Information contained herein is subject to completion or amendment. 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.
424(b)(3)
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1995
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 10, 1995
$124,000,000 (Approximate)
The CIT Group Securitization Corporation II, Seller
Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates
Series 1995-1
$ (Approximate) % Class A-1 $ (Approximate) % Class A-4
$ (Approximate) % Class A-2 $ (Approximate) % Class A-5
$ (Approximate) % Class A-3
(The CIT Group/Sales Financing, Inc., Servicer)
------------------
The Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates,
Series 1995-1, will represent interests in a trust (the "Trust") consisting of,
among other things, a pool of manufactured housing installment sales contracts
and installment loan agreements conveyed to the Trust by The CIT Group
Securitization Corporation II (the "Company") on or prior to the date of
issuance of the Certificates (the "Initial Contracts"), monies on deposit in a
trust account (the "Pre-Funding Account") to be established with the Trustee (as
defined below) and additional manufactured housing installment sales contracts
and installment loan agreements (the "Subsequent Contracts"; together with the
Initial Contracts, the "Contracts") purchased by the Trust from the Company
after the date of issuance of the Certificates but on or before May 15, 1995
from funds on deposit in the Pre-Funding Account. The Company will purchase the
Contracts from The CIT Group/Sales Financing, Inc. ("CITSF") concurrently with
their conveyance to the Trust. In each case, the Contracts will be originated or
acquired from dealers by CITSF and The CIT Group Consumer Finance, Inc. (NY), a
wholly-owned subsidiary of The CIT Group Holdings, Inc. ("CIT"), in each case in
the ordinary course of business. CITSF will act as Servicer of the Contracts (in
such capacity, referred to herein as the "Servicer"). The term "Approximate",
with respect to the aggregate principal amount of the Certificates, means
subject to a permitted variance of plus or minus 5%.
The Certificates will consist of three classes of Senior Certificates (the Class
A-1 Certificates, the Class A-2 Certificates and the Class A-3 Certificates)
(collectively, the "Senior Certificates") and three classes of Subordinated
Certificates (the Class A-4 Certificates, the Class A-5 Certificates and the
Class R Certificates) (collectively, the "Subordinated Certificates"). Only the
Senior Certificates, the Class A-4 Certificates and the Class A-5 Certificates
are being offered hereby (collectively, the "Offered Certificates"). Principal
and interest are payable on the 15th day of each month (or, if the 15th day is
not a business day, the next business day thereafter) (a "Remittance Date")
beginning on March 15, 1995. The Senior Certificates will evidence in the
aggregate an initial %(approximate) undivided interest in the Trust, the Class
A-4 Certificates will evidence in the aggregate an initial % (approximate)
undivided interest in the Trust, the Class A-5 Certificates will evidence an
initial % (approximate) undivided interest in the Trust, and the Class R
Certificates will evidence the residual interest in the Trust. The Trust will be
created in February, 1995, pursuant to a Pooling and Servicing Agreement among
the Company, CITSF and The Chase Manhattan Bank (National Association), as
trustee (the "Trustee"). The Trust property will include all rights to payments
received on each Initial Contract on and after February 1, 1995, or, in the case
of any Subsequent Contract, on and after the Subsequent Cut-off Date (as defined
herein) therefor, security interests in the Manufactured Homes securing the
Contracts, mortgages, deeds of trust or similar instruments securing some of the
Contracts, all rights under certain hazard insurance policies with respect to
the Manufactured Homes, rights to amounts in the Certificate Account referred to
below and any funds or monies on deposit in the Pre-Funding Account and the
Capitalized Interest Account (as defined herein) under certain circumstances as
herein set forth. The obligations of the Servicer with respect to the
Certificates are limited to its contractual servicing obligations. CITSF will
make certain representations and warranties relating to the Contracts. In the
event of an uncured breach of any representation or warranty that materially
adversely affects the Trust's interest in a Contract, CITSF will be obligated to
repurchase such Contract or substitute another contract therefor.
(Continued on following page)
------------------
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 SUPPLEMENT OR THE PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Company(1)(2)
--------- ----------- -------------
<S> <C> <C> <C>
Per Class A-1 Certificate % % %
Per Class A-2 Certificate % % %
Per Class A-3 Certificate % % %
Per Class A-4 Certificate % % %
Per Class A-5 Certificate % % %
Total $ $ $
<FN>
(1) Plus accrued interest, if any, at the applicable rate from February , 1995.
(2) Before deducting expenses estimated to be $ .
</FN>
</TABLE>
------------------
The Offered Certificates are offered by the several Underwriters when and
if issued by the Trust, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Offered Certificates in book-entry form will be made through the
facilities of The Depository Trust Company on the Same Day Funds Settlement
System on or about February , 1995.
CS First Boston First Chicago Capital Markets, Inc.
The date of this Prospectus Supplement is February , 1995.
<PAGE>
(Continued from previous page)
On each Remittance Date, the Senior Certificateholders, the Class A-4
Certificateholders and the Class A-5 Certificateholders will be entitled to
receive distributions, from and to the extent of funds available in the
Certificate Account, in the amounts and priorities calculated as set forth
herein. The rights of the Holders of the Subordinated Certificates to receive
distributions with respect to the Contracts are subordinated to the rights of
the Senior Certificateholders, the rights of the Holders of Class A-5 and Class
R Certificates to receive distributions with respect to the Contracts are
subordinated to the rights of the Senior Certificateholders and the Class A-4
Certificateholders and the rights of the Holders of the Class R Certificates to
receive distributions with respect to the Contracts are subordinated to the
rights of the Offered Certificates, in each case as and to the extent described
herein.
The Class A-5 Certificateholders will have the benefit of a limited
guarantee (the "Limited Guarantee") of CIT to protect against losses that would
otherwise be absorbed by the Class A-5 Certificateholders. To the extent that
funds in the Certificate Account are insufficient to distribute to the Holders
of the Class A-5 Certificates the portion of the Formula Distribution Amount (as
defined herein) to which the Holders of the Class A-5 Certificates are entitled,
CIT will be obligated to pay the Guarantee Payment (as defined herein). See
"Description of Certificates--Limited Guarantee of CIT" herein.
An election will be made to treat the Trust as a real estate mortgage
investment conduit (a "REMIC") for federal income tax purposes. As described
more fully herein, the Offered Certificates will constitute "regular interests"
in the REMIC and the Class R Certificates will constitute "residual interests"
in the REMIC. See "Certain Federal Income Tax Consequences" herein and in the
Prospectus.
The Offered Certificates will not be insured or guaranteed by any
governmental agency or instrumentality, by the Underwriters or any of their
affiliates or by the Company, the Servicer, CIT or any of their affiliates,
except for the Limited Guarantee provided by CIT in favor of the Class A-5
Certificateholders. Except with respect to the Guarantee Payments, payments will
be made on such Certificates only from the Amount Available on any Determination
Date. See "Special Considerations" herein and in the Prospectus.
CS First Boston and First Chicago Capital Markets, Inc. (the
"Underwriters") intend to make a secondary market in the Offered Certificates,
but have no obligation to do so. There can be no assurance that a secondary
market in the Offered Certificates will develop, or if it does develop, that it
will continue.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
This Prospectus Supplement is subject to completion and does not contain
complete information about the offering of the Offered Certificates. Additional
information is contained in the Prospectus attached hereto and will be contained
in the final Prospectus Supplement and Prospectus attached thereto. Purchasers
are urged to read both the final Prospectus Supplement and the Prospectus
attached thereto in full. Sales of the Offered Certificates may not be
consummated unless the purchaser has received both the final Prospectus
Supplement and the Prospectus. To the extent, if any, that any statement in the
final Prospectus Supplement is inconsistent with statements contained in the
Prospectus, the statements in the final Prospectus Supplement shall control.
------------------
S-2
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Glossary contained in the
Prospectus for the location of certain defined terms used herein.
Securities Offered...................... The Class A-1 Certificates, the Class
A-2 Certificates and the Class A-3
Certificates (collectively, the
"Senior Certificates"), the Class
A-4 Certificates and the Class A-5
Certificates of the Manufactured
Housing Contract Senior/Subordinate
Pass-Through Certificates, Series
1995-1 (collectively, the "Offered
Certificates"). The Certificates
also include the Class R
Certificates, which are not being
offered hereby. The Class A-4,
Class A-5 and Class R Certificates
may herein collectively be referred
to as the "Subordinated
Certificates".
Seller.................................. The CIT Group Securitization
Corporation II (the "Company"), a
wholly-owned, limited purpose
subsidiary of The CIT Group
Holdings, Inc. ("CIT"). Neither CIT
nor any of its affiliates,
including the Company and The CIT
Group/Sales Financing, Inc.
("CITSF"), has guaranteed, insured
or is otherwise obligated with
respect to the Certificates except
for the Limited Guarantee provided
by CIT in favor of the Class A-5
Certificateholders. See "Special
Considerations" herein and in the
Prospectus.
Servicer................................ The CIT Group/Sales Financing, Inc.
(the "Servicer"), a wholly-owned
subsidiary of CIT.
Trustee................................. The Chase Manhattan Bank (National
Association) (the "Trustee").
Cut-off Date Pool Principal Balance..... $__________ (Approximate. Subject to a
permitted variance of plus or minus
5%).
Original Class A-1 Principal Balance.... $__________ (Approximate. Subject to a
permitted variance of plus or minus
5%).
Original Class A-2 Principal Balance.... $__________ (Approximate. Subject to a
permitted variance of plus or minus
5%).
Original Class A-3 Principal Balance.... $__________ (Approximate. Subject to a
permitted variance of plus or minus
5%).
Original Class A-4 Principal Balance.... $__________ (Approximate. Subject to a
permitted variance of plus or minus
5%).
