As filed with the Securities and Exchange Commission on July 11, 1996
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
UCFC FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana Application Pending
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
4041 Essen Lane
Baton Rouge, Louisiana 70809
(504) 924-6007
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
----------
Dale E. Redman
Chief Financial Officer
4041 Essen Lane
Baton Rouge, Louisiana 70809
(504) 924-6007
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------
Copies to:
Lee C. Kantrow, Esq. Robert C. Wipperman, Esq.
Kantrow, Spaht, Weaver & Blitzer Stroock & Stroock & Lavan
(A Professional Law Corporation) Seven Hanover Square
City Plaza, Suite 300 New York, New York 10004
445 North Boulevard
Baton Rouge, Louisiana 70802
----------
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
----------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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<PAGE>
<TABLE>
<CAPTION>
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Proposed Proposed maximum
Title of each class of Amount to be maximum offering aggregate offering Amount of
securities to be registered registered (1) price per unit (1) price (1) registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Manufactured Housing Contract $1,000,000 100% $1,000,000 $344.83
Pass-Through Certificates
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED JULY 11, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated ______, 199_)
$___________ (Approximate)
Manufactured Housing Contract
Pass-Through Certificates,
Series 199_-_
UCFC FUNDING CORPORATION
Depositor
UNITED COMPANIES LENDING CORPORATION(R)
Servicer
The Manufactured Housing Contract Pass-Through Certificates, Series 199_-_
(the "Certificates") will represent interests in a trust (the "Trust")
consisting of a pool (the "Contract Pool") of actuarial manufactured housing
installment sale contracts and installment loan agreements (collectively, the
"Contracts") and certain related property as described herein. Only the Classes
of Certificates listed below (collectively, the "Offered Certificates") are
being offered hereby. (cover continued on next page)
<TABLE>
<CAPTION>
====================================================================================================================================
Initial Class Remittance Final Scheduled
Certificate Balance(1) Rate Remittance Date(2)
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<S> <C> <C>
Class A-1............................... $ %
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Class A-2............................... $ %
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Class A-3............................... $ %
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Class A-4............................... $ %
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Class A-5............................... $ %(3)
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Class B-1............................... $ %
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Class B-2............................... $ %(3)
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</TABLE>
(1) Subject to the permitted variance described herein.
(2) Determined as described under "Maturity, Prepayment and Yield
Considerations" herein.
(3) The Remittance Rate is subject to a maximum rate equal to the weighted
average of the Net Contract Rates of the Contracts in the Contract Pool.
----------
THE OFFERED CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, UNITED COMPANIES LENDING
CORPORATION, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. THE OFFERED
CERTIFICATES AND THE CONTRACTS ARE NOT INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY, OR ANY OTHER PERSON NOR HAS ANY GOVERNMENTAL AGENCY PASSED UPON THE
ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL DEFENSE.
----------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION UNDER "RISK FACTORS" ON PAGE
8 OF THE ACCOMPANYING PROSPECTUS.
----------
The Offered Certificates will be purchased by _____ and _____ (the
"Underwriters) from the Depositor and will be offered by the Underwriters from
time to time in negotiated transactions or otherwise, at varying prices to be
determined at the time of sale. Proceeds to the Depositor, including accrued
interest, are expected to be approximately ___% of the aggregate principal
balance of the Offered Certificates before deducting expenses payable by the
Depositor estimated to be $_______. See "Underwriting" herein.
The Offered Certificates are offered by the Underwriters subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that the Offered Certificates will be issued on or
about , 199_, and will thereafter be available from the Underwriters through the
Same Day Funds Settlement System of the Depository Trust Company.
----------
[NAMES OF UNDERWRITERS]
----------
The date of this Prospectus Supplement is _______, 199_
<PAGE>
(Cover continued from prior page)
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement, dated as of ________, 199 (the "Agreement"), among UCFC Funding
Corporation, as depositor (the "Depositor"), United Companies Lending
Corporation, as servicer ("United Companies" or "the "Servicer"), and
________________________, as trustee (the "Trustee"). Only the Offered
Certificates are offered hereby. Distributions of principal and interest on the
Offered Certificates will be made to the extent funds are available therefor on
the 15th day of each month or, if such day is not a business day, on the
succeeding business day commencing , 199 (each, a "Remittance Date") to holders
of record on the last business day of the calendar month preceding the month of
such Remittance Date (the "Record Date").
There is currently no secondary market for the Offered Certificates. The
Underwriters intend to make a secondary market for the Offered Certificates, but
no Underwriter is obligated to do so. There can be no assurance that a secondary
market for any of the Offered Certificates will develop or, if one does develop,
that it will continue or offer sufficient liquidity of investment.
As described herein, an election will be made to treat certain assets and
Accounts (as defined herein) of the Trust as a "real estate mortgage investment
conduit" ("REMIC") pursuant to the Internal Revenue Code of 1986, as amended
(the "Code"). The Offered Certificates will be "regular interests" in a REMIC.
See "Federal Income Tax Considerations" herein and in the Prospectus.
----------
The Certificates offered by this Prospectus Supplement constitute a
separate Series of Certificates being offered by the Depositor pursuant to its
Prospectus dated , 199 , of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
S-2
<PAGE>
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SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings assigned them elsewhere in this
Prospectus Supplement and in the Prospectus. See "Glossary" in the Prospectus.
Title of Certificates..................Manufactured Housing Contract
Pass-Through Certificates, Series 199_-_
(the "Certificates").
Offered Certificates...................The Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates
(collectively, the "Senior
Certificates"), and the Class B-1 and
the Class B-2 Certificates (collectively
the "Subordinated Certificates"). Only
the Offered Certificates are offered
hereby. The aggregate of the initial
Class Certificate Balances of the
Offered Certificates is subject to a
permitted variance of plus or minus
___%.
Other Certificates.....................In addition to the Offered Certificates,
the Trust will issue the following
additional Classes of Certificates which
are not offered hereby:
Initial Class
Certificate Remittance
Balance Rate
------------- ----------
Class B-3 $ (1) %
Class R (2) (2)
----------
(1) Subject to the permitted
variance described above.
(2) The Class R Certificates have
no Class Certificate Balance
and do not bear interest
Any information contained herein with
respect to the Class B-3 and Class R
Certificates is provided only to permit
a better understanding of the Offered
Certificates.
Depositor..............................UCFC Funding Corporation, a Louisiana
corporation (the "Depositor"). See "The
Depositor" in the Prospectus.
Servicer...............................United Companies Lending Corporation(R),
a Louisiana corporation ("United
Companies" or the "Servicer"), an
indirect, wholly-owned subsidiary of
United Companies Financial Corporation.
The Servicer's principal executive
offices are located at 4041 Essen Lane,
Baton Rouge, Louisiana 70809. See "The
Manufactured Housing Program" in the
Prospectus.
Trustee............................... (the "Trustee").
-----------------------
Originator ............................The Contracts were originated or
purchased by United Companies Funding,
Inc. a Louisiana corporation and an
affiliate of the Depositor and the
Servicer. See "The Manufactured Housing
Program" herein and in the Prospectus.
Approximate Cut-off Date Pool
Principal Balance......................$
Closing Date ..........................On or about , 199 .
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S-3
<PAGE>
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Cut-off Date...........................The opening of business on , 199 ,
except that the Cut- off Date with
respect to any Contract dated on or
after _____________, 199 , will be the
date of such Contract.
Remittance Date........................The 15th day of each month (or if such
15th day is not a business day, the next
succeeding business day), commencing in
, 199 .
Description of Certificates............The Certificates will be issued by the
Trust pursuant to the Pooling and
Servicing Agreement, dated as of _____,
199_ (the "Agreement"), among the
Depositor, the Servicer and the Trustee.
The Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates are
Senior Certificates and the Class B-1,
Class B-2 and Class B-3 Certificates are
Subordinated Certificates, all as
described herein. The Offered
Certificates will be offered in
registered form, in denominations of
$25,000 and integral multiples of $1,000
in excess thereof, except for one
Certificate of each Class which may be
issued with a different denomination.
Priority of Distributions..............Distributions will be made on each
Remittance Date from the Amount
Available in the following order of
priority: (i) concurrently to interest
on each Class of Senior Certificates;
(ii) to principal of the Classes of
Senior Certificates then entitled to
receive distributions of principal, in
the order and subject to the limitations
set forth herein under "Description of
the Certificates -- Principal," in each
case in an aggregate amount up to the
maximum amount of principal to be
distributed on such Classes on such
Remittance Date; and (iii) to interest
on and then principal of each Class of
Subordinated Certificates, in the order
and subject to the limitations set forth
herein under "Description of the
Certificates -- Principal."
Distributions of Interest..............To the extent funds are available
therefor, each interest-bearing Class of
Certificates will be entitled to receive
interest in the amount of the Interest
Distribution Amount for such Class. See
"Description of the Certificates --
Interest" herein.
A. Interest Distribution Amount ...For each Class of Certificates, the
amount of interest accrued during the
related Interest Accrual Period at the
applicable Remittance Rate. With respect
to each Remittance Date, the "Interest
Accrual Period" for each Class of
Certificates will be the calendar month
preceding the month of such Remittance
Date.
B. Remittance Rate..................The Remittance Rate for each Class of
Offered Certificates for each Remittance
Date will be as set forth or described
on the cover page hereof.
Distributions of Principal.............On each Remittance Date, to the extent
funds are available therefor, principal
distributions in reduction of the Class
Certificate Balance of each Class of
Certificates will be made in the order
and subject to the priorities set forth
herein under "Description of the
Certificates -- Principal" in an
aggregate amount equal to such Class'
allocable portion of the Senior
Principal Distribution Amount or the
Subordinated Principal Distribution
Amount, as applicable.
Credit Enhancement - General...........Credit enhancement for the Senior
Certificates will be provided by the
Subordinated Certificates. Credit
enhancement for each Class of
Subordinated Certificates (other than
the Class B-3 Certificates) will be
provided by the Class or Classes of
Subordinated Certificates with higher
numerical Class designations, as
described below.
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S-4
<PAGE>
- --------------------------------------------------------------------------------
Subordination .........................The rights of the holders of the
Subordinated Certificate to receive
distributions with respect to the
Contracts in the Trust will be
subordinated to such rights of the
holders of the Senior Certificates, and
the rights of the holders of each Class
of Subordinated Certificates (other than
the Class B-1 Certificates) to receive
distributions will be further
subordinated to such rights of holders
of the Class or Classes of Subordinated
Certificates with lower numerical Class
designations, in each case only to the
extent described herein.
The subordination of the Subordinated
Certificates to the Senior Certificates
and the further subordination within the
Subordinated Certificates are each
intended to increase the likelihood of
timely receipt by the holders of
Certificates with higher relative
payment priority of the maximum amount
to which they are entitled on any
Remittance Date and to provide such
holders protection against losses
resulting from defaults on the Contracts
to the extent described herein. However,
in certain circumstances, the amount of
available subordination may be exhausted
and shortfalls in distributions on the
Certificates could result. Holders of
the Offered Certificates will bear their
proportionate share of any losses
realized on the Contracts in excess of
the available subordination amounts.
The Contracts..........................Fixed rate manufactured housing
installment sale contracts and
installment loan agreements including
any and all rights to receive payments
due thereunder on and after the Cut-off
Date and either (i) security interests
in the Manufactured Homes purchased with
the proceeds of such contracts or (ii)
with respect to certain of the Contracts
("Land-and-Home Contracts") liens on the
real estate to which the related
Manufactured Homes are deemed
permanently affixed. The Contracts have
been selected by the Originator from its
portfolio of manufactured housing
contracts based on the criteria
specified in the Agreement. All of the
Contracts are conventional Contracts
(i.e., not insured or guaranteed by any
governmental agency). See "The Contract
Pool" herein.
Security Interests and Certain Other
Aspects of the Contracts; Repurchase
or Substitution Obligations..........In connection with the transfer of the
Contracts to the Trust, the Depositor
will cause the Originator to assign the
security interests in the Manufactured
Homes or, with respect to the
Land-and-Home Contracts, the liens on
the Manufactured Homes and the
underlying real property, as
appropriate, to the Trust. Under the
laws of most states, Manufactured Homes
that have not been affixed to the real
estate constitute personal property, and
perfection of a security interest in the
Manufactured Home is obtained, depending
on applicable state law, either by
noting the security interest on the
certificate of title for the
Manufactured Home or by filing a
financing statement under the Uniform
Commercial Code. If the Manufactured
Home were to be relocated to another
state without reperfection of the
security interest, or if the
Manufactured Home were to become
attached to its site and a determination
were to be made that the security
interest was subject to real estate
title and recording laws, or as a result
of fraud or negligence, the Trust could
lose its prior perfected security
interest in a Manufactured Home. Subject
to the effect of not amending
certificates of title as discussed
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S-5
<PAGE>
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under "Risk Factors -- Titles Will Not
Be Amended" in the Prospectus, the
Servicer will take such steps as are
necessary to maintain perfection of the
security interest in each Manufactured
Home. Because of the expense and
administrative inconvenience involved,
the assignment to the Trustee of the
mortgage or deed of trust securing each
Land-and-Home Contract will not be
recorded. Consequently, in some states
in the absence of such recordation the
assignment to the Trustee of the
mortgage or deed of trust securing a
Land-and-Home Contract may not be
effective and in the absence of such
recordation the assignment of the
mortgage or deed of trust to the Trustee
may not be effective against creditors
of or purchasers from the Originator or
a trustee in bankruptcy of the
Originator. Federal and state consumer
protection laws impose requirements upon
creditors in connection with extensions
of credit and collections on installment
sale or loan contracts, and certain of
these laws make an assignee of such a
contract, such as the Trust, liable to
the obligor thereon for any violation by
the lender. The Originator has agreed to
repurchase, or, at its option, to
substitute another contract for, any
Contract as to which it has failed to
perfect a security interest in the
Manufactured Home securing such
Contract, or as to which a breach of
federal or state laws exists if such
breach materially adversely affects the
Trust's interest in the Contract, unless
such failure or breach has been cured
within 90 days from notice of such
breach.
Optional Termination...................At its option, the Servicer may purchase
from the Trust all remaining Contracts,
and thereby effect early retirement of
the Certificates, on any Remittance Date
when the Pool Scheduled Principal
Balance is less than 10% of the Cut-off
Date Pool Principal Balance. See
"Description of the Certificates --
Optional Termination" herein.
Federal Income Tax
Considerations.......................For federal income tax purposes, the
Trust will be treated as a real estate
mortgage investment conduit ("REMIC").
The Offered Certificates will constitute
"regular interests" in the REMIC and
generally will be treated as debt
instruments of the Trust for federal
income tax purposes with payment terms
equivalent to the terms of such
Certificates. The Class R Certificates
will constitute "residual interests" in
the REMIC. The holders of the Offered
Certificates will be required to include
in income interest on such Certificates
(including any original issue discount)
in accordance with the accrual method of
accounting.
Depending on their respective issue
prices, certain Classes of Offered
Certificates may be issued with original
issue discount ("OID") for federal
income tax purposes. The rate that will
be used to calculate the accrual of OID
will be _________ % _______________ (as
defined herein). No representation is
made that the Contracts will prepay at
that rate or at any other rate. See
"Federal Income Tax Considerations" in
the Prospectus.
ERISA Considerations...................The acquisition of an Offered
Certificate by a pension or other
employee benefit plan (a "Plan") subject
to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), could, in some instances,
result in a prohibited transaction or
other
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S-6
<PAGE>
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violation of the fiduciary
responsibility provisions of ERISA and
Section 4975 of the Code.
Subject to the conditions described
herein, it is expected that the Senior
Certificates may be purchased by a Plan.
Any Plan fiduciary considering whether
to purchase any Offered Certificates on
behalf of a Plan should consult with its
counsel regarding the applicability of
the provisions of ERISA and the Code.
See "ERISA Considerations" herein and in
the Prospectus.
Legal Investment Considerations .......The Senior Certificates will constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in one of the
two highest rating categories by at
least one nationally recognized
statistical rating organization and, as
such, will be "legal investments" for
certain types of institutional investors
to the extent provided in SMMEA.
The Class B-1 and Class B-2 Certificates
will not constitute "mortgage related
securities" for purposes of SMMEA.
Accordingly, many institutions with
legal authority to invest in more highly
rated securities based on first mortgage
loans may not be legally authorized to
invest in the Class B-1 and Class B-2
Certificates. See "Legal Investment
Considerations" in the Prospectus.
Ratings................................It is a condition to the issuance of the
Senior Certificates that they be rated
at least "____" by each of
________________ (" ") and
_____________________________ (" " and,
together with _________, the "Rating
Agencies"). It is a condition to the
issuance of the Class B-1 Certificates
that they be rated at least "_____" by
each of the Rating Agencies, and it is a
condition to the issuance of the Class
B-2 Certificates that they be rated at
least "_____" by ___________________ and
"______" by ______________. A security
rating is not a recommendation to buy,
sell or hold securities and may be
subject to revision or withdrawal at any
time by the assigning rating
organization.
Registration of the Offered
Certificates..........................Each Class of Offered Certificates
initially will be represented by one or
more certificates registered in the name
of Cede & Co. ("Cede") as the nominee of
The Depository Trust Company ("DTC"),
and will only be available in the form
of book entries on the records of DTC
and participating members thereof.
Certificates representing the Offered
Certificates will be issued in
definitive form only under the limited
circumstances described herein. All
references herein to "holders" or
"Certificateholders" reflect the rights
of Certificate Owners as they may
indirectly exercise such rights through
DTC and participating members thereof,
except as otherwise specified herein.
See "Description of the Certificates --
Book-Entry Certificates" herein and in
the Prospectus.
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S-7
<PAGE>
THE CONTRACT POOL
General
All of the Contracts were originated by a manufactured housing dealer and
purchased by the Originator from such dealer, or were originated by the
Originator directly. All of the Contracts are conventional manufactured housing
contracts, meaning that they are not insured or guaranteed by any governmental
agency.
Each Contract (a) is secured by a Manufactured Home or, in the case of a
Land-and-Home Contract, is secured by a lien on the Manufactured Home and the
real estate to which the Manufactured Home is deemed permanently affixed, (b) is
fully amortizing with a fixed contractual rate of interest (the "Contract Rate")
and provides for level payments over the term of such Contract and (c) is dated
on or after __________ 199_.
The "Value" used to calculate the original loan-to-value ratios of the
Contracts is equal to (i) in the case of a new Manufactured Home, the total cost
of such Manufactured Home (allowing for the standard industry dealer markup of
30%), including sales and other taxes, filing and recording fees imposed by law
and premiums for related insurance and optional equipment up to 25% of the base
invoice and set-up fees, (ii) in the case of a used Manufactured Home, either
the total delivered sales price for such Manufactured Home, if available, or
else its appraised market value, plus, in either case, each of the following to
the extent that the inclusion thereof does not exceed the appraised value of the
Manufactured Home: sales and other taxes, filing and recording fees imposed by
law and premiums for related insurance, or (iii) in the case of real estate
securing a Land-and-Home Contract, the total sales price of the real estate and
the Manufactured Home together. (With respect to approximately ____% of the
Contracts by Cut-off Date Pool Principal Balance, "Value" includes the value of
land in respect of which the Obligor has granted a lien to the Originator in
lieu of a down payment, which lien is not being transferred to the Trust. Such
Contracts are not Land-and-Home Contracts.) Appraisals are made by employees of
the Originator. Manufactured Homes, unlike site-built homes, generally
depreciate in value. Consequently, at any time after origination it is possible,
especially in the case of Contracts with high loan-to-value ratios at
origination, that the market value of a Manufactured Home may be lower than the
principal amount outstanding under the related Contract.
Statistical Information
Set forth below is certain statistical information as of the Cut-off Date
regarding the Contracts expected to be included in the Contract Pool as of the
Closing Date. Prior to the Closing Date, Contracts may be removed from the
Contract Pool and other Contracts may be substituted therefor. The Depositor
believes that the information set forth herein with respect to the Contract Pool
as presently constituted is representative of the characteristics of the
Contract Pool as it will be constituted at the Closing Date, although certain
characteristics of the Contracts may vary. The sum of the percentage columns in
the following tables may not equal 100% due to rounding.
As of the Cut-off Date: the Contract balances ranged from approximately $
to $ ; the average Contract balance was $ ; the Contract Rates ranged from % to
%; the weighted average Contract Rate was %; the original Loan-to-Value Ratios
ranged from ____% to ____%; the weighted average original Loan-to Value Ratio
was %; the remaining terms to stated maturity ranged from ___ months to ___
months; the weighted average remaining term to stated maturity was months; the
Contract ages ranged from months to months; the weighted Contract age was month;
and approximately % of the Contracts by Cut-off Date Pool Principal Balance are
secured by new Manufactured Homes and the balance are secured by used
Manufactured Homes.
S-8
<PAGE>
Geographical Distribution of Manufactured Homes
<TABLE>
<CAPTION>
% of Outstanding
% of Contract Principal Balance
Contract Amount Number of Pool by Number Aggregate Principal as of Cut-off
(in Dollars) Contracts of Contracts Balance Outstanding Date
- -------------- --------- ------------ ------------------- ----
<S> <C> <C> <C> <C>
Total............... 100% 100%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Distribution of Original Loan-to-Value Ratios
% of Outstanding
Original % of Contract Principal Balance
Loan-to-Value Number of Pool by Number Aggregate Principal as of Cut-off
Ratios Contracts of Contracts Balance Outstanding Date
------------ --------- ------------ ------------------- ----
<S> <C> <C> <C> <C>
Total............... 100% 100%
==== ==== ==== ====
</TABLE>
Contract Rates
<TABLE>
<CAPTION>
% of Outstanding
% of Contract Principal Balance
Range of Number of Pool by Number Aggregate Principal as of Cut-off
Contract Rates Contracts of Contracts Balance Outstanding Date
-------------- --------- ------------ ------------------- ----
<S> <C> <C> <C> <C>
Total............... 100% 100%
==== ==== ==== ====
</TABLE>
S-9
<PAGE>
Remaining Months to Maturity
<TABLE>
<CAPTION>
% of Outstanding
Range of % of Contract Principal Balance
Months to Number of Pool by Number Aggregate Principal as of Cut-off
Maturity Contracts of Contracts Balance Outstanding Date
-------- --------- ------------ ------------------- ----
<S> <C> <C> <C> <C>
Total............... 100% 100%
==== ==== ==== ====
</TABLE>
S-10
<PAGE>
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
General
Prepayments. The weighted average life of and, if purchased at a price
other than par, the yield to maturity on, a Class of Offered Certificates will
be directly related to the rate of payment of principal of the Contracts within
the Contract Pool, including for this purpose Prepayments, delinquencies,
liquidations due to defaults, casualties and condemnations, and repurchases of
Contracts by the Originator or the Servicer. The Contracts may be prepaid by the
related Obligors at any time, generally, without payment of any prepayment fee
or penalty. The actual rate of principal prepayments on pools of manufactured
housing contracts is influenced by a variety of economic, tax, geographic,
demographic, social, legal and other factors and has fluctuated considerably in
recent years. In addition, the rate of principal prepayments may differ among
pools of manufactured housing contracts at any time because of specific factors
relating to the contracts in the particular pool, including, among other things,
the age of the contracts, the geographic locations of the properties securing
the contracts, the extent of the Obligor's equity in such properties, and
changes in the Obligor's housing need, job transfers and unemployment.
Generally, however, because the Contracts bear interest at fixed rates, if
prevailing interest rates were to fall, the Contracts may be subject to higher
prepayment rates. Conversely, if prevailing interest rates were to rise, the
rate of prepayments on the Contracts could decrease.
Final Scheduled Remittance Dates. The Final Scheduled Remittance Dates for
each Class of Offered Certificates, is set forth on the cover hereof. The Final
Scheduled Remittance Dates were determined on the basis of the Structuring
Assumptions (defined below) and the assumption that there are no Prepayments.
The weighted average life of each Class of Offered Certificates is likely to be
shorter, and the final Remittance Date could occur significantly earlier than
the applicable Final Scheduled Remittance Date because (i) Prepayments are
likely to occur, (ii) the Originator may repurchase Contracts in the event of
breaches of representations and warranties and (iii) the Servicer may cause an
optional termination of the Trust.
Priority of Distributions. The allocation of principal distributions to the
Holders of the Senior Certificates on each Remittance Date prior to the
Cross-over Date, and on any Remittance Date on or after the Cross-over Date on
which a Class B Principal Distribution Test is not satisfied, will have the
effect of accelerating the amortization of the Senior Certificates relative to
the amortization that would be applicable if the principal were distributed pro
rata among the Senior and the Subordinated Certificates. Until the Cross-over
Date, and on any Remittance Date on or after the Cross-over Date on which a
Class B Principal Distribution Test is not satisfied, the Senior
Certificateholders will receive all payments of principal which are made on the
Contracts. There is no assurance as to whether or when the Cross-over Date will
occur. The rate of principal payments on the Subordinated Certificates and the
aggregate amount of distributions on the Subordinated Certificates will be
affected by the rate of Obligor defaults resulting in delinquencies on the
Contracts and losses on Liquidated Contracts, by the severity of those losses
and by the timing of those delinquencies and losses. See "Description of the
Certificates---Subordination" and "--Allocation of Losses" for a description of
the manner in which such losses are borne by each Class of the Subordinated
Certificates. If a Class of Offered Certificates is purchased at a discount and
the purchaser calculates its anticipated yield to maturity based on an assumed
rate of payment of principal that is faster than the rate actually realized,
such purchaser's actual yield to maturity will be lower than the yield so
calculated by such purchaser.
Payment Lag Feature
The Agreement provides that each Interest Accrual Period will be the
calendar month prior to each Remittance Date. Collections on the Contracts are
not distributed to the Holders of the Offered Certificates until at least the
15th day of the following month. As a result, the yield to the Holders of the
Certificates will be slightly lower than would be the case if each Interest
Accrual Period were to be from Remittance Date to Remittance Date.
S-11
<PAGE>
Structuring Assumptions
The information in the decrement tables has been prepared on the basis of
the following assumed characteristics of the Contracts and the following
additional assumptions (collectively, the "Structuring Assumptions"): (i) the
Contracts prepay at the specified percentages of __________ (as defined below),
(ii) no defaults or delinquencies in the payment by Obligors of principal of and
interest on the Contracts are experienced, (iii) the initial Class Certificate
Balance of each Class of Offered Certificates is as set forth on the cover page
hereof, (iv) interest accrues on each Class of Offered Certificates in each
period at the applicable Remittance Rate described herein, (v) distributions in
respect of the Offered Certificates are received in cash on the 15th day of each
month commencing in ________________ 199_, (vi) the Servicer does not exercise
its option to purchase the remaining Contracts, (vii) the Offered Certificates
are purchased on ________________, 199_, (viii) scheduled payments on the
Contracts are received on the first day of each month commencing in the calendar
month following the Closing Date and are computed prior to giving effect to
prepayments received on the last day of the prior month, (ix) prepayments
represent prepayments in full of individual Contracts and are received on the
last day of each month and include 30 days' interest thereon, commencing in the
calendar month of the Closing Date, (x) the scheduled monthly payment for each
Contract has been calculated based on the assumed characteristics set forth in
the following table such that each Contract will amortize in amounts sufficient
to repay the balance of such Contract by its indicated remaining term to
maturity, and (xi) the Trust consists of ___ Contracts with the characteristics
set forth in the following table. While it is assumed that each of the Contracts
prepays at the specified percentages of _____, this is not likely to be the
case. Moreover, discrepancies will exist between the characteristics of the
actual Contracts which will be delivered to the Trustee and characteristics of
the Contracts assumed in preparing the tables herein.
Prepayments of contracts are commonly measured relative to a prepayment
standard or model. The model used with respect to the Offered Certificates is
the _____________ ("_____") assumption. _________ assumes that a pool of
manufactured housing contracts prepays in the first month at a constant
prepayment rate of __% and increases by an additional ___% each month thereafter
until the _____ month, where it remains at ___% per annum. The Constant
Prepayment Rate ("CPR") represents an assumed constant rate of prepayment each
month, expressed as an annual rate, relative to the then outstanding principal
balance of a pool of manufactured housing contracts for the life of such
manufactured housing contracts. Neither model purports to be either an
historical description of the prepayment experience of any pool of manufactured
housing contracts or a prediction of the anticipated rate of prepayment of any
manufactured housing contracts, including the Contracts to be included in the
Trust.
Remaining
Current Original Term Term to
Principal Contract to Maturity Maturity
Balance($) Rate(%) (months) (months)
---------- ------- -------- ---------
Decrement Tables
The following tables indicate, based on the Structuring Assumptions, the
percentages of the initial Class Certificate Balances of the Classes of Offered
Certificates that would be outstanding after each of the dates shown at various
percentages of _______ and the corresponding weighted average lives of such
Classes. It is not likely that (i) all of the Contracts will have the
characteristics assumed or (ii) the Contracts will prepay at the specified
percentages of ________ or at any other constant percentage. Moreover, the
diverse remaining terms to maturity of the Contracts could produce slower or
faster principal distributions than indicated in the tables at the specified
percentages of ________, even if the weighted average remaining term to maturity
of the Contracts is consistent with the remaining terms to maturity of the
Contracts specified in the Structuring Assumptions.
S-12
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Class Certificate
Balances Outstanding*
Remittance Class A-1 Class A-2
Date Percentage of Percentage of
------ -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent ............. __% __% __% __% __% __% __% __% __% __%
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
--- --- --- --- --- --- --- --- --- ---
Weighted Average Life (years)**
=== === === === === === === === === ===
</TABLE>
- ----------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-13
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Class Certificate
Balances Outstanding*
Remittance Class A-3 Class A-4
Date Percentage of Percentage of
------ -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent ............. __% __% __% __% __% __% __% __% __% __%
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
--- --- --- --- --- --- --- --- --- ---
Weighted Average Life (years)**
=== === === === === === === === === ===
</TABLE>
- ----------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-14
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Class Certificate
Balances Outstanding*
Remittance Class A-5 Class B-1
Date Percentage of Percentage of
------ -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent ............. __% __% __% __% __% __% __% __% __% __%
--- --- --- --- --- --- --- --- --- ---
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
--- --- --- --- --- --- --- --- --- ---
Weighted Average Life (years)**
=== === === === === === === === === ===
</TABLE>
- ----------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-15
<PAGE>
Percent of Initial Class Certificate
Balances Outstanding*
Remittance Class B-2
Date Percentage of
------ ---------------------------------------------
Initial Percent ............. __% __% __% __% __%
--- --- --- --- ---
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
--- --- --- --- ---
Weighted Average Life (years)**
=== === === === ===
- ----------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-16
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Agreement. Set forth below
are summaries of the specific terms and provisions pursuant to which the
Certificates will be issued. The following summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement. When particular provisions or terms used in
the Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
The Manufactured Housing Contract Pass-Through Certificates, Series 199_-_
will consist of the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates (collectively, the "Senior Certificates") and the Class B-1, Class
B-2, Class B-3 and Class R Certificates (collectively, the "Subordinated
Certificates'). The Senior Certificates and the Subordinated Certificates are
collectively referred to herein as the "Certificates." Only the Senior
Certificates and the Class B-1 and Class B-2 Certificates (collectively, the
"Offered Certificates") are offered hereby. The Classes of Offered Certificates
will have the respective initial Class Certificate Balances (subject to the
permitted variance) and Remittance Rates set forth or described on the cover
hereof.
