likelihood of continued timely performance. Accredited establishes clear expectations with its borrowers with respect to maintaining contact and working together to resolve any financial problems that may occur. Accredited considers this early intervention a key element of Accredited’s servicing strategy.

Accredited’s front end loan counselors begin calling borrowers whose accounts become five days past due. Once contact is established, Accredited verifies pertinent information and determine the reason for the delay in payment. For borrowers who are able to make their payments, Accredited offers the ability to “pay by phone” through Western Union’s “Quick Collect” service. This allows the borrower to remit the funds immediately or at an agreed later time in the month and avoids delays using the U.S. postal service. If a borrower indicates a problem that is not temporary or is of a serious nature, the call is promptly referred to a manager who will then evaluate the situation and initiate appropriate loss mitigation actions.

When an account becomes thirty-one days delinquent, the borrower receives a notice of intent to foreclose allowing thirty days, or more if required by applicable state law, to cure the default before the account is actually referred for foreclosure. The 30-59 day collection personnel continue active collection campaigns and may offer a borrower relief through a forbearance plan designed to resolve the delinquency in ninety days or less. These collectors are seasoned and trained to effectively identify and resolve problems with borrowers before the past due problems escalate.

Accounts moving to sixty or more days delinquent are transferred to the loss mitigation and foreclosure sub-units simultaneously. Accredited’s loss mitigation personnel choose a collection strategy that is designed to minimize the loss on a defaulted mortgage loan. Accredited procures updated property value information, the borrower’s current credit profile, and reviews foreclosure and real estate marketing timelines to determine the best alternative to foreclosure. Accredited’s loss mitigation personnel continue to actively attempt to resolve the delinquency while Accredited’s foreclosure personnel begin the foreclosure process. Accredited’s loss mitigation tools include payment plans, short sales, deeds in lieu of foreclosure, stipulated forbearance plans, deferments, reinstatements and modifications.

Delinquent accounts not resolved through collection and loss mitigation activities are foreclosed in accordance with state and local laws. Foreclosure timelines are managed through a timeline report built into the loan servicing system. The report schedules key dates throughout the foreclosure process, enhancing Accredited’s ability to monitor and manage the process. Properties acquired through foreclosure are transferred to the real estate owned, or REO, sub-unit to manage eviction and marketing of the properties. Once a property is vacant, it is listed with a local real estate agent who develops a

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marketing strategy designed to maximize the net recovery upon liquidation. Second opinions on the value of the property are obtained to validate recommendations given by the primary listing agent. Property listings are reviewed several times monthly to ensure the properties are properly maintained and actively marketed.

Accredited’s loan administration unit also handles hazard and mortgage insurance claims, mortgage bankruptcies, condemnations and other special servicing needs.

Servicing Department Infrastructure. Accredited services its loans using Accredited’s configuration of MortgageWare software provided by Interlinq Software Corporation. Accredited also has additional software modules for the management of REO. Accredited’s technology delivers helpful data regarding the loan and the borrower to the desktops of Accredited’s servicing personnel. Accredited also has all of its files electronically imaged so that Accredited’s servicing personnel have access to each file without having to retrieve a paper file.

Monthly incentive plans are in place for all collections, loss mitigation, foreclosure and REO personnel and are tied directly to performance of the servicing portfolio. Both individual and team goals are used to encourage superior results and cooperation between unit members.

Ongoing training for Accredited’s servicing personnel is provided regularly and covers major relevant topics within the servicing department. In the collection and loss mitigation areas, supervisors and managers monitor actual telephone calls by each collector on a monthly basis and follow up with one-on-one training and direction. In addition, scripts tailored to typical borrower circumstances are posted at each workstation to ensure the employee asks the appropriate questions for the type of delinquency situation the borrower is experiencing. Outside legal counsel conduct on-site classes or seminars for the foreclosure and bankruptcy areas approximately on a quarterly basis, and title company representatives also provide on-site training on title issues.

All of Accredited’s servicing functions are administered from Accredited’s San Diego headquarters. Hours of operation for Accredited’s servicing department are 6:30 a.m. to 7:00 p.m., Monday through Friday, and Accredited uses staggered shifts to cover the different time zones where Accredited’s borrowers and collateral properties are located. Collection personnel also work one or two Saturdays each month, depending upon the day of the week on which each month end falls. Evening and weekend hours are used to facilitate contact with borrowers that are otherwise unavailable during regular business hours.

See “Servicing of the Mortgage Loans” in this prospectus supplement and “Servicing of Loans” in the prospectus for more information regarding the sale and servicing agreement, the servicer’s fees, the servicer’s removal and the transfer of servicing duties to a successor servicer. See “Collection Procedures; Escrow Accounts” and “Deposits to and Withdrawals from the Collection Account” in the prospectus for more information on the manner in which collections on the mortgage loans will be maintained.

Legal Proceedings

Because the nature of Accredited’s business involves the collection of numerous accounts and compliance with federal, state and local lending laws, the originator is subject to claims and legal actions in the ordinary course of its business. Like a number of other consumer finance companies, Accredited is subject to certain class-action lawsuits alleging violations of various federal and state consumer protection laws and other laws. Accredited intends to defend or seek other resolution of these lawsuits and Accredited either does not believe that their resolution will have a material adverse effect on its financial position or results of operations or has not been able to make a determination regarding the ultimate outcome of the matter or the amount of potential liability. In addition to the class actions disclosed in Accredited’s public filings, Accredited is subject to the lawsuit described below.

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Delinquency and Loan Loss Experience⁽¹⁾

The following table sets forth certain information regarding the delinquency, foreclosure, REO and loss experience with respect to mortgage loans serviced by Accredited for the periods indicated. The delinquency, foreclosure and loss percentages may be affected by the size and relative lack of seasoning of the portfolio which increased significantly since December 2003.

Delinquency and Foreclosure


	As of December 31,															As of March 31,
	2003					2004					2005					2006
						(dollars in thousands)
	No. of Loans	Principal Balance		Percentage		No. of Loans	Principal Balance		Percentage		No. of Loans	Principal Balance		Percentage		No. of Loans	Principal Balance		Percentage
Total servicing portfolio including REO	28,417	$	3,695,976			47,841	$	6,731,581			63,799	$	9,706,153			59,815	$	9,604,050
Delinquency(2)

30 - 59 days	93	$	9,199	0.2	%	264		33,134	0.5	%	547		76,526	0.8	%	521		76,177	0.8	%
60 - 89 days	63		6,794	0.2		87		11,325	0.2		237		31,962	0.3		249		36,842	0.4
90 + days	389		36,885	1.0		534		57,683	0.9		839		100,333	1.0		956		123,254	1.3

Total delinquencies and foreclosures(2)	545	$	52,878	1.4	%	885		102,142	1.5	%	1,623		208,821	2.2		1,726		236,273	2.5	%

Real estate owned (2)(3)	115	$	10,699	0.3	%	123		14,357	0.2	%	207	$	28,928	0.3	%	270	$	37,022	0.4	%

Annual losses on servicing portfolio(4)		$	17,646	0.6	%		$	17,505	0.3	%			22,193	0.3	%			24,804	0.3	%

(1)

The category “Foreclosures” has been eliminated in prior periods in order to conform to our current presentation format, in which foreclosures are included within the respective day-count delinquency categories. Management believes this revised presentation more accurately reflects the performance of the company’s serviced portfolio, as information regarding the duration of the delinquency is more useful than legal status since foreclosures are naturally dispersed among various day-count categories.

(2)	Percentage of servicing portfolio at period end.

(3)	Based on the aggregate principal balance of the mortgage loans secured by mortgaged properties the title to which has been acquired through foreclosure, deed in lieu of foreclosure or similar process.

(4)	Percentages based upon average monthly servicing portfolio.

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The Owner Trustee

U.S. Bank Trust National Association (U.S. Bank Trust) will act as owner trustee under the trust agreement. U.S. Bank Trust is a national banking association and a wholly-owned subsidiary of U.S. Bancorp, which is currently ranked as the sixth largest bank holding company in the United States with total assets exceeding $210 billion as of March 31, 2006. As of March 31, 2006, U.S. Bancorp served approximately 13.4 million customers, operated 2,430 branch offices in 24 states and had over 51,000 employees. A network of specialized U.S. Bancorp offices across the nation, inside and outside its 24-state footprint, provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses, governments and institutions.

U.S. Bank Trust has provided owner trustee services since the year 2000. As of March 31, 2006, U.S. Bank Trust was acting as owner trustee with respect to over 140 issuances of securities. This portfolio includes mortgage-backed and asset-backed securities. U.S. Bank Trust has acted as owner trustee of sub-prime mortgage-backed securities since 2000. As of March 31, 2006, U.S. Bank Trust was acting as owner trustee on 26 issuances of sub-prime mortgage-backed securities.

Duties and Responsibilities

The owner trustee will execute and deliver or cause to be executed and delivered the Notes, the Trust Certificates and the transaction documents to which the issuing entity is a party, in each case, as the Sponsor shall approve. In addition, the owner trustee shall, on behalf of the issuing entity, execute and deliver to the authenticating agent the trust request and the trust orders referred to in the indenture, to authenticate and deliver the Notes. In addition, the owner trustee is authorized, but shall not be obligated, to take all actions required of the issuing entity, pursuant to the transaction documents.