Original Class A-5 Principal Balance.... $__________ (Approximate. Subject to a
permitted variance of plus or minus
5%).
Class A-1 Remittance Rate............... ____% per annum, subject to a maximum
rate equal to the weighted average
of the Net Contract Rates of each
Contract in the Contract Pool as of
the first day of the related Due
Period, computed on the basis of a
360-day year of twelve 30-day
months. The "Net Contract Rate" is
the contractual rate of interest
payable under a Contract (the
"Contract Rate"), less the Monthly
Servicing Fee allocable to such
Contract for such Due Period. The
weighted average of the Net
- --------------------------------------------------------------------------------
S-3
<PAGE>
- --------------------------------------------------------------------------------
Contract Rates on the Initial
Contracts in the Contract Pool as
of the Cut-off Date was
approximately 10.32%.
Class A-2 Remittance Rate.............. ____% per annum, subject to a maximum
rate equal to the weighted average
of the Net Contract Rates of each
Contract in the Contract Pool as of
the first day of the related Due
Period, computed on the basis of a
360-day year of twelve 30-day
months.
Class A-3 Remittance Rate............ ____% per annum, subject to a maximum
rate equal to the weighted average
of the Net Contract Rates of each
Contract in the Contract Pool as of
the first day of the related Due
Period, computed on the basis of a
360-day year of twelve 30-day
months.
Class A-4 Remittance Rate............... ____% per annum, subject to a maximum
rate equal to the weighted average
of the Net Contract Rates of each
Contract in the Contract Pool as of
the first day of the related Due
Period, computed on the basis of a
360-day year of twelve 30-day
months.
Class A-5 Remittance Rate............... ____% per annum, subject to a maximum
rate equal to the weighted average
of the Net Contract Rates of each
Contract in the Contract Pool as of
the first day of the related Due
Period, computed on the basis of a
360-day year of twelve 30-day
months.
Interest Accrual Period................ Interest on the outstanding Principal
Balance of each Class of Offered
Certificates will accrue from the
most recent Remittance Date on
which interest has been paid to but
excluding the following Remittance
Date (or, in the case of the
initial Remittance Date, from
February __, 1995 to but excluding
such initial Remittance Date)
(each, an "Interest Accrual
Period"). The "Principal Balance"
of a Class of Certificates as of
any Remittance Date is the Original
Principal Balance of such Class of
Certificates less all amounts
previously distributed to such
Class in respect of principal.
Remittance Date........................ The 15th day of each calendar month
(or, if such day is not a business
day, the next succeeding business
day), commencing on March 15, 1995.
Record Date............................. The last business day of the month
prior to the month of the related
Remittance Date.
Cut-off Date........................... February 1, 1995 for all Initial
Contracts.
Agreement............................... The Pooling and Servicing Agreement,
dated as of February 1, 1995 (the
"Agreement"), among the Company,
CITSF, as Servicer, and the
Trustee.
Description of Certificates............. The Class A-1 Certificates, the Class
A-2 Certificates and the Class A-3
Certificates are Senior
Certificates and the Class A-4
Certificates, the Class A-5
Certificates and the Class R
Certificates are Subordinated
Certificates, all as described
herein. The Class R Certificates
are not being offered hereby. The
undivided percentage interest (the
"Percentage Interest") of any
Offered Certificate in the
distributions on the Offered
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
Certificates of its Class will be
equal to the percentage obtained
from dividing the denomination
specified on such Certificate by
the Original Principal Balance of
the Class of which such Certificate
comprises a part. The Offered
Certificates will be offered in
book-entry form, in denominations
of $1,000 and integral multiples of
$1,000 in excess thereof. See
"Registration of the Offered
Certificates".
Due Period ............................. For each Remittance Date, the calendar
month preceding the month of such
Remittance Date.
Final Remittance Date................... The final Remittance Date for each
Class of the Certificates will be
August 15, 2020. The final
Remittance Date has been determined
by adding six months to the
maturity date of the Initial
Contract with the latest stated
maturity. Because the rate of
distributions in reduction of the
Principal Balances of the Offered
Certificates will depend on the
rate of amortization of the
Contracts (including amortization
due to prepayments and defaults),
the actual final distribution on
any Class of Offered Certificates
could occur significantly earlier
than such final Remittance Date.
The rate of payments on the
Contracts will depend on their
particular characteristics, as well
as on interest rates prevailing
from time to time and other
economic factors, and no assurance
can be given as to the actual
payment or default experience of
the Contracts. See "Yield and
Prepayment Considerations" herein
and "Maturity and Prepayment
Considerations" in the Prospectus.
Distributions........................... On each Remittance Date, distributions
on the Offered Certificates will be
made first on account of interest
and then principal in the following
order of priority: first to the
Holders of Senior Certificates,
then to the Holders of Class A-4
Certificates and then to the
Holders of Class A-5 Certificates,
in each case in the amounts and
according to the priorities, as set
forth in subsections A. through F.
below. See "Description of the
Certificates--Distributions".
Distributions will be made on each
Remittance Date to Holders of
record of the Certificates on the
preceding Record Date, except that
the final distribution in respect
of the Offered Certificates will
only be made upon presentation and
surrender of the Offered
Certificates at the office or
agency appointed by the Trustee for
that purpose in New York City.
Following the Remittance Date on which
the Principal Balance of a Class of
Offered Certificates has been
reduced to zero, no further
distributions will be made to the
Holders of such Class.
A. Interest on Senior Certificates.... Interest accruing during the related
Interest Accrual Period (computed
on the basis of a 360-day year of
twelve 30-day months) will be paid
concurrently on each outstanding
Class of Senior Certificates on
each Remittance Date, to the extent
of the amount of funds available
(including any Monthly Advances)
for distribution in the Certificate
Account (the "Amount Available") on
such Remittance Date, at the
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
applicable Remittance Rate on the
then outstanding Class A-1
Principal Balance, Class A-2
Principal Balance and Class A-3
Principal Balance.
See "Description of the Certificates"
for a detailed description of the
amounts on deposit in the
Certificate Account that will
constitute the Amount Available on
each Remittance Date. The Amount
Available will include amounts
otherwise payable to Holders of the
Class A-4 Certificates, the Class
A-5 Certificates and the Class R
Certificates and to the Servicer
for the Monthly Servicing Fee (as
long as CITSF is the Servicer) and
to CIT for the fee payable to CIT
in consideration for providing the
limited guarantee described herein
(the "Guarantee Fee").
In the event that, on a particular
Remittance Date, the Amount
Available (including any Monthly
Advances) in the Certificate
Account is not sufficient to make a
full distribution of interest to
the Holders of the outstanding
Senior Certificates, the amount of
the shortfall will be allocated
among the outstanding Classes of
Senior Certificates pro rata based
on the aggregate amount of interest
due on each such Class. The portion
of the shortfall allocated to each
such Class will be carried forward
and added to the amount the Holders
of such Class will be entitled to
receive (to the extent of funds
available for the payment thereof)
on the next Remittance Date and
every Remittance Date thereafter
until paid. Any such amount so
carried forward will bear interest
at the applicable Remittance Rate,
to the extent legally permissible.
See "Description of the
Certificates".
B. Principal on Senior Certificates... Commencing on the first Remittance
Date and on each Remittance
Date thereafter, Senior
Certificateholders will be entitled
to receive as payments of
principal, to the extent of the
Amount Available after payment of
all interest payable on each Class
of Senior Certificates, the sum
(such sum is hereinafter referred
to as the "Formula Principal
Distribution Amount") of (i) all
payments of principal received in
respect of each outstanding
Contract during such Due Period,
(ii) the Stated Principal Balance
of each Contract which, during the
related Due Period, was purchased
by CITSF pursuant to the Agreement
on account of certain breaches of
its representations and warranties,
(iii) all partial principal
prepayments applied and all
principal prepayments in full
received during such Due Period,
(iv) the Stated Principal Balance
of each Contract that became a
Liquidated Contract during such Due
Period and (v) any Formula
Principal Distribution Amount for
any prior Remittance Date which was
not distributed on a prior
Remittance Date.
The "Stated Principal Balance" of a
Contract as of any Remittance Date
is its unpaid principal balance at
the end of the related Due Period.
The "Due Date" for a Contract is
its scheduled payment date. The
"Pool Stated Principal Balance" is
the aggregate of the Stated
Principal Balances of Contracts
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
outstanding at the end of a Due
Period. A "Liquidated Contract" is
a defaulted Contract as to which
all amounts that the Servicer
expects to recover through the date
of disposition of the Manufactured
Home and the real estate, if any,
securing such Contract have been
recovered.
The Formula Principal Distribution
Amount will be distributed sequen-
tially (to the extent of the Amount
Available after payment of interest
on the Senior Certificates), first,
to the Class A-1 Certificateholders
until the Class A-1 Principal
Balance has been reduced to zero,
then to the Class A-2
Certificateholders until the Class
A-2 Principal Balance has been
reduced to zero and then to the
Class A-3 Certificateholders until
the Class A-3 Principal Balance has
been reduced to zero (the "Class
A-3 Cross-over Date").
If, on any Remittance Date prior to
the Class A-3 Cross-over Date the
sum of the Pool Stated Principal
Balance and the amounts remaining
on deposit in the Pre-Funding
Account, if any, at the close of
business on the last day of the
related Due Period would be less
than the sum of the Class A-1
Principal Balance, the Class A-2
Principal Balance and the Class A-3
Principal Balance on such
Remittance Date after giving effect
to distributions of principal to be
made on such date (the "Senior
Principal Balance"), then the
Amount Available remaining after
distribution of interest on the
Senior Certificates will be
distributed to the Classes of
Senior Certificates on a pro rata
basis as a distribution of the
Formula Principal Distribution
Amount, and the amount of the
shortfall will be allocated pro
rata among the outstanding Classes
of Senior Certificates, based upon
their respective outstanding
Principal Balances. On any
Remittance Date on which there
exists any previously undistributed
shortfalls in Formula Principal
Distribution Amounts which have
been allocated among the
outstanding Classes of Senior
Certificates, the aggregate amount
of such shortfalls will be
distributed to the extent of the
Amount Available remaining after
distribution of interest on the
Senior Certificates, pro rata,
among such Classes of Senior
Certificates based upon their
respective unreimbursed shortfalls.