The Class Certificate Balance of any Class of Certificates as of any
Remittance Date is the initial Class Certificate Balance thereof reduced by the
sum of (i) all amounts previously distributed to holders of Certificates of such
Class as payments of principal and (ii) the amount of Realized Losses allocated
to such Class.
The Senior Certificates will evidence in the aggregate an initial
beneficial ownership interest of approximately ___% in the Trust. The Class B-1,
Class B-2 and Class B-3 Certificates will each evidence in the aggregate an
initial beneficial ownership interest of approximately ____%, ____% and ____%,
respectively, in the Trust.
Book-Entry Certificates
Each Class of Offered Certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificates Balance of
each such Class of Certificates and which will be held by a nominee of The
Depository Trust Company (together with any successor depository selected by the
Depositor, the "Depository"). Beneficial interests in such Certificates (the
"Book-Entry Certificates") will be held indirectly by investors through the
book-entry facilities of the Depository, as described herein. Investors may hold
such beneficial interests in the Book-Entry Certificates in minimum
denominations representing an original principal amount of $25,000 and integral
multiples of $1,000 in excess thereof. One investor of each Class of Book-Entry
Certificates may hold a beneficial interest therein that is not an integral
multiple of $1,000. The Depositor has been informed by the Depository that its
nominee will be CEDE & Co. ("CEDE"). Accordingly, CEDE is expected to be the
holder of record of the Book-Entry Certificates. Except as described in the
Prospectus under "Description of the Certificates -- Book-Entry Certificates,"
no person acquiring a Book-Entry Certificate (each, a "Certificate Owner") will
be entitled to receive a physical certificate representing such Certificate (a
"Definitive Certificate").
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be CEDE, as
nominee of the Depository. Owners of the Book-Entry Certificates will not be
Certificateholders, as that term is used in the Agreement. Certificate Owners
are only permitted to exercise the rights of Certificateholders indirectly
through Financial Intermediaries and the Depository. Monthly and annual reports
on the Trust provided to CEDE, as nominee of the Depository, may be made
available to Certificate Owners upon request, in accordance with the rules,
regulations and procedures creating and affecting the Depository, and to the
Financial Intermediaries to whose Depository accounts the Book-Entry
Certificates of such Certificate Owners are credited.
For a description of the procedures generally applicable to the Book-Entry
Certificates, see "Description of the Certificates -- Book-Entry Certificates"
in the Prospectus.
S-17
<PAGE>
Distributions
Distributions on the Certificates will be made by the Trustee on the 15th
day of each month, or if such day is not a business day, on the first business
day thereafter, commencing in _______ 199_ (each, a "Remittance Date"), to the
persons in whose names such Certificates are registered at the close of business
on the last business day of the month preceding the month of such Remittance
Date (the "Record Date").
Distributions on each Remittance Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds 100% of a
Class of Certificates or who holds Certificates with an aggregate initial
Certificate Balance of $_______ or more and who has so notified the Trustee in
writing in accordance with the Agreement, by wire transfer in immediately
available funds to the account of such Certificateholder at a bank or other
depository institution having appropriate wire transfer facilities; provided,
however, that the final distribution in retirement of the Certificates will be
made only upon presentment and surrender of such Certificates at the Corporate
Trust Office of the Trustee.
Priority of Distributions Among Certificates
As more fully described herein, distributions will be made on each
Remittance Date from the Amount Available in the following order of priority:
(i) to interest on each interest-bearing Class of Senior Certificates; (ii) to
principal of the Classes of Senior Certificates then entitled to receive
distributions of principal, in the order and subject to the priorities set forth
herein under "--Principal"); and (iii) to interest on and then principal of each
Class of Subordinated Certificates, in the order of their numerical Class
designations, beginning with the Class B-1 Certificates, subject to certain
limitations set forth herein under "--Principal."
Interest
The Remittance Rate for each Class of Offered Certificates for each
Distribution Date is as set forth or described on the cover hereof.
On each Remittance Date, to the extent of funds available therefor, each
interest-bearing Class of Certificates will be entitled to receive an amount
allocable to interest (as to each such Class, the "Interest Distribution
Amount") with respect to the related Interest Accrual Period. The Interest
Distribution Amount for any interest-bearing Class will be equal to the sum of
(i) interest at the applicable Remittance Rate on the related Class Certificate
Balance and (ii) the sum of the amounts, if any, by which the amount described
in clause (i) above on each prior Remittance Date exceeded the amount actually
distributed as interest on such prior Remittance Dates and not subsequently
distributed ("Unpaid Interest Amounts").
With respect to each Remittance Date, the "Interest Accrual Period" for
each interest-bearing Class of Certificates will be the calendar month preceding
the month of such Remittance Date.
Accrued interest to be distributed on any Remittance Date will be
calculated, in the case of each interest-bearing Class of Certificates, on the
basis of the related Class Certificate Balance immediately prior to such
Remittance Date. Interest will be calculated and payable on the basis of a
360-day year divided into twelve 30-day months.
In the event that, on a particular Remittance Date, the Amount Available
applied in the order described above under "--Priority of Distributions Among
Certificates" are not sufficient to make a full distribution of the interest
entitlement on the Certificates, interest will be distributed on each Class of
Certificates of equal priority based on the amount of interest each such Class
would otherwise have been entitled to receive in the absence of such shortfall.
Any such unpaid amount will be carried forward and added to the amount holders
of each such Class of Certificates will be entitled to receive on the next
Remittance Date. Such a shortfall could occur, for example, if losses realized
on the Contracts were exceptionally high or were concentrated in a particular
month. Any such unpaid amount will bear interest at the applicable Remittance
Rate to the extent permitted by law.
S-18
<PAGE>
Principal
General. All payments and other amounts received in respect of principal of
the Contracts will be allocated between the Senior Certificates and the
Subordinated Certificates.
Senior Principal Distribution Amount. On each Remittance Date, the Amount
Available remaining after distribution of interest on the Senior Certificates,
up to the amount of the Senior Principal Distribution Amount for such Remittance
Date, will be distributed sequentially, to the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates, in that order, until the respective Class
Certificate Balances thereof are reduced to zero.
Subordinated Principal Distribution Amount. On each Remittance Date, the
Amount Available remaining after distributions of interest on and principal of
the Senior Certificates and distributions of interest on the Subordinated
Certificates in the priority described above under "--Priority of
Distributions," up to the amount of the Subordinated Principal Distribution
Amount for such Remittance Date, will be distributed sequentially, to the Class
B-1, Class B-2 and Class B-3 Certificates, in that order, until the respective
Class Certificate Balances thereof are reduced to zero.
For purposes of the foregoing, the following terms have the respective
meanings set forth below:
"Class B Principal Distribution Test" means: (i) the Average Sixty-Day
Delinquency Ratio (as defined in the Agreement) as of such Remittance Date must
not exceed __%; (ii) the Average Thirty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date must not exceed __%; (iii) the cumulative
Realized Losses (as defined in the Agreement) as of such Remittance Date must
not exceed a certain specified percentage of the Cut-off Date Pool Principal
Balance, depending on the year in which such Remittance Date occurs; (iv) the
Current Realized Loss Ratio (as defined in the Agreement) as of such Remittance
Date must not exceed __%; (v) the Class B Principal Balance Test (as defined in
the Agreement) must be equal to or greater than __%; and (vi) the aggregate
Class Certificate Balance of the Subordinated Certificates must not be less than
$_________.
"Cross-Over Date" means the later to occur of (a) the Remittance Date in
_________, 199_ and (b) the first Remittance Date on which the aggregate Class
Certificate Balance of the Subordinated Certificates equals or exceeds ____% of
the Pool Scheduled Principal Balance.
"Formula Principal Distribution Amount" means, with respect to any
Remittance Date, the sum of (i) all scheduled payments of principal due on each
outstanding Contract during the month preceding the month in which the
Remittance Date occurs, (ii) the Scheduled Principal Balance of each Contract
which, during the month preceding the month of such Remittance Date, was
purchased by the Servicer or repurchased by the Originator pursuant to the
Agreement, (iii) all Partial Principal Prepayments applied and all Principal
Prepayments in Full received during such preceding month, and (iv) the Scheduled
Principal Balance of each Contract that became a Liquidated Contract during such
preceding month.
"Liquidated Contract" means a defaulted Contract with respect to which the
Servicer has determined that all recoverable liquidation and insurance proceeds
have been received.
"Pool Scheduled Principal Balance" means the aggregate of the Scheduled
Principal Balances of the Contracts.
"Scheduled Principal Balance" means the unpaid principal balance of a
Contract as specified in the amortization schedule at the time relating thereto
(before any adjustment to such schedule by reason of bankruptcy, moratorium or
similar waiver or grace period) as of the Due Date in the Due Period next
preceding such Remittance Date, after giving effect to any previous partial
prepayments and to the payment of principal due on such Due Date and
irrespective of any delinquency in payment on such Contract.
"Senior Percentage" means (a) for any Remittance Date prior to the
Cross-Over Date and any Remittance Date on or after the Cross-Over Date on which
any Class B Principal Distribution Test is not satisfied, 100% and (b) for any
other Remittance Date, the percentage equivalent of a fraction, the numerator of
which is the aggregate Class Certificate Balance of the Senior Certificates
immediately prior to such Remittance Date and the denominator of which is the
Pool Scheduled Principal Balance.
S-19
<PAGE>
"Senior Principal Distribution Amount" means for any Remittance Date, the
Senior Percentage of the Formula Principal Distribution Amount.
"Subordinated Percentage" means for any Remittance Date, 100% minus the
Senior Percentage for such Remittance Date.
"Subordinated Principal Distribution Amount" means for any Remittance Date,
the Subordinated Percentage of the Formula Principal Distribution Amount.
Subordination of Certain Classes
The rights of the holders of the Subordinated Certificates to receive
distributions with respect to the Contracts will be subordinated to such rights
of the holders of the Senior Certificates, and the rights of the holders of each
Class of Subordinated Certificates (other than the Class B-1 Certificates) to
receive such distributions will be further subordinated to such rights of the
holders of the Class or Classes of Subordinated Certificates with lower
numerical Class designations, in each case only to the extent described herein.
The subordination of the Subordinated Certificates to the Senior Certificates
and the further subordination within the Subordinated Certificates is intended
to increase the likelihood of timely receipt by the holders of Certificates with
a higher relative payment priority of the maximum amount to which they are
entitled on any Remittance Date and to provide such holders protection against
Realized Losses. The protection afforded by means of the subordination feature
will be accomplished by the preferential right of the Certificateholders with
higher relative payment priority to receive, prior to any distribution being
made on a Remittance Date in respect of the Certificates with relatively lower
payment priority, the amount of principal and interest due them on each
Remittance Date out of the Amount Available on deposit on such date in the
Certificate Account and by the right of the Certificateholders with higher
relative payment priority to receive future distributions on the Contracts that
would otherwise be payable to the holders of Certificates with relatively lower
payment priority.
Allocation of Losses
On each Remittance Date, any Realized Loss will be allocated first to the
Subordinated Certificates, in the reverse order of their numerical Class
designations (beginning with the Class of Subordinated Certificates then
outstanding with the highest numerical Class designation), in each case until
the Class Certificate Balance of the respective Class of Certificates has been
reduced to zero, and then to the Senior Certificates pro rata, based upon their
respective Class Certificate Balances. In general, a "Realized Loss" means, with
respect to a Liquidated Contract, the amount by which the remaining unpaid
principal balance of the Contract exceeds the amount of Liquidation Proceeds
applied to the principal balance of the related Contract.
Because principal distributions are paid to certain Classes of Certificates
before other Classes of Certificates, holders of Certificates that are entitled
to receive principal later bear a greater risk of being allocated Realized
Losses on the Contracts than holders of Classes that are entitled to receive
principal earlier.
Optional Termination
The Agreement provides that on any Remittance Date on which the Pool
Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal
Balance, the Servicer will have the option to repurchase all outstanding
Contracts at a price equal to the greater of (a) the sum of (x) 100% of the
Scheduled Principal Balance of each Contract (other than any Contract as to
which the related Manufactured Home has been repossessed and whose fair market
value is included pursuant to clause (y) below) as of the final Remittance Date
and (y) the fair market value of such acquired property and (b) the aggregate
fair market value of all of the assets of the Trust, plus, in each case, any
unpaid interest at the related Remittance Rates on each Class of Certificates as
well as one month's interest at the applicable Contract Rate on the Scheduled
Principal Balance of each Contract (including any Contract as to which the
related Manufactured Home has been repossessed).
S-20
<PAGE>
The Trustee
___________________ (the "Trustee") has its corporate trust offices at
_____________________, _____________, _______________. The Trustee and certain
of its affiliates maintain commercial banking relationships with the Servicer
and its affiliates.
THE MANUFACTURED HOUSING PROGRAM
The Contracts were originated or purchased by the Originator in accordance
with the policies and procedures described under "The Manufactured Housing
Program" in the Prospectus.
The volume of Contracts purchased or originated by the Originator for the
periods indicated and certain other information at the end of such periods are
as follows:
Contracts Originated or Purchased on an Individual Basis
<TABLE>
<CAPTION>
______ Months Three Months
Ended Ended
, 199 (1) , 199
------------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Principal balance of contracts purchased............... $ $
Number of contracts purchased..........................
Average contract size(2)............................... $ $
Average interest rate(2)(3)............................ % %
</TABLE>
- ----------
(1) The Originator commenced originating and purchasing manufactured housing
contracts on a limited basis in November 1995. Consequently, the _________,
199_ column covers the Originator's first __ months of operation.
(2) As of period end.
(3) Weighted average gross coupon.
The following tables show the size of the portfolio of manufactured
housing contracts originated by the Originator and serviced by the Servicer,
together with certain delinquency, loan loss and liquidation experience on the
dates indicated.
Size of Serviced Portfolio
<TABLE>
<CAPTION>
As of As of
, 199 (1) , 199
------------------- ----------------
<S> <C> <C>
(Dollars in Thousands)
Unpaid principal balance of contracts being
serviced............................................... $ $
Average unpaid principal balance....................... $ $
Number of contracts being serviced.....................
</TABLE>
- -----------
(1) The Originator commenced originating and purchasing manufactured housing
contracts on a limited basis in November 1995. Consequently, the
__________, 199_ column covers the Originator's first __ months of
operation.
S-21
<PAGE>
Delinquency Experience
<TABLE>
<CAPTION>
As of As of
, 199 (1) , 199
------------------- ----------------
<S> <C> <C>
Number of contracts outstanding(2).....................
Number of contracts delinquent(3):
30-59 days.....................................
60-89 days.....................................
90 days or more................................
Total contracts delinquent.............................
Delinquencies as a percentage of contracts
outstanding(4)......................................... % %
</TABLE>
- ------------
(1) The Originator commenced originating and purchasing manufactured housing
contracts on a limited basis in November 1995. Consequently, the
____________, 199_ column covers the Originator's first __ months of
operation.
(2) Excludes contracts already held in repossession.
(3) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months).
(4) As a percentage of the total number of contracts outstanding as of period
end.
Loan Loss/Liquidation Experience
<TABLE>
<CAPTION>
______ Months Three Months
Ended Ended
, 199 (1) , 199
------------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Number of contracts serviced(2)........................
Principal balance of contracts serviced(2)............. $ $
Contract liquidations.................................. % %
Net losses:
Dollars(4)..................................... $ $
Percentage(5).................................. % %
</TABLE>
- ------------
(1) The Originator commenced originating and purchasing manufactured housing
contracts on a limited basis in November 1995. Consequently, the
____________, 199_ column covers the Originator's first __ months of
operation.
(2) As of period end. Includes contracts already in repossession.
(3) As a percentage of the total number of contracts being serviced as of
period end. The percentage for the three months ending ____________, 199_
is not annualized.
(4) The calculation of net loss on liquidated contracts includes unpaid
interest to the date of repossession and all expenses of repossession and
liquidation. The dollar amount for the three months ending ____________,
199_ is not annualized.
(5) As a percentage of the aggregate principal balance of contracts being
serviced as of period end. The percentage for the three months ending
____________, 199_ is not annualized.
S-22
<PAGE>
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be used by the Depositor to purchase the Contracts and to pay the costs of
carrying the Contracts until the sale of the Certificates and other expenses
connected with pooling the Contracts and issuing the Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans that are subject to ERISA
("Plans") and on persons who are fiduciaries with respect to such Plans.
Employee benefit plans that are governmental plans (as defined in section 3(32)
of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are
not subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Senior Certificates without regards to the ERISA restrictions
described above, subject to applicable provisions of other federal and state
laws. However, any such governmental or church plan which is qualified under
section 401(a) of the Code and exempt from taxation under section 501(a) of the
Code is subject to the prohibited transaction rules set forth in section 503 of
the Code.
The U.S. Department of Labor ("DOL") has granted an administrative
exemption to _____________________ (Prohibited Transaction Exemption __;
Exemption Application No. ______, __ Fed. Reg. ______ (____)) (the "Exemption")
from certain of the prohibited transaction rules of ERISA and the Code with
respect to the initial purchase, the holding and the subsequent resale by Plans
of certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include manufactured housing installment sales contracts and
installment loan agreements such as the Contracts. The Exemption will apply to
the acquisition, holding, and resale of the Senior Certificates by a Plan,
provided that specified conditions (certain of which are described below) are
met.
Among the conditions which must be satisfied for the Exemption to apply to
the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Senior Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
(3) The Senior Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from any of Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff &
Phelps Credit Rating Co. or Fitch Investors Service, Inc.;
(4) The Trustee is not an affiliate of any member of the Restricted
Group (as defined below);
(5) The sum of all payments made to the Underwriters in connection
with the distribution of the Senior Certificates represents not more than
reasonable compensation for underwriting the Senior Certificates. The sum
of all payments made to and retained by the Depositor pursuant to the sale
of the Contracts to the Trust represents not more than the fair market
value of such Contracts. The sum of all payments made to and retained by
the Servicer represents not more than reasonable compensation for the
Servicer's services under the Agreement and reimbursement of the Servicer's
reasonable expenses in connection therewith; and
(6) The Plan investing in the Senior Certificates is an "accredited
investor" as defined in Rule 501 (a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest prohibited transactions only if, among other
requirements, (i) in the case of the acquisition of Senior Certificates in
connection with the initial issuance, at least fifty (50) percent of the Senior
Certificates are acquired by persons independent of the Restricted Group (as
defined below), (ii) the Plan's investment in Senior Certificates does not
exceed twenty-five (25) percent of all of the Senior Certificates outstanding at
the time of the acquisition and
S-23
<PAGE>
(iii) immediately after the acquisition, no more than twenty-five (25) percent
of the assets of the Plan are invested in certificates representing an interest
in one or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by the Originator, the Depositor,
the Underwriters, the Trustee, the Servicer, any obligor with respect to
Contracts included in the Trust constituting more than five (5) percent of the
aggregate unamortized principal balance of the assets in the Trust or any
affiliate of such parties (the "Restricted Group").
No transfer of a Subordinated Certificate will be permitted to be made to a
Plan unless such Plan, at its expense, delivers to the Trustee and the Depositor
an opinion of counsel (in form satisfactory to the Trustee and the Depositor) to
the effect that the purchase or holding of a Subordinated Certificate by such
Plan will not result in the assets of the Trust being deemed to be "plan assets"
and subject to the prohibited transaction provisions of ERISA and the Code and
will not subject the Trustee, the Depositor or the Servicer to any obligation or
liability in addition to those undertaken in the Agreement. Unless such opinion
is delivered, each person acquiring a Subordinated Certificate will be deemed to
represent to the Trustee, the Depositor and the Servicer that such person is
neither a Plan, nor acting on behalf of a Plan, subject to ERISA or to Section
4975 of the Code.
LEGAL INVESTMENT CONSIDERATIONS
The Subordinated Certificates will not constitute "mortgage related
securities" under the Secondary Mortgage Market Enhancement Act of 1984. The
appropriate characterization of the Subordinated Certificates under various
legal investment restrictions, and thus the ability of investors subject to
these restrictions to purchase Subordinated Certificates, may be subject to
significant interpretive uncertainties. All investors whose investment authority
is subject to legal restrictions should consult their own legal advisors to
determine whether, and the extent to which, the Subordinated Certificates will
constitute legal investments for them.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Depositor and the Underwriters named
below (the "Underwriters"), the Depositor has agreed to sell to the
Underwriters, and each Underwriter has severally agreed to purchase from the
Depositor, the principal amount of each Class of Offered Certificates set forth
below after its name.
Underwriter Class Principal Amount
- ----------- ----- ----------------
A-1 $
A-2 $
A-3 $
A-4 $
A-5 $
B-1 $
B-2 $
Total: $
A-1 $
A-2 $
A-3 $
A-4 $
A-5 $
B-1 $
B-2 $
Total: $
S-24
<PAGE>
The Offered Certificates will be offered by the Underwriters from time to
time in negotiated transactions or otherwise, at varying prices to be determined
at the time of sale. Proceeds to the Depositor, including accrued interest, are
expected to be approximately __________% of the aggregate principal balance of
the Offered Certificates, before deducting expenses payable by the Depositor in
connection with the Offered Certificates, estimated to be $_______. In
connection with the purchase and sale of the Offered Certificates, the
Underwriters may be deemed to have received compensation from the Depositor in
the form of underwriting discounts.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
CERTAIN LEGAL MATTERS
Certain tax matters concerning the issuance of the Certificates will be
passed upon by Stroock & Stroock & Lavan, New York, New York. Certain legal
matters relating to the validity of the Certificates will be passed upon for the
Underwriters by Stroock & Stroock & Lavan, New York, New York. Stroock & Stroock
& Lavan represents the Servicer and United Companies Financial Corporation, an
affiliate of the Depositor and the Servicer, from time to time.
RATINGS
It is a condition of the original issuance of the Offered Certificates that
they receive ratings of ____ by ____________ and _____________ by _______. Such
ratings are the highest long-term ratings assigned to securities by such rating
agencies. The ratings do not address the possibility that, as a result of
principal prepayments, Certificateholders may receive a lower than anticipated
yield. The ratings will be the views only of such rating agencies. There is no
assurance that nay such ratings will continue for any period of time or that
such ratings will not be revised or withdrawn. Any such revision or withdrawal
of such ratings may have an adverse effect on the market price of the Offered
Certificates. A security rating is not a recommendation to buy, sell or hold
securities.
S-25
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED JULY 11, 1996
UCFC FUNDING CORPORATION
(DEPOSITOR)
Manufactured Housing Contract Pass-Through Certificates
(Issuable In Series)
This Prospectus relates to Manufactured Housing Contract Pass-Through
Certificates (the "Certificates"), issuable in series (each, a "Series"), which
may be sold from time to time under this Prospectus and a Prospectus Supplement
for each such Series. The Certificates of a Series evidence specified interests
in one or more trust funds (each, a "Trust"), the primary assets of which will
consist of one or more pools (each, a "Pool") of manufactured housing
installment sales contracts and manufactured housing installment loan agreements
(the "Contracts"). If specified in the Prospectus Supplement, a portion of the
proceeds of the sale of a Series of Certificates, not to exceed fifty percent of
the aggregate original principal balance of such Certificates, will be deposited
in one or more Pre-Funding Accounts and used to purchase additional Contracts
during the period of time, not to exceed six months, specified in such
Prospectus Supplement. Except as otherwise specified in the related Prospectus
Supplement, the Contracts will have been originated or acquired in the ordinary
course of business primarily by United Companies Funding, Inc. (the
"Originator"). If specified in the related Prospectus Supplement, credit
enhancement with respect to a Series or any Class of Certificates may be
provided by pool insurance, letters of credit, surety bonds, a guarantee, cash
reserve funds, derivative products or other forms of credit enhancement, or any
combinations thereof.
Each Series of Certificates will be issued in one or more classes (each, a
"Class"). Each Class of Certificates will evidence a beneficial ownership
interest of a specified percentage (which may be 0%) or portion of future
interest payments and a specified percentage (which may be 0%) or portion of
future principal payments on the Contracts in the related Trust. A Series of
Certificates may include one or more senior Classes (the "Senior Certificates")
that receive certain preferential treatment with respect to one or more other
Classes of Certificates of such Series (the "Subordinated Certificates").
There will have been no public market for any Certificates sold hereunder
prior to the offering thereof and there is no assurance that any such market
will develop. The Underwriters named in the Prospectus Supplement relating to a
Series may from time to time buy and sell Certificates of such Series, but there
can be no assurance that an active secondary market therefor will develop, and
there is no assurance that any such market, if established, will continue or
will provide investors with sufficient liquidity of investment.
If specified in a Prospectus Supplement, one or more elections may be made
to treat each Trust or specified portions thereof as a "real estate mortgage
investment conduit" (a "REMIC") for federal income tax purposes. See "Federal
Income Tax Considerations" herein.
Prospective investors should review the information under "Risk Factors"
beginning on page 8.
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
DEPOSITOR, THE ORIGINATOR, THE SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
THE CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY, OR (EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT) BY ANY OTHER PERSON OR ENTITY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus may not be used to consummate sales of a Series of
Certificates unless accompanied by a Prospectus Supplement.
The date of this Prospectus is ______, 1996.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered hereunder, among other things, will set forth with respect to such
Series of Certificates: (i) a description of the Class or Classes of such
Certificates; (ii) the rate of interest or other applicable rate (or the manner
of determining such rate) and authorized denominations of each Class of such
Certificates; (iii) certain information concerning the Contracts and insurance
policies, cash accounts, letters of credit, financial guaranty insurance
policies, third party guarantees or other forms of credit enhancement, if any,
relating to one or more Pools or all or part of the related Certificates; (iv)
the specified interest of each Class of Certificates in, and the manner and
priority of, the distributions on the Contracts; (v) information as to the
nature and extent of subordination with respect to such Series of Certificates,
if any; (vi) the Remittance Dates; (vii) information regarding the Servicer;
(viii) the circumstances, if any, under which each Trust may be subject to early
termination; (ix) whether a REMIC election will be made and the designation of
the regular and residual interest therein; and (x) additional information with
respect to the plan of distribution of such Certificates.
AVAILABLE INFORMATION
The Depositor has filed a Registration Statement under the Securities Act
of 1933, as amended (the "1933 Act"), with the Securities and Exchange
Commission (the "Commission") with respect to the Certificates. The Registration
Statement and amendments thereof and the exhibits thereto are available for
inspection without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 75 Park Place,
Room 1102, New York, New York 10007; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains an Internet Web site that
contains reports, information statements and other information regarding the
registrants that file electronically with the Commission, including the
Depositor. The address of such Internet Web site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning the Certificates and the related
Trust will be provided to the Certificateholders. See "Description of the
Certificates--Reports to Certificateholders." If the Certificates of a Series
are to be issued in book-entry form, such reports will be provided to the
Certificateholder of record and beneficial owners of such Certificates will have
to rely on the procedures described herein under "Description of the
Certificates--Book-Entry Registration."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of each Trust referred to
in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), after the date of this Prospectus and prior to the
termination of any offering of the Certificates issued by such Trust shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
replaces such statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Depositor will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to UCFC Funding Corporation,
4041 Essen Lane, Baton Rouge, Louisiana 70809 Attention: Secretary, telephone
(504) 924-6007.
-2-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the accompanying
Prospectus Supplement. Capitalized terms used and not otherwise defined herein
or in the related Prospectus Supplement will have the respective meanings
assigned them in the "Glossary."
Title of Securities................... Manufactured Housing Contract
Pass-Through Certificates (Issuable in
Series) (the "Certificates").
Depositor............................. UCFC Funding Corporation, a Louisiana
corporation. The principal office of the
Depositor is located in Baton Rouge,
Louisiana. See "The Depositor."
Servicer.............................. United Companies Lending Corporation(R),
a Louisiana corporation and an affiliate
of the Depositor. The Servicer may
service the contracts through one or
more sub-servicers. The principal office
of the Servicer is located in Baton
Rouge, Louisiana. See "The Manufactured
Housing Program."
Originator............................ United Companies Funding, Inc., a
Louisiana corporation and an affiliate
of the Depositor and the Servicer. The
principal office of the Originator is
located in Minneapolis, Minnesota. See
"The Manufactured Housing Program."
Trustee............................... The Trustee for each Series of
Certificates will be specified in the
related Prospectus Supplement.
The Contracts......................... The primary assets of each Trust will
consist of one or more pools (each, a
"Pool") of manufactured housing
installment sales contracts and
manufactured housing installment loan
agreements ("Chattel Contracts"). Each
Chattel Contract will be secured by a
new or used Manufactured Home (as
defined herein). Other contracts will be
secured by a mortgage or deed of trust
on the Manufactured Home and the real
estate to which the Manufactured Home is
deemed permanently affixed (a
"Land-and-Home Contract" and
collectively with Chattel Contracts, the
"Contracts"). As described in the
related Prospectus Supplement, the
Contracts may bear fixed or adjustable
rates of interest (each, a "Contract
Rate"). Contracts may be conventional
contracts or contracts insured by the
Federal Housing Authority (the "FHA") or
partially guaranteed by the Veterans
Administration (the "VA").
The Prospectus Supplement for each
Series will contain information as of
the date specified in the Prospectus
Supplement (the "Cut-off Date") and to
the extent then specifically known to
the Depositor with respect to the
Contracts in the related Pools,
including: (i) the range of the dates of
origination of the Contracts; (ii) the
range of the Contract Rates and the
weighted average Contract Rate; (iii)
the range of Loan-to-Value Ratios at
origination and the weighted average
Loan-to-Value Ratio at origination; (iv)
the minimum and maximum outstanding
principal balances as of the Cut-off
Date and the average outstanding
principal balance as of the Cut-off
Date; (v) the aggregate principal
balances of the Contacts; (vi) the
weighted average and range of scheduled
terms to maturity as of the Cut-off
Date; (vii) the original maturities of
the Contracts and the last
- --------------------------------------------------------------------------------
-3-
<PAGE>
- --------------------------------------------------------------------------------
maturity date of any Contract; (viii)
and the locations of the Manufactured
Homes securing the Contracts.
