SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number 333-14041-04
TRUST CREATED BY BLOCK MORTGAGE FINANCE, INC.
(under a Pooling and Servicing Agreement dated
as of July 1, 1998, which Trust is the issuer
of Block Mortgage Finance Asset Backed
Certificates, Series 1998-2)
----------------------
(Exact name of Registrant as specified in its Charter)
New York 36-4238147
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State or other jurisdiction of (I.R.S. Employer of
incorporation or organization Identification No.)
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois
Attention: Corporate Trust Administration
Block Mortgage Finance Asset Backed
Certificates, Series 1998-2 60670-0126
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 407-0192
Securities registered pursuant to Section 12(b) of the Act: Not applicable.
Securities registered pursuant to Section 12(q) of the Act: Not applicable.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 31, 1998: Not applicable.
Number of shares of common stock as of December 31, 1998: Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
ITEM 1. BUSINESS.
The Registrant issued Asset Backed Certificates, Series 1998-2 (the
"Securities") pursuant to a Pooling and Servicing Agreement dated as of July 1,
1998 (the "Cut-off Date") among Block Mortgage Finance, Inc., as Depositor,
Block Financial Corporation, as Master Servicer, Companion Mortgage Corporation,
as Seller, and The First National Bank of Chicago, as Trustee. The assets of the
Trust consist primarily of a pool of fixed rate and adjustable rate mortgage
loans (the "Mortgage Loans") having an aggregate principal balance as of the
Cut-off Date of approximately $252,650,565.18. The Mortgage Loans are secured by
one- to four-family residential properties (each, a "Mortgaged Property").
Certificateholders receive monthly Statements to Certificateholders regarding
distributions.
Further information with respect to the performance of the Trust is
summarized in the monthly Statements to Certificateholders, which are filed on
Form 8-K.
ITEM 2. PROPERTIES.
Information regarding the Mortgaged Properties securing the Mortgage Loans
is set forth in the Prospectus Supplement and the monthly Statements to
Certificateholders, which are filed on Form 8-K. The Trust will acquire title to
real estate only upon default of the mortgagors under the Mortgage Loans.
All real estate acquired and held by the Trust as of February 26, 1999 is
improved with single family dwellings. The following table describes real estate
acquired and held by the Trust as of February 26, 1999:
FIXED RATE MORTGAGE LOANS
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PRINCIPAL BALANCE $465,190.00
PERCENTAGE OF POOL
BALANCE 0.2588%
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NUMBER OF LOANS 9
PERCENTAGE OF LOANS
IN POOL 0.2921%
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ADJUSTABLE RATE MORTGAGE LOANS
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PRINCIPAL BALANCE $0
PERCENTAGE OF POOL
BALANCE 0%
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NUMBER OF LOANS 0
PERCENTAGE OF LOANS
IN POOL 0%
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ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings involving the Trust or,
with respect to the Trust or the Mortgage Loans, the Trustee, the Master
Servicer or the Depositor, other than ordinary routine litigation incidental to
the Trustee's, the Master Servicer's or the Depositor's duties under the Pooling
and Servicing Agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of Certificateholders during the fiscal
year covered by this report.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Registrant's Asset Backed Certificates, Series 1998-2 represent
non-recourse obligations of the Trust, such Trust having assets which consist of
the Mortgage Loans. Strictly speaking, Registrant has no "common equity," but
for purposes of this Item only, Registrant's Asset Backed Certificates, Series
1998-2 are treated as "common equity."
(a) Market Information. There is no established public trading market for
Registrant's Securities.
(b) Certificateholders. The approximate number of registered holders of
each class of Certificates as of December 31, 1998 is set forth below:
Class Certificateholders
----- ------------------
A-1 3
A-2 3
A-3 2
A-4 3
A-5 1
A-6 1
A-7 4
A-8 1
R 2
(c) Dividends. Not applicable. The information regarding dividends
required by sub-paragraph (c) of Item 201 of Regulation S-K is
inapplicable because the Trust does not pay dividends. However,
information as to distributions to Certificateholders is provided in
the monthly Statements to Certificateholders for each month of the
fiscal year in which a distribution to Certificateholders was made.