Such distributions in respect of
previously allocated shortfalls
with respect to the Formula
Principal Distribution Amounts will
be made prior to any distribution
being made on a Remittance Date to
the Class of Senior Certificates
then entitled to receive the
Formula Principal Distribution
Amount.
C. Interest on Class A-4 Certificates... Following the payment to the Senior
Certificateholders of all amounts
described under "A. Interest on
Senior Certificates" and "B.
Principal on Senior Certificates"
above, interest accruing during the
related Interest Accrual Period at
the Class A-4 Remittance Rate on
the then outstanding Class A-4
Principal Balance (computed on the
basis of a 360-day year of twelve
30-day months) will be paid to the
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
Class A-4 Certificateholders on
each Remittance Date, to the extent
of the remaining Amount Available.
In the event that, on a particular
Remittance Date, the Amount
Available in the Certificate
Account after payment of interest
and principal on the Senior
Certificates is not sufficient to
make a full distribution of
interest to the Holders of the
outstanding Class A-4 Certificates,
the amount of the deficiency will
be carried forward as an amount
that the Class A-4
Certificateholders are entitled to
receive (to the extent of funds
available for the payment thereof)
on the next Remittance Date and
every Remittance Date thereafter
until paid. Any such amount so
carried forward will bear interest
at the Class A-4 Remittance Rate,
to the extent legally permissible.
See "Description of the
Certificates".
D. Principal on Class A-4 Certificates.. Payment of principal on the Class A-4
Certificates will not commence
until the Remittance Date on or
after the Class A-3 Cross-over
Date. On each Remittance Date on or
after the Class A-3 Cross-over
Date, Holders of Class A-4
Certificates will be entitled to
receive as payments of principal,
to the extent of the Amount
Available after payment of all
interest payable on the Class A-4
Certificates on such Remittance
Date, the Formula Principal
Distribution Amount until the Class
A-4 Principal Balance has been
reduced to zero.
E. Interest on Class A-5 Certificates... Following (i) the payment to the Senior
Certificateholders of all amounts
described under "A. Interest on
Senior Certificates" and "B.
Principal on Senior Certificates"
above, and (ii) the payment to the
Class A-4 Certificateholders of all
amounts described under "C.
Interest on Class A-4 Certificates"
and "D. Principal on Class A-4
Certificates" above, interest
accruing during the related
Interest Accrual Period (computed
on the basis of a 360-day year of
twelve 30-day months), at the Class
A-5 Remittance Rate on the then
outstanding Class A-5 Principal
Balance, will be paid to the Class
A-5 Certificateholders on each
Remittance Date, to the extent of
the remaining Amount Available and
the Guarantee Payment, if any, for
such date.
In the event that, on a particular
Remittance Date, the Amount
Available after payment of interest
and principal on the Senior
Certificates and the Class A-4
Certificates plus any amounts
actually paid under the Limited
Guarantee are not sufficient to
make a full distribution of
interest to the Class A-5
Certificateholders, the amount of
the deficiency will be carried
forward as an amount that the Class
A-5 Certificateholders are entitled
to receive (to the extent of funds
available for the payment thereof)
on the next Remittance Date and
every Remittance Date thereafter
until paid. Any amount so carried
forward will bear interest at the
Class A-5 Remittance Rate, to the
extent legally permissible. See
"Description of the Certificates".
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
F.Principal on Class A-5 Certificates... Except for payments of the Class A-5
Principal Liquidation Loss Amount
(described below), payments of
principal on the Class A-5
Certificates will not commence
until the Remittance Date on which
the Class A-4 Principal Balance has
been reduced to zero (the "Class
A-4 Cross-over Date").
On each Remittance Date on or after
the Class A-4 Cross-over Date, the
Formula Principal Distribution
Amount will be paid to the Class
A-5 Certificateholders to the
extent of the Amount Available
after payment of interest on the
Class A-5 Certificates and to the
extent of any Guaranty Payment made
by CIT until the Class A-5
Principal Balance has been reduced
to zero.
On each Remittance Date prior to the
Class A-4 Cross-over Date, the
Class A-5 Certificateholders will
be entitled to receive, pursuant to
the Limited Guarantee, any Class
A-5 Principal Liquidation Loss
Amount for such Remittance Date.
The "Class A-5 Principal
Liquidation Loss Amount" for any
Remittance Date will equal the
amount, if any, by which the sum of
the Senior Principal Balance, the
Class A-4 Principal Balance and the
Class A-5 Principal Balance for
such Remittance Date (after giving
effect to all distributions of
principal on such Remittance Date)
exceeds the sum of the Pool Stated
Principal Balance plus the amounts
remaining on deposit in the
Pre-Funding Account, if any, at the
close of business on the last day
of the related Due Period. The
Class A-5 Principal Liquidation
Loss Amount represents future
principal payments on the Contracts
that, because of the subordination
of the Class A-5 Certificates and
liquidation losses on the
Contracts, will not be paid to the
Class A-5 Certificateholders.
Subordination of the Subordinated
Certificates.......................... The rights of Holders of the
Subordinated Certificates to
receive distributions with respect
to the Contracts in the Trust will
be subordinated, to the extent
described herein, to such rights of
the Holders of the Senior
Certificates. This subordination is
intended to enhance the likelihood
of regular receipt by the Holders
of the Senior Certificates of the
full amount of principal and
interest which they are entitled to
receive on any Remittance Date and
to afford such Holders protection
against losses on Liquidated
Contracts.
The protection afforded to the Holders
of Senior Certificates by means of
the subordination of the
Subordinated Certificates will be
accomplished by the preferential
right of the Senior
Certificateholders to receive,
prior to any distribution being
made on a Remittance Date in
respect of the Subordinated
Certificates, the amounts of
principal and interest due to them
on each Remittance Date out of the
Amount Available on such date and,
if necessary, by the right of such
Senior Certificateholders to
receive future distributions of
Amounts Available that would
otherwise be payable to the Holders
of the Subordinated Certificates.
See "Special Considerations--1.
General".
- --------------------------------------------------------------------------------
S-9
<PAGE>
- --------------------------------------------------------------------------------
In addition, the rights of Holders of
the Class A-5 Certificates and the
Class R Certificates to receive
distributions with respect to the
Contracts in the Trust will be
subordinated, to the extent
described herein, to such rights of
the Holders of the Class A-4
Certificates. This subordination is
intended to enhance the likelihood
of regular receipt by the Holders
of the Class A-4 Certificates of
the full amount of principal and
interest which they are entitled to
receive on any Remittance Date and
to afford such Holders protection
against losses on Liquidated
Contracts.
The protection afforded to the Holders
of the Class A-4 Certificates by
means of the subordination of the
Class A-5 and Class R Certificates
will be accomplished by the
preferential right of the Class A-4
Certificateholders to receive,
prior to any distribution being
made on a Remittance Date in
respect of the Class A-5
Certificates and Class R
Certificates, the amounts of
principal and interest due them on
each Remittance Date out of the
Amount Available on such date and,
if necessary, by the right of such
Class A-4 Certificateholders to
receive future distributions of
Amounts Available that would
otherwise be payable to the Holders
of the Class A-5 and Class R
Certificates. The Class A-5
Certificateholders may incur losses
on their investment in the Class
A-5 Certificates if CIT fails to
make a Guarantee Payment and to the
extent such losses are not made up
from future payments on the
Contracts. See "Special
Considerations--1. General".
The rights of the Holders of the
Class R Certificates to receive
distributions with respect to the
Contracts on each Remittance Date
will be subordinated to the rights
of the Holders of the Senior
Certificates, the Class A-4
Certificates and Class A-5
Certificates. See "Description of
the Certificates--Subordination of
the Subordinated Certificates".
Guarantee Payments to
Class A-5 Certificateholders
under the Limited Guarantee of CIT... In order to mitigate the effect of the
subordination of the Class A-5
Certificates, the Class A-5
Certificateholders are entitled to
receive on each Remittance Date the
amount equal to the Guarantee
Payment, if any, under the Limited
Guarantee of CIT. Prior to the
Class A-4 Cross-over Date, the
Guarantee Payment will equal the
amount, if any, by which (a) the
sum of (i) the amount of interest
payable to the Class A-5
Certificateholders for such
Remittance Date, calculated as
described under "E. Interest on
Class A-5 Certificates" above
(which will be equal to interest at
the Class A-5 Remittance Rate on
the Class A-5 Principal Balance for
the related Interest Accrual
Period) and (ii) the Class A-5
Principal Liquidation Loss Amount,
if any, exceeds (b) the Amount
Available remaining for
distribution to the Class A-5
Certificateholders after
distributions of interest and
- --------------------------------------------------------------------------------
S-10
<PAGE>
- --------------------------------------------------------------------------------
principal to Holders of the Senior
Certificates and Class A-4
Certificates on such Remittance
Date. On each Remittance Date on or
after the Class A-4 Cross-over
Date, the Guarantee Payment will
equal the amount, if any, by which
(a) the sum of the amount of
interest and principal payable to
the Class A-5 Certificateholders
for such Remittance Date,
calculated as described under "E.
Interest on Class A-5 Certificates"
and "F. Principal on Class A-5
Certificates" above exceeds (b) the
Amount Available.