It shall be the duty of the owner trustee to discharge (or cause to be discharged) all of its responsibilities pursuant to the terms of the trust agreement and the transaction documents to which the issuing entity is a party and to administer the issuing entity in the interest of the certificateholders, subject to the transaction documents and in accordance with the provisions of the trust agreement and to maintain the issuing entity’s existence as a statutory trust under the laws of the State of Delaware.

The owner trustee shall disburse all moneys actually received by it constituting part of the Owner Trust Estate upon the terms of the transaction documents and the trust agreement. Subject to the trust agreement, the owner trustee shall furnish to the certificateholders promptly upon receipt of a written request therefor, duplicates or copies of all reports, notices, requests, demands, certificates, financial statements and any other instruments furnished to the owner trustee under the transaction documents. On behalf of the owner trustee, the Sponsor shall furnish to the noteholders promptly upon written request therefor, copies of the sale and servicing Agreement and the indenture.

Limitations on Liability

The owner trustee shall not be answerable or accountable under any circumstances, except (i) for its own willful breach or misconduct or gross negligence or (ii) in the case of the inaccuracy of any representation or warranty contained in the trust agreement expressly made by the owner trustee in its individual capacity.

Resignation or Removal

The owner trustee may at any time resign and be discharged by giving written notice thereof to the issuing entity, the sponsor, the servicer, the swap provider and the indenture trustee. Upon receiving such notice of resignation, the sponsor shall promptly appoint a successor owner trustee by written

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instrument, in duplicate, one copy of which instrument shall be delivered to the resigning owner trustee and one copy to the successor owner trustee. If no successor owner trustee shall have been so appointed and have accepted appointment within thirty (30) days after the giving of such notice of resignation, the resigning owner trustee may petition any court of competent jurisdiction for the appointment of a successor owner trustee.

If at any time the owner trustee shall cease to be eligible in accordance with the provisions of the trust agreement and shall fail to resign after written request therefor by the certificateholders or the sponsor, or if at any time the owner trustee shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a receiver of the owner trustee or of its property shall be appointed, or any public officer shall take charge or control of the owner trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the certificateholders or the sponsor, may remove the owner trustee. If the certificateholders or the sponsor shall remove the owner trustee under the authority of the immediately preceding sentence, the sponsor, shall promptly appoint a successor owner trustee by written instrument in duplicate, one copy of which instrument shall be delivered to the outgoing owner trustee so removed and one copy to the successor owner trustee and payment of all fees owed to the outgoing owner trustee.

Any resignation or removal of the owner trustee and appointment of a successor owner trustee pursuant to any of the provisions of the trust agreement shall not become effective until acceptance of appointment by the successor owner trustee pursuant to the trust agreement, and payment of all fees and expenses by the sponsor owed to the outgoing owner trustee. The servicer shall provide notice of such resignation or removal of the owner trustee to each of the rating agencies, the swap provider and the indenture trustee.

Indemnification

Under the trust agreement, the sponsor will indemnify the owner trustee from and against, any and all liabilities, obligations, losses, damages, taxes, claims, actions and suits, and any and all reasonable costs, expenses and disbursements (including reasonable legal fees and expenses) of any kind and nature whatsoever which may at any time be imposed on, incurred by, or asserted against the owner trustee in any way relating to or arising out of the trust agreement, the other related agreements, the trust estate, the administration of the trust estate or the action or inaction of the owner trustee under the trust agreement. However, the sponsor will not be liable for or required to indemnify the owner trustee from and against any of the foregoing expenses arising or resulting from (i) for its own willful breach or misconduct or gross negligence or (ii) the inaccuracy of certain of the owner trustee’s representations and warranties. To the extent that any such indemnities are not otherwise satisfied, they will be paid from Available Funds as described under “Description of the Notes and the Trust Certificates—Payments of Interest, —Payments of Principal, and —Allocation of Net Monthly Excess Cashflow” in this prospectus supplement.

The Indenture Trustee

Deutsche Bank National Trust Company (“DBNTC”) will act as indenture trustee. DBNTC is a national banking association which has an office in Santa Ana, California. DBNTC has previously been appointed to the role of trustee for numerous mortgage-backed transactions in which residential mortgages comprised the asset pool and has significant experience in this area. As indenture trustee, DBNTC will be calculating certain items and reporting as set forth in the sale and servicing agreement. DBNTC has acted as calculation agent in numerous mortgage-backed transactions since 1991. DBNTC also will act as a custodian of the mortgage files pursuant to the sale and servicing agreement. DBNTC has performed this custodial role in numerous mortgage-backed transactions since 1991. DBNTC will maintain the mortgage files in secure, fire-resistant facilities. DBNTC will not physically segregate the mortgage files from other mortgage files in DBNTC’s custody but will be kept in shared facilities.

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However, DBNTC’s proprietary document tracking system will show the location within DBNTC’s facilities of each mortgage file and will show that the mortgage loan documents are held by the indenture trustee on behalf of the trust. DBNTC has no pending legal proceedings that would materially affect its ability to perform its duties as indenture trustee on behalf of the Holders or as custodian. DBNTC may perform certain of its obligations through one or more third party vendors. However, DBNTC shall remain liable for the duties and obligations required of it under the sale and servicing agreement.

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

Duties and Responsibilities

The indenture trustee will always maintain an office at a location in the United States of America where Notes may be surrendered for registration of transfer or exchange. Notices and demands to or upon the issuing entity in respect of the Notes and the indenture may be delivered at the corporate trust office of the indenture trustee.

The indenture trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the noteholders contained in the most recent list, if any, furnished to the indenture trustee as provided in the indenture and the names and addresses of the noteholders received by the indenture trustee in its capacity as note registrar.

The indenture trustee shall (i) on or prior to the closing date execute and deliver the acknowledgement of receipt of the mortgage loans required by the sale and servicing agreement, (ii) on or prior to sixty (60) days following the closing date execute and deliver the initial certification required by the sale and servicing agreement, and (iii) on or prior to one hundred eighty (180) days following the closing date execute and deliver the final certification required by the sale and servicing agreement.

If the indenture trustee during the process of reviewing the indenture trustee’s mortgage files finds any document constituting a part of a indenture trustee’s mortgage file which is not executed, has not been received, is unrelated to the mortgage loan identified in the related mortgage loan schedule, or does not conform to the requirements of the sale and servicing agreement or the description thereof as set forth in the related mortgage loan schedule, the indenture trustee shall promptly so notify the Servicer and the Sponsor. Upon receipt of such notice respecting such defect, the Depositor and the Sponsor shall have a sixty (60) day period after such notice within which to correct or cure any such defect, or if the Servicer determines that the defect materially and adversely affects the value of the related mortgage loan or the interest of the noteholders in the related mortgage loan, to either (i) substitute in lieu of such mortgage loan a Qualified Substitute Mortgage Loan in the manner and subject to the conditions set forth in the sale and servicing agreement or (ii) purchase such mortgage loan at a purchase price specified in the sale and servicing agreement.

See “Description of the Notes and the Trust Certificates—Reports to Noteholders” for information regarding the reporting responsibilities of the indenture trustee.

Immediately after the occurrence of any event of default known to a responsible officer of the indenture trustee, the indenture trustee shall transmit by mail to the sponsor notice of each such event of default and, within ninety (90) days after the occurrence of any event of default known to a responsible officer of the indenture trustee, the indenture trustee shall transmit by mail to all noteholders notice of each such event of default, unless such event of default shall have been cured or waived. Concurrently with the mailing of any such notice to the noteholders, the indenture trustee shall transmit by mail a copy of such notice to the rating agencies and the swap provider.

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Resignation or Removal

No resignation or removal of the indenture trustee and no appointment of a successor indenture trustee pursuant to the indenture shall become effective until the acceptance of appointment by the successor indenture trustee. The indenture trustee may resign at any time by giving written notice thereof to the issuing entity and each rating agency. If an instrument of acceptance by a successor indenture trustee shall not have been delivered to the indenture trustee within thirty (30) days after the giving of such notice of resignation, the resigning indenture trustee may petition any court of competent jurisdiction for the appointment of a successor indenture trustee.

The indenture trustee may be removed at any time by the noteholders representing more than 50% of the Class Note Balance of the Outstanding Notes, by written notice delivered to the indenture trustee and to the issuing entity.

If at any time the indenture trustee shall have a conflicting interest prohibited by the indenture and shall fail to resign or eliminate such conflicting interest or the indenture trustee shall cease to be eligible under the indenture or shall become incapable of acting or shall be adjudged bankrupt or insolvent, or a receiver of the indenture trustee or of its property shall be appointed, or any public officer shall take charge or control of the indenture trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, the owner trustee, on behalf of the issuing entity, may remove the indenture trustee.

Every successor indenture trustee appointed hereunder shall execute, acknowledge and deliver to the issuing entity and the retiring indenture trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring indenture trustee shall become effective and such successor indenture trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring indenture trustee. Notwithstanding the foregoing, upon a request of the owner trustee, on behalf of the issuing entity, or the successor indenture trustee, such retiring indenture trustee shall, upon payment of its charges and any fees, expenses or other amounts owing the indenture trustee, execute and deliver an instrument transferring to such successor indenture trustee all the rights, powers and trusts of the retiring indenture trustee, and shall duly assign, transfer and deliver to such successor indenture trustee all property and money held by such retiring indenture trustee under the indenture.