ITEM 6. SELECTED FINANCIAL DATA.
Not Applicable. Because of the limited activities of the Trust, information
with respect to the performance of the Trust is summarized in the monthly
Statements to Certificateholders, which are filed on a monthly basis on Form
8-K. However, certain selected aggregate information with respect to the Trust
for 1998 is filed as an exhibit to this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Not Applicable. The information required by Item 303 of Regulation S-K is
not meaningful in light of the nature of the Trust. Information concerning the
Mortgage Loans and distributions to the Certificateholders is contained in the
monthly Statements to Certificateholders which are filed on Form 8-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable. The Trust does not engage in the types of transactions
required to be disclosed under this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Not Applicable. Information with respect to the Trust is contained in the
monthly Statements to Certificateholders filed on a monthly basis on Form 8-K.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
Not Applicable. The Trust does not have officers or directors.
ITEM 11. EXECUTIVE COMPENSATION.
Not Applicable. The Trust does not have officers or directors to whom
compensation needs to be paid.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security ownership of certain beneficial owners. Not Applicable.
Under the Pooling and Servicing Agreement governing the Trust, the
holders of the Certificates generally do not have the right to vote
and are prohibited from taking part in management of the Trust.
(b) Security ownership of management. Not Applicable. The Trust does not
have any officers or directors.
(c) Changes in control. Not Applicable. Because Certificateholders do not
possess, directly or indirectly, the power to direct or cause the
direction of the management and policies of the Trust, other than with
respect to certain required consents to amendments to the Pooling and
Servicing Agreement and the ability to act as a group in the event of
the occurrence of certain events which if continuing would constitute
events of default under the Pooling and Servicing Agreement, the
information requested with respect to Item 403(c) of Regulation S-K is
inapplicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not Applicable. The Trust does not have officers or directors and under the
Pooling and Servicing Agreement governing the Trust. In addition, the Registrant
does not have knowledge of any transaction required to be disclosed by Items
404(a)(3) or (a)(4) of Regulation S-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following is a list of documents filed as part of this report:
EXHIBITS
4.1 Pooling and Servicing Agreement dated as of July 1, 1998 (hereby
incorporated herein by reference as Exhibit 4 to Depositor's
Current Report on Form 8-K dated July 21, 1998).
99.1 Master Servicer Annual Officer's Certificate dated March 30,
1999.
99.2 Report of Independent Accountants pertaining to Companion
Servicing Company, L.L.C., dated March 31, 1999.
99.3 Aggregate Information from Statements to Certificateholders
Relating to 1998 Distributions to Holders of Block Mortgage
Finance Asset Backed Certificates, Series 1998-2.
<PAGE>
99.4 Consolidated financial statements of MBIA Insurance Corporation
and its subsidiaries as of December 31, 1998 and 1997 and for the
three years ended December 31, 1998 (hereby incorporated herein
by reference to the Annual Report on Form 10-K of MBIA Inc. for
the year ended December 31, 1998 under Commission file number
001-09583).
(b) Reports on Form 8-K
Current Report on Form 8-K dated October 26, 1998 (filing monthly
Statements to Certificateholders)
Current Report on Form 8-K dated November 25, 1998 (filing monthly
Statements to Certificateholders)
Current Report on Form 8-K dated December 28, 1998 (filing monthly
Statements to Certificateholders)
(c) The exhibits required to be filed by Registrant pursuant to Item 601
of Regulation S-K are listed above and in the Exhibit Index that
immediately follows the signature page hereof.
(d) Not Applicable. The Trust does not have any subsidiaries or
affiliates. Therefore, no financial statements are filed with respect
to subsidiaries or affiliates.
SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(D)
BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No Annual report, proxy statement, form of proxy or other soliciting
material has been sent to Security Holders, and the Registrant does not
contemplate sending any such materials subsequent to the filing of this report.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Block Financial Corporation, not in its individual capacity but solely
as a duly authorized agent of the Registrant pursuant to Section 8.17
of the Pooling and Servicing Agreement dated as of July 1, 1998.