The Limited Guarantee will be an
unsecured general obligation of CIT
and will not be supported by any
letter of credit or other
enhancement arrangement.
Losses on Liquidated Contracts.......... As described above, the distribution
of principal to the Holders of the
Offered Certificates is intended to
include the Stated Principal
Balance of each Contract that
became a Liquidated Contract during
the Due Period preceding the
Remittance Date. If the Net
Liquidation Proceeds from such
Liquidated Contract are less than
the Stated Principal Balance of
such Liquidated Contract, the
deficiency will, in effect, be
absorbed by the Class R
Certificateholders, then CIT to the
extent of the Guarantee Fee, then
the Servicer to the extent of the
Monthly Servicing Fee (so long as
CITSF is the Servicer), then the
Class A-5 Certificateholders and
then the Class A-4
Certificateholders since the Senior
Certificateholders are entitled to
all principal payments received
during the related Due Period
pursuant to the Formula
Distribution Amount for any
Remittance Date until the Senior
Principal Balance is reduced to
zero.
But for the effect of the payments
under the Limited Guarantee, the
subordination of the Class R
Certificates, the subordination of
the Guarantee Fee and the Monthly
Servicing Fee (as long as CITSF is
the Servicer) and future
collections on the Contracts, the
Class A-5 Certificateholders would
absorb all losses on each
Liquidated Contract in the amount
by which its Net Liquidation
Proceeds are less than its unpaid
principal balance plus accrued and
unpaid interest thereon. See
"Description of the
Certificates--Subordination of the
Subordinated Certificates" and
"Yield and Prepayment
Considerations".
But for the effect of the
subordination of the Class A-5 and
Class R Certificates, the
subordination of the Guarantee Fee
and the Monthly Servicing Fee (as
long as CITSF is the Servicer) and
future collections on the
Contracts, the Class A-4
Certificateholders would absorb all
losses on each Liquidated Contract
in the amount by which its Net
Liquidation Proceeds are less than
its unpaid principal balance plus
accrued and unpaid interest
thereon. See "Description of the
Certificates--Subordination of the
Subordinated Certificates" and
"Yield and Prepayment
Considerations".
- --------------------------------------------------------------------------------
S-11
<PAGE>
- --------------------------------------------------------------------------------
If further liquidation losses were to
continue to decrease the Pool
Stated Principal Balance (which is
reduced by all collections of
principal on the Contracts and the
Stated Principal Balance of all
Contracts that become Liquidated
Contracts or were repurchased by
CITSF) faster than distributions of
principal to the Senior
Certificateholders reduce the
Senior Principal Balance, then the
amount of the Pool Stated Principal
Balance available to the Class A-4
Certificates and the Class A-5
Certificates, and therefore the
level of protection afforded by the
subordination of the Class A-4
Certificates and the Class A-5
Certificates for the benefit of the
Senior Certificates, would be
reduced. In the event that the Pool
Stated Principal Balance is reduced
by liquidation losses to an amount
less than or equal to the Senior
Principal Balance, all additional
losses on Liquidated Contracts, to
the extent not covered by future
collections on the Contracts, will
be absorbed by the Senior
Certificates.
Optional Repurchase of the Contracts
by the Servicer or the Company........ At its option, either the Servicer or
the Company may repurchase from the
Trust all remaining Contracts, and
thereby effect early retirement of
the Certificates, on any Remittance
Date when, among other things, the
Pool Stated Principal Balance is
less than 10% of the Initial Pool
Principal Balance. The "Initial
Pool Principal Balance" equals the
sum of (i) the Cut-off Date Pool
Principal Balance and (ii) the
aggregate Stated Principal Balances
of all Subsequent Contracts added
to the Trust as of their respective
Subsequent Cut-off Dates. See
"Description of the
Certificates--Repurchase Option".
The Initial Contracts................... On or about the Closing Date, the
Company will sell Contracts to the
Trust having a Cut-off Date Pool
Principal Balance of approximately
$84,566,703 (the "Initial
Contracts"). The Initial Contracts
and the Subsequent Contracts
(collectively, the "Contracts")
shall consist of conventional
fixed-rate manufactured housing
installment sales contracts and
installment loan agreements,
including any and all rights to
payments received thereunder on and
after the Cut-off Date or the
Subsequent Cut-off Date, as the
case may be, and (i) security
interests in Manufactured Homes
purchased with the proceeds of such
Contracts and/or (ii) with respect
to certain of the Contracts, liens
on the real estate to which the
related Manufactured Homes are
located ("Land-Secured Contracts").
The Initial Contracts are secured
by Manufactured Homes and/or real
estate located in 46 states and
have been selected by CITSF from
its portfolio of manufactured
housing contracts based on the
criteria specified in the
Agreement. All of the Initial
Contracts bear interest calculated
based on the simple interest
method. All of the Initial
Contracts are conventional
Contracts (i.e., not insured or
guaranteed by any governmental
agency). The Contract Rate on the
Initial Contracts ranges from 7.50%
to 18.99% with a weighted average
of approximately 11.32% as of the
- --------------------------------------------------------------------------------
S-12
<PAGE>
- --------------------------------------------------------------------------------
Cut-off Date. The Initial Contracts
had a weighted average term to
stated maturity, as of origination,
of 240 months, and a weighted
average remaining term to stated
maturity, as of the Cut-off Date,
of 239 months. As of the Cut-off
Date, 26.36% of the Contracts (by
aggregate unpaid principal balance)
had Obligors with mailing addresses
in Texas and 10.83% of the
Contracts (by aggregate unpaid
principal balance) had Obligors
with mailing addresses in Arizona.
The final scheduled payment date on
the Initial Contract with the
latest maturity is in February
2020. The Initial Contracts were
originated between September 1994
and January 1995. As of the Cut-off
Date, approximately 4.06% of the
Initial Contracts by Stated
Principal Balance have a first
scheduled payment date in March or
April of 1995. For each such
Contract, the Agreement will
require the Company to deposit in
the Certificate Account on the
Closing Date an amount equal to one
or two months interest, as the case
may be, at the applicable Contract
Rate. All of the Initial Contracts
are manufactured housing
installment sales contracts
originated by a manufactured
housing dealer in the ordinary
course of its business and
purchased by CITSF or CITCF-NY in
the ordinary course of business, or
manufactured housing installment
loan agreements originated by CITSF
or CITCF-NY in the ordinary course
of business. See "The Contract
Pool".
Pre-Funding Account;
Mandatory Prepayment ................. On the Closing Date an aggregate cash
amount (the "Pre-Funded Amount") of
approximately $39,433,297 will be
deposited with the Trustee in the
Pre-Funding Account, which amount
will be funded from the sale of the
Certificates and may be used only
to (i) acquire manufactured housing
installment sales contracts and
installment loan agreements after
the Closing Date (the "Subsequent
Contracts") and (ii) make
accelerated payments of principal
on the Offered Certificates as
described herein. During the period
(the "Funding Period") from the
Closing Date until the earliest of
(i) the date on which the amount on
deposit in the Pre-Funding Account
is less than $100,000, (ii) the
date on which an Event of
Termination (as defined in the
Agreement) occurs under the
Agreement, (iii) the insolvency of
the Company, CITSF, The CIT
Group/Consumer Finance, Inc. (NY)
("CITCF-NY") or CIT or (iv) the May
15, 1995 Remittance Date, the
Pre-Funded Amount will be
maintained in the Pre-Funding
Account. The Pre-Funding Account
will be reduced during the Funding
Period by the amount thereof used
to purchase Subsequent Contracts in
accordance with the Agreement.
In the event that on the last day of
the Funding Period not all of the
approximately $39,433,297 funded
from the proceeds of the sale of
the Certificates and deposited in
the Pre-Funding Account has been
used to acquire Subsequent
Contracts, then the remaining funds
will be used to make prepayments to
the Holders of the Senior
Certificates on a sequential basis
on the first Remittance Date
thereafter, or, if the end of the
- --------------------------------------------------------------------------------
S-13
<PAGE>
- --------------------------------------------------------------------------------
Funding Period is on a Remittance
Date, then on such date. Such
prepayments will be made, in
accordance with their respective
Percentage Interests, first to
Holders of the Class A-1
Certificates, then to Holders of
the Class A-2 Certificates and then
to Holders of the Class A-3
Certificates, from and to the
extent of such remaining funds.
Amounts on deposit in the
Pre-Funding Account may be invested
in Eligible Investments (as defined
in the Agreement) as described
herein. See "Description of
Certificates--Payments on
Contracts; Distributions on
Certificates". Any investment
earnings on funds in the
Pre-Funding Account that were not
used to pay interest on the Offered
Certificates on any of the
Remittance Dates during the Funding
Period will be deposited in the
Certificate Account at the end of
the Funding Period and become part
of the Amount Available on the
first Remittance Date thereafter
or, if the end of the Funding
Period is on a Remittance Date,
then on such date.
Capitalized Interest Account........... On the Closing Date the Trustee will
be required to deposit
approximately $_________ of the
proceeds of the sale of the
Certificates in an account (the
"Capitalized Interest Account") in
the name of the Trustee on behalf
of the Trust. Amounts deposited in
the Capitalized Interest Account
will be used by the Trustee on the
March 15, 1995, April 15, 1995 and
May 15, 1995 Remittance Dates, if
applicable, to fund the excess, if
any, of (i) the product of (x) the
weighted average Remittance Rates
of the Offered Certificates
(without giving effect to the
maximum rate) as of the first day
of the related Interest Accrual
Period and (y) the outstanding
Pre-Funded Amount (as of the last
day of the related Due Period) over
(ii) the amount of any investment
earnings on funds in the
Pre-Funding Account that are
available to pay interest on the
Offered Certificates on each such
Remittance Date and amounts
otherwise distributable to the
Holders of the Class R
Certificates. Any amounts remaining
in the Capitalized Interest Account
on the last day of the Funding
Period and not used for such
purposes will be deposited in the
Certificate Account and become part
of the Amount Available on the
first Remittance Date thereafter
or, if the end of the Funding
Period is on a Remittance Date,
then on such date. Amounts on
deposit in the Capitalized Interest
Account may be invested in Eligible
Investments as described herein.