It is expected that the Contracts
primarily will have been originated or
purchased by the Originator; however,
certain Contracts may have been
purchased by the Depositor, the
Originator or affiliates thereof in the
open market or in privately negotiated
transactions.
Description of Certificates........... Each Series of Certificates will be
issued pursuant to a Pooling and
Servicing Agreement (each, an
"Agreement") among the Depositor, the
Servicer and the Trustee. Each
Certificate will evidence an interest in
one or more trust funds (each, a
"Trust") created pursuant to the related
Agreement.
The Certificates of any Series may be
issued in one or more Classes, as
specified in the related Prospectus
Supplement. A Series of Certificates may
include one or more Classes of senior
Certificates (collectively, the "Senior
Certificates") which receive certain
preferential treatment specified in the
related Prospectus Supplement with
respect to one or more Classes of
subordinate Certificates (collectively,
the "Subordinated Certificates"). Each
Class of Certificates within a Series
will evidence the interests specified in
the related Prospectus Supplement, which
may (i) include the right to receive
distributions allocable only to
principal, only to interest or to any
combination thereof; (ii) include the
right to receive distributions only of
prepayments of principal throughout the
lives of the Certificates or during
specified periods; (iii) be subordinated
in the right to receive distributions of
scheduled payments of principal,
prepayments of principal, interest or
any combination thereof to one or more
other Classes of Certificates of such
Series throughout the lives of the
Certificates or during specified periods
or may be subordinated with respect to
certain losses or delinquencies; (iv)
include the right to receive such
distributions only after the occurrence
of events specified in the Prospectus
Supplement; (v) include the right to
receive distributions in accordance with
a schedule or formula or on the basis of
collections from designated portions of
the assets in the related Trust; (vi)
include, as to Certificates entitled to
distributions allocable to interest, the
right to receive interest at a fixed
rate or an adjustable rate; and (vii)
include, as to Certificates entitled to
distributions allocable to interest, the
right to distributions allocable to
interest only after the occurrence of
events specified in the related
Prospectus Supplement, and in each case,
may accrue interest until such events
occur, as specified in such Prospectus
Supplement. The timing and amounts of
such distributions may
vary among Classes, over time, or
otherwise as specified in the related
Prospectus Supplement. Unless otherwise
specified in the related Prospectus
Supplement, the Certificates will be
issuable in fully registered form, in
the minimum denominations set forth in
such Prospectus Supplement. See
"Description of the Certificates."
Subordinated Certificates............. One or more Classes of any Series may be
Subordinated Certificates, as specified
in the related Prospectus Supplement.
The rights of the Subordinated
Certificateholders to receive any or a
specified portion of distributions with
respect to the Contracts will be
subordinated to the rights of the
holders ("Certificateholders" or
- --------------------------------------------------------------------------------
-4-
<PAGE>
- --------------------------------------------------------------------------------
"Holders") of Senior Certificates to the
extent and in the manner specified in
the related Prospectus Supplement. If a
Series of Certificates contains more
than one Class of Subordinated
Certificates, distributions and losses
will be allocated among such Classes in
the manner specified in the related
Prospectus Supplement. This
subordination is intended to enhance the
likelihood of regular receipt by Holders
of Certificates with a higher payment
priority of the full amount of scheduled
monthly payments of principal and
interest due them and to protect such
Holders against losses.
Credit Enhancement.................... As an alternative, or in addition, to
the credit enhancement afforded by
subordination of the Subordinated
Certificates, credit enhancement with
respect to a Series or any Class of
Certificates may be provided by pool
insurance, letters of credit, surety
bonds, a guarantee, cash reserve funds,
derivative products or other forms of
credit enhancement or any combinations
thereof (collectively, "Enhancement").
The Enhancement with respect to any
Series or any Class of Certificates may
be structured to provide protection
against delinquencies and/or losses on
the Contracts, against changes in
interest rates, or other risks, to the
extent and under the conditions
specified in the related Prospectus
Supplement. Unless otherwise specified
in the related Prospectus Supplement,
any form of Enhancement will have
certain limitations and exclusions from
coverage thereunder, which will be
described in the related Prospectus
Supplement. Further information
regarding any third party provider of
Enhancement (the "Enhancer"), including
financial information when material,
will be included in the related
Prospectus Supplement. See "Credit
Enhancement."
Pre-Funding and
Capitalized Interest
Accounts............................. If specified in the related Prospectus
Supplement, a Trust will include one or
more segregated trust accounts (each, a
"Pre-Funding Account") for the related
Series. If so specified, on the closing
date for such Series, a portion of the
proceeds of the sale of the Certificates
of such Series (such amount, the
"Pre-Funded Amount") will be deposited
in the Pre-Funding Account and may be
used to purchase additional Contracts
during the period of time, not to
exceed six months, specified in the
related Prospectus Supplement (the
"Pre-Funding Period"). The Contracts to
be so purchased will be required to have
certain characteristics specified in the
related Prospectus Supplement. If any
Pre-Funded Amount remains on deposit in
the Pre-Funding Account at the end of
the Pre-Funding Period, such amount will
be applied in the manner specified in
the related Prospectus Supplement to
prepay the Classes of Certificates of
the applicable Series specified in the
related Prospectus Supplement. The
amount initially deposited in a
Pre-Funding Account for a Series of
Certificates will not exceed fifty
percent of the aggregate principal
amount of such Series of Certificates.
If a Pre-Funding Account is established,
one or more segregated trust accounts
(each, a "Capitalized Interest Account")
may be established for the related
Series. On the closing date for such
Series, a portion of the proceeds of the
sale of the Certificates of
- --------------------------------------------------------------------------------
-5-
<PAGE>
- --------------------------------------------------------------------------------
such Series may be deposited in the
Capitalized Interest Account and used to
fund the excess, if any, of (x) the sum
of (i) the amount of interest accrued on
the Classes of Certificates of such
Series specified in the related
Prospectus Supplement and (ii) if
specified in the related Prospectus
Supplement, certain fees or expenses
during the Pre-Funding Period such as
Trustee fees and Enhancement fees, over
(y) the amount of interest available
therefor from the Contracts in the
Trust. If so specified in the related
Prospectus Supplement, amounts on
deposit in the Capitalized Interest
Account may be released to the Depositor
prior to the end of the Pre-Funding
Period subject to the satisfaction of
certain tests specified in the related
Prospectus Supplement. Any amounts on
deposit in the Capitalized Interest
Account at the end of the Pre- Funding
Period that are not necessary for such
purposes will be distributed to the
person specified in the related
Prospectus Supplement.
Optional Termination.................. If so specified in the related
Prospectus Supplement, the Depositor,
the Servicer or another entity may at
its option repurchase all Contracts
relating to a Series of Certificates
remaining outstanding at such price,
time and under the circumstances
specified in such Prospectus Supplement.
See "Description of the Certificates--
Termination of the Agreement."
Registration of Certificates.......... If so specified in the related
Prospectus Supplement, the Certificates
of a Series, or of one or more Classes
within a Series, will be issuable in the
form of one or more book-entry
certificates registered in the name of a
depositary (each, a "Depositary") on
behalf of the beneficial owners of the
Certificates. The description of the
Certificates in this Prospectus assumes
that the Certificates of a Series will
not be issued in the form of Book-Entry
Certificates. If some or all of the
Certificates of a Series are issued in
the form of Book-entry Certificates, the
terms "Holder" and "Certificateholder"
will refer to such beneficial owners of
such Certificates, and the rights of
such Certificateholders will be limited
as described herein. See "Description of
the Certificates--Book-Entry
Certificates."
Federal Income Tax
Considerations....................... The federal income tax consequences of
the purchase, ownership and disposition
of the Certificates of each Series will
depend on whether an election is made to
treat the corresponding Trust (or
certain assets of the Trust) as a "real
estate mortgage investment conduit"
("REMIC") under the Internal Revenue
Code of 1986, as amended (the "Code").
REMIC. If an election is to be made to
treat the Trust or certain assets
thereof as a REMIC for federal income
tax purposes, the related Prospectus
Supplement will specify which Class or
Classes of the related Series of
Certificates will be designated as
regular interests in the REMIC ("REMIC
Regular Certificates") and which Class
of Certificates will be designated as
the residual interest in the REMIC
("REMIC Residual Certificates"). For
federal income tax purposes, REMIC
Regular Certificates generally will be
treated as debt obligations of the Trust
with payment terms equivalent to the
terms of such Certificates. Holders of
REMIC Regular Certificates will be
required to report income with respect
to such Certificates under an accrual
method, regardless of their normal tax
accounting
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method. Original issue discount, if any,
on REMIC Regular Certificates will be
includible in the income of the Holders
thereof as it accrues, in advance of
receipt of the cash attributable
thereto, which rate of
accrual will be determined based on a
reasonable assumed prepayment rate. The
REMIC Residual Certificates generally
will not be treated as evidences of
indebtedness for federal income tax
purposes, but instead, as representing
rights to the taxable income or net loss
of the REMIC.
Grantor Trust. If no election is to be
made to treat a Trust as a REMIC, such
Trust will be classified as a grantor
trust for federal income tax purposes
and not as an association taxable as a
corporation. Holders of the related
Series of Certificates ("Non-REMIC
Certificates") will be treated for such
purposes, subject to the possible
application of the stripped bond rules,
as owners of undivided interests in the
related assets of the Trust and
generally will be required to report as
income their pro rata share of the
entire gross income (including amounts
paid as reasonable servicing
compensation) from the Contracts and
will be entitled, subject to certain
limitations, to deduct their pro rata
share of the expenses of the Trust. See
"Federal Income Tax Considerations."
ERISA Considerations.................. Fiduciaries of employee benefit plans or
other retirement plans or arrangements,
including individual retirement
accounts, certain Keogh plans, and
collective investment funds and separate
accounts in which such plans, accounts
or arrangements are invested, that are
subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or the Code should carefully
review with their legal advisors whether
an investment in the Certificates will
cause the assets of the related Trust to
be considered plan assets under the
Department of Labor ("DOL") regulations
set forth in 29 C.F.R. Section
2510.3-101 (the "Plan Asset
Regulations"), thereby subjecting the
Trustee and the Servicer to the
fiduciary investment standards of ERISA,
and whether the purchase, holding or
transfer of Certificates give rise to a
transaction that is prohibited under
ERISA or subject to the excise tax
provisions of Section 4975 of the Code,
unless a DOL administrative exemption
applies. See "ERISA Considerations."
Legal Investment...................... Unless otherwise indicated in the
applicable Prospectus Supplement, any
Certificates offered hereby that are
rated by at least one nationally
recognized statistical rating
organization in one of its two highest
rating categories will constitute
"mortgage related securities" under the
Secondary Mortgage Market Enhancement
Act of 1984, as amended, and as such
will be "legal investments" for certain
types of institutional investors to the
extent provided in that Act. See "Legal
Investment."
Ratings............................... It is a condition to the issuance of any
Class of Certificates sold under this
Prospectus that they be rated in one of
the four highest rating categories of at
least one nationally recognized
statistical rating organization. A
security rating is not a recommendation
to buy, sell or hold securities and may
be subject to revision or withdrawal at
any time by the assigning rating agency.
See "Ratings."
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RISK FACTORS
Prospective investors in the Certificates should consider, among other
things, the following risks in connection with the purchase of the Certificates:
No Secondary Market. There will be no market for the Certificates of any
Series prior to the issuance thereof. There can be no assurance that a secondary
market will develop for the Certificates of any Series, or, if it does develop,
that it will provide the Holders of any of the Certificates with liquidity of
investment or that it will remain for the term of any Series of Certificates.
Trust Assets Are Only Source of Payment. The Certificates will not
represent an interest in or obligation of the Depositor, the Servicer or the
Originator. The Certificates will not be insured or guaranteed by any
governmental agency or instrumentality, or (except as otherwise specified in the
related Prospectus Supplement) by any other person. The Certificates of a Series
will be payable solely from the assets of the related Trust including any
related Enhancement. Further, unless otherwise stated in the related Prospectus
Supplement, at the times set forth in the related Prospectus Supplement, any
balance remaining in the Certificate Account immediately after making all
payments due on the Certificates of such Series and other payments specified in
the related Prospectus Supplement, may be promptly released or remitted to the
Depositor, the Servicer, the Enhancer or any other person entitled thereto and
will no longer be available for making payments to Holders. Consequently,
Holders of Certificates of each Series must rely solely upon payments with
respect to the assets constituting the Trust for a Series of Certificates,
including, if applicable, any amounts available pursuant to any Enhancement for
such Series, for the payment of principal of and interest on the Certificates of
such Series.
Property Values May Be Insufficient. An investment in Certificates may be
affected by, among other things, a downturn in regional or local economic
conditions. These regional or local economic conditions are often volatile, and
historically have affected the delinquency, loan loss and repossession
experience of contracts similar to the Contracts. Moreover, regardless of its
location, manufactured housing generally depreciates in value. Consequently, the
market value of certain Manufactured Homes could be or become lower than the
outstanding principal balances of the Contracts that they secure. To the extent
that losses on the Contracts are not covered by the subordination of other
Classes of Certificates, if any, or by any other form of Enhancement, Holders of
the Certificates of a Series evidencing interests in such Contracts will bear
all risk of loss resulting from default by obligors and will have to look
primarily to the value of the Manufactured Homes for recovery of the outstanding
principal and unpaid interest on the defaulted Contracts.
Yield May Vary. The yields to maturity of the Classes of Certificates of a
Series will be affected by the amount and timing of principal payments on the
related Contracts, the allocation of available funds and/or losses among such
Classes, the interest rates or amounts of interest payable on such Classes and
the purchase prices paid for such Classes. The interaction of the foregoing
factors may have different effects on, and create different risks for the
various Classes of Certificates, and the effects and/or risks for any one Class
may vary over the life of such Class.
The prepayment experience on the Contracts in a Trust will affect the
average lives of the related Class or Classes of Certificates. Prepayments on
the Contracts (which include both voluntary prepayments and liquidations
following default) may be influenced by a variety of economic, geographic,
social and other factors, including repossessions, aging, seasonality, market
interest rates, changes in housing needs, job transfers and unemployment. If the
Certificates of any Series are purchased at a discount and the purchaser
calculates its anticipated yield to maturity based on an assumed rate of payment
of principal on such Certificates that is faster than the rate actually
realized, such purchaser's actual yield to maturity will be lower than the yield
so calculated by such purchaser.
Titles Will Not Be Amended. On or prior to the closing date for a Series of
Certificates, the Originator will convey the related Contracts to the Depositor,
and the Depositor will convey such Contracts to the Trust. Each Contract will be
secured by a security interest in a Manufactured Home together with, in the case
of a Land-and-Home Contract, the real estate to which the Manufactured Home is
permanently affixed. Perfection of security interests in the Manufactured Homes
and enforcement of rights to realize upon the value of the Manufactured
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<PAGE>
Homes as collateral for the Contracts are subject to a number of federal and
state laws, including the Uniform Commercial Code (the "UCC") as adopted in the
states in which the Manufactured Homes are located and the certificate of title
statutes of such states.
Because of the expense and administrative inconvenience involved, the
certificates of title to the Manufactured Homes will not be amended to change
the lienholder specified therein to the Trustee or to note thereon the interest
of the Trustee, and, unless otherwise specified in the Agreement, the
certificates of title will not be delivered to the Trustee. As a result, the
Originator will remain the lienholder on the certificates of title for the
Manufactured Homes. In some states, in the absence of such an amendment to the
certificate of title, the assignment to the Trustee of the security interest in
the Manufactured Homes located therein may not be effective or such security
interest may not be perfected and, in the absence of such notation or delivery
to the Trustee, the assignment of the security interest in the Manufactured Home
to the Trustee may not be effective against creditors of the Originator or a
trustee in bankruptcy of the Originator. In addition, because of the expense and
administrative inconvenience involved, the assignment to the Trustee of the
mortgage or deed of trust securing each Land-and-Home Contract will not be
recorded. In the absence of such recordation, the assignment to the Trustee of
the mortgage or deed of trust securing a Land-and-Home Contract may not be
effective against creditors or a trustee in bankruptcy of the Originator or
against purchasers of such Land-and-Home Contracts from the Originator without
notice of the sale thereof to the Trust.
Consumer Protection Laws May Affect Contracts. Numerous federal and state
consumer protection laws impose requirements on lenders under installment sales
contracts and installment loan agreements such as the Contracts, and the failure
by the lender or seller of goods to comply with such requirements could give
rise to liabilities of assignees for amounts due under such agreements and the
right of set-off against claims by such assignees. These laws would apply to the
Trust as assignee of the Contracts. The Originator will represent and warrant
that as of the related Cut-off Date, each Contract complies with all
requirements of law and will provide certain representations relating to the
validity, perfection and priority of the security interest in each Manufactured
Home securing a Contract. If any such representation is breached and such breach
materially adversely affects the interests of Certificateholders in the related
Contract, the Originator will be obligated to cure such breach within the time
period specified in the Agreement or to repurchase, or at its option substitute
another manufactured housing contract for, such Contract.
Pre-Funding and Additional Contracts May Adversely Affect Investment. If a
Trust includes a Pre-Funding Account and the principal balance of additional
Contracts delivered to the Trust during the Pre-Funding Period is less than the
Pre-Funded Amount, the Holders of the Certificates of the related Series will
receive a prepayment of principal as and to the extent described in the related
Prospectus Supplement. Any such principal prepayment may adversely affect the
yield to maturity of the applicable Certificates. Since prevailing interest
rates are subject to fluctuation, there can be no assurance that investors will
be able to reinvest such a prepayment at yields equaling or exceeding the yields
on the related Certificates. It is possible that the yield on any such
reinvestment will be lower, and may be significantly lower, than the yield on
the related Certificates.
Each additional Contract must satisfy the eligibility criteria specified in
the related Prospectus Supplement and Agreement. Such eligibility criteria will
be determined in consultation with each Rating Agency (and/or any Enhancer)
prior to the issuance of the related Series and are designed to ensure that if
such additional Contracts were included as part of the initial Contracts, the
credit quality of such assets would be consistent with the initial rating of
each Class of Certificates of such Series. The Depositor will certify to the
Trustee that all conditions precedent to the transfer of the additional
Contracts to the Trust, including the satisfaction of the eligibility criteria,
have been satisfied. Following the transfer of additional Contracts to the
Trust, the aggregate characteristics of the Contracts then held in the Trust may
vary from those of the initial Contracts of such Trust. As a result, the
additional Contracts may adversely affect the performance of the related
Certificates.
The ability of a Trust to invest in additional Contracts during the related
Pre-Funding Period will be dependant on the ability of the Originator to
originate or acquire Contracts that satisfy the requirements for transfer to the
Trust specified in the related Prospectus Supplement. The ability of the
Originator to originate or
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acquire such Contracts will be affected by a variety of social and economic
factors, including the prevailing level of market interest rates, unemployment
levels and consumer perceptions of general economic conditions.
Originator Has Limited History. The Originator was incorporated in May
1995, and commenced originating and purchasing Contracts on a limited scale in
November 1995. As a result, the Originator has only limited historical
information concerning the delinquency and loss experience of Contracts
originated or purchased by the Originator. The Originator's manufactured housing
portfolio has experienced rapid growth since its inception, and the delinquency
and loss percentages presented herein may be affected by the size and relative
lack of seasoning of its servicing portfolio. Because such data is limited and
includes the period of time during which the Originator commenced its
operations, the Depositor believes such data would not provide meaningful
information concerning the quality or performance of the Contracts.
Although the management of the Originator has had considerable experience
while employed at other companies in the origination, purchasing and servicing
of Contracts, and the Depositor believes that the underwriting criteria of the
Originator and the servicing standards of the Servicer are consistent with
industry norms, there can be no assurance that the loss and delinquency rates on
the Contracts will not exceed normal industry rates.
The Originator's success depends in large part upon a number of key
management personnel and technical employees. The loss of the services of one or
more of its management personnel could have a material adverse impact on the
business and operations of the Originator.
Ratings Are Not Recommendations. It will be a condition to the sale of any
Certificates under this Prospectus and related Prospectus Supplement that they
be rated in one of the four highest rating categories by the Rating Agency
identified in the related Prospectus Supplement. Any such rating will be based
on, among other things, the adequacy of the value of the Contracts and any
Enhancement with respect to such Series. Such rating should not be deemed a
recommendation to purchase, hold or sell Certificates, inasmuch as it does not
address market price or suitability for a particular investor. There is no
assurance that any such rating will remain in effect for any given period of
time or may not be lowered or withdrawn entirely by the Rating Agency if in its
judgment circumstances in the future so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the Contracts, such
rating might also be lowered or withdrawn, among other reasons, because of an
adverse change in the financial or other condition of an Enhancer or a change in
the rating of such Enhancer's long term debt.
THE TRUSTS
General
Each Trust will include (i) one or more Pools, (ii) the amounts held from
time to time in a trust account (the "Certificate Account") maintained by the
Trustee pursuant to the Agreement, (iii) amounts on deposit in any Pre-Funding
Account and Capitalized Interest Account established for such Trust, (iv)
proceeds from certain hazard insurance on individual Manufactured Homes and
Manufactured Homes (and, in the case of Land-and-Home Contracts, the related
real estate) acquired by repossession or foreclosure, (v) any Enhancement for
such Series, and (vi) such other property as may be specified in the related
Prospectus Supplement. Whenever in this Prospectus terms such as "Pool,"
"Trust," "Agreement" or "Remittance Rate" are used, those terms respectively
apply, unless the context otherwise indicates, to one specific Pool, Trust, each
Agreement and the Remittance Rate applicable to the related Class of
Certificates.
Each Certificate will evidence the interest specified in the related
Prospectus Supplement in a Trust, containing one or more Pools comprised of
Contracts having the aggregate principal balance as of the specified day of the
month of the creation of the pool (the "Cut-off Date") specified in the related
Prospectus Supplement. If specified in the related Prospectus Supplement,
certain Certificates will evidence beneficial ownership interests in a Trust
which will contain a beneficial ownership interest in another Trust which will
contain the Contracts.
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The following is a brief description of the Contracts expected to be
included in the Trust. If specific information respecting the Contracts is not
known at the time the related Series of Certificates initially is offered, more
general information of the nature described below will be provided in the
Prospectus Supplement and specific information will be set forth in a report on
Form 8-K to be filed with the Securities and Exchange Commission within fifteen
days after the initial issuance of such Certificates (the "Detailed
Description"). A copy of the Agreement with respect to each Series of
Certificates will be available for inspection at the corporate trust office of
the Trustee specified in the related Prospectus Supplement. A schedule of the
Contracts relating to such Series will be attached to or incorporated by
reference in the Agreement delivered to the Trustee upon delivery of the
Certificates.
The Contract Pools
Each pool of Contracts with respect to a Series of Certificates (each, a
"Pool") will consist of manufactured housing installment sales contracts and
manufactured housing installment loan agreements (collectively, the "Chattel
Contracts"). Each Chattel Contract will be secured by a Manufactured Home (as
defined below). Other contracts will be secured by a mortgage or deed of trust
on the Manufactured Home and the real estate to which the Manufactured Home is
deemed permanently affixed (a "Land-and-Home Contract" and collectively with
Chattel Contracts, the "Contracts"). The Manufactured Homes may be located in
any one of the fifty states or the District of Columbia. Contracts may be
conventional contracts or contracts insured by the Federal Housing Authority
(the "FHA") or partially guaranteed by the Veterans Administration (the "VA").
Each Pool will be comprised of Contracts bearing interest at annual fixed
or variable rates (the "Contract Rates"). Unless otherwise specified in the
related Prospectus Supplement, all of the Contracts in a Pool will provide for
payments to be made monthly on a specified date of each month (each, a "due
date"), and the due dates will occur throughout the month.
The Originator will make representations and warranties to the Depositor as
to the types and geographical distribution of the Contracts included in a Pool
and as to the accuracy in all material respects of certain information furnished
to the Depositor in respect of each such Contract. The Originator also will
represent to the Depositor that the Manufactured Homes securing the Contracts
consist of manufactured homes within the meaning of 42 United States Code,
Section 5402(6), which defines a "manufactured home" as "a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is built
on a permanent chassis designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air-conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
requirements of (this) paragraph except the size requirements and with respect
to which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under [this] chapter." Pursuant to the Agreement, the Depositor will
assign such representations and its rights with respect to breaches thereof to
the Trustee. Upon a breach of any such representation that materially and
adversely affects the interests of the Certificateholders in a Contract, the
Originator will be obligated either to cure the breach in all material respects,
to repurchase the Contract or to substitute another Contract as described below.
Should the Originator not cure the breach in all material respects or substitute
another Contract as described below, the repurchase obligation of the Originator
will constitute the sole remedy available to the Certificateholders or the
Trustee for a breach of representation by the Originator. See "Description of
the Certificates--Conveyance of Contracts."
For each Series of Certificates, the Depositor will cause the Originator to
assign the Contracts constituting the Pool to the trustee named in the related
Prospectus Supplement (the "Trustee"). The Servicer will service the Contracts
pursuant to the Agreement. See "Description of the Certificates--Servicing."
Unless otherwise specified in the related Prospectus Supplement, the Contract
documents (other than the documents relating to Land-and-Home Contracts) will be
held by the Servicer as custodian for the Trustee. The documents relating to any
Land-and-Home Contracts will be held by the Trustee or by a custodian (the
"Custodian") appointed pursuant to a custodial agreement (the "Custodial
Agreement") between the Trustee and the Custodian.
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The Prospectus Supplement for each Series of Certificates will contain
information, as of the Cut-off Date and to the extent then specifically known to
the Depositor, with respect to the Contracts contained in the related Pool,
including: (i) the range of the dates of origination of the Contracts; (ii) the
range of the Contract Rates and the weighted average Contract Rate; (iii) the
range of Loan-to-Value Ratios at origination and the weighted average
Loan-to-Value Ratio at origination; (iv) the minimum and maximum outstanding
principal balances as of the Cut-off Date and the average outstanding principal
balance as of the Cut-off Date; (v) the aggregate principal balances of the
Contracts; (vi) the weighted average and range of scheduled terms to maturity as
of the Cut-off Date; (vii) the original maturities of the Contracts and the last
maturity date of any Contract; and (viii) the locations of the Manufactured
Homes securing the Contracts.
USE OF PROCEEDS
The Depositor intends to use the net proceeds to be received from the sale
of the Certificates of each Series to acquire the Contracts to be deposited in
the related Trust, and to pay other expenses connected with pooling Contracts
and issuing Certificates. Any amounts remaining after such payments may be used
for general corporate purposes. The Depositor expects to sell Certificates in
Series from time to time.
THE DEPOSITOR
UCFC Funding Corporation (the "Depositor") was incorporated in the State of
Louisiana in July 1996, and is an indirect wholly-owned subsidiary of United
Companies Financial Corporation (the "Parent"). The Depositor maintains its
principal offices at 4041 Essen Lane, Baton Rouge, Louisiana 70809. Its
telephone number is (504) 924-6007.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
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THE MANUFACTURED HOUSING PROGRAM
General
It is expected that the Contracts primarily will have been originated or
purchased by United Companies Funding, Inc. (the "Originator"); however, certain
Contracts may have been purchased by the Depositor, the Originator or affiliates
thereof in the open market or privately negotiated transactions.
The Originator was incorporated in May 1995, and commenced originating and
purchasing Contracts on a limited scale in November 1995. The Originator is an
affiliate of the Depositor and the Servicer and a wholly-owned subsidiary of the
Parent. The Originator maintains its principal offices at 2051 Killibrew Drive,
Suite 220, Minneapolis, Minnesota 55425. Its telephone number is (612) 854-6556.
The Contracts will be serviced by United Companies Lending Corporation(R)
(the "Servicer") pursuant to the Agreement. The Servicer may service the
Contracts through one or more sub-servicers. The Servicer is an affiliate of the
Depositor and the Originator and is an indirect wholly-owned subsidiary of the
Parent. The Servicer maintains its principal offices at 4041 Essen Lane, Baton
Rouge, Louisiana 70809. Its telephone number is (504) 924-6007.
Contract Origination
General. The Originator may (i) purchase Contracts from approved
manufactured housing dealers ("Indirect Financing"), (ii) originate Contracts
directly with individual owners or purchasers of Manufactured Homes ("Direct
Financing") or (iii) make bulk purchases of Contracts originated or acquired by
other lending institutions, finance companies or affiliates. Regardless of the
method of production, the Originator applies the same underwriting standards.
Indirect Financing. Through its regional managers, the Originator purchases
manufactured housing contracts from manufactured housing dealers. The
Originator's regional managers contact dealers located in their region and
explain the Originator's available financing plans, terms, prevailing rates and
credit and financing policies. If the dealer wishes to use the Originator's
available customer financing, the dealer must make an application for dealer
approval. Upon satisfactory results of the Originator's investigation of the
dealer's creditworthiness and general business reputation, the Originator and
the dealer execute a dealer agreement. As of June 30, 1996, the dealers with
which the Originator has entered into dealer agreements are located in thirteen
states.
The Originator provides Indirect Financing only for Manufactured Homes
which are manufactured by an approved manufacturer. Approval may be requested by
a dealer or a manufacturer. If the Originator's review of the manufacturer's
creditworthiness and general business reputation is satisfactory, the Originator
will approve the manufacturer's products as being eligible for Indirect
Financing.
All contracts that the Originator purchases from dealers are written on
forms provided by the Originator and are purchased on an individually approved
basis. The dealer submits the customer's credit application and purchase order
to the Originator's executive offices where the Originator's underwriters make
an analysis of the creditworthiness of the proposed buyer. If the application
meets the Originator's guidelines and the credit is approved, the Originator
purchases the Contract after the Manufactured Home is delivered and set up and
the customer has been contacted by telephone to obtain the customer's approval
of the Manufactured Home and the delivery and set-up of the Manufactured Home.
Direct Financing. The Originator also provides financing directly to
individuals who own or wish to purchase Manufactured Homes. The customer submits
the credit application to the Originator's regional manager who, in turn, will
submit such information to the Originator's executive offices where the
Originator's underwriters make an analysis of the creditworthiness of the
customer. The Originator also will accept a customer's application over a
toll-free telephone number established for that purpose. If the application
receives preliminary approval, it is submitted to the appropriate regional
manager for further processing as with other customer applications.