The servicer, on behalf of the issuing entity, shall give notice of each resignation and each removal of the indenture trustee and each appointment of a successor indenture trustee to the noteholders and the swap provider. Each notice shall include the name of the successor indenture trustee and the address of its corporate trust office.

Limitations on Liability

The indenture trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that the duties and obligations of the indenture trustee shall be determined solely by the express provisions of the indenture, the indenture trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in the indenture, no implied covenants or obligations shall be read into the indenture against the indenture trustee. No provision of the indenture shall require the indenture trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory to it against such risk or liability is not reasonably assured to it under the indenture.

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Indemnification

Under the indenture, the issuing entity will agree to indemnify the indenture trustee against losses, liability costs and expenses, including reasonable attorney’s fees, incurred, arising out of or in connection with the related agreements or any other documents or agreements relating to the issuing entity or the notes, other than any loss, liability, cost or expense incurred solely by reason of willful malfeasance, bad faith or negligence of the indenture trustee in the performance of its duties under the related agreements or by reason of its failure to perform its obligations under the indenture. The indemnities will be paid from Available Funds as described under “Description of the Notes and the Trust Certificates—Payments of Interest, —Payments of Principal, and —Allocation of Net Monthly Excess Cashflow” in this prospectus supplement. To the extent that any such indemnities are not otherwise satisfied by the issuing entity, they will be paid by the servicer.

The Swap Provider

Barclays Bank PLC is a public limited company registered in England and Wales under number 1026167. The liability of the members of Barclays Bank PLC is limited. It has its registered head office at 1 Churchill Place, London, E14 5HP. Barclays Bank PLC was incorporated on 7 August 1925 under the Colonial Bank Act 1925 and on 4 October 1971 was registered as a company limited by shares under the Companies Act 1948 to 1967. Pursuant to The Barclays Bank Act 1984, on 1 January 1985, Barclays Bank was re-registered as a public limited company and its name was changed from “Barclays Bank International Limited” to “Barclays Bank PLC”.

Barclays Bank PLC and its subsidiary undertakings (taken together, the “Group”) is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services. The whole of the issued ordinary share capital of Barclays Bank PLC is beneficially owned by Barclays PLC, which is the ultimate holding company of the Group and one of the largest financial services companies in the world by market capitalisation.

The short term unsecured obligations of Barclays Bank PLC are rated A-1+ by Standard & Poor’s, P-1 by Moody’s and F1+ by Fitch Ratings Limited and the long-term obligations of Barclays Bank PLC are rated AA by Standard & Poor’s, Aa1 by Moody’s and AA+ by Fitch Ratings Limited.

By Regulation, the European Union agreed that virtually all listed companies must use International Financial Reporting Standards (“IFRS”) adopted for use in the European Union in the preparation of their 2005 consolidated accounts. The Group has applied IFRS from 1 January 2004, with the exception of the standards relating to financial instruments (IAS 32 and IAS 39) and insurance contracts (IFRS 4) which were applied only with effect from 1 January 2005. Therefore, in the Group’s 2005 Annual Report, the impacts of adopting IAS 32, IAS 39 and IFRS 4 are not included in the 2004 comparatives in accordance with First-time Adoption of International Financial Reporting Standards (IFRS 1). The results for 2005 are therefore not entirely comparable to those for 2004 in affected areas.

Based on the Group’s audited financial information for the year ended 31 December 2005, the Group had total assets of £924,170 million (2004: £538,300 million), total net loans and advances¹ of

¹	Total net loans and advances include balances relating to both bank and customer accounts.

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£300,001 million (2004: £343,041 million), total deposits² of £313,811 million (2004: £328,516 million), and total shareholders’ equity of £24,243 million (2004: £16,849 million) (including minority interests of £1,578 million (2004: £211 million)). The profit before tax of the Group for the year ended 31 December 2005 was £5,311 million (2004: £4,589 million) after impairment charges on loans and advances and other credit provisions of £1,571 million (2004: £1,093 million).

The aggregate significance percentage (as calculated in accordance with Regulation AB Item 1115) of the interest rate swap agreement is less than 10%. The swap provider may be replaced if the aggregate significance percentage of the interest rate swap agreement is more than 10% as set forth in the interest rate swap agreement and if the swap provider cannot comply with the provisions set forth in Regulation AB Item 1115.

Description of the Notes and the Trust Certificates

Capitalized terms used in this prospectus supplement are defined under the caption “Glossary.”

On the closing date, the issuing entity will issue the notes pursuant to the indenture. Each note represents a debt obligation of the issuing entity primarily secured by a pledge of a portion of the trust estate.

Pursuant to the trust agreement, the issuing entity will also issue a class of trust certificates, representing the entire beneficial ownership interest in the issuing entity. The trust certificates will represent the entire beneficial ownership interest in the mortgage loans and will be held by the depositor. The trust certificates may not be transferred without complying with the transfer provisions of the trust agreement.

The notes will be issued only in book-entry form, in denominations of $25,000 initial principal balance and integral multiples of $1,000 in excess thereof, except that one note of each class may be issued in a different amount; provided, however, that the underwriter will only sell offered notes to initial investors in minimum total investment amounts of $100,000. The notes are available in book-entry form only, through the facilities of The Depository Trust Company or “DTC”.

Book-Entry Notes

The notes are sometimes referred to in this prospectus supplement as “book-entry notes.” The book-entry notes will be issued in one or more notes which equal the aggregate principal balance of the notes and will initially be registered in the name of Cede & Co., which will be the “holder” of the notes, as the nominee of DTC. Persons acquiring beneficial ownership interests in the notes will hold their notes through DTC in the United States or Clearstream Banking, societé anonyme or Euroclear Bank, as operator of the Euroclear System, in Europe, if they are participants of such systems, or indirectly through organizations which are participants in such systems. Clearstream Banking, societé anonyme, and Euroclear Bank will hold omnibus positions on behalf of their participants through customers’ securities accounts in Clearstream Banking, societé anonyme and Euroclear Bank names on the books of their respective depositaries, which in turn will hold such positions in customers’ securities accounts in the depositaries’ names on the books of DTC. Citibank, N.A. will act as depositary for Clearstream, and JPMorgan Chase Bank, N.A., will act as depositary for Euroclear Bank.

Investors may hold such beneficial interests in the book-entry notes in minimum denominations representing principal amounts of $25,000 and in integral multiples of $1,000 in excess thereof. Except as described in the prospectus under “Description of the Securities — Form of Securities,” no beneficial

²	Total deposits include deposits from bank and customer accounts.

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owner will be entitled to receive a physical or definitive note representing such note. Unless and until definitive notes are issued, it is anticipated that the only “holder” of such notes will be Cede & Co., as nominee of DTC. Beneficial owners will not be “holders” or “noteholders” as those terms are used in the indenture and the sale and servicing agreement. Beneficial owners are only permitted to exercise their rights indirectly through participants and DTC. For information with respect to tax documentation procedures relating to the notes, see “Annex I – Global Clearance, Settlement and Tax Documentation Procedures” attached to the accompanying prospectus.

None of the issuing entity, the owner trustee, the sponsor, the servicer, or the indenture 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 notes held by Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

Assignment and Pledge of Mortgage Loans

Pursuant to the sale and servicing agreement, the sponsor will direct the depositor to sell, transfer, assign, set over and otherwise convey without recourse to the issuing entity, all right, title and interest in and to each mortgage loan, including all scheduled payments of principal and interest due after the close of business on the related Cut-off Date. The depositor will not convey, and the depositor reserves and retains all its right, title and interest in and to, (x) scheduled payments of principal and interest due on each mortgage loan on or prior to the related Cut-off Date and (y) principal prepayments in full, curtailments (i.e., partial prepayments) and unscheduled recoveries of principal received on each such mortgage loan prior to the related Cut-off Date.

Pursuant to the indenture, the issuing entity will pledge to the indenture trustee in trust for the benefit of the noteholders, all right, title and interest in and to the mortgage loans, as collateral security for the notes.