See "Description of
Certificates--Prepayments on
Contracts; Distributions on
Certificates".
The Subsequent Contracts............... Following the Cut-off Date, the Trust
will be obligated to purchase from
the Company from time to time on or
before the May 15, 1995 Remittance
Date, subject to the availability
thereof, Subsequent Contracts. Such
Subsequent Contracts will be
originated on or before such date
by CITSF or its affiliates
(including contracts acquired from
dealers which originated the
contracts in accordance with
- --------------------------------------------------------------------------------
S-14
<PAGE>
- --------------------------------------------------------------------------------
CITSF's underwriting criteria) in
the ordinary course of business and
acquired by the Company from CITSF
or from such affiliate for sale to
the Trust pursuant to a Subsequent
Transfer Agreement (the "Purchase
Agreement") between the Company and
the Trust. The approximate
aggregate principal amount of
Subsequent Contracts which may be
acquired by the Trust is
$39,433,297. Under the Agreement,
the Company will be obligated to
sell Subsequent Contracts to the
Trust and the Trust will be
obligated, subject to the
satisfaction of certain conditions
described herein and in the
Agreement, to purchase such
Subsequent Contracts. The Company
will designate as a cut-off date
(each, a "Subsequent Cut-off Date")
the first day of the month in which
Subsequent Contracts will be
conveyed by the Company to the
Trust (each a "Subsequent Transfer
Date") occurring during the Funding
Period. In connection with each
purchase of Subsequent Contracts,
the Trust will be required to pay
to the Company a cash purchase
price of 100% of the unpaid
principal amount thereof as of the
Subsequent Cut-off Date from the
Pre-Funding Account. The Trust may
purchase the Subsequent Contracts
only from the Company and not from
any other person.
The obligation of the Trust to purchase
the Subsequent Contracts is subject
to the following requirements: (i)
each Subsequent Contract must
satisfy the representations and
warranties specified in the
Agreement with respect thereto,
(ii) the Company will not select
such Subsequent Contracts in a
manner that it believes is adverse
to the interests of the Offered
Certificateholders and (iii) the
Company will deliver certain
opinions of counsel with respect to
the validity of the conveyance of
such Subsequent Contracts. In
addition, no Subsequent Contract
will be sold to the Trust on a
Subsequent Transfer Date if after
giving effect to the sale of all
such Subsequent Contracts on such
Subsequent Transfer Date (i) the
weighted average original
Loan-to-Value Ratio of the
Contracts based on the Subsequent
Cut-off Date Pool Principal Balance
would exceed 88%, (ii) more than
53% (by Subsequent Cut-off Date
Pool Principal Balance) of the
Contract Pool would have original
Loan-to-Value Ratios of greater
than 90%, (iii) the weighted
average Net Contract Rate of the
Contracts based on the Subsequent
Cut-off Date Pool Principal Balance
would be less than 10.40%, (iv) the
weighted average Contract Rates of
the Contracts based on the
Subsequent Cut-off Date Pool
Principal Balance would be less
than 11.40%, (v) more than 27% of
the Contracts based on the
Subsequent Cut-off Date Pool
Principal Balance will have
Obligors with mailing addresses in
Texas, (vi) more than 10% of the
Contracts by Subsequent Cut-off
Date Pool Principal Balance would
be attributable to loans to
purchase Manufactured Homes which
were used at the time the related
Contract was originated, (vii) less
than 70% of the Contracts by
Subsequent Cut-off Date Pool
- --------------------------------------------------------------------------------
S-15
<PAGE>
- --------------------------------------------------------------------------------
Principal Balance would be
attributable to loans to purchase
double-wide Manufactured Homes,
(viii) the weighted average
remaining term to maturity of the
Contracts based on the Subsequent
Cut-off Date Pool Principal Balance
would be less than 235 months or
more than 241 months or (ix) the
weighted average credit score of
the Contracts based on the
Subsequent Cut-off Date Pool
Principal Balance would decrease by
more than 6% from the weighted
average credit score of the Initial
Contracts as of the Cut-off Date.
"Subsequent Cut-off Date Pool
Principal Balance" as of any
Subsequent Transfer Date means the
sum of (i) the Cut-off Date Pool
Principal Balance and (ii) the
aggregate unpaid principal balances
of the Subsequent Contracts to be
sold on such Subsequent Transfer
Date as of the related Subsequent
Cut-off Date and (iii) if
applicable, an amount calculated as
provided in clause (ii) with
respect to all Subsequent Transfer
Dates, if any, occurring prior to
such Subsequent Transfer Date. The
Agreement will require the Company
to make the same representations
and warranties with respect to each
individual Subsequent Contract as
it is required to make with respect
to each Initial Contract sold to
the Trust except that each such
representation and warranty shall
be made as of the Subsequent
Transfer Date relating to such
Subsequent Contract.
All of the Subsequent Contracts will
(i) be secured by Manufactured
Homes and in some instances also by
real estate located in the United
States, (ii) be conventional
Contracts (i.e., not insured or
guaranteed by any governmental
agency), (iii) bear interest based
on the simple interest method, (iv)
have a final scheduled payment date
of no later than July 2020 and (v)
have been selected by CITSF from
its portfolio of manufactured
housing contracts originated by
CITSF and CITCF-NY (including
contracts acquired from dealers
which originated the contracts in
accordance with CITSF's
underwriting criteria) in the
ordinary course of business based
on the criteria specified in the
Agreement.
Monthly Advances........................ For each Remittance Date, the Servicer
will be obligated to make advances
("Monthly Advances") by depositing
into the Certificate Account cash
for distribution to the Holders of
the Offered Certificates equal to
the difference between the interest
due on the Contracts at the
Contract Rate on the Due Date
during the related Due Period and
the interest received on the
Contracts during such Due Period,
but only to the extent that the
Servicer determines that the
payments of interest not received
during the related Due Period would
be recoverable from future payments
and collections in the Contracts as
described under "Description of
Certificates--Advances", and such
reimbursements reduce the Amount
Available in the Certificate
Account for distribution.
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S-16
<PAGE>
- --------------------------------------------------------------------------------
Security Interests and Certain Other
Aspects of the Contracts; Repurchase
or Substitution Obligations........... In connection with the sale of the
Contracts to the Trustee, CITSF has
assigned the security interests in
the Manufactured Homes and/or the
liens on the underlying real
property, as appropriate, to the
Company and the Company has
assigned such security interests
and liens to the Trust. Because of
the expense and administrative
inconvenience involved, CITSF will
not amend the certificates of title
to name CITSF as the lienholder
where CITSF is not the originator
of the Contract and CITSF will not
amend any certificate of title to
name the Company or the Trustee as
the lienholder and the Company will
not deliver any certificate of
title to the Trustee or note
thereon the Trustee's interest.
Consequently, in some states, in
the absence of such an amendment to
the certificate of title, the
successive assignments from
CITCF-NY to CITSF (in some cases),
from CITSF to the Company and from
the Company to the Trust of the
security interest in the
Manufactured Home 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 other creditors or a
trustee in bankruptcy. Because of
the expense and administrative
inconvenience involved, CITSF will
not record the successive
assignments to CITSF, the Company
and the Trustee of the mortgage,
deed of trust, or similar
instrument securing each
Land-Secured Contract.
Consequently, in some states, in
the absence of such recordation,
the assignment to the Trustee of
the mortgage, deed of trust, or
similar instrument securing a
Land-Secured Contract may not be
effective and, in the absence of
such recordation, the assignment of
the mortgage, deed of trust, or
similar instrument to the Trustee
may not be effective against other
creditors or a trustee in
bankruptcy.
CITSF has agreed to repurchase, or, at
its option, substitute another
contract which is an "Eligible
Contract" (as defined in the
Agreement) for, any Contract as to
which the Trustee does not have a
valid and perfected security
interest in the Manufactured Home
securing such Contract, if such
failure materially adversely
affects the Trust's interest in the
Contract unless such failure has
been cured within 85 days of CITSF
receiving notice of such failure or
within 90 days after CITSF
otherwise becomes aware of such
failure.
Subject to the foregoing, the Servicer
has agreed to maintain the
Trustee's perfected first priority
security interest in each
Manufactured Home and first or
second lien on each mortgaged
property securing a Contract so
long as the related Contract is the
property of the Trust. See "Special
Considerations--8. Security
Interests and Certain Other Aspects
of the Contracts" and "Certain
Legal Aspects of the Contracts--The
- --------------------------------------------------------------------------------
S-17
<PAGE>
- --------------------------------------------------------------------------------
Contracts (Other than Land-Secured
Contracts)" and "--Land-Secured
Contracts" in the Prospectus.
Certain Federal Income Tax
Consequences.......................... For federal income tax purposes, an
election will be made to treat the
Trust 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. See "Certain Federal
Income Tax Consequences" herein and
in the Prospectus.
ERISA Considerations ................... Subject to the conditions described
herein, the Senior Certificate may
be purchased by employee benefit
plans that are subject to the
Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
See "ERISA Considerations" herein
and in the Prospectus.
No transfer of Class A-4 or Class A-5
Certificates will be permitted to
be made to any employee benefit
plan subject to ERISA or to the
Internal Revenue Code of 1986, as
amended, unless the opinion of
counsel described under "ERISA
Considerations" is delivered to the
Trustee. See "ERISA Considerations"
herein and in the Prospectus.