Bulk Purchases. The Originator also may, from time to time, purchase
Contracts originated or acquired by other lending institutions, finance
companies or affiliates Each Contract so purchased will be re-underwritten by
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personnel of the Originator or its affiliates prior to the purchase thereof
using the Originator's then-current underwriting standards.
Underwriting Standards
The Originator's underwriting focuses primarily on the borrower's
willingness and capacity to repay the debt. The analysis includes application of
a credit scoring system and a review of the applicant's paying habits, length
and likelihood of continued employment, and certain other factors. The
Originator's current underwriting guidelines for conventional Contracts limit
the maximum loan size to $200,000 in the case of Chattel Contracts and $300,000
in the case of Land-and-Home Contracts. With respect to conventional contracts
for new Manufactured Homes, the Originator may finance up to the lesser of (a)
95% of the cash sale price (including taxes, fees and insurance) of the
Manufactured Home or (b) 125% of the manufacturer's invoice price of the
Manufactured Home plus 100% of taxes, license fees and freight charges, 100% of
the dealer's cost of additional dealer-installed equipment (not to exceed 25% of
the base price of the Manufactured Home), and up to $1,500 of set-up costs per
module. With respect to used Manufactured Homes, the Originator may finance up
to 100% of the lesser of (a) the total delivered sales price of the Manufactured
Home (including taxes, fees, insurance and up to $1,500 of set-up costs per
module), or (b) the appraised value of the Manufactured Home. Taxes, fees, and
insurance may be included in the amount financed up to a maximum of 100% of the
appraised value of the used Manufactured Home. Such appraisals on used
Manufactured Homes are performed by employees of the Originator, in the case of
Indirect Financing, and by independent appraisers approved by the Originator, in
the case of Direct Financing. The appraisals of such independent appraisers are
validated by the Originator's personnel through a review of the National
Automobile Dealers Association ("NADA") base values and on-site inspections. The
guidelines in this paragraph may be exceeded when the Originator's underwriters
deem it appropriate.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The yields to maturity of the Certificates will be affected by the amount
and timing of principal payments on or in respect of the Contracts included in
the related Trust, the allocation of available funds to various Classes of
Certificates, the Remittance Rate for various Classes of Certificates and the
purchase price paid for the Certificates.
The original terms to maturity of the Contracts in a given Pool will vary,
and the related Prospectus Supplement will contain information with respect to
the maturities of the Contracts in the related Pool. Unless otherwise specified
in the related Prospectus Supplement, the Contracts may be prepaid without
penalty in full or in part at any time.
The rate of prepayments with respect to manufactured housing installment
sales contracts and manufactured housing installment loan sale agreements has
fluctuated significantly in recent years. In general, if prevailing rates fall
below the Contract Rates borne by the Contracts, such Contracts are likely to be
subject to higher prepayment rates than if prevailing interest rates remain at
or above such Contract Rates. Conversely, if prevailing interest rates rise
appreciably above the Contract Rates borne by the Contracts, such Contracts are
likely to experience a lower prepayment rate than if prevailing rates remain at
or below such Contract Rates. However, there can be no assurance that such will
be the case.
Prepayments are influenced by a variety of economic, geographical, social,
tax, legal and additional factors. The rate of prepayments on Contracts may be
affected by changes in Obligors' housing needs, job transfers, unemployment, the
Obligors' net equity in the Manufactured Homes, the enforcement of due-on-sale
clauses and other servicing decisions. Unless otherwise provided in the related
Prospectus Supplement, all of the Contracts will contain due-on-sale provisions
permitting the lender to accelerate the maturity of the Contract upon sale or
certain transfers by the Obligors of the underlying Manufactured Home. The
Servicer generally will permit the assumption of a Contract by an obligor that
satisfies the then-current underwriting standards of the Originator. In
connection with any such assumption, no material term of the Contract may be
changed.
When a full prepayment occurs on a Contract, the Obligor will be charged
interest on the principal amount of the Contract so prepaid only for the number
of days in the month actually elapsed up to the date of the prepayment rather
than for a full month. Interest shortfalls also could result from the
application of the Relief
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Act, as described under "Certain Legal Aspects of the Contracts--Soldiers' and
Sailors' Civil Relief Act" herein. Such shortfalls will adversely affect the
yield on the Certificates.
Under certain circumstances, the Depositor, the Servicer, the Holders of
REMIC Residual Certificates or certain other entities specified in the related
Prospectus Supplement may have the option to purchase the Contracts and other
assets of a Trust, thereby effecting earlier retirement of the related Series of
Certificates, subject to the principal balance of the related Contracts being
less than the percentage specified in the related Prospectus Supplement of the
aggregate principal balance of the Contracts at the Cut-off Date for the related
Series.
Unless otherwise specified in the related Prospectus Supplement, the
effective yield to Certificateholders will be slightly lower than the yield
otherwise produced by the applicable Remittance Rate and purchase price, because
while interest generally will accrue on the Certificates from the first day of
each month, the distribution of such interest will not be made earlier than a
date specified in the related Prospectus Supplement in the month following the
month of accrual.
The timing of payments on the Contracts may significantly affect an
investor's yield. In general, the earlier a prepayment of principal on the
Contracts, the greater will be the effect on an investor's yield to maturity. As
a result, the effect on an investor's yield of principal prepayments occurring
at a rate higher (or lower) than the rate anticipated by the investor during the
period immediately following the issuance of the Certificates will not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a pooling and
servicing agreement (each, an "Agreement"), dated as of the related Cut-off
Date, among the Depositor, the Servicer and the Trustee for the benefit of the
holders of the Certificates ("Certificateholders" or "Holders") of such Series.
The provisions of each Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust. A form
of an Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The following summaries describe the material
provision which may appear in each Agreement. The Prospectus Supplement for a
Series of Certificates will describe any material provision of the Agreement
relating to such Series that materially differs from the description thereof
contained in the Prospectus. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Agreement for each Series of Certificates and the applicable
Prospectus Supplement. The Depositor will provide a copy of the Agreement
(without exhibits) relating to any Series without charge upon written request of
a Holder of a Certificate of such Series addressed to UCFC Funding Corporation,
4041 Essen Lane, Baton Rouge, LA 70809, Attention: Secretary.
General
Unless otherwise specified in the Prospectus Supplement, the Certificates
of each Series will be issued in fully registered form only in the denominations
specified in the related Prospectus Supplement, will represent beneficial
ownership interests in a Trust created pursuant to the related Agreement and
will not be entitled to payments in respect of the Contracts included in any
other Trust. Definitive Certificates will be transferable and exchangeable at
the corporate trust office of the Trustee or, at the election of the Trustee, at
the office of a Certificate Registrar appointed by the Trustee. No service
charge will be incurred for any registration of exchange or transfer, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
Each Series of Certificates will be issued in one or more classes (each, a
"Class"). Each Class of Certificates of a Series will evidence the beneficial
ownership interest in the assets of the related Trust specified in the related
Prospectus Supplement. A Series of Certificates may include one or more Classes
of Senior Certificates that receive certain preferential treatment with respect
to one or more Subordinated Classes of Certificates of such Series. Certain
Series or Classes of Certificates may be covered by Enhancement as described in
the related Prospectus Supplement. Distributions on one or more Classes of a
Series of Certificates may be made prior to one or more other Classes, after the
occurrence of specified events, in accordance with a schedule or formula, on the
basis of collections from designated portions of the Contracts in the related
Trust or on a
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different basis, in each case, as specified in the related Prospectus
Supplement. The timing and amounts of such distributions may vary among Classes
or over time as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or where applicable, of principal only
or interest only) on the related Certificates will be made by the Trustee on
each date specified in the related Prospectus Supplement (each, a "Remittance
Date"), in the amounts specified in the related Prospectus Supplement.
Distributions will be made to the persons in whose names the Certificates are
registered at the close of business on the record dates specified in the
Prospectus Supplement. Distributions will be made by check mailed to the persons
entitled thereto at the address appearing in the register maintained for holders
of Certificates (the "Certificate Register") or, to the extent described in the
related Prospectus Supplement, by wire transfer or by such other means as are
described therein, except that the final distribution in retirement of the
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee or other person specified in
the final distribution notice to Certificateholders.
Each Class of Certificates within a Series will evidence the interests
specified in the related Prospectus Supplement, which may (i) include the right
to receive distributions allocable only to principal, only to interest or to any
combination thereof; (ii) include the right to receive distributions only of
prepayments of principal throughout the lives of the Certificates or during
specified periods; (iii) be subordinated in its right to receive distributions
of scheduled payments of principal, prepayments of principal, interest or any
combination thereof to one or more other Classes of Certificates of such Series
throughout the lives of the Certificates or during specified periods or may be
subordinated with respect to certain losses or delinquencies; (iv) include the
right to receive such distributions only after the occurrence of events
specified in the Prospectus Supplement; (v) include the right to receive
distributions in accordance with a schedule or formula or on the basis of
collections from designated portions of the assets in the related Trust; (vi)
include, as to Certificates entitled to distributions allocable to interest, the
right to receive interest at a fixed rate or an adjustable rate; and (vii)
include, as to Certificates entitled to distributions allocable to interest, the
right to distributions allocable to interest only after the occurrence of events
specified in the related Prospectus Supplement, and in each case, may accrue
interest until such events occur, as specified in such Prospectus Supplement.
Book-Entry Certificates
If so specified in the related Prospectus Supplement, the Certificates will
be book-entry certificates (the "Book-Entry Certificates"). Persons acquiring
beneficial ownership interests in such Certificates ("Certificate Owners") will
hold their Certificates through DTC in the United States, or Cedel Bank societe
anonyme ("Cedel") or the Euroclear System ("Euroclear") in Europe if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Certificates will be issued in one
or more certificates which equal the aggregate principal balance of the
applicable Series of Certificates and will initially be registered in the name
of Cede & Co. ("Cede"), the nominee of DTC. Cedel and Euroclear will hold
omnibus positions on behalf of their participants through customers' securities
accounts in Cedel's and Euroclear's 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.
("Citibank") will act as depositary for Cedel and Chemical Bank ("Chemical")
will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries"). Except as
described below, no person acquiring a Book-Entry Certificate will be entitled
to receive a physical certificate representing such Certificate (a "Definitive
Certificate"). Unless and until Definitive Certificates are issued, the only
"Certificateholder" of Book-Entry Certificates will be Cede, as nominee of DTC.
Certificate Owners will not be Certificateholders as that term is used in the
applicable Agreement. Certificate Owners are only permitted to exercise their
rights indirectly through DTC Participants and DTC.
The Certificate Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Certificate Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Certificate Owner's Financial Intermediary is not a DTC Participant and on
the records of Cedel or Euroclear, as appropriate).
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Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received on Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Cedel or Euroclear cash account only as of the
business day following settlement in DTC.
Transfers between DTC Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding certificates directly or
indirectly through DTC, on the one hand, and directly or indirectly through
Cedel Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by the Relevant Depositary; however, such cross
market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European International clearing System will, if
the transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC which is a New York-chartered limited purpose company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC Participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC Participants as in effect from
time to time.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
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other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Remittance Date by the applicable Trustee to DTC. DTC will be responsible for
crediting the amount of such payments to the accounts of the applicable DTC
Participants in accordance with DTC's normal procedures. Each DTC Participant
will be responsible for disbursing such payments to the Certificate Owners of
the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the Certificate Owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, Certificate Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with respect to
Certificates held through Cedel or Euroclear will be credited to the cash
accounts of Cedel Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Certificate Owner to
pledge Book-Entry Certificates to persons or entities that do not participate in
the depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such certificates in the secondary
market since certain potential investors may be unwilling to purchase
certificates for which they cannot obtain physical certificates.
DTC has advised the Depositor that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the applicable Agreement only at
the direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates. Cedel or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Certificateholder under the applicable
Agreement on behalf of a Cedel Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to the ability of
the Relevant Depositary to effect such actions on its behalf through DTC. DTC
may take actions, at the direction of the related Participants, with respect to
some Book-Entry Certificates of a Series which conflict with actions taken with
respect to other Book-Entry Certificates of such Series.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the applicable Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as nominee
and depository with respect to the Book-Entry Certificates and the Depositor or
such Trustee is unable to locate a qualified successor, (b) the Depositor, at
its sole option, elects to terminate the book-entry system through DTC or (c)
after the occurrence of an Event of Default (as defined herein), Certificate
Owners of the applicable Series having Percentage Interests aggregating not less
than 51% advise the Trustee and DTC through the Financial Intermediaries and the
DTC Participants in writing that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interests of Certificate
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the applicable Trustee will be required to notify all
affected Certificate Owners of the occurrence of such event and the
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availability through DTC of Definitive Certificates. Upon surrender by DTC of
the global certificate or certificates representing the Book-Entry Certificates
and instructions for re-registration, the applicable Trustee will issue
Definitive Certificates, and thereafter such Trustee will recognize the holders
of such Definitive Certificates as Certificateholders under the applicable
Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Neither the Depositor, the Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Conveyance of Contracts
The Depositor will transfer, assign, set over and otherwise convey to the
Trustee all right, title and interest of the Depositor in the Contracts,
including all security interests created thereby and any related mortgages or
deeds of trust, all principal and interest received on or with respect to the
Contracts (other than receipts of principal and interest due on the Contracts
before the Cut-off Date), all rights under certain hazard insurance policies on
the related Manufactured Homes, all documents contained in the Contract files
and all proceeds derived from any of the foregoing. The Trustee, concurrently
with such conveyance, will execute and deliver the Certificates to the order of
the Depositor. The Contracts will be described on a list attached to or
incorporated by reference in the Agreement. Such list will include the amount of
monthly payments due on each Contract as of the date of issuance of the
Certificates, the Contract Rate on each Contract and the maturity date of each
Contract. Prior to the conveyance of the Contracts to the Trust, the Originator
will complete a review of all of the Contract files, including the certificates
of title to, or other evidence of a perfected security interest in, the
Manufactured Homes, confirming the accuracy of the list of Contracts delivered
to the Trustee. Any Contract discovered not to agree with such list in a manner
that is materially adverse to the interests of the Certificateholders will be
repurchased by the Originator or replaced with another Contract, or, if the
discrepancy relates to the unpaid principal balance of a Contract, the
Originator may deposit cash in the separate account maintained at an Eligible
Institution in the name of the Trustee (the Certificate Account") in an amount
sufficient to offset such discrepancy.
Unless otherwise provided in the related Prospectus Supplement, the
Agreement will designate the Servicer as custodian to maintain possession, as
the Trustee's agent, of the Contracts and any other documents related to the
Manufactured Homes (other than the Land-and-Home Contracts and related
documents). To facilitate servicing and save administrative costs, the documents
will not be physically segregated from other similar documents that are in the
Servicer's possession. Uniform Commercial Code financing statements will be
filed in appropriate jurisdictions reflecting the sale and assignment of the
Contracts from the Originator to the Depositor and from the Depositor to the
Trustee, and the Originator's and the Servicer's accounting records and computer
systems will also reflect such sale and assignment. In addition, the Contracts
may be stamped or stickered to reflect their assignment to the Trustee. If
through fraud, negligence or otherwise, a subsequent purchaser were able to take
physical possession of the Contracts without knowledge of the assignment, the
Trustee's interest in the Contracts could be defeated. The Agreement will
designate the Trustee or another independent custodian, as the Trustee's agent,
to maintain possession of the documents relating to all Land-and-Home Contracts.
Except as otherwise specified in the related Prospectus Supplement, the
Originator will make certain representations to the Depositor with respect to
each Contract as of the related Cut-off Date, including, among others, that: (a)
each Contract is a legal, valid and binding obligation of the Obligor and is
enforceable in accordance with its terms (except as may be limited by laws
affecting creditors' rights generally); (b) no Contract is subject to any right
of rescission, set-off, counterclaim or defense; (c) each Contract complies with
all requirements of law; (d) each Contract creates a valid and enforceable first
priority security interest in favor of the Originator in the Manufactured Home
covered thereby; (e) no Contract has been sold, assigned or pledged to any other
person except pursuant to an assignment or pledge which has been released prior
to or simultaneously with the issuance of the related Certificates, and at the
time of the transfer of the Contracts to the Trustee, the Depositor had good and
marketable title to each Contract free and clear of any encumbrance, equity,
loan, pledge,
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charge, claim or security interest, and was the sole owner and had full right to
transfer such Contract to the Trustee; and (f) the related Manufactured Home is
a "manufactured home" within the meaning of 42 United States Code, Section
5402(6) and each manufactured housing dealer from whom the Originator purchased
a Contract was approved by the Originator in accordance with the requirements of
the Secretary of Housing and Urban Development. Pursuant to the Agreement, the
Depositor will assign to the Trustee all of the Depositor's right, title and
interest in the representations and warranties made by the Originator, including
the obligation of the Originator to cure, repurchase or substitute for a
Contract as described in the following paragraphs.
Under the terms of the Agreement, and subject to the option to effect a
substitution as described in the next paragraph, the Originator will be
obligated to repurchase for the Repurchase Price (as defined below) any
Contract on the first business day after the first Determination Date which is
more than 90 days after the Originator becomes aware, or should have become
aware, or the Originator's receipt of written notice from the Trustee, the
Depositor or the Servicer, of a breach of any representation or warranty that
materially adversely affects the interest of the Certificateholders in the
related Contract if such breach has not been cured. The Repurchase Price for any
Contract will be the remaining principal amount outstanding on such Contract on
the date of repurchase plus accrued and unpaid interest thereon at its Contract
Rate to the first day of the month in which such Repurchase price is to be
distributed to Certificateholders. Should the Originator not cure such breach in
all material respects or substitute another Contract as provided below, the
repurchase obligation will constitute the sole remedy available to the Trustee
and the Certificateholders for a breach of a warranty under the Agreement with
respect to the Contracts.
In lieu of repurchasing a Contract as specified in the preceding paragraph,
during the two-year period (or such shorter period as is specified in the
related Prospectus Supplement with respect to a Trust for which no REMIC
election is to be made) following the closing date, the Originator may, at its
option, substitute an Eligible Substitute Contract (as defined below) for the
Contract that it is otherwise obligated to repurchase (referred to herein as the
"Replaced Contract"). An Eligible Substitute Contract is a Contract that
satisfies, as of the date of its substitution, the representations and
warranties specified in the Agreement, has a Scheduled Principal Balance that is
not greater than the Scheduled Principal Balance of the Replaced Contract, has a
Contract Rate that is at least equal to the Contract Rate of the Replaced
Contract and has a remaining term to scheduled maturity that is not greater than
the remaining term to scheduled maturity of the Replaced Contract. The
Originator will be required to deposit in the Certificate Account cash in the
amount, if any, by which the Scheduled Principal Balance of the Replaced
Contract exceeds the Scheduled Principal Balance of the Eligible Substitute
Contract. Such deposit will be deemed to be a Partial Principal Prepayment.
Payments on Contracts
Each Certificate Account will be a trust account established by the
Servicer as to each Series of Certificates in the name of the Trustee (i) with a
depository institution, the long-term unsecured debt obligations of which at the
time of any deposit therein are rated within the two highest rating categories
or such other rating category as will not adversely affect the ratings assigned
to the Certificates by each rating agency rating the Certificates of such
Series, (ii) with the trust department of a national bank, (iii) in an account
or accounts the deposits in which are fully insured by the FDIC, (iv) in an
account or accounts the deposits in which are insured by the FDIC (to the limits
established by the FDIC), the uninsured deposits in which are otherwise secured
such that, as evidenced by an opinion of counsel, the Certificateholders have a
claim with respect to the funds in the Certificate Account or a perfected first
priority security interest against any collateral securing such funds that is
superior to the claims of any other depositors or general creditors of the
depository institution with which the Certificate Account is maintained or (v)
otherwise acceptable to the rating agency without reduction or withdrawal of the
rating assigned to the relevant Certificates. The collateral eligible to secure
amounts in the Certificate Account is limited to United States government
securities and certain other high-quality investments specified in the
applicable Agreement ("Eligible Investments"). A Certificate Account may be
maintained as an interest bearing account, or the funds held therein may be
invested pending each succeeding Remittance Date in Eligible Investments.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will deposit in the Certificate Account on a daily basis the following
payments and collections received or made by it subsequent to the Cut-off
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Date (including scheduled payments of principal and interest due after the
Cut-off Date but received by the Servicer on or before the Cut-off Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts;
(iii) all amounts received and retained in connection with the
liquidation of defaulted Contracts, net of liquidation expenses ("Net
Liquidation Proceeds");
(iv) all proceeds received under any hazard or other insurance policy
covering any Contract, other than proceeds to be applied to the restoration
or repair of the Manufactured Home or released to the Obligor; and
(v) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Servicer, or the Originator, or otherwise as
described above or under "Termination" below.
Distributions on Certificates
General. In general, the method of determining the amount of distributions
on a particular Series of Certificates will depend on the type of Enhancement,
if any, that is used with respect to such Series. See "Credit Enhancement." The
Prospectus Supplement for each Series of Certificates will describe the method
to be used in determining the amount of distributions on the Certificates of
such Series. Distributions allocable to principal and interest on the
Certificates will be made by the Trustee out of, and only to the extent of,
funds in the related Certificate Account, including any funds received as a
result of Enhancement. As between Certificates of different Classes and as
between distributions of interest and principal and, if applicable, between
distributions of prepayments of principal and scheduled payments of principal,
distributions made on any Remittance Date will be applied as specified in the
Prospectus Supplement. Unless otherwise specified in the Prospectus Supplement,
distributions to any Class of Certificates will be made pro rata to all
Certificateholders of that Class.
Amount Available. All distributions on the Certificates of each Series on
each Remittance Date will be made from the Amount Available described below, in
accordance with the terms described in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the "Amount Available"
for each Remittance Date will equal the sum of the following amounts:
(i) the aggregate of all amounts described in clauses (i) through (v)
above received by the Servicer after the Cut-off Date and on or prior to
the day of the month of the related Remittance Date specified in the
Agreement (the "Determination Date") except:
(a) all payments on the Contracts that were due on or before the
Cut-off Date;
(b) all payments or collections received after the Due Period
preceding the month in which the Remittance Date occurs;
(c) all scheduled payments of principal and interest due on a
date or dates subsequent to the Due Period preceding the
Determination Date;
(d) amounts representing reimbursement for Advances, such
reimbursement being limited, if so specified in the related
Prospectus Supplement, to amounts received on particular
Contracts as late collections of principal or interest as to
which the Servicer has made an unreimbursed Advance; and
(e) amounts representing reimbursement for any unpaid Servicing
Fees and expenses from Liquidation Proceeds, condemnation
proceeds and proceeds of insurance policies with respect to the
related Contracts;
(ii) the amount of any Advance made by the Servicer (including any
Sub-servicer) and deposited by it in the Certificate Account; and
(iii) if applicable, amounts received in connection with Enhancement.
Distributions of Interest. Interest will accrue on the Class Certificate
Balance (defined below) (or, in the case of Certificates entitled only to
distributions allocable to interest, the aggregate notional principal balance)
of each Class of Certificates entitled to interest from the date, at the
Remittance Rate, for the periods and to the extent specified in the Prospectus
Supplement. To the extent funds are available therefor, interest accrued during
each such specified period on each Class of Certificates entitled to interest
(other than a Class of Certificates that
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provides for interest that accrues, but is not currently payable, referred to
hereafter as "Compound Interest Certificates") will be distributable on the
Remittance Dates specified in the Prospectus Supplement until the Class
Certificate Balance of the Certificates of such Class has been distributed in
full or, in the case of Certificates entitled only to distributions allocable to
interest, until the aggregate notional principal balance of such Certificates is
reduced to zero or for the period of time designated in the Prospectus
Supplement.
The original Certificate Principal Balance of each Certificate will equal
the maximum aggregate distributions allocable to principal to which such
Certificate is entitled. Distributions allocable to interest on each Certificate
that is not entitled to distributions allocable to principal will be calculated
on the basis set forth in the related Prospectus Supplement. The notional
principal balance of a Certificate will not evidence an interest in or
entitlement to distributions allocable to principal but will be used solely for
convenience in expressing the calculation of interest and for certain other
purposes.
With respect to any Class of Compound Interest Certificates, if specified
in the Prospectus Supplement, any interest that has accrued but is not paid on a
given Remittance Date will be added to the Class Certificate Balance of such
Class of Certificates on that Remittance Date. Distributions of interest on each
Class of Compound Interest Certificates will commence only after the occurrence
of the events specified in the Prospectus Supplement. Prior to such time, the
beneficial ownership interest of such Class of Compound Interest Certificates in
the Trust, as reflected in the Class Certificate Balance of such Class of
Compound Interest Certificates, will increase on each Remittance Date by the
amount of interest that accrued on such Class of Compound Interest Certificates
during the preceding interest accrual period but that was not required to be
distributed to such Class on such Remittance Date. Any such Class of Compound
Interest Certificates will thereafter accrue interest on its outstanding Class
Certificate Balance as so adjusted.
Distributions of Principal. Unless otherwise specified in the Prospectus
Supplement, the "Class Certificate Balance" of any Class of Certificates
entitled to distributions of principal will be the aggregate of the original
Certificate Principal Balances of the Certificates of such Class, reduced by all
distributions and losses reported to the holders of such Certificates as
allocable to principal, and, in the case of Compound Interest Certificates,
increased by all interest accrued but not then distributable on such Compound
Interest Certificates. The Prospectus Supplement will specify the method by
which the amount of principal to be distributed on the Certificates on each
Remittance Date will be calculated and the manner in which such amount will be
allocated among the Classes of Certificates entitled to distributions of
principal.
If so provided in the Prospectus Supplement, one or more Classes of Senior
Certificates will be entitled to receive all or a disproportionate percentage of
the payments of principal which are received from Obligors in advance of their
scheduled due dates and are not accompanied by amounts representing scheduled
interest due after the month of such payments ("Principal Prepayments") in the
percentages and under the circumstances or for the periods specified in the
Prospectus Supplement. Any such allocation of Principal Prepayments to such
Class or Classes of Certificates will have the effect of accelerating the
amortization of such Senior Certificates while increasing the interests
evidenced by the Subordinated Certificates in the Trust. Increasing the
interests of the Subordinated Certificates relative to that of the Senior
Certificates is intended to preserve the availability of the subordination
provided by the Subordinated Certificates. The timing and amounts of
distributions allocable to interest and principal and, if applicable, Principal
Prepayments and scheduled payments of principal, to be made on any Remittance
Date may vary among Classes, over time or otherwise as specified in the
Prospectus Supplement.
Pre-Funding and Capitalized Interest Accounts
If specified in the related Prospectus Supplement, a Trust will include one
or more segregated trust accounts (each, a "Pre-Funding Account") established
and maintained with the Trustee for the related Series. If so specified, on the
closing date for such Series, a portion of the proceeds of the sale of the
Certificates of such Series not to exceed fifty percent of the aggregate
principal amount of such Series (such amount, the "Pre-Funded Amount") may be
deposited in the Pre-Funding Account and may be used to purchase additional
Contracts during the period of time not to exceed six months specified in the
related Prospectus Supplement (the "Pre-Funding Period"). If any Pre-Funded
Amount remains on deposit in the Pre-Funding Account at the end of the
Pre-Funding Period, such amount will be applied in the manner specified in the
related Prospectus Supplement to prepay the Certificates of the applicable
Series.
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Each additional Contract must satisfy the eligibility criteria specified in
the related Prospectus Supplement and related Agreement. Such eligibility
criteria will be determined in consultation with each Rating Agency (and/or any
Enhancer) prior to the issuance of the related Series and are designed to ensure
that if such additional Contracts were included as part of the initial
Contracts, the credit quality of such assets would be consistent with the
initial rating of the Certificates of such Series. The Depositor will certify to
the Trustee that all conditions precedent to the transfer of the additional
Contracts to the Trust, including the satisfaction of the eligibility criteria,
have been satisfied. Following the transfer of additional Contracts to the
Trust, the aggregate characteristics of the Contracts then held in the Trust may
vary from those of the initial Contracts of such Trust. As a result, the
additional Contracts may adversely affect the performance of the related
Certificates.
If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a "Capitalized Interest Account") may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Certificates of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on the
Certificates of such Series and (ii) if specified in the related Prospectus
Supplement, certain fees or expenses during the Pre-Funding Period such as
Trustee fees and credit enhancement fees, over the amount of interest available
therefor from the Contracts in the Trust. If so specified in the related
Prospectus Supplement, amounts on deposit in the Capitalized Interest Account
may be released to the Depositor prior to the end of the Pre-Funding Period
subject to the satisfaction of certain tests specified in the related Prospectus
Supplement. Any amounts on deposit in the Capitalized Interest Account at the
end of the Pre-Funding Period that are not necessary for such purposes will be
distributed to the person specified in the related Prospectus Supplement.
Advances
To the extent provided in the related Prospectus Supplement, the Servicer
will be obligated to make periodic Advances of cash from its own funds or from
excess funds in the Certificate Account not then required to be distributed to
Certificateholders, for distribution to the Certificateholders entitled thereto
in an amount equal to the amount of delinquent payments of principal and/or
interest for the preceding Due Period but only to the extent the Servicer
determines such Advances are recoverable from future payments and collections on
the delinquent Contracts. The Servicer's obligation to make Advances, if any,
may, as specified in the related Prospectus Supplement, be limited in amount. If
so specified in the related Prospectus Supplement, the Servicer will not be
obligated to make Advances until all or a specified portion of the reserve fund,
if any, is depleted. Advances are intended to maintain a regular flow of
scheduled interest and/or principal payments and not to guarantee or insure
against losses. Accordingly, any funds so advanced are recoverable by the
Servicer out of amounts received on particular Contracts which represent late
recoveries of amounts respecting which any such Advance was made.
Servicing
General. Pursuant to the Agreement, the Servicer will service and
administer the Contracts assigned to the Trustee as more fully set forth below.
The Servicer will perform diligently all services and duties specified in each
Agreement, in the same manner as prudent lending institutions of manufactured
housing contracts of the same type as the Contracts in those jurisdictions where
the related Manufactured Homes are located or as otherwise specified in the
Agreement. The duties to be performed by the Servicer will include collection
and remittance of principal and interest payments, collection of insurance
claims and, if necessary, repossession or foreclosure.
The Servicer will make reasonable efforts to collect all payments called
for under the Contracts and, consistent with the Agreement and any FHA insurance
and VA guaranty, will follow such collection procedures as it follows with
respect to mortgage loans or contracts serviced by it that are comparable to the
Contracts.