By: /s/ Bret G. Wilson
Name: Bret G. Wilson
Title: Vice President
Date: March 31, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT DOCUMENT
4.1 Pooling and Servicing Agreement dated as of July 1, 1998 (hereby
incorporated herein by reference as Exhibit 4 to Depositor's Current
Report on Form 8-K dated July 21, 1998).
99.1 Master Servicer Annual Officer's Certificate dated March 30, 1999.
99.2 Report of Independent Accountants pertaining to Companion Servicing
Company, L.L.C., dated March 31, 1999.
99.3 Aggregate Information from Statements to Certificate-holders Relating
to 1998 Distributions to Holders of Block Mortgage Finance Asset
Backed Certificates, Series 1998-2.
99.4 Consolidated financial statements of MBIA Insurance Corporation and
its subsidiaries as of December 31, 1998 and 1997 and for the three
years ended December 31, 1998 (hereby incorporated herein by reference
to the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1998 under Commission file number 001-09583).
BLOCK MORTGAGE FINANCE, INC.
ASSET BACKED CERTIFICATES, SERIES 1998-2
MASTER SERVICER ANNUAL OFFICER'S CERTIFICATE
March 30, 1999
Pursuant to the provisions of Section 8.16 of the Pooling and Servicing
Agreement dated as of July 1, 1998, by and between BLOCK MORTGAGE FINANCE, INC.,
as Depositor, COMPANION MORTGAGE CORPORATION, as Seller, BLOCK FINANCIAL
CORPORATION, as Master Servicer, and THE FIRST NATIONAL BANK OF CHICAGO, N.A.,
as Trustee (the "PSA"), I, Bret G. Wilson, Vice President of the Master
Servicer, hereby certify as follows:
(i) a review of the activities of the Master Servicer during the
preceding calendar year and of performance under the PSA has been made under my
supervision;
(ii) to the best of my individual knowledge based on such review, the
Master Servicer has fulfilled all of its obligations under the PSA for such
year; and
(iii) the Master Servicer's short-term commercial paper is rated is A1 by
Standard & Poor's and P-1 by Moody's.
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the PSA.
BLOCK FINANCIAL CORPORATION
By: /s/ Bret G. Wilson
------------------------------------
Bret G. Wilson, Vice President
Deloitte & Touche LLP
Independent Accountant's Report
Companion Servicing Company, L.L.C.:
We have examined management's assertion about Companion Servicing Company's (the
Company's) compliance with the minimum servicing standards identified in the
Mortgage Bankers Association of America's Uniform Single Attestation Program for
Mortgage Bankers (USAP) as of and for the year ended December 31, 1998, included
in the accompanying management assertion. Management is responsible for the
Company's compliance with those minimum servicing standards. Our responsibility
is to express an opinion on management's assertion about the entity's compliance
based on our examination.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly, included
examining, on a test basis, evidence about the Company's compliance with the
minimum servicing standards and performing such other procedures as we
considered necessary in the circumstances. We believe that our examination
provides a reasonable basis for our opinion. Our examination does not provide a
legal determination on the Company's compliance with the minimum servicing
standards.
In our opinion, management's assertion that the Company complied with the
aforementioned minimum servicing standards as of and for the year ended December
31, 1998 is fairly stated, in all material respects.
/s/ Deloitte & Touche LLP
March 26, 1999
<PAGE>
Companion Servicing Company, L.L.C.
As of and for the year ended December 31, 1998, Companion Servicing Company,
L.L.C. has complied in all material respects with the minimum servicing
standards set forth in the Mortgage Bankers Association of America's Uniform
Single Attestation Program for Mortgage Bankers. As of and for this same period,
Companion Servicing Company, L.L.C. had in effect a fidelity bond errors and
omissions policy in the amount of $1,500,000.00.
/s/ Dan Starowicz
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Dan Starowicz
Vice President
3-26-99
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Date: March 26, 1999
/s/ Randy McCurry
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Randy McCurry
V.P. Chief Financial Officer
3-26-99
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Date: March 26, 1999
1998-2
Block Mortgage Finance, Inc.