Legal Investment Considerations......... The Offered Certificates offered
hereby will not constitute
"mortgage related securities" under
the Secondary Mortgage Market
Enhancement Act of 1984.
Accordingly, many institutions with
legal authority to invest in
comparably rated securities may not
be legally authorized to invest in
the Offered Certificates. See
"Legal Investment Considerations"
herein and in the Prospectus. No
representations are made as to any
regulatory requirements or
considerations (including without
limitation regulatory capital
requirements) applicable to the
purchase of any of the Certificates
by banks, savings and loan
associations or other financial
institutions, which institutions
should consult their own counsel as
to such matters.
Rating ................................. It is a condition to the issuance of
the Certificates on the Closing
Date that the Senior Certificates
be rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's") and the
Class A-4 Certificates be rated
"Aa3" by Moody's. It is a condition
to the issuance of the Class A-5
Certificates that they be rated at
least "Aa3" by Moody's. 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
rating agency. The rating of the
Class A-5 Certificates is based in
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S-18
<PAGE>
- --------------------------------------------------------------------------------
part on an assessment of CIT's
ability to make payments under the
Limited Guarantee. Any reduction in
Moody's rating of CIT's debt
securities may result in a
reduction in the rating of the
Class A-5 Certificates.
Registration of the Offered
Certificates ......................... Each Class of the Offered Certificates
initially will be represented by
one or more certificates registered
in the name of Cede & Co., 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 its participants. Certificates
representing the Offered
Certificates will be issued in
definitive form only under the
limited circumstances described
herein. Accordingly, references
herein to "Holders" or
"Certificateholders" reflect the
rights of Certificate Owners only
to the extent that, in accordance
with the rules of DTC, they may
indirectly exercise such rights
through DTC and its participants.
Certificate Owners will not be
Certificateholders as that term is
used in the Agreement and will not
receive reports or payments
directly from the Trustee or the
Servicer. See "Registration of the
Offered Certificates" herein and
"Description of the
Certificates--Global Certificates"
in the Prospectus.
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S-19
<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, in addition to the risk
factors described under "Special Considerations" in the Prospectus, the
following risk factors in connection with the purchase of the Class A-1
Certificates, the Class A-2 Certificates and the Class A-3 Certificates
(collectively, the "Senior Certificates"), the Class A-4 Certificates or the
Class A-5 Certificates (collectively, the "Offered Certificates"):
1. General. An investment in the Offered 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 pools of
manufactured housing installment sales contracts. In the event of defaults by
the Obligors under the Contracts, the Trust will have to look primarily to the
value of the Manufactured Homes for recovery of the outstanding principal and
unpaid interest of the defaulted contracts. Regardless of its location,
manufactured housing generally depreciates in value. See "The Contract
Pool--Delinquency and Loan Loss Experience" herein and "The Trust--The Contract
Pools" in the Prospectus. Consequently, it is possible that the market value of
certain Manufactured Homes could be or become lower than the outstanding
principal balances of the Contracts that they secure. Sufficiently high
liquidation losses on the Contracts will have the effect of reducing, and could
eliminate (a) the protection against loss afforded to the Senior Certificates by
the subordination of the Class A-4 Certificates, the Class A-5 Certificates and
the Class R Certificates (collectively, the "Subordinated Certificates"), (b)
the protection against loss afforded to the Class A-4 Certificates by the
subordination of the Class A-5 and the Class R Certificates and (c) the
protection against loss afforded to the Class A-5 Certificates by the
subordination of the Class R Certificates. If the protection under clause (a)
above is eliminated, the Senior Certificateholders will bear the risk of loss on
the Contracts. If the protection under clause (b) above is eliminated, the Class
A-4 Certificateholders will bear the risk of losses on the Contracts. If the
protection under clause (c) is eliminated and The CIT Group Holdings, Inc.
("CIT") fails to make payments as required under the Limited Guarantee, the
Class A-5 Certificateholders will bear the risk of losses on the Contracts.
2. Limited Obligations. The Offered Certificates will not represent an
interest in or an obligation of CIT, the Company or any Servicer (including
CITSF). Except for the Limited Guarantee provided by CIT in favor of the Class
A-5 Certificateholders, the Offered Certificates will not be insured or
guaranteed by any government agency or instrumentality, CIT or any of its
affiliates, including the Company and CITSF, the Underwriters or any of their
affiliates, or any other Servicer or any of its affiliates.
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Offered Certificates or, if it does develop, that it will
provide the Holders of the Offered Certificates with liquidity of investment or
that it will remain for the term of the Offered Certificates. In addition, none
of the Certificates will constitute "mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). Accordingly,
many institutions with legal authority to invest in SMMEA securities will not be
able to invest in any of the Offered Certificates, limiting the market for such
securities. See "Legal Investment Considerations" herein and in the Prospectus.
4. Insurance. The insurance policies on the Contracts (and the Manufactured
Homes) will not cover all contingencies and will cover certain contingencies
only to a limited extent. See "Description of the
Certificates--Servicing--Hazard Insurance" in the Prospectus. The Company and
CITSF have not verified the extent to which the Manufactured Homes are covered
by flood insurance, but CITSF believes that Manufactured Homes in manufactured
housing parks, and Land-Secured Contracts which, at the time of origination
were, and continue to be, located within a federally designated special flood
hazard area, are covered by flood insurance, although the amount of such
coverage may be less than the principal balance due from the Obligor under the
related Contract. For all other Contracts, the Company and CITSF can give no
assurance that flood insurance coverage has been obtained with respect to the
related Manufactured Home.
5. Prepayment Considerations. The prepayment experience on the Contracts
may affect the average life of the Offered 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, casualty losses and
unemployment. In the event a Contract is prepaid in full, interest on such
Contract will accrue only to the date of prepayment. If Offered Certificates are
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<PAGE>
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. See
"Yield and Prepayment Considerations" herein and "Maturity and Prepayment
Considerations" in the Prospectus. In addition, the Offered Certificates may be
prepaid from funds in the Pre-Funding Account at the end of the Funding Period
as described herein.
In the event that, with respect to a particular Class of Certificates, a
large number of Contracts having Contract Rates equal to or higher than the
applicable stated Remittance Rate were to prepay while the Contracts having
Contract Rates lower than such Remittance Rate did not prepay, with the result
that the interest collections on the remaining Contracts were not sufficient to
support such Remittance Rate, then the Remittance Rate for such Class of
Certificates would be equal to the weighted average of the Net Contract Rates
(as defined hereafter) on each Contract in the Contract Pool.
6. The Subsequent Contracts and the Pre-Funding Account. The conveyance of
Subsequent Contracts by CITSF during the Funding Period is subject to the
conditions described herein under "The Contract Pool." If CITSF is unable to
originate Contracts satisfying such criteria during the Funding Period, CITSF
will have insufficient Contracts to sell to the Trust on Subsequent Transfer
Dates, thereby resulting in prepayments of principal to Holders of the Senior
Certificates as described below.
To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to the purchase of Subsequent Contracts by the Trust by the
end of the Funding Period, Holders of the Senior Certificates will receive, on a
sequential basis, a prepayment of principal in an amount equal to the Funded
Amount remaining in the Pre-Funding Account at such time, which prepayment will
be made on the first Remittance Date following the end of the Funding Period or,
if the Funding Period ends on a Remittance Date, on such date. It is anticipated
that the principal amount of Subsequent Contracts purchased by the Trust will
not be exactly equal to the amount on deposit in the Pre-Funding Account and
that therefore there will be at least a nominal amount of principal prepaid to
Holders of the Senior Certificates at the end of the Funding Period.
Each Subsequent Contract must satisfy the eligibility criteria specified
herein and in the Agreement at the time of its addition. Following the transfer
of Subsequent Contracts to the Contract Pool the aggregate characteristics of
the Contracts then held in the Contract Pool may vary from those of the Initial
Contracts included therein.
The ability of the Trust to invest in Subsequent Contracts is largely
dependent upon whether CITSF is able to originate manufactured housing contracts
that meet the requirements for transfer on a Subsequent Transfer Date under a
Subsequent Sale and Purchase Agreement transfering Subsequent Contracts from
CITSF to the Company (the "Purchase Agreement") and the Agreement. The ability
of CITSF to originate such contracts may be affected as a result of a variety of
social and economic factors. Moreover, such factors may affect the ability of
the Obligors thereunder to perform their obligations thereunder which may cause
contracts originated by CITSF or its affiliates (including contracts acquired
from dealers which originated the contracts in accordance with CITSF's
underwriting criteria) to fail to meet the requirements for transfer under the
Purchase Agreement and the Agreement. Economic factors include interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. However, CITSF is unable to determine and has no basis to
predict whether or to what extent economic or social factors will affect the
performance by such Obligors and the availability of Subsequent Contracts.
7. Distributions of Principal. The yield to maturity on the Offered
Certificates will be affected by the rate at which Contracts become Liquidated
Contracts and the severity of ensuing losses on such Liquidated Contracts and
the timing thereof. Prior to the time that the Senior Principal Balance and the
Class A-4 Principal Balance are reduced to zero, Senior Certificateholders and
the Class A-4 Certificateholders will receive all payments of principal that are
made on the Contracts except for payments of the Class A-5 Principal Liquidation
Loss Amount described herein. It is not possible to predict the timing of the
occurrence of the Remittance Date, if any, on which the Senior Principal Balance
and the Class A-4 Principal Balance are reduced to zero, which occurrences will
be affected by the rate of voluntary principal prepayments in addition to
prepayments due to default and subsequent liquidation. Prepayments on Contracts
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, casualty losses and unemployment. See
"Yield and Prepayment Considerations" herein and "Maturity and Prepayment
Considerations" in the Prospectus.