Hazard Insurance. The terms of the Agreement will require the Servicer to
cause to be maintained with respect to each Contract one or more insurance
policies ("Hazard Insurance Policies") which provide, at a minimum, the same
coverage as a standard form fire and extended coverage insurance policy that is
customary for manufactured housing, issued by a company authorized to issue such
policies in the state in which the Manufactured Home is located, and in an
amount which is not less than the maximum insurable value of such Manufactured
Home or the principal balance due from the Obligor on the related Contract,
whichever is less.
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When a Manufactured Home was located at the time of origination of the related
Contract, within a federally designated special flood hazard area, the Servicer
also will be required to cause flood insurance to be maintained, with coverage
at least equal to the minimum amount specified in the preceding sentence or such
lesser amount as may be available under the federal flood insurance program.
Each Hazard Insurance Policy caused to be maintained by the Servicer will
contain a standard loss payee clause in favor of the Servicer and its successors
and assigns. If any Obligor is in default in the payment of premiums on its
Hazard Insurance Policy or Policies, the Servicer will be
required to pay such premiums out of its own funds. The Servicer may add
separately such premium to the Obligor's obligation as provided by the Contract,
but may not add such premium to the remaining amount due on the Contract.
In lieu of causing individual Hazard Insurance Policies to be maintained
with respect to each Manufactured Home, the Servicer may, and, to the extent
that the related Contract does not require the Obligor to maintain a Hazard
Insurance Policy with respect to the related Manufactured Home, the Servicer is
required to, maintain one or more blanket insurance policies covering losses on
the Obligors' interests in the Contracts resulting from the absence or
insufficiency of individual Hazard Insurance Policies. The Servicer will pay the
premium for such policies on the basis described therein and will pay any
deductible amount with respect to claims under such policies relating to the
Contracts.
If the Servicer repossesses a Manufactured Home on behalf of the Trustee,
the Servicer will be required to either (i) maintain at its expense hazard
insurance with respect to such Manufactured Home or (ii) indemnify the Trustee
against any damage to such Manufactured Home prior to resale or other
disposition.
Evidence as to Compliance. Unless otherwise specified in the related
Prospectus Supplement, the Servicer will deliver to the Trustee each year an
officer's certificate executed by an officer of the Servicer (i) stating that a
review of the activities of the Servicer during the preceding calendar year and
of the Servicer's performance under the Agreement has been made under the
supervision of such officer, and (ii) stating that to the best of such officer's
knowledge, the Servicer has fulfilled all its obligations under such Agreement
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof. Such officer's certificate will be accompanied by a
statement of a firm of independent public accountants to the effect that, on the
basis of an examination of certain documents and records relating to servicing
of the Contracts under the Agreement (or, at the Servicer's option, the
Contracts and other contracts being serviced by the Servicer under agreements
similar to the Agreement), conducted in accordance with generally accepted
auditing standards, the Servicer's servicing has been conducted in compliance
with the provisions of the Agreement (or such agreements), except for (i) such
exceptions as such firm believes to be immaterial and (ii) such other exceptions
as may be set forth in such statement.
Certain Matters Regarding the Servicer. The Servicer may not resign from
its obligations and duties under an Agreement except upon (i) appointment of a
successor servicer reasonably satisfactory to the Trustee and the delivery to
the Trustee of a letter from each applicable Rating Agency to the effect that
such action will not, in and of itself, result in the qualification, downgrading
or withdrawal of the then-current rating assigned by such Rating Agency to the
Certificates of the applicable Series or (ii) a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed the
Servicer's obligations and duties under such Agreement.
Each Agreement will provide that neither the Servicer, nor any director,
officer, employee or agent of the Servicer, will be under any liability to the
Trust or the Certificateholders, and all such persons shall be held harmless,
for any action taken or for refraining from the taking of any action in good
faith pursuant to the Agreement, or for errors in judgment; provided, however,
that no such person will be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of such person's duties or by reason of reckless
disregard of such person's obligations and duties under the Agreement. The
Servicer may, in its discretion, undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Certificateholders thereunder.
In such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust and the
Servicer will be entitled to be reimbursed therefor out of the Certificate
Account.
Servicing Compensation and Payment of Expenses. As compensation for its
servicing duties in respect of any Series, the Servicer will be entitled to the
Servicing Fee described in the related Prospectus Supplement. The
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Servicing Fee for a Series will be a percentage per annum, payable monthly, of
the Pool Scheduled Principal Balance of the related Pool unless otherwise
specified in a particular Prospectus Supplement. In addition, the Servicer will
be entitled to servicing compensation in the form of assumption fees, late
payment charges or otherwise, which fees or charges will be retained by the
Servicer to the extent not required to be deposited into the related Certificate
Account.
The Servicing Fee provides compensation for customary manufactured housing
contract third party servicing activities to be performed by the Servicer for
the Trust and for additional administrative services performed by the Servicer
on behalf of the Trust. Customary servicing activities include collecting and
recording payments, communicating with Obligors, investigating payment
delinquencies, providing billing and tax records to Obligors and maintaining
internal records with respect to each Contract. Administrative services
performed by the Servicer on behalf of the Trust include calculating
distributions to Certificateholders and providing related data processing and
reporting services for Certificateholders and on behalf of the Trustee. Expenses
incurred in connection with the servicing of the Contracts and paid by the
Servicer from its Servicing Fees include, without limitation, payment of fees
and expenses of accountants, payments of all fees and expenses incurred in
connection with the enforcement of Contracts (except Liquidation Expenses) and
payment of expenses incurred in connection with distributions and reports to
Certificateholders. The Servicer will be reimbursed out of the Liquidation
Proceeds of a Liquidated Contract for all ordinary and necessary Liquidation
Expenses incurred by it in realization upon the related Manufactured Home.
Events of Default. Except as otherwise specified in the related Prospectus
Supplement, "Events of Default" under each Agreement will include (i) any
failure by the Servicer to make any required payment or deposit which continues
unremedied for 5 days (or such other period specified in the related Prospectus
Supplement) after the giving of written notice; (ii) any failure by the Servicer
duly to observe or perform in any material respect any other of its covenants or
agreements in the Agreement that materially and adversely affects the interests
ofCertificateholders, which, in either case, continues unremedied for 30 days
after the giving of written notice of such failure of breach; and (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Servicer. Notice as used herein
means notice to the Servicer by the Trustee or the Depositor, or to the
Depositor, the Servicer and the Trustee by the Holders of Certificates
representing Percentage Interests aggregating not less than 25% of any Class
affected thereby.
Rights Upon Event of Default. Except as otherwise specified in the related
Prospectus Supplement, so long as an Event of Default remains unremedied, the
Trustee may, and at the written direction of the Certificateholders of a Series
evidencing Percentage Interests aggregating not less than 51% of the related
Trust, shall, terminate all of the rights and obligations of the Servicer under
the related Agreement and in and to the Contracts, and the proceeds thereof.
Thereupon (subject to applicable law regarding the Trustee's ability to make
advances) the Trustee or a successor Servicer under the Agreement will succeed
to all the responsibilities, duties and liabilities of the Servicer under the
Agreement and will be entitled to similar compensation arrangements; provided,
however, that neither the Trustee nor any successor Servicer will be liable for
any acts or omissions of the prior Servicer occurring prior to a transfer of the
Servicer's servicing and related functions or for any breach of such Servicer of
any of its obligations contained in the Agreement. Notwithstanding such
termination, the Servicer will be entitled to payment of certain amounts payable
to it prior to such termination, for services rendered prior to such
termination. In the event that the Trustee would be obligated to succeed the
Servicer but is unwilling or unable so to act, it may appoint or petition to a
court of competent jurisdiction for the appointment of a Servicer. Pending such
appointment the Trustee is obligated to act in such capacity. The Trustee and
such successor may agree upon the servicing compensation to be paid, which in no
event may be greater than the compensation to the Servicer under the Agreement.
No Certificateholder will have any right under an Agreement to institute
any proceeding with respect to such Agreement unless such Holder previously has
given to the Trustee written notice of default and unless the Holders of
Certificates evidencing Percentage Interests aggregating not less than 25% of
the related Trust requested the Trustee in writing to institute such proceeding
in its own name as Trustee and have offered to the Trustee reasonable indemnity
and the Trustee for 60 days has neglected or refused to institute any such
proceeding. The Trustee will be under no obligation to take any action or
institute, conduct or defend any litigation under the Agreement at the request,
order or direction of any of the Holders of Certificates, unless such
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Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which the Trustee may incur.
Reports to Certificateholders
On or before each Remittance Date, the Servicer or the Trustee will be
required to forward to each Certificateholder of record of the related Series a
statement setting forth the following to the extent applicable to such Series or
Class:
(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments included
therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance by the Servicer (or any Sub-servicer);
(iv) the total amount of any payments under Enhancement included in
the amount distributed on such Remittance Date;
(v) the outstanding principal balance of such Class after giving
effect to the distribution of principal on such Remittance Date;
(vi) if applicable, the percentage of principal payments on the
Contracts, if any, which such Class will be entitled to receive on the
following Remittance Date;
(vii) unless the Remittance Rate is a fixed rate, the Remittance Rate
applicable to the distribution on the Remittance Date;
(viii) the number and aggregate principal balance of Contracts in the
related Pool delinquent (a) one month and (b) two or more months; and
(ix) if applicable, the amount remaining of any Enhancement, after
giving effect to the distribution on the Remittance Date.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Certificate of the relevant Class having the denomination or
interest specified in the report to Certificateholders. The report to
Certificateholders for any Class or Series of Certificates may include
additional or other information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer or the Trustee will mail to each person who was a
Certificateholder of record at any time during such calendar year a report (a)
as to the aggregate of amounts reported pursuant to (i) and (ii) for such
calendar year or, in the event such person was a Certificateholder of record
during a portion of such calendar year, for the applicable portion of such year
and (b) such other customary information as may be deemed necessary or desirable
for Certificateholders to prepare their tax returns.
Amendment
Unless otherwise specified in the related Prospectus Supplement, the
Agreement may be amended by the Depositor, the Servicer and the Trustee without
the consent of the Certificateholders, (i) to cure any ambiguity, (ii) to
correct or supplement any provision therein that may be defective or
inconsistent with any other provision therein, (iii) to maintain the REMIC
status of the Trust and to avoid the imposition of certain taxes on the REMIC or
(iv) to make any other provisions with respect to matters or questions arising
under such Agreement that are not inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of the Certificateholders of the related Series, as evidenced by (A)
an opinion of counsel independent of the Depositor, the Servicer and the Trustee
or (B) a letter from each Rating Agency from which the Depositor requested a
rating of any of the Certificates of such Series stating that the proposed
amendment will not result in a downgrading of the then-current rating of any of
the Certificates of such Series rated by such Rating Agency. The Agreement also
may be amended by the Depositor, the Servicer and the Trustee with the consent
of the Certificateholders evidencing Percentage Interests aggregating not less
than 51% of each Class affected thereby for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of such
Agreement or of modifying in any manner the rights of the Certificateholders;
provided, however, that no such amendment that reduces in any manner the amount
of, or delays the timing of, any
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payment received on or with respect to Contracts which are required to be
distributed on any Certificate may be effected without the consent of the
Holders of each such Certificate.
Termination of the Agreement
The obligations created by each Agreement will terminate upon the date
calculated as specified in the Agreement, generally upon (i) the later of the
final payment or other liquidation of the last Contract subject thereto and the
disposition of all property acquired upon foreclosure of any Land-and-Home
Contract or repossession of any Manufactured Home and (ii) the payment to the
Certificateholders of all amounts held by the Servicer or the Trustee and
required to be paid to them pursuant to the Agreement. In addition, unless
otherwise specified in the related Prospectus Supplement, the Depositor or the
Servicer may at its option with respect to any Series of Certificates,
repurchase all Contracts remaining outstanding at such time as the aggregate
unpaid principal balance of such Contracts is less than the percentage of the
aggregate unpaid principal balance of the Contracts on the Cut-off Date
specified with respect to such Series in the related Prospectus Supplement.
The Trustee
The Prospectus Supplement for a Series of Certificates will specify the
Trustee under the related Agreement. The Trustee may have normal banking
relationships with the Depositor, the Servicer and their respective affiliates.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. Unless otherwise specified in the
related Prospectus Supplement, the Trustee may also be removed at any time by
the Holders of Certificates evidencing Percentage Interests aggregating at least
51% of the related Trust. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
The Trustee will make no representation as to the validity or sufficiency
of the Agreement, the Certificates, any Contract, Contract file or related
documents, and will not be accountable for the use or application by the
Depositor of any funds paid to the Depositor in consideration of the conveyance
of the Contracts, or deposited into or withdrawn from the Certificate Account by
the Servicer. If no Event of Default has occurred, the Trustee will be required
to perform only those duties specifically required of it under the Agreement.
However, upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee will be required to examine them to
determine whether they conform as to form to the requirements of the Agreement.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement arrangements and the provider
thereof, if applicable, with respect to a Series or any Class or Certificates
will be set forth in the related Prospectus Supplement. If and to the extent
provided in the related Prospectus Supplement, enhancement may be in the form of
a pool insurance, letters of credit, surety bonds, a guarantee, cash reserve
funds, derivative products or other forms of credit enhancement, or any
combinations thereof, as may be described in the related Prospectus Supplement
(collectively, "Enhancement"). If specified in the applicable Prospectus
Supplement, Enhancement for any Series of Certificates may cover one or more
Classes of Certificates, and accordingly may be exhausted for the benefit of a
particular Class of Certificates and thereafter be unavailable to the other
Classes of Certificates of such Series. Further information regarding any
third-party provider of Enhancement (the "Enhancer"), including financial
information when material, will be included in the related Prospectus
Supplement.
The presence of Enhancement is intended to increase the likelihood of
receipt by the Certificateholders of the full amount of principal and interest
due them and to decrease the likelihood that the Certificateholders will
experience losses, or may be structured to provide protection against changes in
interest rates or against other risks, to the extent and under the conditions
specified in the related Prospectus Supplement. The Enhancement for a Class of
Certificates may not provide protection against all risks of loss and may not
guarantee repayment of the entire principal and interest thereon. If losses
occur which exceed the amount covered by any Enhancement or which are not
covered by any Enhancement, Certificateholders will bear their allocable share
of deficiencies.
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DESCRIPTION OF FHA INSURANCE AND VA GUARANTEES
Certain of the Contracts may be insured by the Federal Housing Authority
(the "FHA") under Title I of the National Housing Act or partially guaranteed by
the Veterans Administration (the "VA").
The regulations governing FHA manufactured home insurance provide that
insurance benefits are payable upon the repossession and resale of the
collateral and assignment of the contract to the United States Department of
Housing and Urban Development ("HUD"). With respect to a defaulted FHA contract,
the servicer must follow applicable regulations before initiating repossession
procedures. These regulations include requirements that the lender arrange a
face-to-face meeting with the borrower, initiate a modification or repayment
plan, if feasible, and give the borrower 30 days' notice of default prior to any
repossession. The insurance claim is paid in cash by HUD. For manufactured
housing contracts, the amount of insurance benefits generally paid by FHA is
equal to 90% of the sum of (i) the unpaid principal amount of the Contract at
the date of default and uncollected interest earned to the date of default
computed at the Contract Rate, after deducting the best price obtainable for the
collateral (based in part on a HUD-approved appraisal) and all amounts retained
or collected by the lender from other sources with respect to the Contract, (ii)
accrued and unpaid interest on the unpaid amount of the Contract from the date
of default to the date of submission of the claim plus 15 calendar days (but in
no event more than nine months) computed at a rate of 7% per annum, (iii) costs
paid to a dealer or other third party to repossess and preserve the Manufactured
Home, (iv) the amount of any sales commission paid to a dealer or other third
party for the resale of the property, (v) with respect to a Land-and-Home
Contract, property taxes, special assessments and other similar charges and
hazard insurance premiums, prorated to the date of disposition of the property,
(vi) uncollected court costs, (vii) legal fees not to exceed $500 and (viii)
expenses for recording the assignment of the lien on the collateral to the
United States.
The insurance available to a lender under FHA Title I insurance is subject
to the limit of a reserve amount equal to ten percent of the original principal
balance of all Title I insured loans originated by the lender, which amount is
reduced by all claims paid to the lender and by an annual reduction in the
reserve amount of ten percent of the reserve amount, and which is increased by
an amount equal to ten percent of the original principal balance of insured
loans subsequently originated by the lender. If the Servicer were replaced as
Servicer of the Contracts under the Agreement, it is not clear from the FHA
regulations what portion of this reserve amount would be available for claims in
respect of the FHA-insured Contracts. The obligation to pay insurance premiums
to FHA is the obligation of the Servicer.
The maximum guarantee that may be issued by the VA for a VA-guaranteed
contract is the lesser of (a) the lesser of $20,000 and 40% of the principal
amount of the contract and (b) the maximum amount of guaranty entitlement
available to the obligor veteran (which may range from $20,000 to zero). The
amount payable under the guarantee will be the percentage of the VA contract
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations, interest accrued on the
unpaid balance of the loan to the appropriate date of computation and limited
expenses of the contract holder, but in each case only to the extent that such
amounts have not been recovered through resale of the manufactured home. The
amount payable under the guarantee may in no event exceed the amount of the
original guarantee.
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CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects of
manufactured housing contracts, including Land-and-Home Contracts, which are
general in nature. Because such legal aspects are governed by applicable state
law (which laws may differ substantially), the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to encompass the
laws of all states in which the security for the Contracts is situated. The
summaries are qualified in their entirety by reference to the applicable federal
and state laws governing the Chattel Contracts or Land-and-Home Contracts.
The Chattel Contracts
General. As a result of the assignment of the Chattel Contracts underlying
a Series to the Trustee, the related Trust will succeed to all of the rights
(including the right to receive payment on the Chattel Contracts), and will
assume the obligations, of the obligee under the Chattel Contracts. Each Chattel
Contract evidences both (a) the obligation of the Obligor to repay the loan
evidenced thereby, and (b) the grant of a security interest in the Manufactured
Home to secure repayment of such loan.
The Chattel Contracts generally are "chattel paper" as defined in the
Uniform Commercial Code (the "UCC") in effect in the states in which the
Manufactured Homes initially were registered. Pursuant to the UCC, the sale of
chattel paper is treated in a manner similar to perfection of a security
interest in chattel paper. Unless otherwise provided in the related Prospectus
Supplement, the Servicer will retain possession of the Chattel Contracts as
custodian for the Trustee, and will make an appropriate filing of a UCC-1
financing statement in the appropriate jurisdictions to give notice of the
Trustee's ownership of the Contracts. The Chattel Contracts may be stamped or
stickered to reflect their assignment to the Trustee. However, if through
negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the Chattel Contracts without notice of such assignment,
the Trustee's interest in such Contracts could be defeated.
Security Interests in the Manufactured Homes. The Manufactured Homes
securing the Contracts may be located in all 50 states and the District of
Columbia. In many states ("Title States") security interests in manufactured
homes may be perfected under applicable motor vehicle titling statutes either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority to re-register the home, depending on state law. In some states ("UCC
States"), perfection of a lien on a manufactured home is accomplished pursuant
to the provisions of the applicable UCC by filing UCC-1 financing statements
with all appropriate UCC filing offices. Some states are both Title States and
UCC States. The Depositor will cause the security interests created by the
Contracts in the related Manufactured Homes to be assigned to the Trustee on
behalf of the Certificateholders. However, unless otherwise specified in the
related Prospectus Supplement, because of the expense and administrative
inconvenience involved, neither the Originator nor the Depositor will amend any
certificate of title to change the lienholder specified therein from the
Originator to the Trustee, deliver any documents or pay fees to re-register any
Manufactured Home, or file any UCC transfer instruments, and neither the
Originator nor the Depositor will deliver any certificate of title to the
Trustee or note thereon the Trustee's interest. In some states, simple
assignment of the security interest created by a Contract in the related
Manufactured Home constitutes an effective conveyance of such security interest
without amendment of any lien noted on the related certificate of title,
re-registration of the underlying home, or filing of any statement under the
applicable UCC, and the assignee succeeds to the seller's rights as the secured
party as to such Manufactured Home. In other states, however, the law is unclear
whether a security interest in a Manufactured Home is effectively assigned in
the absence of an amendment to a certificate of title, re-registration of the
underlying home, or the filing of an appropriate UCC transfer instrument, as
appropriate under applicable state law. In such event, the assignment of the
security interest created by a Contract in the related Manufactured Home may not
be effective against creditors of the Originator or a trustee in bankruptcy of
the Originator.
As manufactured homes have become larger and often have been attached to
their sites without any apparent intention to move them, courts in many states
have held that manufactured homes, under certain circumstances, may become
subject to real estate title and recording laws. As a result, a security
interest in a manufactured home located in such a state could be rendered
subordinate to the interests of other parties claiming an interest in the home
under applicable state real estate law. In order to perfect a security interest
in a manufactured home under
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real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage or
deed of trust, as applicable under the real estate laws of the state where the
home is located. See "Land-and-Home Contracts" below. These filings must be made
in the real estate records office of the county where the home is located.
Substantially all of the Chattel Contracts contain provisions prohibiting the
Obligor from permanently attaching the Manufactured Home to its site. So long as
the Obligor does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the UCC,
and the notation of the security interest on the certificate of title or the
filing of a UCC financing statement will be effective to maintain the priority
of the security interest in the Manufactured Home. If, however, a Manufactured
Home becomes permanently attached to its site, other parties could obtain an
interest in the Manufactured Home which is prior to the security interest
originally obtained by the Originator. The Originator will represent that at the
date of the initial issuance of the related Certificates it has obtained a
perfected first priority security interest by proper notation or delivery of the
required documents and fees with respect to all of the Manufactured Homes
securing the Contracts.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Originator
on the certificate of title or delivery of the required documents and fees will
be sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the Originator's security interest is not perfected, such security
interest would be subordinate to, among others, subsequent purchasers for value
of the Manufactured Homes and holders of perfected security interests. There
also exists a risk in not identifying the Trustee as the new secured party on
the certificate of title that, through fraud or negligence, the security
interest of the Trustee could be released.
Under the laws of most states, in the event that a manufactured home is
moved to a state other than the state in which it initially is registered, any
perfected security interest in such home would continue automatically for four
months after such relocation, during which time the security interest must be
re-perfected in the new state in order to remain perfected after such four-month
period. Generally, a security interest in such a manufactured home may be
re-perfected after the expiration of such four-month period, but, for the period
between the end of such four-month period and the date of such re-perfection,
the security interest would be unperfected.
If a Manufactured Home is moved to a UCC State, an appropriate UCC
financing statement generally would have to be filed in such state within the
four-month period after the move in order for the Originator's security interest
in the Manufactured Home to remain perfected continuously. If a Manufactured
Home is moved to a Title State, re-perfection of a security interest in such
home generally would be accomplished by registering the Manufactured Home with
the Title State's motor vehicle authority. In the ordinary course of servicing
its portfolio of manufactured housing installment sales contracts, the Servicer
takes steps to re-perfect its security interests in the related manufactured
homes upon its receipt of notice of registration of such home in a new state
(which it should receive by virtue of the notation of the Originator's lien on
the original certificate of title, if the home is moved from a Title State to a
Title State) or of information from a related borrower as to relocation of such
home. In some Title States, the certificate of title to a Manufactured Home
(which is required to be in the Servicer's possession) must be surrendered
before the home could be re-registered; in such states an Obligor could not
re-register a Manufactured Home to a transferee without the Servicer's
assistance. In other Title States, when an Obligor under a Contract sells the
related Manufactured Home (if it is located in a Title State both before and
after the sale), the Originator should at least receive notice of any attempted
re-registration thereof because its lien is noted on the related certificate of
title and accordingly should have the opportunity to require satisfaction of the
related Contract before releasing its lien on the home. If the motor vehicle
authority of a Title State to which a Manufactured Home is relocated or in which
a Manufactured Home is located when it is transferred registers such
Manufactured Home in the name of the owner thereof or such owner's transferee
without noting the Originator's lien on the related certificate of title,
whether because (1) such state did not require the owner to surrender the
certificate of title issued prior to the transfer or issued by the Title State
from which such home was moved or failed to notify the Originator of
re-registration and failed to note the Originator's lien on the new certificate
of title issued upon re-registration or (2) such Manufactured Home was moved
from a state that is not a Title State, such re-registration could defeat the
perfection of the Originator's lien in the Manufactured Home. In addition,
re-registration of a Manufactured Home (whether due to a transfer or
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relocation thereof) in a state, such as a UCC State, which does not require a
certificate of title for registration of a Manufactured Home, could defeat
perfection of the Originator's lien thereon.
The Originator will be required to report to the Servicer any notice it
receives of any re-registration of a Manufactured Home. Under the Agreement, the
Servicer is obligated to take all necessary steps, at its own expense, to
maintain perfection of the Trustee's security interests in the Manufactured
Homes, to the extent it receives notice of relocation, sale or re-registration
thereof. However, the Servicer has no independent obligation to monitor the
status of the Originator's lien on any Manufactured Home.
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority over a
perfected security interest. Such liens could arise at any time during the term
of a Contract. No notice will be given to the Trustee or Certificateholders in
the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes. The Servicer on
behalf of the Trustee, to the extent required by the related Agreement, may take
action to enforce the Trustee's security interest with respect to Contracts in
default by repossession and resale of the Manufactured Homes securing such
defaulted Contracts. So long as the Manufactured Home has not become subject to
real estate laws, a creditor can repossess a Manufactured Home securing a
Contract by voluntary surrender, by "self-help" repossession that is "peaceful"
(i.e., without breach of the peace) or, in the absence of voluntary surrender
and the ability to repossess without breach of the peace, by judicial process.
The holder of a Contract must give the debtor a number of days' notice, which
varies from state to state, prior to commencement of any repossession. The UCC
and consumer protection laws in most states place restrictions on repossession
sales, including requiring prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states also requires
that the debtor be given notice of any sale prior to resale of the unit so that
the debtor may redeem the home at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled to
be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the manufactured home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments, and in many
cases the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy and
insolvency laws and general equitable principles, may limit or delay the ability
of a lender to repossess and resell collateral or enforce a deficiency judgment.
Under the terms of the federal Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), an Obligor who enters military service
after the origination of such Obligor's Contract (including an Obligor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Contract and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such Obligor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Contracts. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by any applicable Enhancement, could result in losses to the holders of
a Series of Certificates. In addition, the Relief Act imposes limitations which
would impair the ability of the Servicer to foreclose on an affected Contract
during the Obligor's period of active duty status. Thus, in the event that such
a Contract goes into default, there may be delays and losses occasioned by the
inability to realize upon the Manufactured Home in a timely fashion.
Land-and-Home Contracts
General. The Land-and-Home Contracts will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the state
in which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower, and the mortgagee, who is the lender. In a
mortgage state, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties: the borrower, a lender as
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
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trust, generally with a power of sale, to the trustee to secure payment of the
loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed of
trust or mortgage, applicable law, and, in some cases, with respect to the deed
of trust, the directions of the beneficiary.
Foreclosure. Foreclosure of a mortgage is generally accomplished by
judicial action. Generally, the action is initiated by the service of legal
pleadings upon all parties having an interest of record in the real property.
Delays in completion of the foreclosure occasionally may result from
difficulties in locating necessary parties defendant. When the mortgagee's right
to foreclosure is contested, the legal proceedings necessary to resolve the
issue can be time-consuming and expensive. After the completion of a judicial
foreclosure proceeding, the court may issue a judgment of foreclosure and
appoint a receiver or other officer to conduct the sale of the property. In some
states, mortgages may also be foreclosed by advertisement, pursuant to a power
of sale provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by nonjudicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a nonjudicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states the trustee must record a notice of
default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and the notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, that may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
not common for a third party to purchase the property at the foreclosure sale.
Rather, the lender generally purchases the property from the trustee or receiver
for an amount equal to the unpaid principal amount of the note, accrued and
unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property.
Rights of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the borrower and certain foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In certain other states, this right of redemption applies only
to sale following judicial foreclosure, and not sale pursuant to a nonjudicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. In some states the right to redeem is an equitable
right. The effect of a right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser at a foreclosure sale, or of any
purchaser from the lender subsequent to judicial foreclosure or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has run.
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Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage relating to a
single family residence. In some states, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment is a
personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the net amount realized upon the
foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the Relief Act and state laws affording relief to debtors, may interfere with or
affect the ability of a secured mortgage lender to realize upon its security.
For example, with respect to a Land-and-Home Contract, in a Chapter 13
proceeding under the federal Bankruptcy Code, when a court determines that the
value of a home is less than the principal balance of the loan, the court may
prevent a lender from foreclosing on the home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the value
of the home as it exists at the time of the proceeding, leaving the lender as a
general unsecured creditor for the difference between that value and the amount
of outstanding indebtedness. A bankruptcy court may grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. Certain court decisions have applied such
relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the Contracts.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of notice
of claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a Contract (such as the Trust) to all claims and defenses which
the Obligor could assert against the seller of the Manufactured Home. Liability
under this rule is limited to amounts paid under a contract; however, the
Obligor also may be able to assert the rule to set off remaining amounts due as
a defense against a claim brought by the Trust against such Obligor. Numerous
other federal and state consumer protection laws impose requirements applicable
to the origination and lending
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pursuant to the Contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the
Uniform Consumer Credit Code. In the case of some of these laws, the failure to
comply with their provisions may affect the enforceability of the related
Contract.
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such sale
or transfer that is not consented to. In certain cases, the transfer may be made
by a delinquent Obligor in order to avoid a repossession proceeding with respect
to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Servicer
desires to accelerate the maturity of the related Contract, the Servicer's
ability to do so will depend on the enforceability under state law of the
"due-on-sale" clause. The Garn-St. Germain Depositary Institutions Act of 1982
preempts, subject to certain exceptions and conditions, state laws prohibiting
enforcement of "due-on-sale" clauses applicable to the Manufactured Homes.
Consequently, in some states the Servicer may be prohibited from enforcing a
"due-on-sale" clause in respect of certain Manufactured Home.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is secured
by a first lien on certain kinds of manufactured housing. The Contracts would be
covered if they satisfy certain conditions, among other things, governing the
terms of any prepayments, late charges and deferral fees and requiring a 30-day
notice period prior to instituting any action leading to repossession of or
foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
imposes certain requirements on employee benefit plans and collective investment
funds and separate accounts in which such plans or arrangements are invested to
which it applies and on those persons who are fiduciaries with respect to such
benefit plans. Certain employee benefit plans, such as governmental plans (as
defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA), are not subject to ERISA. In accordance with
ERISA's general fiduciary standards, before investing in a Certificate, a
benefit plan fiduciary should determine whether such an investment is permitted
under the governing benefit plan instruments and is appropriate for the benefit
plan in view of its overall investment policy and the composition and
diversification of its portfolio and is prudent.