Delivery of Mortgage Loan Documents

In connection with the sale, transfer, assignment or pledge of the mortgage loans to the issuing entity, the sponsor will deliver or cause to be delivered to the indenture trustee, on or prior to the closing date, the following documents with respect to each mortgage loan which constitute the mortgage file:

(a)

the original mortgage note, endorsed without recourse in blank or to the indenture trustee by the sponsor, including all intervening endorsements showing a complete chain of endorsement;

(b)

the related original mortgage with evidence of recording indicated thereon or a copy thereof certified by the applicable recording office, the sponsor or the sponsor’s closing agent in connection with the closing of the mortgage loan and if the mortgage loan is registered on the MERS system (as described below), such mortgage or an assignment of the mortgage will reflect MERS as the mortgagee of record and will include the MERS mortgage identification number;

(c)

each intervening mortgage assignment, if any, with evidence of recording indicated thereon, or if the original is not available, a copy thereof certified by the applicable recording office, the sponsor or the sponsor’s closing agent in connection with the closing of the mortgage loan, showing a complete chain of assignment from the originator of the related mortgage loan to the sponsor (or to MERS, if the mortgage loan is registered on the MERS system and indicating the mortgage identification number, if the mortgage loan is so registered) — which assignment may, at the sponsor’s option, be combined with the assignment referred to in clause (d) below;

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(d)

unless the mortgage is registered on the MERS system, a mortgage assignment in recordable form, which, if acceptable for recording in the relevant jurisdiction, may be included in a blanket assignment or assignments, of each mortgage from the sponsor to the indenture trustee;

(e)

originals of all assumption, modification and substitution agreements in those instances where the terms or provisions of a mortgage or mortgage note have been modified or such mortgage or mortgage note has been assumed; and

(f)

an original title insurance policy or title opinion (or (A) a copy of the title insurance policy or title opinion or (B) the related binder, commitment or preliminary report, or copy thereof, in which case the sponsor certifies that the original mortgage has been delivered for recordation to the title insurance company that issued such binder, commitment or preliminary report).

Pursuant to the indenture, the indenture trustee agrees to execute and deliver on or prior to the closing date an acknowledgment of receipt of the original mortgage note, item (a) above, with respect to each of the mortgage loans, with any exceptions noted. The indenture trustee agrees, for the benefit of the noteholders, to review, or cause to be reviewed, each mortgage file within sixty days after the closing date — or, with respect to any Qualified Substitute Mortgage Loan, within sixty days after the receipt by the indenture trustee thereof — and to deliver a certification generally to the effect that, as to each mortgage loan listed in the schedule of mortgage loans:

•

all documents required to be reviewed by it pursuant to the indenture are in its possession,

•

each such document has been reviewed by it and has not been mutilated, damaged, torn or otherwise physically altered, appears regular on its face and relates to such mortgage loan, and

•

based on its examination and only as to the foregoing documents, certain information set forth on the schedule of mortgage loans accurately reflects the information set forth in the mortgage file delivered on such date.

If the indenture trustee, during the process of reviewing the mortgage files, finds any document constituting a part of a mortgage file which is not executed, has not been received, is unrelated to the mortgage loan, or does not conform to the requirements in the sale and servicing agreement, the indenture trustee will promptly so notify the servicer and the sponsor in writing with details thereof. The sponsor agrees to use reasonable efforts to cause to be remedied such defect in a document constituting part of a mortgage file of which it is so notified by the indenture trustee. If, however, within sixty days after the indenture trustee’s notice of such defect, the sponsor has not caused the defect to be remedied and the defect materially and adversely affects the value of the related mortgage loan or the interest of the noteholders in the related mortgage loan, the sponsor will either (a) substitute in lieu of such mortgage loan a Qualified Substitute Mortgage Loan and, if the then outstanding principal balance of such Qualified Substitute Mortgage Loan is less than the principal balance of such mortgage loan as of the date of such substitution plus accrued and unpaid interest thereon, deliver to the servicer a substitution adjustment equal to the amount of any such shortfall or (b) purchase such mortgage loan at a purchase price equal to the outstanding principal balance of such mortgage loan as of the date of purchase, plus the greater of (x) all accrued and unpaid interest thereon and (y) thirty days’ interest thereon, computed at the

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related mortgage interest rate, net of the servicing fee if the servicer is effecting the repurchase, plus, in each case, the amount of any unreimbursed Delinquency Advances and Servicing Advances, plus any costs and damages incurred by the issuing entity in connection with any violation by such mortgage loans of any predatory or abusive lending law. The purchase price will be deposited in the collection account after deducting therefrom any amounts received in respect of such repurchased mortgage loan or loans being held in the collection account for future payment to the noteholders to the extent such amounts have not yet been applied to principal or interest on such mortgage loan. In the event a defective mortgage loan is liquidated before it is repurchased by the sponsor, the sponsor is obligated to pay any realized losses with respect to such defective mortgage loan. The obligation of the sponsor to repurchase or substitute for a defective mortgage loan is the sole remedy regarding any defects in the mortgage file available to the indenture trustee or the noteholders.

The mortgages for certain mortgage loans were or may be, at the sole discretion of the sponsor, originally recorded in the name of Mortgage Electronic Registration Systems, Inc. (“MERS”), solely as nominee for the sponsor, and its successors and assigns. Subsequent assignments of such mortgages were or may be, at the sole discretion of the servicer, registered electronically through the MERS system. Alternatively, for certain other mortgage loans, (i) the mortgage may have been originally recorded in the name of the sponsor, (ii) record ownership was later assigned to MERS, solely as nominee for the sponsor, and (iii) subsequent assignments of the mortgage were registered electronically through the MERS system. For each of such mortgage loans registered with MERS, MERS serves as mortgagee of record on the mortgage solely as a nominee in an administrative capacity on behalf of the indenture trustee, and does not have any beneficial interest in the mortgage loan.

Representations and Warranties of the Sponsor

The sponsor will represent, among other things, with respect to each mortgage loan, as of the closing date, the following:

1. the information set forth in the schedule of mortgage loans with respect to each mortgage loan is true and correct;

2. all of the original or certified documentation constituting the mortgage files, including all material documents related thereto, has been or will be delivered to the indenture trustee on the closing date;

3. the mortgaged property consists of a single parcel of real property upon which is erected a detached one- to four-family dwelling, an individual condominium unit in a low-rise condominium, or an individual unit in a planned unit development;

4. each mortgage loan at the time it was made complied with, and each mortgage loan at all times was serviced in compliance with, in each case, in all material respects, applicable local, state and federal laws and regulations, including, without limitation, usury, equal credit opportunity, consumer credit, truth-in-lending, recording and disclosure laws, and all applicable predatory and abusive lending laws;

5. each mortgage is a valid first or second lien on a fee simple, or its equivalent under applicable state law, or leasehold estate in the real property securing the amount owed by the mortgagor under the mortgage note subject only to:

•

the lien of current real property taxes and assessments which are not delinquent,

•

covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording of such mortgage, such exceptions appearing

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of record being acceptable to mortgage lending institutions generally in the area wherein the property subject to the mortgage is located or specifically reflected in the appraisal obtained in connection with the origination of the related mortgage loan obtained by the sponsor or related originator, and

•

other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by such mortgage;

6. immediately prior to the transfer and assignment by the depositor to the issuing entity, the depositor had good title to, and was the sole owner of each mortgage loan, free of any interest of any other person, and the depositor has transferred all right, title and interest in each mortgage loan to the issuing entity;

7. the number of mortgage loans which are more than 30 days delinquent do not exceed 20% of the Initial Pool Balance of the mortgage loans;

8. each mortgage loan conforms, and all such mortgage loans in the aggregate conform, to the description thereof set forth in this prospectus supplement; and

9. all of the mortgage loans were originated in accordance with the underwriting criteria set forth herein.

Pursuant to the sale and servicing agreement, upon the earlier of discovery by the sponsor or its receipt of notice from any noteholder, the sponsor, the servicer or the indenture trustee of a breach of any of the representations and warranties contained in the sale and servicing agreement which materially and adversely affects the value of the related mortgage loan or the interests of the noteholders in the related mortgage loan, the sponsor will have a period of sixty days to effect a cure. If the breach is not cured within the sixty-day period, the depositor will, and if the depositor fails to, then the sponsor will either (a) substitute for such mortgage loan a Qualified Substitute Mortgage Loan or (b) purchase such mortgage loan from the issuing entity, such repurchase amount to include any costs and damages incurred by the issuing entity in connection with a violation of a predatory or abusive lending law. The same procedures and limitations that are set forth above for the substitution or purchase of a defective mortgage loan as a result of deficient documentation will apply to the substitution or purchase of a mortgage loan as a result of a breach of a representation or warranty in the sale and servicing agreement that materially and adversely affects the value of the related mortgage loan or the interests of the noteholders in the related mortgage loan. In the event a mortgage loan with respect to which a representation or warranty has been breached is liquidated before it is repurchased by the depositor or the sponsor, the depositor or the sponsor must pay any realized losses with respect to such mortgage loan.

In addition, the sponsor will be obligated to indemnify the issuing entity, the depositor, the owner trustee, the indenture trustee and the noteholders for any third-party claims arising out of a breach by the sponsor of representations or warranties regarding the mortgage loans. The obligation of the sponsor to cure such breach or to substitute for or purchase any mortgage loan and to indemnify constitute the sole remedies respecting a material breach of any such representation or warranty to the noteholders, the issuing entity, the indenture trustee, the owner trustee and the depositor.

Payments on the Mortgage Loans

The servicer is obligated to establish and maintain a separate collection account, which will generally be (a) an account maintained with a depository institution or trust company or (b) trust accounts maintained with a depository institution acceptable to each rating agency rating this offering. The servicer may direct any depository institution maintaining the collection account to invest the funds in the

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collection account in one or more eligible investments that mature, unless payable on demand, no later than the business day preceding the date on which the servicer is required to transfer the Servicer Remittance Amount from the collection account into the payment account, as described below.