Asset Backed Certificates
Series 1998-2
Statement to Certificatesholders
Aggregate Information for 1998
<TABLE>
<CAPTION>
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CLASS ORIGINAL FACE VALUE PRINC DISTRI INT. DISTR TOTAL DISTR. ENDING CERT. BAL
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A-1 $50,000,000.00 $14,583,440.40 $1,466,870.58 $16,050,310.97 $35,416,559.60
A-2 20,000,000.00 0.00 624,000.00 624,000.00 20,000,000.00
A-3 18,000,000.00 0.00 569,700.00 569,700.00 18,000,000.00
A-4 22,000,000.00 0.00 831,600.00 831,600.00 22,000,000.00
A-5 11,464,000.00 0.00 389,202.78 389,202.78 11,464,000.00
A-6 13,496,000.00 0.00 430,522.38 430,522.38 13,496,000.00
A-7 87,384,000.00 10,925,227.60 2,445,745.12 13,370,972.71 76,458,772.40
A-8 29,128,000.00 0.00 907,337.22 907,337.22 29,128,000.00
TOTALS $251,472,000.00 $25,508,668.00 $7,664,978.08 $33,173,646.06 $225,963,332.00
Group I Group II
Sec 7.09 (a) (i) Scheduled Principal $741,808.62 $265,261.73
Principal Prepayments $11,168,244.58 $8,499,630.64
Net Liquidation Proceeds 0 $103,436.49
Paid Principal Carry Forward Amount 0 0
Remaining Unpaid Prin. Carry Forward Amt 0 0
Sec. 7.09 (a) (ii) Compensating Interest $0 $113.91
Paid Interest Carry Forward Amount 0 0
Remaining Unpaid Interest Carry Forward Amt 0 0
A-7 Basis Risk Carryover Amount Paid 0 0
A-7 Basis Risk Carryover Amount Remaining 0 0
<PAGE>
Group I Group II Total
Sec 7.09 (a) (iv) Aggregate Group Loan Balance $123,050,548.21 $108,797,316.48 $231,847,864.69
Sec 7.09 (a) (v) Servicing Fees $613,101.17
Insurance Premium Amount $174,622.00
Trustee Fee $17,166.83
Sec 7.09 (a) (vii) Current Delinquency Advances $6,376,755.01
Current Servicing Advances 0
Total Unreimbursed Delinq. Adv 0
Total Unreimbursed Servicing Adv 0
Sec 7.09 (a) (viii) (A) (B)
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Not in Foreclosure In foreclosure
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Period Number Princ. Bal Number Prin. Balance
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Fixed Group 1-29 days 1012 $51,408,043.44 9 $383,746.29
30-59 Days 438 $23,513,841.88 5 $210,500.16
60-89 days 98 $5,283,064.05 1 $26,950.10
90+ Days 59 $3,016,440.64 60 $3,420,952.99
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1-29 days 498 $49,686,990.75 2 $110,984.53
Adj Group 30-59 Days 237 $22,050,393.25 2 $208,853.61
60-89 days 56 $5,910,330.72 2 $187,485.65
90+ Days 30 $2,783,702.26 31 $3,322,726.27
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Sec. 7.09 (a) (xi) Insured Payment 0
Class A-1 Allocation 0
Class A-2 Allocation 0
Class A-3 Allocation 0
Class A-4 Allocation 0
Class A-5 Allocation 0
Class A-6 Allocation 0
Class A-7 Allocation 0
Class A-8 Allocation 0
<PAGE>
Group I Group II
Sec. 7.09 (a) (xii) Subordinated Amount $9,538,948.25 $ 14,103,945.42
Subordination Deficit 0 0
Specified Subordinated Amount $48,585,816.48 $49,429,784.76
Sec. 7.09 (a) (xiii) Substitution Adjustments 0 0
Loan Purchase Price Amounts 0 0
Sec. 7.09 (a) (xv) Weighted Average Coupon 11.1159% 10.1519%
Weighted Average Remaining Term to Maturity 221 months 269 months
Sec. 7.09 (a) (xvi) Largest Loan Balance Outstanding $481,434.01 $447,309.59
Sec. 7.09 (a) (xvii) Available Funds $3,194,378.58 $1,934,540.25
Total Available Funds $3,161,525.72 $2,295,631.95
</TABLE>