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<PAGE>
8. Security Interests and Certain Other Aspects of the Contracts. A variety
of factors may limit the ability of the Certificateholders to realize upon the
Manufactured Homes securing the Contracts or may limit the amount realized to
less than the amount due. See "Special Considerations" and "Certain Legal
Aspects of the Contracts" in the Prospectus.
9. Certain Matters Relating to Insolvency. CITSF and the Company intend
that each transfer of Contracts from The CIT Group/Consumer Finance, Inc. (NY)
("CITCF-NY") to CITSF and from CITSF to the Company and from the Company to the
Trust constitutes a sale, rather than a pledge of the Contracts to secure
indebtedness. However, if CITCF-NY, CITSF or the Company were to become a debtor
under Title 11 of the United States Code, 11 U.S.C. ss.101 et seq. (the
"Bankruptcy Code"), it is possible that a creditor, receiver, other party in
interest or trustee in bankruptcy of CITCF-NY, CITSF or the Company, or
CITCF-NY, CITSF or the Company as debtor-in-possession, may argue that the sale
of the Contracts by CITCF-NY to CITSF or by CITSF to the Company, or by the
Company to the Trust, respectively, was a pledge of the Contracts rather than a
sale and that, accordingly, such Contracts should be part of such entity's
bankruptcy estate. Such a position, if presented to a court, even if ultimately
unsuccessful, could result in a delay in or reduction of distributions to the
Certificateholders.
The Company has taken steps in structuring the transactions contemplated
hereby that are intended to increase the likelihood that the voluntary
application for relief by the Company under the United States Bankruptcy Code
("Insolvency Laws") will not result in consolidation of the assets and
liabilities of the Company with those of CITSF or its affiliates. These steps
include the creation of the Company as a separate, limited-purpose subsidiary
pursuant to a certificate of incorporation containing certain limitations
(including restrictions on the nature of the Company's business and a
restriction on the Company's ability to commence a voluntary case or proceeding
under any Insolvency Law without the prior unanimous affirmative vote of all its
directors). However, there can be no assurance that the activities of the
Company would not result in a court concluding that the assets and liabilities
of the Company should be consolidated with those of CITSF or its affiliates in a
proceeding under any Insolvency Law.
10. Subordination. While the subordination feature is intended to enhance
the likelihood that the Senior Certificateholders and the Class A-4
Certificateholders will receive the maximum amount of interest and principal to
which they are entitled to receive on each Remittance Date, shortfalls on the
Senior Certificates and the Class A-4 Certificates, respectively, could occur if
the Pool Stated Principal Balance, as the case may be, is less than the Senior
Principal Balance or the Class A-4 Principal Balance, as the case may be, and
losses on Liquidated Contracts are not covered by future collections on the
Contracts. The only protection afforded the Class A-4 Certificates against
losses is the subordination provided by the Class A-5 Certificates and the Class
R Certificates.
11. Geographic Concentration of Manufactured Homes. A significant
concentration of the Manufactured Homes and, in certain instances the underlying
real property, securing the Initial Contracts (based, in most cases, on the
mailing addresses of the Obligors) are located in the states of Texas and
Arizona. As of the Cut-off Date, 26.36% and 10.83% of the Contracts (by
aggregate unpaid principal balance) had Obligors with mailing addresses in Texas
and Arizona, respectively. The Agreement provides that no Subsequent Contract
will be sold to the Trust if after giving effect to the sale of all such
Subsequent Contracts on such Subsequent Transfer Date more than 27% of the
Contracts based on Subsequent Cut-off Date Pool Principal Balance (as hereafter
defined) will have Obligors with mailing addresses in Texas. Because of the
relative lack of geographic diversity, losses on the related Initial Contracts
may be higher than would be the case if there were more diversification. Certain
of such Manufactured Homes and real estate may be more susceptible to certain
types of special hazards not covered by insurance (such as earthquakes or
floods) and other hazards that may be covered in whole or in part by insurance
(such as hurricanes) than residential properties located in other parts of the
country. The economies of such states may be adversely affected to a greater
degree than that of other areas of the country by certain regional economic
conditions. In particular, historically the Texas economy has been dependent on
the oil and gas industry which has been volatile. An economic downturn in Texas
or Arizona may have an adverse effect on the ability of Obligors in such states
to meet their payment obligations under the Contracts.
S-22
<PAGE>
STRUCTURE OF THE TRANSACTION
The Company will establish the Trust and transfer the Contracts and related
rights to the Trust pursuant to the Agreement. The Certificates represent
fractional undivided interests in the Trust, the corpus of which will consist of
all right, title and interest of the Company in and to the Contracts (including,
without limitation, the security interests in the Manufactured Homes securing
such Contracts and any related mortgages, deeds of trust or similar
instruments), all rights to payments received on such Contracts on and after
February 1, 1995 (the "Cut-off Date"), or, in the case of any Subsequent
Contracts on and after the applicable Subsequent Cut-off Date therefor), rights
under certain hazard insurance policies with respect to the Manufactured Homes,
proceeds from the errors and omissions protection policy and any blanket hazard
insurance policies maintained pursuant to the Agreement, to the extent such
proceeds relate to the Contracts or the Manufactured Homes, all documents
contained in the Contract files, all rights to any rebated portions of
force-placed insurance premiums, amounts held for the Trust in the Certificate
Account, any funds on deposit in the Pre-Funding Account and the Capitalized
Interest Account, and all proceeds in any way derived from any of the foregoing.
CITSF will service the Contracts for the Trust. The Contracts will be held by
CITSF on behalf of the Trustee.
Payments by Obligors under the Contracts generally will be deposited in a
separate account maintained at an Eligible Institution in the name of the
Trustee (the "Certificate Account") no later than two business days after
receipt. However, subject to the terms of the Agreement, as long as CITSF
remains the Servicer under the Agreement and is a direct or indirect subsidiary
of CIT, if CIT maintains a short-term debt rating of P-1 or higher by Moody's
Investor Service, Inc. ("Moody's"), and the Trustee shall have received an
opinion of counsel that any action taken pursuant to this sentence shall not
adversely affect the status of the Trust as a REMIC or result in the imposition
of a tax on the Trust, the Servicer will not be required to deposit payments by
Obligors on the Contracts in the Certificate Account within two business days of
the date of processing. In such an event, the Servicer may make such deposits on
the business day immediately preceding the next Remittance Date in an amount
equal to the net amount of such deposits and payments which would have been made
had the conditions of the preceding sentence not applied. Certain payments
deposited in the Certificate Account in respect of each Due Period will be
applied on the 15th day of the next month (or, if such day is not a business
day, the next succeeding business day) (a "Remittance Date") to make the
distributions to Certificateholders described under "Description of the
Certificates--Distributions" and, to the extent not netted from deposits to the
Certificate Account, to reimburse the Servicer for unreimbursed Monthly
Advances, to pay certain monthly fees to the Servicer as compensation for
servicing the Contracts and to pay to CIT the Guarantee Fee (as hereafter
defined). CITSF, in its capacity as Servicer of the Contracts, and any successor
servicer are referred to herein as the "Servicer".
For each Remittance Date, the "Due Period" is the calendar month preceding
the month of such Remittance Date. For each Remittance Date, the "Determination
Date" is the third business day prior to such Remittance Date.
CITSF's transfer of the Contracts to the Company and the Company's
conveyance of the Contracts to the Trust is without recourse, except for certain
representations and warranties made by CITSF in the Agreement and certain
indemnities by the Servicer described under "Description of the
Certificates--Indemnification".
THE CONTRACT POOL
On the Closing Date, the Company will sell to the Trust approximately 2,152
conventional fixed-rate manufactured housing installment sales contracts and
installment loan agreements (the "Initial Contracts") having an aggregate
principal balance as of the Cut-off Date of $84,566,703 (the "Cut-off Date Pool
Principal Balance"). For the purposes of the discussion of the characteristics
of the Contracts on the Cut-off Date contained herein, the principal balance of
each Initial Contract is the unpaid principal balance as of the Cut-off Date.
In addition to those Contracts sold by the Company to the Trust on the
Closing Date the Trust is expected to purchase from the Company additional
conventional, fixed-rate manufactured housing installment sales contracts and
installment loan agreements from time to time on or before the May 15, 1995
Remittance Date from funds on deposit in the Pre-Funding Account (the
"Subsequent Contracts"). The Initial Contracts and the Subsequent Contracts are
referred to herein collectively as the "Contracts." The Subsequent Contracts to
be purchased by the Trust, if available, will be originated by CITSF or its
affiliates (including Contracts acquired from dealers) and sold by CITSF to the
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Company and by the Company to the Trust. Accordingly, the statistical
characteristics of the Contract Pool will vary as of any Subsequent Cut-off Date
upon the acquisition of the Subsequent Contracts.