The servicer is obligated to deposit or cause to be deposited in the collection account in accordance with the time frame set forth in the sale and servicing agreement, amounts representing the following payments received and collections made by it after the related Cut-off Date, other than in respect of scheduled monthly payments on the mortgage loans due on a date occurring on or prior to the related Cut-off Date:

•

all payments on account of principal of the mortgage loans, including scheduled principal payments, full and partial principal prepayments and prepayment penalties collected in connection therewith;

•

all payments on account of interest on the mortgage loans;

•

all Net REO Proceeds;

•

all Net Liquidation Proceeds;

•

all Insurance Proceeds;

•

all other amounts required to be deposited in the collection account pursuant to the sale and servicing agreement; and

•

any amounts required to be deposited in connection with net losses realized on investments of funds in the collection account.

The indenture trustee will be obligated to establish and maintain a payment account into which the servicer will deposit or cause to be deposited the Servicer Remittance Amount on the related Servicer Remittance Date. All income or other gains, if any, from investment of moneys in the payment account shall be for the benefit of the indenture trustee.

The Servicer may make withdrawals from the collection account, on or prior to any Servicer Remittance Date, for the following purposes:

(i) to pay to the sponsor or the depositor amounts received in respect of any mortgage loan purchased or substituted for by the sponsor or the depositor any amounts realized by the issuing entity in excess of the purchase or substitution amounts;

(ii) to reimburse the servicer for unreimbursed Delinquency Advances and unreimbursed Servicing Advances with respect to a mortgage loans from collections of or relating to such mortgage loan;

(iii) to reimburse the servicer for any Delinquency Advances and Servicing Advances determined in good faith to have become nonrecoverable advances, such reimbursement to be made from any funds in the collection account;

(iv) to withdraw any amount received from a mortgagor that is recoverable and sought to be recovered as a voidable preference by a trustee in bankruptcy pursuant to the Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction;

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(v) to withdraw any funds deposited in the collection account that were not required to be deposited therein;

(vi) to pay the servicer the servicing compensation to the extent not retained or paid;

(vii) without duplication, and solely out of amounts which are payable to a former servicer in respect of unreimbursed Servicing Advances and Delinquency Advances, to pay to the indenture trustee or any successor servicer amounts paid by them in connection with the transfer of the servicer’s servicing obligations upon a termination of the servicer and required under the sale and servicing agreement to be borne by the Servicer;

(viii) to withdraw income on the collection account; and

(ix) amounts deposited into the collection account in respect of late fees, assumption fees and similar fees (other than Prepayment Charges).

Payments of Interest

Calculation of Interest. The amount of interest payable on each payment date in respect of each class of Notes will equal the Accrued Note Interest for such class on such date, plus any unpaid Accrued Note Interest for such class from prior payment dates. Interest will accrue on the Offered Notes on the basis of a 360-day year and the actual number of days elapsed in each related Interest Accrual Period.

The “Interest Rates” for each class of Notes will be the applicable annual rate described below:

•

Class A-1 Notes, the lesser of (i) one-month LIBOR plus 0.04% per annum and (ii) the Available Funds Cap.

•

Class A-2 Notes, the lesser of (i) one-month LIBOR plus 0.09% per annum and (ii) the Available Funds Cap.

•

Class A-3 Notes, the lesser of (i) one-month LIBOR plus 0.15% per annum and (ii) the Available Funds Cap.

•

Class A-4 Notes, the lesser of (i) one-month LIBOR plus 0.26% per annum and (ii) the Available Funds Cap.

•

Class M-1 Notes, the lesser of (i) one-month LIBOR plus 0.27% per annum and (ii) the Available Funds Cap.

•

Class M-2 Notes, the lesser of (i) one-month LIBOR plus 0.29% per annum and (ii) the Available Funds Cap.

•

Class M-3 Notes, the lesser of (i) one-month LIBOR plus 0.33% per annum and (ii) the Available Funds Cap.

•

Class M-4 Notes, the lesser of (i) one-month LIBOR plus 0.35% per annum and (ii) the Available Funds Cap.

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•

Class M-5 Notes, the lesser of (i) one-month LIBOR plus 0.38% per annum and (ii) the Available Funds Cap.

•

Class M-6 Notes, the lesser of (i) one-month LIBOR plus 0.45% per annum and (ii) the Available Funds Cap.

•

Class M-7 Notes, the lesser of (i) one-month LIBOR plus 0.85% per annum and (ii) the Available Funds Cap.

•

Class M-8 Notes, the lesser of (i) one-month LIBOR plus 1.05% per annum and (ii) the Available Funds Cap.

•

Class M-9 Notes, the lesser of (i) one-month LIBOR plus 1.90% per annum and (ii) the Available Funds Cap.

Step-up in Interest Rates and Margins.

If the depositor does not exercise its clean-up call option at the earliest possible date, then, on the next payment date, the margins with respect to each class of Class A Notes will increase to twice their initial margins, and the margins with respect to each class of Class M Notes will increase to 1.5 times their initial margins.

Interest Payment Priorities.

On each payment date, Available Funds will be applied to pay the satisfaction of the indenture trustee fee and certain expenses and indemnification liabilities of the issuing entity to the indenture trustee in an amount not to exceed $125,000 in any calendar year and to the extent allowed by the indenture. On the payment date, the indenture trustee shall make the payment to the swap provider set forth in clause (i)(x) below, but only to the extent that there are sufficient funds to make such payment after making each of the payments to be made on such payment date that are senior to such payment (as set forth in the previous sentence). Available Funds then will be allocated as follows:

(i) From Available Funds, to the swap provider the sum of (x) all net swap payments, paid from the Available Funds and (y) any swap termination payments other than a Defaulted Swap Termination Payment, paid from Available Funds,

(ii) from the Distributable Interest Amount concurrently to the Class A-1, Class A-2, Class A-3 and Class A-4 Notes, their Accrued Note Interest and any unpaid Accrued Note Interest from prior payment dates allocated based on their entitlement to those amounts, and

(iii) from any remaining Distributable Interest Amount, to the Class M Notes, sequentially, in ascending numerical order, their Accrued Note Interest.

Payments of Principal

On each payment date (A) prior to the Step-Down Date or (B) on which a Trigger Event is in effect, principal distributions will be allocated from the remaining Available Funds (and to the extent Available Funds are insufficient, any prepayment penalties collected by the servicer during the related Prepayment Period) after payment of amounts described under “Description of the Notes and the Trust Certificate—Payments of Interest—Interest Payment Priorities” up to the Principal Distribution Amount as follows:

(i) to the Class A-1, Class A-2, Class A-3 and Class A-4 Notes, sequentially, in that order, until their respective Class Note Balances have been reduced to zero;

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(ii) to the Class M Notes, sequentially, in ascending numerical order, until their respective Adjusted Class Note Balances have been reduced to zero.

On each payment date (A) on or after the Step-Down Date and (B) on which a Trigger Event is not in effect, principal distributions will be allocated from the remaining Available Funds (and to the extent the remaining Available Funds are insufficient, any prepayment penalties collected by the servicer during the related Prepayment Period) after payment of amounts described under “Description of the Notes and the Trust Certificate—Payments of Interest—Interest Payment Priorities” as follows:

(i) to the Class A-1, Class A-2, Class A-3 and Class A-4 Notes, sequentially, in that order, the lesser of the Principal Distribution Amount and the Class A Principal Distribution Amount, until their respective Class Note Balances have been reduced to zero;

(ii) to the Class M-1 Notes, the lesser of the remaining Principal Distribution Amount and the Class M-1 Principal Distribution Amount, until its Adjusted Class Note Balance has been reduced to zero,

(iii) to the Class M-2 Notes, the lesser of the remaining Principal Distribution Amount and the Class M-2 Principal Distribution Amount, until its Adjusted Class Note Balance has been reduced to zero,

(iv) to the Class M-3 Notes, the lesser of the remaining Principal Distribution Amount and the Class M-3 Principal Distribution Amount, until its Adjusted Class Note Balance has been reduced to zero,

(v) to the Class M-4 Notes, the lesser of the remaining Principal Distribution Amount and the Class M-4 Principal Distribution Amount, until its Adjusted Class Note Balance has been reduced to zero,

(vi) to the Class M-5 Notes, the lesser of the remaining Principal Distribution Amount and the Class M-5 Principal Distribution Amount, until its Adjusted Class Note Balance has been reduced to zero,

(vii) to the Class M-6 Notes, the lesser of the remaining Principal Distribution Amount and the Class M-6 Principal Distribution Amount, until its Adjusted Class Note Balance has been reduced to zero,

(viii) to the Class M-7 Notes, the lesser of the remaining Principal Distribution Amount and the Class M-7 Principal Distribution Amount, until its Adjusted Class Note Balance has been reduced to zero,

(ix) to the Class M-8 Notes, the lesser of the remaining Principal Distribution Amount and the Class M-8 Principal Distribution Amount, until its Adjusted Class Note Balance has been reduced to zero, and

(x) to the Class M-9 Notes, the lesser of the remaining Principal Distribution Amount and the Class M-9 Principal Distribution Amount, until its Adjusted Class Note Balance has been reduced to zero.