In addition, benefit plans subject to ERISA and individual retirement
accounts or certain types of Keogh plans not subject to ERISA but subject to
Section 4975 of the Code (each a "Plan") are prohibited from engaging in a broad
range of transactions involving Plan assets and persons having certain specified
relationships to a Plan ("parties in interest" and "disqualified persons"). Such
transactions are treated as "prohibited transactions" under Sections 406 and 407
of ERISA and excise taxes are imposed upon such persons by Section 4975 of the
Code. The Depositor, the Originator, the Enhancer, the Underwriter and the
Trustee and certain of their affiliates might be considered "parties in
interest" or "disqualified persons" with respect to a Plan. If so, the
acquisition or holding or transfer of Certificates by or on behalf of such Plan
could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA and the Code unless an exemption is available. In addition, the
Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) concerning the definition of what constitutes the assets of a Plan
(the "Plan Asset Regulations"), which provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other
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entities in which a Plan makes an "equity" investment will be deemed for
purposes of ERISA to be assets of the investing Plan unless certain exceptions
apply. If an investing Plan's assets were deemed to include an interest in the
Contracts and any other assets of the Trust and not merely an interest in the
Certificates, transactions occurring between the Depositor, the Trustee, the
Servicer, Sub-servicers, if any, the Enhancer or any of their affiliates might
constitute prohibited transactions, and the assets of the Trust would become
subject to the fiduciary investment standards of ERISA, unless an administrative
exemption applies. Certain such exemptions which may be applicable to the
acquisition and holding of the Certificates or to the servicing of the Contracts
are noted below.
The DOL has issued an administrative exemption, Prohibited Transaction
Class Exemption 83-1 ("PTCE 83-1"), which, under certain conditions, exempts
from the application of the prohibited transaction rules of ERISA and the excise
tax provisions of Section 4975 of the Code transactions involving a Plan in
connection with the operation of a "mortgage pool" and the purchase, sale and
holding of "mortgage pool pass-through certificates." A "mortgage pool" is
defined as an investment pool, consisting solely of interest bearing obligations
secured by first or second mortgages or deeds of trust on single-family
residential property, property acquired in foreclosure and undistributed cash. A
"mortgage pool pass-through certificate" is defined as a certificate which
represents a beneficial undivided interest in a mortgage pool which entitles the
holder to pass-through payments of principal and interest from the mortgage
loans.
For the exemption to apply, PTCE 83-1 requires that (i) the Depositor and
the Trustee maintain a system of insurance or other protection for the Contracts
and the property securing such Contracts, and for indemnifying holders of
Certificates against reductions in pass-through payments due to defaults in loan
payments or property damage in an amount at least equal to the greater of 1% of
the aggregate principal balance of the Contracts, or 1% of the principal balance
of the largest covered pooled Contract; (ii) the Trustee may not be an affiliate
of the Depositor; and (iii) the payments made to and retained by the Depositor
in connection with the Trust, together with all funds inuring to its benefit for
administering the Trust, represent no more than "adequate consideration" for
selling the Contracts, plus reasonable compensation for services provided to the
Trust.
In addition, PTCE 83-1 exempts the initial sale of Certificates to a Plan
with respect to which the Depositor, the Enhancer, the Servicer or the Trustee
is a party in interest if the Plan does not pay more than fair market value for
such Certificates and the rights and interests evidenced by such Certificates
are not subordinated to the rights and interests evidenced by other Certificates
of the same pool. PTCE 83-1 also exempts from the prohibited transaction rules
and transactions in connection with the servicing and operation of the Pool,
provided that any payments made to the Servicer in connection with the servicing
for the Trust are made in accordance with a binding agreement, copies of which
must be made available to prospective investors.
In the case of any Plan with respect to which the Depositor, the Servicer,
the Enhancer or the Trustee is a fiduciary, PTCE 83-1 will only apply if, in
addition to the other requirements: (i) the initial sale, exchange or transfer
of Certificates is expressly approved by an independent fiduciary who has
authority to manage and control those plan assets being invested in
Certificates; (ii) the Plan pays no more for the Certificates than would be paid
in an arm's length transaction; (iii) no investment management, advisory or
underwriting fee, sale commission, or similar compensation is paid to the
Depositor with regard to the sale, exchange or transfer of Certificates to the
Plan; (iv) the total value of the Certificates purchased by such Plan does not
exceed 25% of the amount issued; and (v) at least 50% of the aggregate amount of
Certificates is acquired by persons independent of the Depositor, the Trustee,
the Servicer and the Enhancer, if any.
Before purchasing Certificates, a fiduciary of a Plan should confirm that
the Trust is a "mortgage pool," that the Certificates constitute "mortgage pool
pass-through certificates," and that the conditions set forth in PTCE 83-1 would
be satisfied. In addition to making its own determination as to the availability
of the exemptive relief provided in PTCE 83-1, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions. The
Plan fiduciary also should consider its general fiduciary obligations under
ERISA in determining whether to purchase any Certificates on behalf of a Plan.
In addition, DOL has granted to certain underwriters and/or placement
agents individual prohibited transaction exemptions which may be applicable to
avoid certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale in the secondary market
by Plans of pass-through certificates representing a beneficial undivided
ownership interest in the assets of a trust that
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consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the exemption which may be applicable to the
Certificates.
One or more other prohibited transaction exemptions issued by the DOL may
be available to a Plan investing in Certificates, depending in part upon the
type of Plan fiduciary making the decision to acquire Certificates and the
circumstances under which such decision is made, including but not limited to:
PTCE 90-1 (regarding investments by insurance company pooled separate accounts),
PTCE 91-38 (regarding investments by bank collective investment funds); PTCE
95-60 (regarding investments by insurance company general accounts); PTCE 84-14
(regarding investments by qualified professional asset managers); or PTCE 96-23
(regarding investment by in-house asset managers). However, even if the
conditions specified in the Exemption or one or more of these other exemptions
are met, the scope of the relief provided might or might not cover all acts
which might be construed as prohibited transactions.
Any Plan fiduciary considering the purchase of a Certificate should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment. Moreover, each Plan fiduciary should determine whether,
under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio. Special caution ought to be
exercised before a Plan purchases a Certificate in such circumstances.
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FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Stroock & Stroock & Lavan, special Federal tax counsel,
("Federal Tax Counsel"), the following are the material federal income tax
consequences of the purchase, ownership and disposition of the Certificates
offered hereby. The discussion, and the opinions referred to below, are based on
laws, regulations, rulings and decisions now in effect (or, in the case of
certain regulations, proposed), all of which are subject to change or possibly
differing interpretations. Because tax consequences may vary based on the status
or tax attributes of the owner of a Certificate, prospective investors should
consult their own tax advisors in determining the federal, state, local and
other tax consequences to them of the purchase, ownership and disposition of a
Certificate. For purposes of this tax discussion (except with respect to
information reporting, or where the context indicates otherwise), the terms
"Certificateholder" and "Holder" mean the beneficial owner of a Certificate.
REMIC Elections
Under the Internal Revenue Code of 1986, as amended (the "Code"), an
election may be made with respect to each Trust related to a Series of
Certificates to treat such Trust or certain assets of such Trust as a "real
estate mortgage investment conduit" ("REMIC"). The Prospectus Supplement for
each Series of Certificates will indicate whether a REMIC election will be made
with respect to the related Trust. To the extent provided in the Prospectus
Supplement for a Series, Certificateholders may also have the benefit of a
reserve fund and of certain agreements (each, a "Yield Supplement Agreement")
under which payment will be made from the reserve fund in the event that
interest accrued on the Contracts at their Contracts Rates is insufficient to
pay interest on the Certificates of such Series (a "Basis Risk Shortfall"). If a
REMIC election is to be made, the Prospectus Supplement will designate the
Certificates of such Series that will be designated as "regular interests"
("REMIC Regular Certificates") in the REMIC (within the meaning of Section
860G(a)(1) of the Code) or as the "residual interest" ("REMIC Residual
Certificates") in the REMIC (within the meaning of Section 860G(a)(2) of the
Code).
REMIC Certificates
With respect to each Series of REMIC Certificates, the Trustee will agree
in the Agreement to elect to treat the related Trust or certain assets of such
Trust as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Upon the issuance of each Series of REMIC Certificates,
Federal Tax Counsel will deliver its opinion generally to the effect that under
then-existing law and assuming a proper and timely REMIC election and ongoing
compliance with the provisions of the related Agreement and applicable
provisions of the Code and applicable Treasury regulations and rulings, the
related Trust or certain assets of such Trust will be a REMIC and the REMIC
Certificates will be considered to evidence ownership of "regular interests" or
"residual interests" within the meaning of the REMIC provisions of the Code.
To the extent provided in the Prospectus Supplement for a Series, REMIC
Regular Certificateholders who are entitled to payments from a reserve fund in
the event of a Basis Risk Shortfall will be required to allocate their purchase
price between their beneficial ownership interests in the related REMIC regular
interests and Yield Supplement Agreements, and will be required to report their
income realized with respect to each, calculated taking into account such
allocation. In general, such allocation would be based on the respective fair
market values of the REMIC regular interests and the related Yield Supplement
Agreements on the date of purchase of the related Certificate. No representation
is or will be made as to the fair market value of the Yield Supplement
Agreements or the relative values of the REMIC regular interests and the Yield
Supplement Agreements, upon initial issuance of the related REMIC Regular
Certificates or at any time thereafter. REMIC Regular Certificateholders are
advised to consult their own tax advisors concerning the determination of such
fair market values. Under the Agreement, holders of applicable Classes of REMIC
Regular Certificates will agree that, for federal income tax purposes, they will
be treated as owners of the respective class of regular interests and of the
corresponding Yield Supplement Agreement.
The regulations under Sections 860A through 860G of the Code (the "REMIC
Regulations") provide that obligations secured by interests in manufactured
housing which qualify as "single family residences" within the meaning of
Section 25(e)(10) of the Code, are to be treated as "qualified mortgages" for a
REMIC. Under Section 25(e)(10) of the Code, the term "single family residence"
includes any manufactured home which has a
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minimum of 400 square feet of living space and a minimum width in excess of 102
inches and which is of a kind customarily used at a fixed location. The
Originator will represent and warrant that each of the manufactured homes
securing the Contracts which are a part of a Trust for which a REMIC election
will be made meets this definition of a "single family residence."
Status of REMIC Certificates as Real Property Loans. The REMIC Certificates
will be "qualifying real property loans" within the meaning of Section 593(d) of
the Code, "real estate assets" for purposes of Section 856(c)(5)(A) of the Code
and assets described in Section 7701(a)(19)(C) of the Code (assets qualifying
under one or more of those sections, applying each section separately,
"qualifying assets") to the extent that the REMIC's assets are qualifying
assets, but not to the extent that the REMIC's assets consist of Yield
Supplement Agreements. However, if at least 95 percent of the REMIC's assets are
qualifying assets, then 100 percent of the REMIC Certificates will be qualifying
assets. Similarly, income on the REMIC Certificates will be treated as "interest
on obligations secured by mortgages on real property" within the meaning of
Section 856(c)(3)(B) of the Code, subject to the limitations of the preceding
two sentences. In addition to the Contracts, the REMIC's assets will include
payments on the Contracts held pending distribution to holders of REMIC
Certificates, amounts in reserve accounts (if any), and other credit
enhancements (if any). The Contracts generally will be qualifying assets under
all three of the foregoing sections of the Code. However, Contracts that are not
secured by residential real property or real property used primarily for church
purposes may not constitute qualifying assets under Section 7701(a)(19)(C)(v) of
the Code, and Contracts that are not secured by improved real property or real
property which is to be improved using loan proceeds will not constitute
qualifying assets under Section 593(d) of the Code. In addition, to the extent
that the principal amount of a Contract exceeds the value of the property
securing the Contract, it is unclear and Federal Tax Counsel is unable to opine
whether the Contract will be a qualifying asset. The REMIC Regulations treat
credit enhancements as part of the mortgage or pool of mortgages to which they
relate, and therefore credit enhancements generally should be qualifying assets.
Regulations issued in conjunction with the REMIC Regulations provide that
amounts paid on Contracts and held pending distribution to holders of
Certificates ("cash flow investments") will be treated as qualifying assets. It
is unclear whether reserve funds would also constitute qualifying assets under
any of those provisions.
Tiered REMIC Structures
For certain Series of Certificates, two or more separate elections may be
made to treat designated portions of the related Trust as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such Series
of Certificates, Federal Tax Counsel will deliver its opinion generally to the
effect that, under then-existing law and assuming proper and timely REMIC
elections and ongoing compliance with the provisions of the related Agreement
and applicable provisions of the Code and applicable Treasury regulations and
rulings, the Tiered REMICs will each qualify as a REMIC and the REMIC
Certificates issued by the Tiered REMICs, respectively, will be considered to
evidence ownership of "regular interests" or "residual interests" in the related
REMIC within the meaning of the REMIC provisions of the Code.
Solely for purposes of determining whether the REMIC Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code, and "loans
secured by an interest in real property" under Section 7701(a)(19)(C) of the
Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
REMIC Regular Certificates
Current Income on REMIC Regular Certificates--General. Except as otherwise
indicated herein, the REMIC Regular Certificates will be treated for federal
income tax purposes (but not necessarily for accounting or other purposes) as
debt instruments that are issued by the REMIC on the date of issuance of the
REMIC Regular Certificates and not as ownership interests in the REMIC or the
REMIC's assets. Holders of REMIC Regular Certificates who would otherwise report
income under a cash method of accounting will be required to report income with
respect to REMIC Regular Certificates under an accrual method.
Payments of interest on REMIC Regular Certificates may be based on a fixed
rate, a variable rate as permitted by the REMIC Regulations, or may consist of a
specified portion of the interest payments on qualified
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mortgages where such portion does not vary during the period the REMIC Regular
Certificate is outstanding. The definition of a variable rate for purposes of
the REMIC Regulations is based on the definition of a qualified floating rate
for purposes of the rules governing original issue discount set forth in
Sections 1271 through 1275 of the Code and the regulations thereunder (the "OID
Regulations") with certain modifications and permissible variations. In contrast
to the OID Regulations, for purposes of the REMIC Regulations, a qualified
floating rate does not include any multiple of a qualified floating rate (also
excluding multiples of qualified floating rates that themselves would constitute
qualified floating rates under the OID Regulations), and the characterization of
a variable rate that is subject to a cap, floor or similar restriction as a
qualified floating rate for purposes of the REMIC Regulations will not depend
upon the OID Regulations relating to caps, floors, and similar restrictions. A
qualified floating rate, as defined above for purposes of the REMIC Regulations
(a "REMIC Qualified Floating Rate"), qualifies as a variable rate for purposes
of the REMIC Regulations if such REMIC Qualified Floating Rate is set at a
"current rate" as defined in the OID Regulations. In addition, a rate equal to
the highest, lowest or an average of two or more REMIC Qualified Floating Rates
qualifies as a variable rate for REMIC purposes. A REMIC Regular Certificate
also may have a variable rate based on a weighted average of the interest rates
on some or all of the qualified mortgages held by the REMIC where each qualified
mortgage taken into account has a fixed rate or a variable rate that is
permissible under the REMIC Regulations. Further, a REMIC Regular Certificate
may have a rate that is the product of a REMIC Qualified Floating Rate or a
weighted average rate and a fixed multiplier, is a constant number of basis
points more or less than a REMIC Qualified Floating Rate or a weighted average
rate, or is the product, plus or minus a constant number of basis points, of a
REMIC Qualified Floating Rate or a weighted average rate and a fixed multiplier.
An otherwise permissible variable rate for a REMIC Regular Certificate,
described above, will not lose its character as such because it is subject to a
floor or a cap, including a "funds available cap" as that term is defined in the
REMIC Regulations. Lastly, a REMIC Regular Certificate will be considered as
having a permissible variable rate if it has a fixed or otherwise permissible
variable rate during one or more payment or accrual periods and different fixed
or otherwise permissible variable rates during other payment or accrual periods.
Original Issue Discount. REMIC Regular Certificates of certain Series may
be issued with "original issue discount" within the meaning of Section 1273(a)
of the Code. Holders of REMIC Regular Certificates issued with original issue
discount generally must include original issue discount in gross income for
federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income, under a method that takes account of the
compounding of interest. The Code requires that information with respect to the
original issue discount accruing on any REMIC Regular Certificate be reported
periodically to the Internal Revenue Service and to certain categories of
holders of such REMIC Regular Certificates.
Each Trust will report original issue discount, if any, to the Holders of
REMIC Regular Certificates based on the OID Regulations. The OID Regulations are
effective April 4, 1994. Proposed OID Regulations concerning contingent payments
have not been finalized.
The Code provides that, in the case of a debt instrument such as a REMIC
Regular Certificate, (i) the amount and rate of accrual of original issue
discount will be calculated based on a reasonable assumed prepayment rate (the
"Prepayment Assumption"), and (ii) adjustments will be made in the amount and
rate of accrual of such discount to reflect differences between the actual
prepayment rate and the Prepayment Assumption. The method for determining the
appropriate assumed prepayment rate will eventually be set forth in Treasury
regulations, but those regulations have not yet been issued. The applicable
legislative history indicates, however, that such regulations will provide that
the assumed prepayment rate for securities such as the REMIC Regular
Certificates will be the rate used in pricing the initial offering of the
securities. The Prospectus Supplement for each Series of REMIC Regular
Certificates will specify the Prepayment Assumption, but no representation is
made that the REMIC Regular Certificates will prepay at a rate based on the
Prepayment Assumption or at any other rate.
In general, a REMIC Regular Certificate will be considered to be issued
with original issue discount if its stated redemption price at maturity exceeds
its issue price. Except as discussed below under "Payment Lag REMIC Regular
Certificates; Initial Period Considerations" and "Qualified Stated Interest,"
and in the case of certain Variable Rate REMIC Regular Certificates (as defined
below) and accrual certificates, the stated redemption price at maturity of a
REMIC Regular Certificate is its principal amount. The issue price of a REMIC
Regular Certificate is the initial offering price to the public (excluding bond
houses and brokers) at which a
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substantial amount of the Class of REMIC Regular Certificates was sold. The
issue price will be reduced if any portion of such price is allocable to a
related Yield Supplement Agreement. Notwithstanding the general definition of
original issue discount, such discount will be considered to be zero for any
REMIC Regular Certificate on which such discount is less than 0.25% of its
stated redemption price at maturity multiplied by its weighted average life. The
weighted average life of a REMIC Regular Certificate apparently is computed for
purposes of this de minimis rule as the sum, for all distributions included in
the stated redemption price at maturity of the REMIC Regular Certificate, of the
amounts determined by multiplying (i) the number of complete years (rounding
down for partial years) from the closing date to the date on which each such
distribution is expected to be made, determined under the Prepayment Assumption,
by (ii) a fraction, the numerator of which is the amount of such distribution
and the denominator of which is the REMIC Regular Certificate's stated
redemption price at maturity. The OID Regulations provide that Holders will
include any de minimis original issue discount ratably as payments of stated
principal are made on the REMIC Regular Certificates.
The Holder of a REMIC Regular Certificate issued with original issue
discount must include in gross income the sum of the "daily portions" of such
original issue discount for each day during its taxable year on which it held
such REMIC Regular Certificate. In the case of an original Holder of a REMIC
Regular Certificate, the daily portions of original issue discount are
determined first by calculating the portion of the original issue discount that
accrued during each period (an "accrual period") that begins on the day
following a Remittance Date (or in the case of the first such period, begins on
the closing date) and ends on the next succeeding Remittance Date. The original
issue discount accruing during each accrual period is then allocated ratably to
each day during such period to determine the daily portion of original issue
discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Certificate, if any, in future periods and (B) the
distributions made on the REMIC Regular Certificate during the accrual period
that are included in such REMIC Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that the REMIC Regular Certificates will be prepaid in future periods
at a rate computed in accordance with the Prepayment Assumption and (ii) using a
discount rate equal to the original yield to maturity of the REMIC Regular
Certificates. For these purposes, the original yield to maturity of the REMIC
Regular Certificates will be calculated based on their issue price and assuming
that the REMIC Regular Certificates will be prepaid in accordance with the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such REMIC
Regular Certificate, increased by the portion of the original issue discount
that has accrued during prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
that were included in such REMIC Regular Certificate's stated redemption price
at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, it is likely that a
Holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Certificate in future accrual
periods. Although Federal Tax Counsel is unable to opine with respect to this
matter, such a holder may be entitled to deduct a loss to the extent that its
remaining basis would exceed the maximum amount of future payments to which such
holder is entitled. It is unclear whether the Prepayment Assumption is taken
into account for this purpose.
A subsequent Holder that purchases a REMIC Regular Certificate issued with
original issue discount at a cost less than its remaining stated redemption
price at maturity will also generally be required to include in gross income,
for each day on which it holds such REMIC Regular Certificate, the daily
portions of original issue discount with respect to the REMIC Regular
Certificate, calculated as described above. However, if (i) the excess of the
remaining stated redemption price at maturity over such cost is less than (ii)
the aggregate amount of such daily portions for all days after the date of
purchase until final retirement of such REMIC Regular Certificate, then such
daily portions will be reduced proportionately in determining the income of such
holder.
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Qualified Stated Interest. Interest payable on a REMIC Regular Certificate
which qualifies as "qualified stated interest" for purposes of the OID
Regulations will not be includible in the stated redemption price at maturity of
the REMIC Regular Certificate. Interest payments will not qualify as qualified
stated interest unless the interest payments are "unconditionally payable." The
OID Regulations state that interest is unconditionally payable if late payment
of interest (other than late payment that occurs within a reasonable grace
period) or nonpayment of interest is expected to be penalized or reasonable
remedies exist to compel payment. The meaning of "penalized" under the OID
Regulations is unclear. The Internal Revenue Service has taken the position that
a penalty must inure directly to the benefit of the debt instrument holder and
must be large enough to ensure that, at the time the debt instruments are
issued, it is reasonably certain that, absent insolvency, the issuer will make
interest payments when due. In its determination, the accrual of interest on
past-due interest payments at a penalty rate that is two percentage points above
the stated yield of a debt instrument is not a sufficient penalty, but the
accrual of interest on past-due interest payments at a penalty rate that is
twelve percentage points above the stated yield of the debt instrument might be
a sufficient penalty, depending on the facts and circumstances. Accordingly,
Federal Tax Counsel is unable to opine whether interest payments on REMIC
Regular Certificates that otherwise would not be treated as having original
issue discount would be considered to have original issue discount because there
are not reasonable remedies to compel timely payment of interest or adequate
penalties for the nonpayment of interest.
Premium. A purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such REMIC Regular
Certificate at a premium, and may, under Section 171 of the Code, elect to
amortize such premium under a constant yield method over the life of the REMIC
Regular Certificate. The Prepayment Assumption is probably taken into account in
determining the life of the REMIC Regular Certificate for this purpose. Except
as provided in regulations, amortizable premium will be treated as an offset to
interest income on the REMIC Regular Certificate.
Payment Lag REMIC Regular Certificates; Initial Period Considerations.
Certain REMIC Regular Certificates will provide for distributions of interest
based on a period that is the same length as the interval between Remittance
Dates but ends prior to each Remittance Date. Any interest that accrues prior to
the closing date may be treated under the OID Regulations either (i) as part of
the issue price and the stated redemption price at maturity of the REMIC Regular
Certificates or (ii) as not included in the issue price or the stated redemption
price. The OID Regulations provide a special application of the de minimis rule
for debt instruments with long first accrual periods where the interest payable
for the first period is at a rate which is effectively less than that which
applies in all other periods. In such cases, for the sole purpose of determining
whether original issue discount is de minimis, the OID Regulations provide that
the stated redemption price is equal to the instrument's issue price plus the
greater of the amount of foregone interest or the excess (if any) of the
instrument's stated principal amount over its issue price.
Variable Rate REMIC Regular Certificates. Under the OID Regulations, REMIC
Regular Certificates paying interest at a variable rate (a "Variable Rate REMIC
Regular Certificate") are subject to special rules. A Variable Rate REMIC
Regular Certificate will qualify as a "variable rate debt instrument" if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate REMIC Regular Certificate by more than a specified de minimis
amount and (ii) it provides for stated interest, paid or compounded at least
annually, at (a) one or more qualified floating rates, (b) a single fixed rate
and one or more qualified floating rates, (c) a single objective rate or (d) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate REMIC Regular Certificate is denominated. A multiple of a
qualified floating rate will generally not itself constitute a qualified
floating rate for purposes of the OID Regulations. However, a variable rate
equal to (i) the product of a qualified floating rate and a fixed multiple that
is greater than zero but not more than 1.35 or (ii) the product of a qualified
floating rate and a fixed multiple that is greater than zero but not more than
1.35, increased or decreased by a fixed rate will constitute a qualified
floating rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate REMIC Regular
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Certificate will be treated as a single qualified floating rate (a "Presumed
Single Qualified Floating Rate"). Two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable Rate
REMIC Regular Certificate's issue date will be conclusively presumed to be a
Presumed Single Qualified Floating Rate. Notwithstanding the foregoing, a
variable rate that would otherwise constitute a qualified floating rate but
which is subject to one or more restrictions such as a cap or floor, will not be
a qualified floating rate for purposes of the OID Regulations unless the
restriction is fixed throughout the term of the Variable Rate REMIC Regular
Certificate or the restriction will not significantly affect the yield of the
Variable Rate REMIC Regular Certificate.
An "objective rate" is a rate that is not itself a qualified floating rate
but which is determined using a single fixed formula and which is based upon (i)
one or more qualified floating rates, (ii) one or more rates where each rate
would be a qualified floating rate for a debt instrument denominated in a
currency other than the currency in which the Variable Rate REMIC Regular
Certificate is denominated, (iii) either the yield or changes in the price of
one or more items of actively traded personal property or (iv) a combination of
rates described in (i),(ii) and (iii). The OID Regulations also provide that
other variable rates may be treated as objective rates if so designated by the
Internal Revenue Service in the future. Despite the foregoing, a variable rate
of interest on a Variable Rate REMIC Regular Certificate will not constitute an
objective rate if it is reasonably expected that the average value of such rate
during the first half of the Variable Rate REMIC Regular Certificate's term will
be either significantly less than or significantly greater than the average
value of the rate during the final half of the Variable Rate REMIC Regular
Certificate's term. An objective rate will qualify as a "qualified inverse
floating rate" if such rate is equal to a fixed rate minus a qualified floating
rate and variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds. The OID
Regulations also provide that if a Variable Rate REMIC Regular Certificate
provides for stated interest at a fixed rate for an initial period of less than
one year followed by a variable rate that is either a qualified floating rate or
an objective rate and if the variable rate on the Variable Rate REMIC Regular
Certificate's issue date is intended to approximate the fixed rate, then the
fixed rate and the variable rate together will constitute either a single
qualified floating rate or objective rate, as the case may be (a "Presumed
Single Variable Rate"). If the value of the variable rate and the initial fixed
rate are within 25 basis points of each other as determined on the Variable Rate
REMIC Regular Certificate's issue date, the variable rate will be conclusively
presumed to approximate the fixed rate.
For Variable Rate REMIC Regular Certificates that qualify as a "variable
rate debt instrument" under the OID Regulations and provide for interest at
either a single qualified floating rate, a single objective rate, a Presumed
Single Qualified Floating Rate or a Presumed Single Variable Rate throughout the
term (a "Single Variable Rate REMIC Regular Certificate"), original issue
discount is computed as described in "REMIC Regular Certificates-Current Income
on REMIC Regular Certificates--Original Issue Discount" based on the following:
(i) stated interest on the Single Variable Rate REMIC Regular Certificate which
is unconditionally payable in cash or property (other than debt instruments of
the issuer) at least annually will constitute qualified stated interest and (ii)
by assuming that the variable rate on the Single Variable Rate REMIC Certificate
is a fixed rate equal to: (a) in the case of a Single Variable Rate REMIC
Regular Certificate with a qualified floating rate or a qualified inverse
floating rate, the value, as of the issue date, of the qualified floating rate
or the qualified inverse floating rate or (b) in the case of a Single Variable
Rate REMIC Regular Certificate with an objective rate (other than a qualified
inverse floating rate), a fixed rate which reflects the reasonably expected
yield for such Single Variable Rate REMIC Regular Certificate.
In general, any Variable Rate REMIC Regular Certificate other than a Single
Variable Rate REMIC Regular Certificate (a "Multiple Variable Rate REMIC Regular
Certificate") that qualifies as a "variable rate debt instrument" will be
converted into an "equivalent" fixed rate debt instrument for purposes of
determining the amount and accrual of original issue discount and qualified
stated interest on the Multiple Variable Rate REMIC Regular Certificate. The OID
Regulations generally require that such a Multiple Variable Rate REMIC Regular
Certificate be converted into an "equivalent" fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate REMIC Regular
Certificate with a fixed rate equal to the value of the qualified floating rate
or qualified inverse floating rate, as the case may be, as of the Multiple
Variable Rate REMIC Regular Certificate's issue date. Any objective rate (other
than a qualified inverse floating rate) provided for under the terms of the
Multiple Variable Rate REMIC
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Regular Certificate is converted into a fixed rate that reflects the yield that
is reasonably expected for the Multiple Variable Rate REMIC Regular Certificate.
In the case of a Multiple Variable Rate REMIC Regular Certificate that qualifies
as a "variable rate debt instrument" and provides for stated interest at a fixed
rate in addition to either one or more qualified floating rates or a qualified
inverse floating rate, the fixed rate is initially converted into a qualified
floating rate (or a qualified inverse floating rate, if the Multiple Variable
Rate REMIC Regular Certificate provides for a qualified inverse floating rate).