However, on any payment date on which the overcollateralization amount has been reduced to zero, and the aggregate outstanding principal balance of the Class M Notes has been reduced to zero, then any payments of principal to be made on the Class A Notes shall be made to such holders on a pro rata basis, rather than sequentially as described above.

Notwithstanding the foregoing, on any payment date on which the Class Note Balances of the Class A Notes have been reduced to zero, on such payment date principal distributions to the Class M Notes should be allocated in accordance with the priorities set forth above with respect to payments on or after the Step-Down Date.

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Allocation of Net Monthly Excess Cashflow

For any payment date, any Net Monthly Excess Cashflow shall be paid as follows:

(i) to the Class M Notes, sequentially and in ascending numerical order, any Principal Deficiency Amount allocated for each such class,

(ii) to the Class M Notes, sequentially and in ascending numerical order, their Unpaid Interest Shortfall Amount,

(iii) concurrently, any Basis Risk Carry Forward Amount to each class of Class A Notes, pro rata by the respective Basis Risk Carry Forward Amount due to such classes of Notes, together with any net prepayment interest shortfalls and any shortfalls resulting from the application of the Relief Act allocated to such classes of note pursuant to the definition of “Accrued Note Interest,”

(iv) sequentially, to the Class M Notes in ascending numerical order, any Basis Risk Carry Forward Amount for such classes, together with any net prepayment interest shortfalls and any shortfalls resulting from the application of the Relief Act allocated to such classes of note pursuant to the definition of “Accrued Note Interest,”

(v) to the Class M Notes, sequentially in ascending numerical order, any Deferred Interest in respect of any Principal Deficiency Amount allocated to such classes,

(vi) to pay to the indenture trustee and the owner trustee, any amounts due to them, not previously paid or reimbursed,

(vii) to the swap provider, the amount of any Defaulted Swap Termination Payment, and

(viii) to the trust certificates, any remaining amounts.

Fees and Expenses

The following table provides an itemized list of the fees and expenses that will be paid on each payment date from the Available Funds in order of priority.


*Fee*	*General Purpose of the Fee*	*Party Receiving the Fee*	*Amount or Calculation of Fee*
Servicing Fee(1)	performance of the servicer’s duties under the sale and servicing agreement	Accredited Home Lenders, Inc.	0.500% per annum

Swap Provider Fee(2)	performance of the swap provider’s duties under the swap agreement	Barclays Bank PLC	5.250% per annum

Indenture Trustee Fee(2)	performance of the indenture trustee’s duties under the indenture	Deutsche Bank National Trust Company	0.003% per annum

(1)	The servicing fee is paid from amounts on deposit in the collection account.

(2)	The swap provider fee and the indenture trustee fee is paid on a first priority basis from Available Funds.

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Interest Rate Swap Agreement

Under the interest rate swap agreement, on each payment date, the issuing entity will pay to the swap provider fixed payments at a rate of 5.250% per annum (on the basis of an actual/360 day count fraction), and the swap provider will pay to the issuing entity a floating payment at LIBOR (as determined pursuant to the interest rate swap agreement) (on the basis of an actual/360 day count fraction), in each case calculated on a scheduled notional amount, and, in each case adjusted on a monthly basis. The notional amounts are set forth on Schedule 1 to this prospectus supplement. To the extent that a fixed payment exceeds the floating payment on any payment date, amounts otherwise available to noteholders will be applied to make a net payment to the swap provider, and to the extent that a floating payment exceeds the fixed payment on any payment date, the swap provider will owe a net payment to the issuing entity.

All payments (other than termination payments) due to the swap provider under the interest rate swap agreement shall be paid from Available Funds on each payment date in accordance with the priority of payments described herein. Any termination payments (other than Defaulted Swap Termination Payments) due to the swap provider shall be paid from Available Funds on a senior basis on each payment date in accordance with the priority of payments and any Defaulted Swap Termination Payments owed by the issuing entity to the swap provider shall be paid by the issuing entity on a subordinated basis. See “Description of the Notes and the Trust Certificates—Payments of Interest.”

The interest rate swap agreement may be terminated in accordance with its terms, whether or not the notes have been paid in full or redeemed prior to such termination, upon the earliest to occur of: (i) failure on the part of the issuing entity or the swap provider to make any payment under the interest rate swap agreement that is unremedied within the applicable grace period, (ii) certain defaults by the swap provider under any credit support document entered into pursuant to the interest rate swap agreement, (iii) certain cross defaults by the swap provider, (iv) certain events of bankruptcy, insolvency, conservatorship, receivership or reorganization of the issuing entity or the swap provider, (v) a consolidation, merger, sale by the swap provider of substantially all of its assets or similar transaction in which the resulting, surviving or transferee entity fails to assume all the obligations of the swap provider under the interest rate swap agreement, (vi) a change in law making it illegal for either the issuing entity or the swap provider to make or receive a payment or comply with any material provision of the interest rate swap agreement, (vii) any action taken by a taxing authority or brought in a court of competent jurisdiction or any change in tax law results in, or there is a substantial likelihood that such action or change will result in, certain unfavorable tax consequences to the issuing entity, (viii) the swap provider engages in a consolidation, merger, sale of substantially all of its assets or similar transaction that results in certain unfavorable tax consequences to the issuing entity, (ix) liquidation of all collateral pledged to the indenture trustee under the indenture following an event of default that has resulted in the acceleration of the notes, (x) receipt by the indenture trustee of a direction for an optional redemption of the notes and no more than five business days remain prior to the proposed redemption date, (xi) the indenture is amended or modified without the prior written consent of the swap provider (where such consent is required under the terms of the indenture), or (xii) certain other events specified in the interest rate swap agreement.

The issuing entity has the right to terminate the interest rate swap following the occurrence of any of the events listed above; provided that with respect to (i) and (iv), it is not the defaulting party. The swap provider has the right to terminate the interest rate swap following the occurrence of (i), (iv), (vi) and (xi); provided that with respect to (i) and (iv), it is not the defaulting party.

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The issuing entity also has the right to terminate the interest rate swap agreement if the sponsor notifies the swap provider that the “aggregate significance percentage” of all derivative instruments (as such term is defined in Item 1115(b)(2) of Regulation AB) provided by the swap provider and any of its affiliates to the issuing entity (the “Significance Percentage”) is 10% or more (a “Swap Disclosure Event”) and at least one of the following events has not occurred within the time period specified in the interest rate swap agreement:

(a) (i) if the Significance Percentage is 10% or more, but less than 20%, the swap provider shall provide the information set forth in Item 1115(b)(1) of Regulation AB for the swap provider (or for the group of affiliated entities, if applicable) or (ii) if the Significance Percentage is 20% or more, the swap provider shall provide the information set forth in Item 1115(b)(2) of Regulation AB for the swap provider (or for the group of affiliated entities, if applicable) (collectively, the “Additional Swap Disclosure Information”) to the sponsor; or

(b) an assignment of all of the swap provider’s rights and obligations under the interest rate swap agreement to a replacement counterparty with the Required Swap Counterparty Rating or to a counterparty whose guarantor satisfies the Required Swap Counterparty Rating (or which satisfies the Rating Agency Condition), pursuant to documentation substantially similar to the documentation then in place and subject to prior notification to the rating agencies, which counterparty is willing to provide the Additional Swap Disclosure Information (with respect to itself or for its group of affiliated entities, if applicable) to the sponsor.

If a Swap Disclosure Event occurs and the events in (a) or (b) above have not occurred within the time period specified in the interest rate swap agreement, the date that the issuing entity or the swap provider, as the case may be, specifies in its notice of its election to terminate shall be the early termination date for the interest rate swap agreement.

Except to the extent otherwise approved by the rating agencies, the interest rate swap agreement may also be terminated (such termination, a “Downgrade Terminating Event”) if:

(a) either S&P or Moody’s downgrades the swap provider below the Required Swap Counterparty Rating (but the swap provider or its guarantor has a rating of at least “BBB-” or “A-3” (if applicable) by S&P) or either S&P or Moody’s withdraws its rating of the swap provider or its guarantor, as applicable, and (y) at least one of the following events has not occurred:

(i) within the time period specified in the interest rate swap agreement with respect to such downgrade, the swap provider shall transfer the interest rate swap agreement, in whole, but not in part, to a counterparty that satisfies the Required Swap Counterparty Rating, subject to the satisfaction of the Rating Agency Condition;

(ii) within the time period specified in the interest rate swap agreement with respect to such downgrade, the swap provider shall collateralize its exposure to the issuing entity pursuant to the ISDA Credit Support Annex executed by and between the issuing entity and the swap provider, subject to the satisfaction of the Rating Agency Condition;

(iii) within the time period specified in the interest rate swap agreement with respect to such downgrade, the obligations of such swap provider under the interest rate swap agreement shall be guaranteed by a person or entity that satisfies the Required Swap Counterparty Rating, subject to the satisfaction of the Rating Agency Condition; or

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(iv) within the time period specified in the interest rate swap agreement with respect to such downgrade, such swap provider shall take such other steps, if any, to enable the issuing entity to satisfy the Rating Agency Condition; or

(b) the swap provider has a rating of less than “BBB-” or “A-3” (if applicable) by S&P and within the time period specified in the interest rate swap agreement, the swap provider, while collateralizing its exposure to the issuing entity, fails to transfer the interest rate swap agreement at its sole cost and expense, in whole, but not in part, to a counterparty that satisfies the Required Swap Counterparty Rating, subject to satisfaction of the Rating Agency Condition.

Upon the occurrence of a Downgrade Terminating Event, the issuing entity has the right to terminate the interest rate swap agreement or transfer the swap provider’s rights and obligations under the interest rate swap agreement to a counterparty that satisfies the Required Swap Counterparty Rating, each within the time period specified in the interest rate swap agreement.

If the issuing entity is unable to or, if applicable, chooses not to obtain a substitute interest rate swap agreement in the event that the interest rate swap agreement is terminated, interest due on the notes will be paid from amounts received on the mortgage loans without the benefits of a interest rate swap agreement or a substitute interest rate swap agreement. There can be no assurance that such amounts will be sufficient to provide for the full payment of interest on the notes at the applicable note interest rate.

A termination of the interest rate swap agreement does not constitute an event of default under the indenture.

In the event that the issuing entity receives a swap termination payment, and a successor swap provider cannot be obtained, then the indenture trustee will be required to deposit the swap termination payment into a reserve account. On each subsequent payment date (so long as funds are available in such reserve account), the indenture trustee will be required to withdraw from such reserve account and deposit into the payment account an amount equal to the amount of any net swap payment due to the issuing entity (calculated in accordance with the terms of the original interest rate swap agreement) and treat such amount as a net swap payment for purposes of determining the distributions from the payment account. The remaining amount in the reserve account will remain in that account and not treated as a swap termination payment for purposes of determining the distributions from the payment account until the date on which the last payment on the swap is expected to be received, at which time the amount then on deposit therein will be transferred to the payment account and treated as part of Available Funds.

The occurrence of any optional redemption of the notes will most likely lead to the termination of the interest rate swap agreement. Such termination may require the issuing entity to make a termination payment to the swap provider, and the issuing entity may be unable to effect an optional redemption despite having sufficient proceeds prior to making such termination payment to pay or redeem the notes and certain expenses in full. In addition, unless the swap provider otherwise consents, in order to liquidate the mortgage loans following an event of default, the interest rate swap agreement must be terminated and proceeds from such liquidation must be sufficient to pay any termination payment owing to the swap provider (unless the termination payment relates to a default by the swap provider) in addition to any amounts owing under the notes. As a result, as set forth in the indenture, the holders of the notes may be unable to effect a liquidation of the mortgage loans following an event of default despite the ability to receive sufficient proceeds, prior to the payment of such termination payment, to pay the notes and certain expenses in full.

On or after the closing date, (i) the issuing entity may, with the consent of the swap provider, assign or transfer all or a portion of the interest rate swap agreement, (ii) the swap provider may, with the

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consent of the issuing entity, assign or transfer all or a portion of the interest rate swap agreement, (iii) the issuing entity and the swap provider may amend the interest rate swap agreement and/or (iv) the issuing entity may terminate and replace the interest rate swap agreement; provided, however, that in each such case (i), (ii), (iii) or (iv), the Rating Agency Condition has been satisfied.

The interest rate swap agreement will terminate by its terms after the payment date in June 2011 and from that date no further amounts will be paid to the swap provider by the issuing entity and no further amounts will be paid to the issuing entity by the swap provider.

The interest rate swap agreement will be governed by, and construed in accordance with, the laws of the State of New York without regard to the conflict of laws principles thereof and shall contain appropriate limited recourse and non-petition provisions as against the issuing entity.

Calculation of LIBOR

The London interbank offered rate (“LIBOR”) with respect to any payment date will be determined by the indenture trustee (provided that, in the case of the interest rate swap agreement, it will be determined by the swap provider) and will equal the posted rate for United States dollar deposits for one month that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the second LIBOR Business Day prior to the immediately preceding payment date (or, in the case of the first payment date, the second LIBOR business day preceding the closing date). If no such posted rate appears, LIBOR will be determined on the basis of the offered quotation of the reference banks (which shall be four major banks that are engaged in transactions in the London interbank market) identified in the indenture for United States dollar deposits for one month to prime banks in the London interbank market as of 11:00 a.m., London time, on such date. If fewer than two reference banks provide such offered quotations on that date, LIBOR will be calculated as the offered rate that one or more leading banks in The City of New York selected by the indenture trustee (after consultation with the servicer) (provided that, in the case of the interest rate swap agreement, it will be selected by the swap provider) are quoting as of 11:00 a.m., New York City time, on such date to leading European banks for United States dollar deposits for one month; provided, however, that if such banks are not quoting as described above, LIBOR will be equal to the value calculated for the immediately preceding payment date. In any event, LIBOR is calculated as the arithmetic mean (rounded, if necessary, to the nearest 1/100th of a percent (0.0001), with upwards rounding of amounts equal to or in excess of 5/1,000th of a percent (0.00005)) of all such quotations, and “LIBOR Business Day” is any day other than a day on which banking institutions in the City of London, England, are required or authorized by law to be closed.

Overcollateralization Provisions

The overcollateralization amount is the excess of the aggregate scheduled principal balance of the mortgage loans plus the remaining pre-funding amount over the aggregate principal balance of the notes. On the closing date, overcollateralization will be equal to approximately $2,800,000, and excess interest will be used to achieve and maintain the Target Overcollateralization Amount.

Generally, because more interest is required to be paid by the mortgagors than is necessary to pay the interest accrued on the notes and the expenses of the issuing entity, there is expected to be excess interest. If the overcollateralization amount is reduced below the Target Overcollateralization Amount as a result of losses on the mortgage loans, the issuing entity will apply some or all of this excess interest as principal payments on those classes of notes then entitled to receive payments of principal, until the overcollateralization target is restored, resulting in an acceleration of amortization of such notes relative to the mortgage loans. This acceleration feature is intended to restore overcollateralization. Once the required level of overcollateralization is restored, the acceleration feature will cease, unless it becomes

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necessary again to restore the required level of overcollateralization. The actual level of overcollateralization may increase or decrease over time. This could result in a temporarily faster or slower amortization of the notes. If a Trigger Event is in effect, then the Target Overcollateralization Amount will be equal to the Target Overcollateralization Amount as of the preceding payment date.

All Realized Losses on the mortgage loans will be allocated on each payment date, sequentially as follows: first to the excess cash flow, second to prepayment penalties and third in reduction of the overcollateralization amount.

Subsequent Recoveries will count as additional Liquidation Proceeds and be distributed on the related payment date as described herein under the heading “Description of the Notes and the Trust Certificates—Payments of Principal.”

Events of Default

Upon the occurrence of an event of default, the indenture trustee may, or shall at the direction of noteholders representing at least 51% of the aggregate principal balance of the notes, declare the aggregate outstanding principal balance of all the notes to be due and payable together with all accrued and unpaid interest thereon without presentment, demand, protest or other notice of any kind, all of which are waived by the issuing entity. Such declaration may be rescinded by noteholders representing at least 51% of the aggregate principal balance of the notes. An event of default, wherever used herein, means any one of the following events:

1. the issuing entity fails to pay or cause to be paid to the indenture trustee, for the benefit of the noteholders, (x) on any payment date including the final stated maturity dates, all or part of any Accrued Interest Amount due and payable on the notes on such payment date and such failure continues for three business days or (y) on the respective final stated maturity dates for each class of notes, any remaining Basis Risk Carry Forward Amount for such class and any remaining Deferred Interest for such class, as applicable; or

2. the issuing entity fails to pay or cause to be paid to the indenture trustee, for the benefit of the noteholders, (x) on any payment date (other than the final stated maturity date) an amount equal to the related Principal Distribution Amount due and payable on the outstanding notes on such payment date, to the extent that sufficient funds are on deposit in the payment account and such failure continues for three business days or (y) on the final stated maturity date for any class of notes, the aggregate Class Note Balance of the related class of notes; or

3. the issuing entity is in breach or default in the due observance of any one or more of the covenants under the indenture, and the breach or default continues beyond any applicable grace period; or

4. the issuing entity consents to the appointment of a custodian, receiver, trustee or liquidator, or other similar official, of itself, or of a substantial part of its property, or shall admit in writing its inability to pay its debts generally as they come due, or a court of competent jurisdiction shall determine that the issuing entity is generally not paying its debts as they come due, or the issuing entity shall make a general assignment for the benefit of creditors; or

5. the issuing entity files a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization in a proceeding under any bankruptcy laws, as now or hereafter in effect, or an answer admitting the material allegation of a petition filed against the issuing entity in any such proceeding, or the issuing entity, by voluntary petition, answer or consent, seeks relief under the provisions of any now existing or future bankruptcy or other similar law providing for the reorganization or winding-up of debtors, or providing for an agreement, composition, extension or adjustment with its creditors; or

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6. an order, judgment or decree is entered in any proceeding by any court of competent jurisdiction appointing, without the consent, express or legally implied, of the issuing entity, a custodian, receiver, trustee or liquidator, or other similar official, of the issuing entity or any substantial part of its property, or sequestering any substantial part of its respective property, and any such order, judgment or decree or appointment or sequestration shall remain in force undismissed, unstayed or unvacated for a period of ninety days after the date of entry thereof; or

7. a petition against the issuing entity in a proceeding under applicable bankruptcy laws or other insolvency laws, as now or hereafter in effect, is filed and is not stayed, withdrawn or dismissed within ninety days thereafter, or if, under the provisions of any law providing for reorganization or winding-up of debtors which may apply to the issuing entity, any court of competent jurisdiction assumes jurisdiction, custody or control of the issuing entity or any substantial part of its property, and such jurisdiction, custody or control remains in force unrelinquished, unstayed or unterminated for a period of ninety days.