Under such circumstances, the qualified floating rate or qualified inverse
floating rate that replaces the fixed rate must be such that the fair market
value of the Multiple Variable Rate REMIC Regular Certificate as of the Multiple
Variable Rate REMIC Regular Certificate's issue date is approximately the same
as the fair market value of an otherwise identical debt instrument that provides
for either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Multiple
Variable Rate REMIC Regular Certificate is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
Once the Multiple Variable Rate REMIC Regular Certificate is converted into
an "equivalent" fixed rate debt instrument pursuant to the foregoing rules, the
amount of original issue discount and qualified stated interest, if any, are
determined for the "equivalent" fixed rate debt instrument by applying the
original issue discount rules to the "equivalent" fixed rate debt instrument in
the manner described in "REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount". A Holder of the Multiple
Variable Rate REMIC Regular Certificate will account for such original issue
discount and qualified stated interest as if the Holder held the "equivalent"
fixed rate debt instrument. Each accrual period, appropriate adjustments will be
made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate REMIC Regular Certificate
during such accrual period.
The OID Regulations do not clearly address the treatment of a Variable Rate
REMIC Regular Certificate that is based on a weighted average of the interest
rates on underlying Contracts and, consequently, Federal Tax Counsel is unable
to opine whether REMIC Regular Certificates that otherwise would not be treated
as having original issue discount would be considered to have original issue
discount because they bear interest based on a weighted average. Under the OID
Regulations, interest payments on such a Variable Rate REMIC Regular Certificate
may be characterized as qualified stated interest which is includible in income
in a manner similar to that described in the previous paragraph. However, it is
also possible that interest payments on such a Variable Rate REMIC Regular
Certificate would be treated as contingent interest (possibly includible in
income when the payments become fixed) or in some other manner. If a Variable
Rate REMIC Regular Certificate does not qualify as a "variable rate debt
instrument" under the OID Regulations, then the Variable Rate REMIC Regular
Certificate would be treated as a contingent payment debt obligation. Federal
Tax Counsel is unable to opine how a Variable Rate REMIC Regular Certificate
would be taxed if such REMIC Regular Certificate were to be treated as a
contingent payment debt obligation.
Interest-Only REMIC Regular Certificates. The Trust intends to report
income from interest-only Classes of REMIC Regular Certificates to the Internal
Revenue Service and to holders of interest-only REMIC Regular Certificates based
on the assumption that the stated redemption price at maturity is equal to the
sum of all payments determined under the Prepayment Assumption. As a result,
such interest-only REMIC Regular Certificates will be treated as having original
issue discount.
Market Discount. A Holder that acquires a REMIC Regular Certificate at a
market discount (that is, a discount that exceeds any unaccrued original issue
discount) will recognize gain upon receipt of a principal distribution,
regardless of whether the distribution is scheduled or is a prepayment. In
particular, the REMIC Regular Certificateholder will be required to allocate
that principal distribution first to the portion of the market discount on such
REMIC Regular Certificate that has accrued but has not previously been
includible in income, and will recognize ordinary income to that extent. In
general terms, unless Treasury regulations when issued state otherwise, market
discount on a REMIC Regular Certificate may be treated, at the REMIC
Certificateholder's election, as accruing either (i) under a constant yield
method, taking into account the Prepayment Assumption, or (ii) in proportion to
accruals of original issue discount (or, if there is no original issue discount,
in proportion to payments of interest at the Remittance Rate).
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In addition, a Holder may be required to defer deductions for a portion of
the Holder's interest expense on any debt incurred or continued to purchase or
carry a REMIC Regular Certificate purchased with market discount. The deferred
portion of any interest deduction would not exceed the portion of the market
discount on the REMIC Regular Certificate that accrues during the taxable year
in which such interest would otherwise be deductible and, in general, would be
deductible when such market discount is included in income upon receipt of a
principal distribution on, or upon the sale of, the REMIC Regular Certificate.
The Code requires that information necessary to compute accruals of market
discount be reported periodically to the Internal Revenue Service and to certain
categories of Holders of REMIC Regular Certificates.
Notwithstanding the above rules, market discount on a REMIC Regular
Certificate will be considered to be zero if such discount is less than 0.25% of
the remaining stated redemption price at maturity of such REMIC Regular
Certificate multiplied by its weighted average remaining life. Weighted average
remaining life presumably is calculated in a manner similar to weighted average
life (described above under "Current Income on REMIC Regular
Certificates-Original Issue Discount"), taking into account distributions
(including prepayments) prior to the date of acquisition of such REMIC Regular
Certificate by the subsequent purchaser. If market discount on a REMIC Regular
Certificate is treated as zero under this rule, the actual amount of such
discount must be allocated to the remaining principal distributions on the REMIC
Regular Certificate, and when each such distribution is made, gain equal to the
discount, if any, allocated to the distribution will be recognized.
Election to Treat All Interest Under the Constant Yield Rules. The OID
Regulations provide that all Holders may elect to include in gross income all
interest that accrues on a debt instrument issued after April 4, 1994 by using
the constant yield method. For purposes of this election, interest includes
stated interest, original issue discount, and market discount, as adjusted to
account for any premium. Holders should consult their own tax advisors regarding
the availability or advisability of such an election.
Sales of REMIC Regular Certificates. If a REMIC Regular Certificate is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC Regular
Certificate. A Holder's adjusted basis in a REMIC Regular Certificate generally
equals the cost of the REMIC Regular Certificate to the Holder, increased by
income reported by the Holder with respect to the REMIC Regular Certificate and
reduced (but not below zero) by distributions on the REMIC Regular Certificate
received by the Holder and by amortized premium. Except as indicated in the next
two paragraphs, any such gain or loss generally will be capital gain or loss
provided the REMIC Regular Certificate is held as a capital asset.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the seller's income with respect to the REMIC Regular Certificate
had income accrued thereon at a rate equal to 110% of "the applicable Federal
rate" (generally, an average of current yields on Treasury securities),
determined as of the date of purchase of the REMIC Regular Certificate, over
(ii) the amount actually includible in the seller's income. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
the REMIC Regular Certificate at a market discount would be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period the REMIC Regular Certificate was held by such seller, reduced
by any market discount includible in income under the rules described above
under "Current Income on REMIC Regular Certificates--Market Discount."
REMIC Regular Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from a
sale of a REMIC Regular Certificate by a bank or other financial institution to
which such section applies would be ordinary income or loss.
Termination. The REMIC will terminate shortly following the REMIC's receipt
of the final payment in respect of the Contracts. The last distribution on a
REMIC Regular Certificate should be treated as a payment in full retirement of a
debt instrument.
Tax Treatment of Yield Supplement Agreements
Whether a REMIC Regular Certificateholder of a Series will have a separate
contractual right to payments under a Yield Supplement Agreement, and the tax
treatment of such payments, if any, will be addressed in the related Prospectus
Supplement.
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REMIC Residual Certificates
Because the REMIC Residual Certificates will be treated as "residual
interests" in the REMIC, each Holder of a REMIC Residual Certificate will be
required to take into account its daily portion of the taxable income or net
loss of the REMIC for each day during the calendar year on which it holds its
REMIC Residual Certificate. The daily portion is determined by allocating to
each day in a calendar quarter a ratable portion of the taxable income or net
loss of the REMIC for that quarter and allocating such daily amounts among the
Holders on such day in proportion to their holdings. All income or loss of the
REMIC taken into account by a REMIC Residual Certificateholder must be treated
as ordinary income or loss, as the case may be. Income from residual interests
is "portfolio income" which cannot be offset by "passive activity losses" in the
hands of individuals or other persons subject to the passive loss rules. The
Code also provides that all residual interests must be issued on the REMIC's
startup day and designated as such. For this purpose, "startup day" means the
day on which the REMIC issues all of its regular and residual interests, and
under the REMIC Regulations may, in the case of a REMIC to which property is
contributed over a period of up to ten consecutive days, be any day designated
by the REMIC within such period.
The taxable income of the REMIC, for purposes of determining the amounts
taken into account by Holders of REMIC Residual Certificates, is determined in
the same manner as in the case of an individual, with certain exceptions. The
accrual method of accounting must be used and the taxable year of the REMIC must
be the calendar year. The basis of property contributed to the REMIC in exchange
for regular or residual interests is its fair market value immediately after the
transfer. The REMIC Regulations determine the fair market value of the
contributed property by deeming it equal to the aggregate issue prices of all
regular and residual interests in the REMIC.
A REMIC Regular Certificate will be considered indebtedness of the REMIC.
Market discount on any of the Contracts held by the REMIC must be included in
the income of the REMIC as it accrues, rather than being included in income only
upon sale of the Contracts or as principal on the Contracts is paid. The REMIC
is not entitled to any personal exemptions or to deductions for taxes paid to
foreign countries and U.S. possessions, charitable contributions or net
operating losses, or to certain other deductions to which individuals are
generally entitled. Income or loss in connection with a "prohibited transaction"
is disregarded. See "Prohibited Transactions."
As previously discussed, the timing of recognition of negative original
issue discount, if any, on a REMIC Regular Certificate is uncertain. As a
result, the timing of recognition of the REMIC taxable income related to a REMIC
Residual Certificate is also uncertain. Although Federal Tax Counsel is unable
to opine as to this matter, the related REMIC taxable income may be recognized
when the adjusted issue price of such REMIC Regular Certificate would exceed the
maximum amount of future payments with respect to such REMIC Regular
Certificate. It is unclear whether the Prepayment Assumption is taken into
account for this purpose.
A REMIC Residual Certificate has a tax basis in its Holder's hands that is
distinct from the REMIC's basis in its assets. The tax basis of a REMIC Residual
Certificate in its holder's hands will be its cost (i.e., the purchase price of
the REMIC Residual Certificate), and will be reduced (but not below zero) by the
Holder's share of cash distributions and losses and increased by its share of
taxable income from the REMIC.
If, in any year, cash distributions to a Holder of a REMIC Residual
Certificate exceed its share of the REMIC's taxable income, the excess will
constitute a return of capital to the extent of the Holder's basis in its REMIC
Residual Certificate. A return of capital is not treated as income for federal
income tax purposes, but will reduce the tax basis of the Holder in its REMIC
Residual Certificate (but not below zero). If a REMIC Residual Certificate's
basis is reduced to zero, any cash distributions with respect to that REMIC
Residual Certificate in any taxable year in excess of its share of the REMIC's
income would be taxable to the Holder as gain on the sale or exchange of its
interest in the REMIC.
The losses of the REMIC taken into account by a Holder of a REMIC Residual
Certificate in any quarter may not exceed the holder's basis in its REMIC
Residual Certificate. Any excess losses may be carried forward indefinitely to
future quarters subject to the same limitation.
There is no REMIC counterpart to the partnership election under Code
Section 754 to increase or decrease the partnership's basis in its assets by
reference to the adjusted basis to subsequent partners of their partnership
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interest. The REMIC Regulations do not provide for a similar election or other
adjustment. Consequently, a subsequent purchaser of a REMIC Residual Certificate
at a premium will not be able to use the premium to reduce his share of the
REMIC's taxable income.
Mismatching of Income and Deductions; Excess Inclusions. The taxable income
recognized by the Holder of a REMIC Residual Certificate in any taxable year
will be affected by, among other factors, the relationship between the timing of
recognition of interest and discount income (or deductions for amortization of
premium) with respect to the Contracts, on the one hand, and the timing of
deductions for interest (including original issue discount) on the REMIC Regular
Certificates, on the other. In the case of multiple Classes of REMIC Regular
Certificates issued at different yields, and having different weighted average
lives, taxable income recognized by the holders of REMIC Residual Certificates
may be greater than cash flow in earlier years of the REMIC (with a
corresponding taxable loss or less taxable income than cash flow in later
years). This may result from the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of the REMIC
Regular Certificates, will increase over time as the shorter term, lower
yielding Classes of REMIC Regular Certificates are paid, whereas interest income
from the Contracts may not increase over time as a percentage of the outstanding
principal amount of the Contracts.
In the case of Tiered REMICs, the OID Regulations provide that the regular
interests in the REMIC which directly owns the Contracts (the "Lower Tier
REMIC") will be treated as a single debt instrument for purposes of
the original issue discount provisions. Therefore, the Trust will calculate the
taxable income of Tiered REMICs by treating the Lower Tier REMIC regular
interests as a single debt instrument.
Any "excess inclusions" with respect to a REMIC Residual Certificate will
be subject to certain special rules. The excess inclusions with respect to a
REMIC Residual Certificate are equal to the excess, if any, of its share of
REMIC taxable income for the quarterly period over the sum of the daily accruals
for such quarterly period. The daily accrual for any day on which the REMIC
Residual Certificate is held is determined by allocating to each day in a
quarter its allocable share of the product of (A) 120% of the long-term
applicable Federal rate (for quarterly compounding) that would have applied to
the REMIC Residual Certificates if they were debt instruments on the closing
date under Code Section 1274(d)(1) and (B) the adjusted issue price of such
REMIC Residual Certificates at the beginning of a quarterly period. For this
purpose, the adjusted issue price of such REMIC Residual Certificate at the
beginning of a quarterly period is the issue price of such Certificates plus the
amount of the daily accruals of REMIC taxable income for all prior quarters,
decreased by any distributions made with respect to such Certificates prior to
the beginning of such quarterly period.
The excess inclusions of a REMIC Residual Certificate may not be offset by
other deductions, including net operating loss carryforwards, on a Holder's
return. An exception exists for organizations to which Code Section 593 applies
(generally, certain thrift institutions); however, the Code grants the Treasury
Department authority to issue regulations providing that this exception will not
apply to the extent necessary or appropriate to prevent avoidance of tax. The
REMIC Regulations provide that the exception for thrifts applies only if a REMIC
Residual Certificate has "significant value." For this purpose, a REMIC Residual
Certificate has significant value if (i) the aggregate issue price of the
residual interest in the REMIC equals at least two percent of the total issue
prices of all interests in the REMIC, and (ii) the REMIC Residual Certificate
has an anticipated weighted average life at least equal to 20 percent of the
anticipated weighted average life of the REMIC. The anticipated weighted average
life of the REMIC is the weighted average of the anticipated weighted average
lives of all classes of interests in the REMIC. This weighted average is
determined under a formula provided in the REMIC Regulations, applied by
treating all payments taken into account in computing the anticipated weighted
average lives of the regular and residual interests in the REMIC as principal
payments on a single regular interest.
Legislation has been introduced with respect to the relationship between
excess inclusions and the alternative minimum tax. This legislation provides
that (i) the alternative minimum taxable income of a taxpayer is based on the
taxpayer's regular taxable income computed without regard to the rule that
taxable income cannot be less than the amount of excess inclusions, (ii) the
alternative minimum taxable income of a taxpayer for a taxable year cannot be
less than the amount of excess inclusions for that year, and (iii) the amount of
any alternative minimum tax net operating loss is computed without regard to any
excess inclusions. No prediction can be made whether such legislation or similar
legislation will be enacted.
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The rule permitting thrift institutions to offset excess inclusions with
their net operating losses generally applies only when the thrift institution
itself (rather than an affiliate of the thrift) holds the residual interest.
However, excess inclusions of a "qualified subsidiary" of a thrift institution
(defined generally as a subsidiary organized and operated exclusively in
connection with the organization and operation of one or more REMICs) may be
offset by net operating losses of its parent thrift as if the parent thrift held
the residual interest directly.
If the Holder of a REMIC Residual Certificate is an organization subject to
the tax on unrelated business income imposed by Code Section 511, the excess
inclusions will be treated as unrelated business taxable income of such holder
for purposes of Code Section 511. In addition, the Code provides that under
Treasury regulations, if a real estate investment trust ("REIT") owns a REMIC
Residual Certificate, to the extent excess inclusions of the REIT exceed its
real estate investment trust taxable income (excluding net capital gains), the
excess inclusions would be allocated among the shareholders of the REIT in
proportion to the dividends received by the shareholders from the REIT. Excess
inclusions derived by regulated investment companies ("RICs"), common trust
funds, and subchapter T cooperatives must be allocated to the shareholders of
such entities using rules similar to those applicable to REITs. The Internal
Revenue Service has not yet adopted or proposed such regulations as to REITs,
RICs, or similar entities. A life insurance company cannot adjust its reserve
with respect to variable contracts to the extent of any excess inclusion, except
as provided in regulations.
The Internal Revenue Service has authority to promulgate regulations
providing that if the aggregate value of the REMIC Residual Certificates is not
considered to be "significant," then the entire share of REMIC taxable income of
a Holder of a REMIC Residual Certificate (including a holder which is a thrift
institution) may be treated as excess inclusions subject to the foregoing
limitations. This authority has not been exercised to date.
The REMIC is subject to tax at a rate of 100 percent on any net income it
derived from "prohibited transactions." In general, "prohibited transaction"
means the disposition of a Contract other than pursuant to specified exceptions,
the receipt of income as compensation for services, the receipt of income from a
source other than a Contract or certain other permitted investments, or gain
from the disposition of an asset representing a temporary investment of payments
on the Contracts pending distribution on the REMIC Certificates. In addition, a
tax is imposed on the REMIC equal to 100 percent of the value of certain
property contributed to the REMIC after its "startup day." No REMIC in which
interests are offered hereunder will accept contributions that would be subject
to such tax. This provision will not affect the REMIC's ability to accept
substitute Contracts or to sell defective Contracts in accordance with the
Agreement.
A REMIC is subject to a tax (deductible from its income) on any "net income
from foreclosure property" (determined in accordance with Section 857(b)(4)(B)
of the Code as if the REMIC were a REIT).
Any tax described in the two preceding paragraphs that may be imposed on
the Trust initially would be borne by the holders of the REMIC Residual
Certificates in the related REMIC rather than by the REMIC Regular
Certificateholders, unless otherwise specified in the Prospectus Supplement.
Dealers' Ability to Mark-to-Market REMIC Residual Certificates. Temporary
regulations provide that "negative-value" REMIC Residual Certificates are not
securities and cannot be marked-to-market pursuant to Section 475 of the Code
(relating to the requirement that dealers in securities mark them to market). A
REMIC Residual Certificate is a negative-value REMIC Residual Certificate if on
the date the dealer acquires the REMIC Residual Certificate the present value of
the anticipated tax liabilities associated with holding the REMIC Residual
Certificate (net of the present value of the tax savings resulting from losses
associated with holding the REMIC Residual Certificate) exceeds the present
value of the expected future distributions on the REMIC Residual Certificate.
Pursuant to the temporary regulations, the Commissioner has the authority to
treat REMIC Residual Certificates which have the same economic effect as a
negative-value REMIC Residual Certificate as not being a security for purposes
of Section 475 of the Code. Proposed regulations provide that all REMIC Residual
Certificates acquired on or after January 4, 1995, and similar interests or
arrangements acquired on or after January 4, 1995 that are determined by the
Commissioner to have substantially the same economic effect as a REMIC Residual
Certificate, are not securities and cannot be marked to market pursuant to
Section 475 of the Code.
The anticipated and expected tax consequences and distributions are
determined by taking into account events that have occurred through the date of
acquisition, the Prepayment Assumption and reinvestment
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assumption adopted when the residual was created, and by taking account of
required liquidations and required or permitted clean up calls.
Transfers of REMIC Residual Certificates
Tax on Disposition of REMIC Residual Certificates. The sale of a REMIC
Residual Certificate by a Holder will result in gain or loss equal to the
difference between the amount realized on the sale and the adjusted basis of the
REMIC Residual Certificate.
If the seller of a REMIC Residual Certificate held the REMIC Residual
Certificate as a capital asset, the gain or loss generally will be capital gain
or loss. However, under Code Section 582(c), the sale of a REMIC Residual
Certificate by certain banks and other financial institutions will be considered
a sale of property other than a capital asset, resulting in ordinary income or
loss. Although Federal Tax Counsel is unable to opine with respect to the tax
treatment of a REMIC Residual Certificate that has unrecovered basis after all
funds of the Trust have been distributed, the holder may be entitled to claim a
loss in the amount of the unrecovered basis.
The Code provides that, except as provided in Treasury regulations (which
have not yet been issued), if a Holder sells a REMIC Residual Certificate and
acquires the same or other REMIC Residual Certificates, residual interests in
another REMIC, or any similar interests in a "taxable mortgage pool" (as defined
in Section 7701(i) of the Code) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject to
the "wash sale" rules of Section 1091 of the Code. In that event, any loss
realized by the seller on the sale generally will not be currently deductible.
A tax is imposed on the transfer of any residual interest in a REMIC to a
"disqualified organization." The tax is imposed on the transferor, or, where the
transfer is made through an agent of the disqualified organization, on the
agent. "Disqualified organizations" include for this purpose the United States,
any State or political subdivision thereof, any foreign government, any
international organization or agency or instrumentality of the foregoing (with
an exception for certain taxable instrumentalities of the United States, of a
State or of a political subdivision thereof), any rural electrical and telephone
cooperative, and any tax-exempt entity (other than certain farmers'
cooperatives) not subject to the tax on unrelated business income.
The amount of tax to be paid by the transferor on a transfer to a
disqualified organization is equal to the present value of the total anticipated
excess inclusions with respect to the interest transferred for periods after
such transfer multiplied by the highest corporate rate of tax. The transferor
(or agent, as the case may be) will be relieved of liability so long as the
transferee furnishes an affidavit that it is not a disqualified organization and
the transferor or agent does not have actual knowledge that the affidavit is
false. Under the REMIC Regulations, an affidavit will be sufficient if the
transferee furnishes (A) a social security number, and states under penalties of
perjury that the social security number is that of the transferee, or (B) a
statement under penalties of perjury that it is not a disqualified organization.
Treatment of Payments to a Transferee in Consideration of Transfer of a
REMIC Residual Certificate. The federal income tax consequences of any
consideration paid to a transferee on a transfer of an interest in a REMIC
Residual Certificate are unclear and Federal Tax Counsel is unable to opine with
respect to this issue. The preamble to the REMIC Regulations indicates that the
Internal Revenue Service is considering the tax treatment of these types of
residual interests. A transferee of such an interest should consult its own tax
advisors.
Restrictions on Transfer; Holding by Pass-Through Entities. An entity
cannot qualify as a REMIC absent reasonable arrangements designed to ensure that
(1) residual interests in such entity are not held by disqualified organizations
and (2) information necessary to calculate the tax due on transfers to
disqualified organizations (i.e., a computation of the present value of the
excess inclusions) is made available by the REMIC. The governing instruments of
a Trust will contain provisions designed to ensure the foregoing, and any
transferee of a REMIC Residual Certificate must execute and deliver an affidavit
stating that neither the transferee nor any person for whose account such
transferee is acquiring the REMIC Residual Certificate is a disqualified
organization. In addition, as to the requirement that reasonable arrangements be
made to ensure that disqualified organizations do not hold a residual interest
in the REMIC, the REMIC Regulations require that notice of the prohibition be
provided either through a legend on the certificate that evidences ownership, or
through a conspicuous statement in the prospectus or other offering document
used to offer the residual interest for sale. As
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to the requirement that sufficient information be made available to calculate
the tax on transfers to disqualified organizations (or the tax, discussed below,
on pass-through entities, interests in which are held by disqualified
organizations), the REMIC Regulations further require that such information also
be provided to the Internal Revenue Service.
A tax is imposed on "pass-through entities" holding residual interests
where a disqualified organization is a record holder of an interest in the
pass-through entity. "Pass-through entity" is defined for this purpose to
include RICs, REITs, common trust funds, partnerships, trusts, estates, and
subchapter T cooperatives. Except as provided in regulations, nominees holding
interests in a "pass-through entity" for another person will also be treated as
"pass-through entities" for this purpose. The tax is equal to the amount of
excess inclusions allocable to the disqualified organization for the taxable
year multiplied by the highest corporate rate of tax, and is deductible by the
"pass-through entity" against the gross amount of ordinary income of the entity.
Each Agreement will provide that any attempted transfer of a beneficial or
record interest in a REMIC Residual Certificate will be null and void unless the
proposed transferee provides to the Trustee an affidavit that such transferee is
not a disqualified organization.
Legislation has been introduced which would provide that partners of
certain partnerships having a large number of partners will be treated as
disqualified organizations for purposes of the tax imposed on pass-through
entities if such partnerships hold residual interests in a REMIC. When
applicable, the legislation would disallow 70 percent of a large partnership's
miscellaneous itemized deductions, including deductions for servicing and
guaranty fees and any expenses of the REMIC, although the remaining deductions
would not be subject to the 2 percent floor applicable to individual partners.
See "Deductibility of Trust Expenses" below. No prediction can be made regarding
whether such legislation will be enacted.
The REMIC Regulations provide that a transfer of a "noneconomic residual
interest" will be disregarded for all federal income tax purposes unless
impeding the assessment or collection of tax was not a significant purpose of
the transfer. A residual interest will be treated as a "noneconomic residual
interest" unless, at the time of the transfer (1) the present value of the
expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate,
currently 35 percent, and (2) the transferor reasonably expects that for each
anticipated excess inclusion, the transferee will receive distributions from the
REMIC, at or after the time at which taxes on such excess inclusion accrue,
sufficient to pay the taxes thereon. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known (had "improper knowledge") that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that (A)
the transferee understands that it might incur tax liabilities in excess of any
cash received with respect to the residual interest and (B) the transferee
intends to pay the taxes associated with owning the residual interest as they
come due. A different formulation of this rule applies to transfers of REMIC
Residual Certificates by or to foreign transferees. See "Foreign Investors"
below.
Deductibility of Trust Expenses
A Holder that is an individual, estate or trust will be subject to the
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such deductions, in the aggregate, do not exceed two
percent of the holder's adjusted gross income, and such holder may not be able
to deduct such fees and expenses to any extent in computing such holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation for taxable years beginning after 1990) will be reduced
by the lesser of (i) 3 percent of the excess of adjusted gross income over the
applicable amount, or (ii) 80 percent of the amount of itemized deductions
otherwise allowable for such taxable year. Such deductions will include
servicing, guarantee and administrative fees paid to the servicer of the
Contracts. These deductions
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will be allocated entirely to the Holders of the REMIC Residual Certificates in
the case of REMIC Trusts with multiple classes of REMIC Regular Certificates
that do not pay their principal amounts ratably. As a result, the REMIC will
report additional taxable income to Holders of REMIC Residual Certificates in an
amount equal to their allocable share of such deductions, and individuals,
estates, or trusts holding an interest in such REMIC Residual Certificates may
have taxable income in excess of the cash received. In the case of a
"single-class REMIC," the expenses will be allocated, under Treasury
regulations, among the Holders of the REMIC Regular Certificates and the REMIC
Residual Certificates on a daily basis in proportion to the relative amounts of
income accruing to each Certificateholder on that day. In the case of a Holder
of a REMIC Regular Certificate who is an individual or a "pass-through interest
holder" (including certain pass-through entities, but not including REITS), the
deductibility of such expenses will be subject to the limitations described
above. The reduction or disallowance of these deductions may have a significant
impact on the yield of REMIC Regular Certificates to such a Holder. In general
terms, a single-class REMIC is one that either (i) would qualify under existing
Treasury regulations as a grantor trust if it were not a REMIC (treating all
interests as ownership interests, even if they would be classified as debt for
federal income tax purposes) or (ii) is similar to such a trust and which is
structured with the principal purpose of avoiding the single-class REMIC rules.
Foreign Investors
REMIC Regular Certificates. Except as discussed below, a Holder of a REMIC
Regular Certificate who is not a "United States person" (as defined below)
generally will not be subject to United States income or withholding tax in
respect of a distribution on a REMIC Regular Certificate, provided that (i) the
Holder complies to the extent necessary with certain identification
requirements, including timely delivery of a statement, signed by the holder of
the REMIC Regular Certificate under penalties of perjury, certifying that the
Holder of the REMIC Regular Certificate is not a United States person and
providing the name and address of the Holder, (ii) the Holder is not a
"10-percent shareholder" within the meaning of Code Section 871(h)(3)(B), which
could be interpreted to apply to a Holder of a REMIC Regular Certificate who
holds a direct or indirect 10 percent interest in the REMIC Residual
Certificates, (iii) the Holder is not a "controlled foreign corporation" (as
defined in the Code) related to the REMIC or related to a 10 percent holder of a
residual interest in the REMIC, and (iv) the Holder is not engaged in a United
States trade or business, or otherwise subject to federal income tax as a result
of any direct or indirect connection to the United States other than through its
ownership of a REMIC Regular Certificate. For these purposes, the term "United
States person" means (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or (iii) an
estate or trust whose income is includible in gross income for United States
federal income taxation regardless of its source.
REMIC Residual Certificates. The Conference Report to the Tax Reform Act of
1986 states that amounts paid to foreign persons with respect to residual
interests should be considered interest for purposes of the withholding rules.
Interest paid to a foreign person which is not effectively connected with a
trade or business of the foreign person in the United States is subject to a 30%
withholding tax. The withholding tax on interest does not apply, however, to
"portfolio interest" (if certain certifications as to beneficial ownership are
made, as discussed above under "Foreign Investors--Regular Certificates") or to
the extent a tax treaty reduces or eliminates the tax. Treasury regulations
provide that amounts paid with respect to residual interests qualify as
portfolio interest only if interest on the qualified mortgages held by the REMIC
qualifies as portfolio interest. Generally, interest on Contracts held by a
Trust will not qualify as portfolio interest. In any case, a Holder of a REMIC
Residual Certificate will not be entitled to the portfolio interest exception
from the 30% withholding tax (or to any treaty exemption or rate reduction) for
that portion of a payment that constitutes excess inclusions. Generally, the
withholding tax will be imposed when REMIC gross income is paid or distributed
to the Holder of a residual interest or when there is a disposition of the
residual interest.
The REMIC Regulations provide that a transfer of a REMIC Residual
Certificate to a foreign transferee will be disregarded for all federal income
tax purposes if the transfer has "tax avoidance potential." A transfer to a
foreign transferee will be considered to have tax avoidance potential unless at
the time of the transfer, the transferor reasonably expects that (1) the future
distributions on the REMIC Residual Certificate will equal at least 30 percent
of the anticipated excess inclusions and (2) such amounts will be distributed at
or after the time at which the excess inclusion accrues, but not later than the
close of the calendar year following the calendar year
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of accrual. A safe harbor in the REMIC Regulations provides that the reasonable
expectation requirement will be satisfied if the above test would be met at all
assumed prepayment rates for the Contracts from 50 percent of the Prepayment
Assumption to 200 percent of the Prepayment Assumption. A transfer by a foreign
transferor to a domestic transferee will likewise be disregarded under the REMIC
Regulations if the transfer would have the effect of allowing the foreign
transferor to avoid the tax on accrued excess inclusions.
Backup Withholding
Distributions made on the REMIC Certificates and proceeds from the sale of
REMIC Certificates to or through certain brokers may be subject to a "backup"
withholding tax of 31 percent of "reportable payments" (including interest
accruals, original issue discount, and, under certain circumstances,
distributions in reduction of principal amount) unless, in general, the Holder
of the REMIC Certificate complies with certain procedures or is an exempt
recipient. Any amounts so withheld from distributions on the REMIC Certificates
would be refunded by the Internal Revenue Service or allowed as a credit against
the holder's federal income tax.