If the Notes have been declared due and payable following an event of default and such declaration and its consequences have not been rescinded and annulled, any money collected by the indenture trustee with respect to each Class of Notes and any other monies that may then be held or thereafter received by the indenture trustee as security for such Class of Notes shall be applied in the following order and not as set forth under “Description of the Notes and Trust Certificates—Payments of Interest and—Payments of Principal” in this prospectus supplement, at the date or dates fixed by the indenture trustee and, in case of the payment of the entire amount due on account of principal of, and interest on, such Class of Notes, upon presentation and surrender thereof:

(i) first, to the indenture trustee, any unpaid indenture trustee fees then due and any other amounts payable and due to the indenture trustee under the indenture including any amounts in respect of indemnification or reimbursement of costs and expenses, in an amount not to exceed $125,000 in any calendar year, and any Owner Trustee Fees then due to the extent not already paid pursuant to the trust agreement and to the owner trustee, any amounts in respect of indemnification then due the trust agreement to the extent not already paid pursuant to the trust agreement, in an amount not to exceed $50,000 in any calendar year;

(ii) second, any Swap Termination Payment payable to the swap provider, other than a Defaulted Swap Termination Payment;

(iii) third, any Accrued Note Interest pro rata to the Class A Notes;

(iv) fourth, to each class of Class A Notes as a payment of principal in reduction of their Class Note Balances, pro rata until their Class Note Balance has been reduced to zero;

(v) fifth, any Accrued Note Interest to the Class M Notes, sequentially, in ascending numerical order;

(vi) sixth, any remaining Class Note Balance to the Class M Notes, sequentially, in ascending numerical order;

(vii) seventh, concurrently, any Class A-1 Basis Risk Carry Forward Amount together with any net prepayment interest shortfalls and any shortfalls resulting from the application of the Relief Act allocated to such classes of note pursuant to the definition of “Accrued Note Interest,” to the Class A-1 Notes, any Class A-2 Basis Risk Carry Forward Amount together with any net prepayment interest

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shortfalls and any shortfalls resulting from the application of the Relief Act allocated to such classes of note pursuant to the definition of “Accrued Note Interest,” to the Class A-2 Notes, any Class A-3 Basis Risk Carry Forward Amount together with any net prepayment interest shortfalls and any shortfalls resulting from the application of the Relief Act allocated to such classes of note pursuant to the definition of “Accrued Note Interest,” to the Class A-3 Notes, any Class A-4 Basis Risk Carry Forward Amount together with any net prepayment interest shortfalls and any shortfalls resulting from the application of the Relief Act allocated to such classes of note pursuant to the definition of “Accrued Note Interest,” to the Class A-4 Notes pro rata by the respective Basis Risk Carry Forward Amounts due to such classes of Notes;

(viii) eighth, any Basis Risk Carry Forward Amount together with any net prepayment interest shortfalls and any shortfalls resulting from the application of the Relief Act allocated to such classes of note pursuant to the definition of “Accrued Note Interest,” to the Class M Notes, sequentially, in ascending numerical order;

(ix) ninth, any Deferred Interest to the Class M Notes, sequentially, in ascending numerical order;

(x) tenth, any amounts due to the indenture trustee to the extent not paid pursuant to paragraph (i) above and any amounts due to the owner trustee under the trust agreement to the extent not already paid pursuant to the trust agreement and paragraph (i) above;

(xi) eleventh, any Defaulted Swap Termination Payment;

(xii) twelfth, if applicable, for application to the purchase of a replacement interest rate swap agreement; and

(xiii) thirteenth, any remainder to the trust certificates.

Notice of Default

Immediately after the occurrence of any event that is, or with notice or the lapse of time or both would become, an Event of Default, of which the indenture trustee has actual knowledge, the indenture trustee shall mail to the sponsor notice of each such event and, within ninety (90) days after the occurrence of any default known to the indenture trustee, the indenture trustee shall transmit by mail to all noteholders notice of each such event, unless such default shall have been cured or waived. Concurrently with the mailing of any such notice to the noteholders, the indenture trustee shall transmit by mail a copy of such notice to the rating agencies and the swap provider.

Reports to Noteholders

Pursuant to the indenture, on each payment date the indenture trustee will make available to the servicer and each holder of a note or a trust certificate a written remittance report containing information including, without limitation, the amount of the payment on such payment date, the amount of such payment allocable to principal and allocable to interest, the aggregate outstanding principal balance of the notes as of such payment date and such other information as required by the indenture. The report will contain information regarding all the classes of the Notes and all noteholders will receive such report.

The indenture trustee will make the monthly report (and, at its option, any additional files containing the same information in an alternative format) available each month to each noteholder and other parties via the indenture trustee’s internet website. The indenture trustee’s internet website will initially be located at https://www.tss.db.com/invr. Assistance in using the website can be obtained by calling the indenture trustee’s investor relations desk at (800) 735-7777. Parties that are unable to access

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the website are entitled to have a paper copy mailed to them via first class mail by calling the investor relations desk and indicating such. The indenture trustee will have the right to change the way monthly reports are distributed in order to make such distribution more convenient and/or more accessible to the above parties and the indenture trustee will provide timely and adequate notification to all above parties regarding any such changes.

See “Reports to Security Holders” in the prospectus for more information regarding the contents of the reports to noteholders.

Optional Clean-up Call

The depositor may, at its option, terminate the issuing entity on any payment date when the outstanding principal balance of the notes is less than or equal to 10% of the original principal balance of the notes, after giving effect to distributions on that payment date. If the depositor exercises the clean-up call option, the depositor shall pay a termination price equal to the greater of (A) the sum of (i) 100% of the aggregate Class Note Balance of the Offered Notes, (ii) the aggregate amount of accrued and unpaid interest on such Offered Notes through the related Due Period, (iii) any related indenture trustee’s fees and expenses, (iv) any related owner trustee fees or expenses that have not been paid by the sponsor, (v) any related unreimbursed advances due and owing to the Servicer, (vii) any costs and damages incurred by the issuing entity in connection with any violation by such mortgage loan of any predatory or abusive lending law, and (viii) the swap termination payment, if any, payable to the swap provider and (B) the fair market value of the mortgage loans.

Notice of redemption shall be given by the indenture trustee in the name of and at the expense of the issuing entity by first class mail, postage prepaid, mailed not less than ten days prior to the clean-up call date to each holder of a note to be redeemed and the swap provider, such holders being determined as of the record date for such payment date.

Step-Up Rates

If the depositor does not elect to exercise the clean-up call, the margins with respect to each class of Class A Notes will increase to twice their initial margins, and the margins with respect to each class of Class M Notes will increase to 1.5 times their initial margins, in each case on the next payment date.

Optional Purchase of Delinquent Mortgage Loans

The depositor has the option, but is not obligated, to purchase from the issuing entity any mortgage loan that is ninety days or more delinquent at a purchase price equal to the outstanding principal balance thereof as of the date of purchase, plus all accrued and unpaid interest on such principal balance, computed at the related mortgage interest rate — plus the amount of any unreimbursed Delinquency Advances and Servicing Advances with respect to such mortgage loan in accordance with the provisions specified in the sale and servicing agreement. The depositor may not purchase more than 10% of the mortgage loans in the pool, measured by the outstanding principal balance of the mortgage loans repurchased as a percentage of the Initial Pool Balance.

Amendment

The indenture may be amended from time to time by the issuing entity and the indenture trustee by written agreement, without notice to, or consent of, the noteholders or the swap provider, to cure any ambiguity, to correct or supplement any provisions in the indenture that may be defective or inconsistent with any other provision thereto, to comply with any changes in the Internal Revenue Code of 1986, as amended (the “Code”), or to make any other provisions with respect to matters or questions arising under

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the indenture which shall not be inconsistent with the provisions of the indenture. However, any such action shall not adversely affect in any material respect the noteholders or the certificateholders or the swap provider as evidenced by (i) an opinion of counsel delivered to, but not obtained at the expense of, the indenture trustee that such amendment will not adversely affect in any material respect the interests of any noteholder or the swap provider or (ii) a letter from each rating agency rating this offering confirming that such amendment will not cause the reduction, qualification or withdrawal of the then-current ratings of the notes. In addition, no such amendment shall change the rights or obligations of any other party to the indenture without the consent of such party.

The indenture may be amended from time to time by the issuing entity and the indenture trustee with the consent of the swap provider and the holders of the majority of the percentage interest of the notes affected thereby for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the indenture or of modifying in any manner the rights of the holders. However, no such amendment shall reduce in any manner the amount of, or delay the timing of, payments received on mortgage loans which are required to be paid on any note without the consent of the holder of each note or reduce the percentage for each class whose holders are required to