REMIC Administrative Matters
The federal information returns for a Trust (Form 1066 and Schedules Q
thereto) must be filed as if the Trust were a partnership for federal income tax
purposes. Information on Schedule Q must be provided to Holders of REMIC
Residual Certificates with respect to every calendar quarter. Each Holder of a
REMIC Residual Certificate will be required to treat items on its federal income
tax returns consistently with their treatment on the Trust's information returns
unless the Holder either files a statement identifying the inconsistency or
establishes that the inconsistency resulted from an incorrect schedule received
from the Trust. The Trust also will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination of any adjustments to, among other things, items of REMIC taxable
income by the Internal Revenue Service. (Treasury regulations exempt from
certain of these procedural rules REMICs having no more than one residual
interest holder.) Holders of REMIC Residual Certificates will have certain
rights and obligations with respect to any administrative or judicial
proceedings involving the Internal Revenue Service. Under the Code and the REMIC
Regulations, a REMIC generally is required to designate a tax matters person.
Generally, subject to various limitations, the tax matters person has authority
to act on behalf of the REMIC and the holders of the REMIC Residual Certificates
in connection with administrative determinations and judicial review respecting
returns of taxable income of the REMIC.
Unless otherwise indicated in the Prospectus Supplement, and to the extent
allowable, the Servicer or its designee will act as the tax matters person for
each REMIC. Each holder of a REMIC Residual Certificate, by the acceptance of
its interest in the REMIC Residual Certificate, agrees that the Servicer or its
designee will act as the holder's fiduciary in the performance of any duties
required of the holder in the event that the holder is the tax matters person.
Non-REMIC Certificates
The discussion under this heading applies only to a Series of Certificates
with respect to which a REMIC election is not made.
Tax Status of the Trust. Upon the issuance of each Series of Non-REMIC
Certificates, Federal Tax Counsel will deliver its opinion generally to the
effect that, under then current law, assuming compliance with the related
Agreement, the related Trust will be classified for federal income tax purposes
as a grantor trust and not as an association taxable as a corporation or a
taxable mortgage pool. Accordingly, each Holder of a Non-REMIC Certificate will
be treated for federal income tax purposes as the owner of an undivided interest
in the Contracts included in the Trust. As further described below, each Holder
of a Non-REMIC Certificate therefore must report on its federal income tax
return the gross income from the portion of the Contracts that is allocable to
such Non-REMIC Certificate and may deduct the portion of the expenses incurred
by the Trust that is allocable to such Non-REMIC Certificate, at the same time
and to the same extent as such items would be reported by such Holder if it had
purchased and held directly such interest in the Contracts and received directly
its share of the payments on the Contracts and incurred directly its share of
expenses incurred by the Trust when those amounts are received or incurred by
the Trust.
A Holder of a Non-REMIC Certificate that is an individual, estate, or trust
will be allowed deductions for such expenses only to the extent that the sum of
those expenses and the Holder's other miscellaneous itemized deductions exceeds
two percent of such Holder's adjusted gross income. Moreover, a Holder of a
Non-REMIC Certificate that is not a corporation cannot deduct such expenses for
purposes of the alternative minimum tax (if applicable). Such deductions will
include servicing, guarantee and administrative fees paid to the servicer of the
Contracts. As a result, the Trust will report additional taxable income to
Holders of Non-REMIC Certificates in an amount equal to their allocable share of
such deductions, and individuals, estates, or trusts holding Non-REMIC
Certificates may have taxable income in excess of the cash received.
Status of the Non-REMIC Certificates as Real Property Loans. The Non-REMIC
Certificates will be "qualifying real property loans" within the meaning of
Section 593(d) of the Code, "real estate assets" for purposes of Section
856(c)(5)(A) of the Code and "loans . . . secured by an interest in real
property" within the meaning of Section 7701(a)(19)(C)(v) of the Code (assets
qualifying under one or more of those sections, applying each section
separately, "qualifying assets") to the extent that the Trust's assets are
qualifying assets. The Non-REMIC Certificates may not be qualifying assets under
any of the foregoing sections of the Code to the extent that the Trust's assets
include reserve funds or payments on Contracts held pending distribution to
Certificateholders. Further, the Non-Remic Certificates may not be "qualifying
real property loans" to the extent loans held by the Trust are not secured by
improved real property or real property which is to be improved using the loan
proceeds, may not be "real estate assets" to the extent loans held by the Trust
are not secured by real property, and may not be "loans . . . secured by an
interest in real property" to the extent loans held by the Trust are not secured
by residential real property or real property used primarily for church
purposes. In addition, to the extent that the principal amount of a loan exceeds
the value of the property securing the loan, it is unclear and Federal Tax
Counsel is unable to opine whether the loan will be a qualifying asset.
Taxation of Non-REMIC Certificates Under Stripped Bond Rules. The federal
income tax treatment of the Non-REMIC Certificates will depend on whether they
are subject to the rules of Section 1286 of the Code (the "stripped bond
rules"). The Non-REMIC Certificates will be subject to those rules if stripped
interest-only Certificates are issued. In addition, whether or not stripped
interest-only Certificates are issued, the Internal Revenue Service may contend
that the stripped bond rules apply on the ground that the Servicer's servicing
fee, or other amounts, if any, paid to (or retained by) the Servicer or its
affiliates, as specified in the applicable Agreement, represent greater than an
arm's length consideration for servicing the Contracts and should be
characterized for federal income tax purposes as an ownership interest in the
Contracts. The Internal Revenue Service has taken the position in Revenue Ruling
91-46 that retained interest in excess of reasonable compensation for servicing
is treated as a "stripped coupon" under the rules of Code Section 1286.
If interest retained for the Servicer's servicing fee or other interest is
treated as a "stripped coupon," the Non-REMIC Certificates will either be
subject to the original issue discount rules or the market discount rules. A
Holder of a Non-REMIC Certificate will account for any discount on the Non-REMIC
Certificate as market discount rather than original issue discount if either (i)
the amount of original issue discount with respect to the Non-REMIC Certificate
was treated as zero under the original issue discount de minimis rule when the
Non-REMIC Certificate was stripped or (ii) no more than 100 basis points
(including any amount of servicing in excess of reasonable servicing) is
stripped off from the Contracts. If neither of the above exceptions applies, the
original issue discount rules will apply to the Non-REMIC Certificates.
If the original issue discount rules apply, the holder of a Non-REMIC
Certificate (whether a cash or accrual method taxpayer) will be required to
report interest income from the Non-REMIC Certificate in each taxable year equal
to the income that accrues on the Non-REMIC Certificate in that year calculated
under a constant yield method based on the yield of the Non-REMIC Certificate
(or, possibly, the yield of each Contract underlying such Non-REMIC Certificate)
to such Holder. Such yield would be computed at the rate (assuming monthly
compounding) that, if used in discounting the Holder's share of the payments on
the Contracts, would cause the present value of those payments to equal the
price at which the holder purchased the Non-REMIC Certificate. With respect to
certain categories of debt instruments, Section 1272(a)(6) of the Code requires
that original issue discount be accrued based on a prepayment assumption
determined in a manner prescribed by forthcoming regulations. It is unclear
whether such regulations would apply this rule to the Non-REMIC Certificates,
whether Section 1272(a)(6) might apply to the Non-REMIC Certificates in the
absence of such regulations, or whether the Internal Revenue Service could
require use of a reasonable prepayment assumption based on other tax law
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principles and Federal Tax Counsel is unable to opine with respect to these
issues. If required to report interest income on the Non-REMIC Certificates to
the Internal Revenue Service under the stripped bond rules, it is anticipated
that the Trustee will calculate the yield of the Non-REMIC Certificates based on
a representative initial offering price of the Non-REMIC Certificates and a
reasonable assumed rate of prepayment of the Contracts (although such yield may
differ from the yield to any particular holder that would be used in calculating
the interest income of such holder). The Prospectus Supplement for each Series
of Non-REMIC Certificates will describe the prepayment assumption that will be
used for this purpose, but no representation is made that the Contracts will
prepay at that rate or at any other rate.
In the case of a Non-REMIC Certificate acquired at a price equal to the
principal amount of the Contracts allocable to the Non-REMIC Certificate, the
use of a reasonable prepayment assumption would not have any significant effect
on the yield used in calculating accruals of interest income. In the case,
however, of a Non-REMIC Certificate acquired at a discount or premium (that is,
at a price less than or greater than such principal amount, respectively), the
use of a reasonable prepayment assumption would increase or decrease such yield,
and thus accelerate or decelerate the reporting of interest income,
respectively.
If a Contract is prepaid in full, the Holder of a Non-REMIC Certificate
acquired at a discount or premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Contract that is allocable to the Non-REMIC Certificate and the portion
of the adjusted basis of the Non-REMIC Certificate (see "Sales of Non-REMIC
Certificates" below) that is allocable to the Contract. The method of allocating
such basis among the Contracts may differ depending on whether a reasonable
prepayment assumption is used in calculating the yield of the Non-REMIC
Certificates for purposes of accruing original issue discount. It is not clear
whether any other adjustments would be required to reflect differences between
the prepayment rate that was assumed in calculating yield and the actual rate of
prepayments.
Non-REMIC Certificates of certain Series ("Variable Rate Non-REMIC
Certificates") may provide for a Remittance Rate based on the weighted average
of the interest rates of the Contracts held by the Trust, which interest rates
may be fixed or variable. In the case of a Variable Rate Non-REMIC Certificate
that is subject to the original issue discount rules, the daily portions of
original issue discount generally will be calculated under the principles
discussed in "REMIC Regular Certificates-Current Income on REMIC Regular
Certificates--Original Issue Discount--Variable Rate REMIC Regular
Certificates."
Taxation of Non-REMIC Certificates If Stripped Bond Rules Do Not Apply. If
the stripped bond rules do not apply to a Non-REMIC Certificate, then the Holder
will be required to include in income its share of the interest payments on the
Contracts in accordance with its tax accounting method. In addition, if the
Holder purchased the Non-REMIC Certificate at a discount or premium, the holder
will be required to account for such discount or premium in the manner described
below. The treatment of any discount will depend on whether the discount is
original issue discount as defined in the Code and, in the case of discount
other than original issue discount, whether such other discount exceeds a de
minimis amount. In the case of original issue discount, the Holder (whether a
cash or accrual method taxpayer) will be required to report as additional
interest income in each month the portion of such discount that accrues in that
month, calculated based on a constant yield method. In general it is not
anticipated that the amount of original issue discount to be accrued in each
month, if any, will be significant relative to the interest paid currently on
the Contracts. However, original issue discount could arise with respect to a
Contract that provides for interest at a rate equal to the sum of an index of
market interest rates and a fixed number. The original issue discount for such
Contracts generally will be determined under the principles discussed in "REMIC
Regular Certificates-Current Income on REMIC Regular Certificates--Original
Issue Discount---Variable Rate REMIC Regular Certificates."
If discount other than original issue discount exceeds a de minimis amount
(described below), the Holder will also generally be required to include in
income in each month the amount of such discount accrued through such month and
not previously included in income, but limited, with respect to the portion of
such discount allocable to any Contract, to the amount of principal on such
Contract received by the Trust in that month. Because the Contracts will provide
for monthly principal payments, such discount may be required to be included in
income at a rate that is not significantly slower than the rate at which such
discount accrues (and therefore at a rate not significantly slower than the rate
at which such discount would be included in income if it were original
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issue discount). The Holder may elect to accrue such discount under a constant
yield method based on the yield of the Non-REMIC Certificate to such holder. In
the absence of such an election, it may be necessary to accrue such discount
under a more rapid straight-line method. Under the de minimis rule, market
discount with respect to a Non-REMIC Certificate will be considered to be zero
if it is less than the product of (i) 0.25% of the principal amount of the
Contracts allocable to the Non-REMIC Certificate and (ii) the weighted average
life (in complete years) of the Contracts remaining at the time of purchase of
the Non-REMIC Certificate.
If a Holder purchases a Non-REMIC Certificate at a premium, such Holder may
elect under Section 171 of the Code to amortize the portion of such premium that
is allocable to a Contract under a constant yield method based on the yield of
the Contract to such Holder, provided that such Contract was originated after
September 27, 1985. Premium allocable to a Contract originated on or before that
date should be allocated among the principal payments on the Contract and
allowed as an ordinary deduction as principal payments are made or, perhaps,
upon termination.
It is not clear whether the foregoing adjustments for discount or premium
would be made based on the scheduled payments on the Contracts or taking account
of a reasonable prepayment assumption, and Federal Tax Counsel is unable to
opine on this issue.
If a Contract is prepaid in full, the Holder of a Non-REMIC Certificate
acquired at a discount or premium will recognize ordinary income or loss equal
to the difference between the portion of the prepaid principal amount of the
Contract that is allocable to the Non-REMIC Certificate and the portion of the
adjusted basis of the Non-REMIC Certificate (see "Sales of Non-REMIC
Certificates" below) that is allocable to the Contract. The method of allocating
such basis among the Contracts may differ depending on whether a reasonable
prepayment assumption is used in calculating the yield of the Non-REMIC
Certificates for purposes of accruing original issue discount. Other adjustments
might be required to reflect differences between the prepayment rate that was
assumed in accounting for discount or premium and the actual rate of
prepayments.
Sales of Non-REMIC Certificates. A Holder that sells a Non-REMIC
Certificate will recognize gain or loss equal to the difference between the
amount realized in the sale and its adjusted basis in the Non-REMIC Certificate.
In general, such adjusted basis will equal the holder's cost for the Non-REMIC
Certificate, increased by the amount of any income previously reported with
respect to the Non-REMIC Certificate and decreased by the amount of any losses
previously reported with respect to the Non-REMIC Certificate and the amount of
any distributions received thereon. Any such gain or loss generally will be
capital gain or loss if the assets underlying the Non-REMIC Certificate were
held as capital assets, except that, for a Non-REMIC Certificate to which the
stripped bond rules do not apply and that was acquired with more than a de
minimis amount of discount other than original issue discount (see "Taxation of
Non-REMIC Certificates if Stripped Bond Rules Do Not Apply" above), such gain
will be treated as ordinary interest income to the extent of the portion of such
discount that accrued during the period in which the seller held the Non-REMIC
Certificate and that was not previously included in income.
Foreign Investors. A Holder of a Non-REMIC Certificate who is not a "United
States person" (as defined below) and is not subject to federal income tax as a
result of any direct or indirect connection to the United States other than its
ownership of a Non-REMIC Certificate generally will not be subject to United
States income or withholding tax in respect of payments of interest or original
issue discount on a Non-REMIC Certificate to the extent attributable to
Contracts that were originated after July 18, 1984, provided that the Holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the holder of the Non-REMIC
Certificate under penalties of perjury, certifying that such Holder is not a
United States person and providing the name and address of such holder).
Interest or original issue discount on a Non-REMIC Certificate attributable to
Contracts that were originated prior to July 19, 1984 will be subject to a 30%
withholding tax (unless such tax is reduced or eliminated by an applicable tax
treaty). For these purposes, the term "United States person" means a citizen or
a resident of the United States, a corporation, partnership or other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source.
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Taxable Mortgage Pools
Effective January 1, 1992, certain entities classified as "taxable mortgage
pools" are subject to corporate level tax on their net income. A "taxable
mortgage pool" is generally defined as an entity that meets the following
requirements: (i) the entity is not a REMIC, (ii) substantially all of the
assets of the entity are debt obligations, and more than 50 percent of such debt
obligations consist of real estate mortgages (or interests therein), (iii) the
entity is the obligor under debt obligations with two or more maturities, and
(iv) payments on the debt obligations on which the entity is the obligor bear a
relationship to the payments on the debt obligations which the entity holds as
assets. With respect to requirement (iii), the Code authorizes the Internal
Revenue Service to provide by regulations that equity interests may be treated
as debt for purposes of determining whether there are two or more maturities. If
a Series of Non-REMIC Certificates were treated as obligations of a taxable
mortgage pool, the Trust would be ineligible to file consolidated returns with
any other corporation and could be liable for corporate tax. Treasury
regulations do not provide for the recharacterization of equity as debt for
purposes of determining whether an entity has issued debt with two maturities,
except in the case of transactions structured to avoid the taxable mortgage pool
rules.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, any
Certificates offered hereby that are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating organization
will constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA") and, as such, will be legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions, life
insurance companies and pension funds) created pursuant to or existing under the
laws of the United States or of any state whose authorized investments are
subject to state regulation to the same extent as, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any such entities. Under SMMEA certain states have created legislation
specifically limiting the legal investment authority of any such entities with
respect to "mortgage related securities," in which case the Certificates will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in Certificates, or require the sale or
other disposition of Certificates, so long as such contractual commitment was
made or such Certificates were acquired prior to the enactment of such
legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in Certificates; and national banks may
purchase Certificates for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. ss.24
(Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe.
Some Classes of Certificates offered hereby may not be rated in one of the
two highest rating categories and thus would not constitute "mortgage related
securities" for purposes of SMMEA.
The Federal Financial Institutions Examination Council, The Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and the National Credit Union Administration have
proposed or adopted guidelines regarding investment in various types of
mortgagebacked securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their jurisdiction
from holding securities representing residual interests, including securities
previously purchased. There may be other restrictions on the ability of certain
investors, including depository institutions, either to purchase Certificates or
to purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
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RATINGS
It is a condition precedent to the issuance of any Class of Certificates
sold under this Prospectus that they be rated by at least one nationally
recognized statistical rating organization in one of its four highest rating
categories (within which there may be sub-categories or gradations indicating
relative standing). A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. The security rating of any Series of Certificates
should be evaluated independently of similar security ratings assigned to other
kinds of securities.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the Prospectus Supplement will be
offered in Series, either directly by the Depositor or through one or more
underwriters or underwriting syndicates ("Underwriters"). The Prospectus
Supplement for each Series will set forth the terms of the offering of such
Series and of each Class within such Series, including the name or names of the
Underwriters, the proceeds to and their use by the Depositor, and either the
initial public offering price, the discounts and commissions to the Underwriters
and any discounts or concessions allowed or reallowed to certain dealers, or the
method by which the price at which the Underwriters will sell the Certificates
will be determined.
The Certificates in a Series may be acquired by Underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all of a Series of
Certificates described in the related Prospectus Supplement, if any are
purchased. If Certificates of a Series are offered other than through
Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the seller and purchasers of Certificates of such Series.
If any of the Certificates are to be offered for the account of security
holders, the related Prospectus Supplement will specify the name of such holder,
the nature of any position, office or other material relationship which such
holder has had within the past three years with the Depositor or any of its
affiliates, and the amount and Percentage Interest of the applicable Class or
Series of Certificates (i) held by such holder prior to the offering, (ii) being
offered and (iii) to be held by such Holder following completion of the
offering.
The Depositor will indemnify any Underwriters against certain civil
liabilities, including liabilities under the 1933 Act, or will contribute to
payments any Underwriters may be required to make in respect thereof.
In the ordinary course of business, the Depositor, its affiliates and any
Underwriters may engage in various securities and financing transactions,
including repurchase agreements to provide interim financing of the Contracts
pending the sale of such Contracts or interests therein, including the
Certificates.
The Depositor anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the 1933 Act in connection with reoffers
and sales by them of Certificates. Holders of Certificates should consult with
their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates of each
Series, including certain federal income tax consequences with respect thereto,
will be passed upon by Stroock & Stroock & Lavan, Seven Hanover Square, New
York, New York 10004.
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GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus and the Prospectus Supplement. The Agreement may contain a more
complete definition of certain of the terms defined herein and reference should
be made to the Agreement for a more complete definition of all such terms.
"Advances" means the advances made by the Servicer (including advances made
by a Sub-servicer) on any Remittance Date pursuant to an Agreement.
"Agreement" means each Pooling and Servicing Agreement by and among the
Depositor, the Servicer and the Trustee.
"Amount Available" means, with respect to each Series of Certificates,
certain amounts on deposit in the Certificate Account on a Determination Date.
"Certificate Account" means the account maintained by the Servicer or the
Trustee, as specified in the related Prospectus Supplement for deposit of
amounts received on the related Contracts.
"Certificate Principal Balance" means the maximum amount of principal to
which the holder thereof is entitled.
"Certificates" means the Manufactured Housing Contract Pass-Through
Certificates issued pursuant to an Agreement.
"Chattel Contracts" means manufactured housing installment sales contracts
and manufactured housing installment loan agreements, including any and all
rights to receive payments due thereunder on and after the Cut-off Date and
security interests in Manufactured Homes purchased with the proceeds of such
contracts.
"Class" means all Certificates of a Series bearing the same designation and
evidencing the same rights in the related Trust.
"Class Certificate Balance" means the aggregate of the Certificate
Principal Balances of all Certificates of the same Class.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
"Compound Interest Certificates" means Certificates on which interest may
accrue but not be paid for the period described in the related Prospectus
Supplement.
"Contract Rate" means, with respect to each Contract, the annual rate at
which interest accrues on the unpaid balance from time to time as specified in
such Contract.
"Contracts" means Chattel Contracts and Land-and-Home Contracts
collectively, unless the context otherwise requires.
"Cut-off Date" means the date specified in the related Prospectus
Supplement as the date from which principal and interest payments on the
Contracts are included in the Trust.
"Depositor" means UCFC Funding Corporation, a Louisiana corporation.
"Determination Date" means the business day preceding the related
Remittance Date specified in the related Agreement as of which the Amount
Available for such Remittance Date is determined.
"Due Period" means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Remittance Date, the period beginning on the
second day of the month preceding the month of the Remittance Date and ending on
the first day of the month of the Remittance Date.
"Eligible Investments" means one or more of the investments specified in
the Agreement in which moneys in the Certificate Account and certain other
accounts are permitted to be invested.
"Enhancement" means the form of credit enhancement applicable to a Series
or one or more Classes of such Series of Certificates as specified in the
related Prospectus Supplement.
-57-
<PAGE>
"Enhancer" means the third-party providing the Enhancement for a Series.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"Final Scheduled Remittance Date" means, with respect to any Class, the
date, based on the assumptions set forth in the related Prospectus Supplement,
on which the Class Certificate Balance of such Class would be reduced to zero.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
"HUD" means the United States Department of Housing and Urban Development.
"Initial Deposit" means, with respect to a Series of Certificates, the
amount, if any, deposited into the Reserve Fund on the date of the initial
issuance of the Certificates.
"Land-and-Home Contract" means a manufactured housing installment sales
contract and manufactured housing installment loan agreement which is secured by
a mortgage, deed of trust or other similar instrument on the Manufactured Home
and the real estate to which the Manufactured Home is deemed to be permanently
affixed.
"Late Collections" means, with respect to any Contract, amounts received
during any Due Period, whether as late payments of Monthly Payments, or as
Liquidation Proceeds, condemnation awards, proceeds of insurance policies or
otherwise, which represent late payments or collections of Monthly Payments due
but delinquent for a previous Due Period and not previously recovered.
"Liquidation Proceeds" means cash (including insurance proceeds) received
in connection with the repossession of a Manufactured Home.
"Loan-to-Value Ratio" means the loan-to-value ratio at the time of
origination of the Contract.
"Manufactured Home" means a unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Obligor under the related
Contract.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Contract.
"Obligor" means each person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract.
"Originator" means United Companies Funding, Inc., a Louisiana corporation,
and any other affiliate thereof specified in the related Prospectus Supplement.
"Pool" means, with respect to each Series of Certificates, the pool of
Contracts transferred by the Depositor to the Trustee.
"Record Date" means the date specified in the related Prospectus Supplement
for the list of Certificateholders entitled to distributions on the
Certificates.
"REMIC" means a "real estate mortgage investment conduit" as defined in the
Code.
"Remittance Date" means the date specified in the related Prospectus
Supplement for payments on the Certificates.
"Remittance Rate" means, as to a Certificate, the rate or rates of interest
thereon specified in the related Prospectus Supplement.
"Senior Certificates" means, with respect to each Series of Certificates,
the Class or Classes which have rights senior to another Class or Classes in
such Series.
"Servicer" means United Companies Lending Corporation(R), a Louisiana
corporation.
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<PAGE>
"Servicing Fee" means the amount of the annual fee paid to the Servicer as
specified in the related Prospectus Supplement.
"Subordinated Certificates" means, with respect to each Series of
Certificates, the Class or Classes with rights subordinate to another Class or
Classes of such Series.
"Trust" means, with respect to each Series of Certificates, the corpus of
the trust created by the related Agreement, to the extent described in such
Agreement, consisting of, among other things, Contracts, such assets as shall
from time to time be identified as deposited in the Certificate Account, the
Manufactured Homes which secured a Contract, and Enhancement, if any.
"Trustee" means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
"VA" means the Veterans' Administration.
-59-
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or make any representations in connection with this offering other
than those contained in this Prospectus Supplement and the accompanying
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Depositor or any Underwriter.
This Prospectus Supplement and the accompanying Prospectus do not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
Certificates offered hereby nor an offer of such Certificates to any person in
any state or other jurisdiction in which such offer would be unlawful. The
delivery of this Prospectus Supplement and the accompanying Prospectus at any
time does not imply that information herein is correct as of any time subsequent
to its date.
----------
TABLE OF CONTENTS Page
Prospectus Supplement ----
Summary of Terms .......................................................... S-
The Contract Pool ......................................................... S-
Maturity, Prepayment and Yield Considerations ............................. S-
Description of the Certificates ........................................... S-
Use of Proceeds ........................................................... S-
ERISA Considerations ...................................................... S-
Legal Investment Considerations ........................................... S-
Legal Matters ............................................................. S-
Prospectus
Prospectus Supplement.......................................................
Available Information.......................................................
Reports to Certificateholders...............................................
Incorporation of Certain Documents by
Reference.................................................................
Summary of Terms............................................................
Risk Factors................................................................
The Trusts..................................................................
Use of Proceeds.............................................................
The Depositor...............................................................
The Manufactured Housing Program............................................
Maturity, Prepayment and Yield Considerations...............................
Description of the Certificates.............................................
Credit Enhancement..........................................................
Description of FHA Insurance and VA.........................................
Guarantees................................................................
Certain Legal Aspects of the Contracts......................................
ERISA Considerations........................................................
Federal Income Tax Considerations...........................................
Legal Investment Considerations.............................................
Ratings.....................................................................
Method of Distribution......................................................
Legal Matters...............................................................
Glossary....................................................................
----------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transacting in the Certificates offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus
Supplement and the Prospectus. This is in addition to the obligation of dealers
to deliver a Prospectus Supplement and Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
Manfactured Housing Contract
Pass-Through Certificates,
Series 199_-_
UCFC FUNDING CORPORATION
(Depositor)
United Companies Lending
Corporation(R)
(Servicer)
----------
PROSPECTUS SUPPLEMENT
----------
[Names of Underwriters}
______, 199_
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. - Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities offered hereunder other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $344.83
Printing and Engraving........................................... $ *
Trustee's Fees................................................... $ *
Legal Fees and Expenses.......................................... $ *
Blue Sky Fees and Expenses....................................... $ *
Accountant's Fees and Expenses................................... $ *
Rating Agency Fees............................................... $ *
Miscellaneous Fees and Expenses.................................. $ *
-------
Total Expenses..................................... $ *
=======
</TABLE>
- ----------
* To be completed by amendment UCFC FUNDING CORPORATION
Item 15. - Indemnification of Directors and Officers
Indemnification. Section 83 of the Louisiana Business Corporationn Law
provides that a corporation such as UCFC Funding Corporation may indemnify any
director, officer, employee or agent against expenses and liabilities in
connection with any action, suit or proceeding, whether civil,
criminal,(administrative or investigative involving the director, officer,
employee or agent by reason of such person acting in such capacity if such
person acted in good faith and in a manner that he reasonably believed to be in,
or not opposed to, the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Article VIII of UCFC Funding Corporation's By-Laws entitle
officers, directors, employees and agents to indemnification to the fullest
extent permitted by Section 83 of the Louisiana Business Corporation Law.
Article X of UCFC Funding Corporation's Articles of incorporation provides
that no director or officer shall be personally liable to the corporation or its
shareholders for monetary damages for breach of a fiduciary duty as a director
or officer, except for liability (i) for breach of the director's or officer's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 92(D) of the Louisiana Business
Corporation Law, or (iv) for any transaction from which the director or officer
derived an improper personal benefit.
Insurance. UCFC Funding Corporation maintains director's and officer's
liability insurance on its directors and officers with a policy limit of
$20,000,000.
Item 16. - List of Exhibits
(a) Financial Statements.
None
(b) Exhibits.
*1.1 Form of Underwriting Agreement between UCFC Funding Corporation and the
Underwriters named therein, relating to the distribution of certain
Classes of Certificates.
*3.1 Articles of Incorporation of UCFC Funding Corporation.
*3.2 By-Laws of UCFC Funding Corporation.
*4.1 Form of Pooling and Servicing Agreement.
*5.1 Opinion of Stroock & Stroock & Lavan as to legality of the securities
being registered, including consent.
*8.1 Opinion of Stroock & Stroock & Lavan with respect to certain tax matters,
including consent (included in Exhibit 5.1).
*23.1 Consent of Stroock & Stroock & Lavan (included in Exhibit 5.1).
24.1 Powers of Attorney (included in Part II of this Registration Statement).
<PAGE>
- ----------
* To be filed by amendment.
II-1
<PAGE>
Item 17. - Undertakings
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended (the "Securities Act"), the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) For purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denomination and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(6) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(7) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(8) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baton Rouge, State of Louisiana on July 10, 1996.
UCFC FUNDING CORPORATION
By /s/ H.C. McCall III
---------------------------------
Name: H.C. McCall III
Title: President
Known all men by these presents, that each person whose signature appears
below constitutes and appoints H.C. McCall III, Dale E. Redman and John D.
Dienes, acting singly, as his true and lawful attorney-in-fact and agent, with
full power of substitution, and for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments or post-effective amendments
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 10, 1996.
Signature
/s/ J. Terrell Brown
- ---------------------------------- Director and Chief Executive Officer
J. Terrell Brown (Principal Executive Officer)
/s/ Dale E. Redman
- ---------------------------------- Director, Vice Chairman and Assistant
Dale E. Redman Secretary (Principal Financial Officer and
Principal Accounting Officer)
/s/ H.C. McCall III
- ---------------------------------- Director and President
H.C. McCall III
II-3