The obligation of the Trust to purchase the Subsequent Contracts is subject
to the following requirements: (i) each Subsequent Contract must satisfy the
representations and warranties specified in the Agreement with respect thereto,
(ii) the Company will not select such Subsequent Contracts in a manner that it
believes is adverse to the interests of the Offered Certificateholders and (iii)
the Company will deliver certain opinions of counsel with respect to the
validity of the conveyance of such Subsequent Contracts. In addition, no
Subsequent Contract will be sold to the Trust on a Subsequent Transfer Date if
after giving effect to the sale of all such Subsequent Contracts on such
Subsequent Transfer Date (i) the weighted average original Loan-to-Value Ratio
of the Contracts based on the Subsequent Cut-off Date Pool Principal Balance
would exceed 88%, (ii) more than 53% (by Subsequent Cut-off Date Pool Principal
Balance) of the Contract Pool would have original Loan-to-Value Ratios greater
than 90%, (iii) the weighted average Net Contract Rate of the Contracts based on
the Subsequent Cut-off Date Pool Principal Balance would be less than 10.40%,
(iv) the weighted average Contract Rates of the Contracts based on the
Subsequent Cut-off Date Pool Principal Balance would be less than 11.40%, (v)
more than 27% of the Contracts based on the Subsequent Cut-off Date Pool
Principal Balance will have Obligors with mailing addresses in Texas, (vi) more
than 10% of the Contracts by Subsequent Cut-off Date Pool Principal Balance
would be attributable to loans to purchase Manufactured Homes which were used at
the time the related Contract was originated, (vii) less than 70% of the
Contracts by Subsequent Cut-off Date Pool Principal Balance would be
attributable to loans to purchase double-wide Manufactured Homes, (viii) the
weighted average remaining term to maturity of the Contracts based on the
Subsequent Cut-off Date Pool Principal Balance would be less than 235 months or
more than 241 months or (ix) the weighted average credit score of the Contracts
based on the Subsequent Cut-off Date Pool Principal Balance would decrease by
more than 6% from the weighted average credit score of the Initial Contracts as
of the Cut-off Date. "Subsequent Cut-off Date Pool Principal Balance" as of any
Subsequent Transfer Date means the sum of (i) the Cut-off Date Pool Principal
Balance and (ii) the aggregate unpaid principal balances of the Subsequent
Contracts to be sold on such Subsequent Transfer Date as of the related
Subsequent Cut-off Date and (iii) if applicable, an amount calculated as
provided in clause (ii) with respect to all Subsequent Transfer Dates, if any,
occurring prior to such Subsequent Transfer Date. The Agreement will require the
Company to make the same representations and warranties with respect to each
individual Subsequent Contract as it is required to make with respect to each
Initial Contract sold to the Trust except that each such representation and
warranty shall be made as of the Subsequent Transfer Date relating to such
Subsequent Contract.
All of the Subsequent Contracts will (i) be secured by Manufactured Homes
and, in some instances, also by real estate located in the United States, (ii)
be conventional Contracts (i.e., not insured or guaranteed by any governmental
agency), (iii) bear interest calculated based on the simple interest method,
(iv) have a final scheduled payment date of no later than July 2020 and (v) have
been selected by CITSF from its portfolio of manufactured housing contracts
originated by CITSF and CITCF-NY (including contracts acquired from dealers
which originated the contracts in accordance with CITSF's underwriting criteria)
in the ordinary course of business based on the criteria specified in the
Agreement.
All of the Contracts will be simple interest Contracts. A "simple interest
Contract" is a Contract as to which interest is calculated each day on the basis
of the actual principal balance outstanding on such day.
22.08% (by aggregate unpaid principal balance) of the Initial Contracts as
of the Cut-off Date are Land-Secured Contracts with respect to which either (i)
the Obligor finances both the purchase of the Manufactured Home and the real
estate on which such Manufactured Home is located, (ii) such Contract is secured
by a mortgage, deed of trust or similar instrument provided by the Obligor in
lieu of a cash down payment or (iii) in addition to a down payment and a lien on
the Manufactured Home, the Obligor provides a mortgage, deed of trust or similar
instrument as additional collateral to secure such Contract. See "The Trust--The
Contract Pools" in the Prospectus for a description of Land-Secured Contracts.
The Initial Contracts were originated between September 1994 and January
1995. As of the Cut-Off Date, approximately 4.06% of the Initial Contracts by
Stated Principal Balance have a first scheduled payment date in March or April
1995. For each such Contract, the Agreement will require the Company to deposit
in the Certificate Account on the Closing Date an amount equal to one or two
months' interest, as the case may be, at the applicable Contract Rate. All of
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the Contracts are manufactured housing installment sales contracts originated by
a manufactured housing dealer in the ordinary course of its business and
purchased by CITSF or CITCF-NY in the ordinary course of business, or
manufactured housing installment loan agreements originated by CITSF or CITCF-NY
in the ordinary course of business.
All of the Initial Contracts are conventional contracts, meaning that they
are not insured or guaranteed by any governmental agency.
Each Initial Contract (a) is secured by a Manufactured Home and in some
instances also by a lien on the real estate on which the Manufactured Home is
located, (b) is fully amortizing with a fixed Contract Rate and provides for
level payments over the term of such Contract and (c) is originated on or after
September 1, 1994. A detailed description of the Contracts is included in the
Agreement. Approximately 93.00% of the Cut-off Date Pool Principal Balance is
attributable to loans to purchase Manufactured Homes which were new and
approximately 7.00% is attributable to loans to purchase Manufactured Homes
which were used at the time the related Contract was originated. Approximately
73.81% of the Cut-off Date Pool Principal Balance is attributable to loans to
purchase double-wide Manufactured Homes. All of the Initial Contracts have a
Contract Rate of at least 7.50% and not more than 18.99%. The weighted average
Contract Rate of the Initial Contracts as of the Cut-off Date was approximately
11.32%. The Initial Contracts have remaining maturities, as of the Cut-off Date,
of at least 34 months but not more than 300 months, original maturities of at
least 36 months but not more than 301 months, and a weighted average remaining
term and original term to stated maturity, as of the Cut-off Date, of 239 month
and 240 months, respectively. The average remaining principal balance per
Initial Contract, as of the Cut-off Date, was $39,297 and the outstanding
principal balances of the Initial Contracts, as of the Cut-off Date, ranged from
$5,048 to $134,471. $83,173,346, or 98.35% by Cut-off Date Pool Principal
Balance, of the Initial Contracts had Loan-to-Value Ratios at the time of
origination of less than 96%. Value in such calculation is equal to (i) in the
case of a new Manufactured Home, the total delivered sales price for such
Manufactured Home plus taxes, fees and insurance, (ii) in the case of a used
Manufactured Home, the lesser of the total delivered sales price for such
Manufactured Home, or its appraised value, plus in either case, taxes, fees and
insurance, and (iii) in the case of a Land-Secured Contract, the total appraised
value of the real estate and the Manufactured Home, if available, or the total
delivered sales price of such Manufactured Home, plus the appraised value of the
real estate if available, plus in either case taxes, fees and insurance.
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.
The Initial Contracts are secured by Manufactured Homes located in 46
states, of which as of the Cut-off Date approximately 26.36% of the Contracts
(by aggregate unpaid principal balance) had Obligors with mailing addresses in
Texas. No other state represented more than 10.83% of the Contracts of the
remaining principal balance as of the Cut-off Date.
Set forth below is a description of certain characteristics of the Initial
Contracts as of the Cut-off Date. All dollar amounts are rounded to the nearest
dollar.
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<PAGE>
<TABLE>
<CAPTION>
Geographical Distribution of Manufactured Homes (1)
% of Contract
Aggregate Stated Pool by Aggregate
Principal Balance Stated Principal
Number of Outstanding of Balance Outstanding
Initial Contracts Initial Contracts of Initial Contracts
State As of Cut-off Date As of Cut-off Date As of Cut-off Date
----- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Alabama .......................................... 24 $ 767,798 0.91%
Arizona .......................................... 223 9,159,432 10.83
Arkansas ......................................... 1 22,116 0.03
California ....................................... 88 3,449,615 4.08
Colorado ......................................... 73 3,121,874 3.69
Connecticut ...................................... 1 20,756 0.02
Delaware ......................................... 9 209,832 0.25
Florida .......................................... 51 1,682,991 1.99
Georgia .......................................... 112 4,098,755 4.85
Idaho ............................................ 37 1,522,715 1.80
Illinois ......................................... 17 725,696 0.86
Indiana .......................................... 18 755,236 0.89
Iowa ............................................. 14 663,309 0.78
Kansas ........................................... 63 2,952,437 3.49
Kentucky ......................................... 10 465,737 0.55
Louisiana ........................................ 3 110,028 0.13
Maine ............................................ 19 518,950 0.61
Maryland ......................................... 4 145,673 0.17
Massachusetts .................................... 2 60,664 0.07
Michigan ......................................... 23 1,067,959 1.26
Minnesota ........................................ 19 918,147 1.09
Mississippi ...................................... 19 717,355 0.85
Missouri ......................................... 45 2,058,809 2.44
Montana .......................................... 15 768,902 0.91
Nebraska ......................................... 10 431,490 0.51
Nevada ........................................... 46 1,966,448 2.33
New Hampshire .................................... 16 484,233 0.57
New Jersey ....................................... 3 91,859 0.11
New Mexico ....................................... 68 2,446,482 2.89
New York ......................................... 36 1,164,936 1.38
North Carolina ................................... 63 2,552,234 3.02
North Dakota ..................................... 3 134,857 0.16
Ohio ............................................. 16 575,567 0.68
Oklahoma ......................................... 71 2,514,785 2.97
Oregon ........................................... 59 3,428,422 4.06
Pennsylvania ..................................... 75 2,225,611 2.63
South Carolina ................................... 40 1,601,171 1.89
Tennessee ........................................ 41 1,431,550 1.69
Texas ............................................ 586 22,295,716 26.36
Utah ............................................. 16 614,333 0.73
Vermont .......................................... 4 108,888 0.13
Virginia ......................................... 33 1,046,798 1.24
Washington ....................................... 39 2,213,001 2.62
West Virginia .................................... 15 383,147 0.45
Wisconsin ........................................ 7 189,318 0.22
Wyoming .......................................... 15 681,071 0.81
----- ----------- ------
Total .......................................... 2,152 $84,566,703 100.00%
===== =========== ======
</TABLE>
- --------------
(1) In most cases, based on the mailing address of the Obligors as of the
Cut-off Date.
S-26
<PAGE>
<TABLE>
<CAPTION>
Original Term to Maturity
% of Contract Pool
Aggregate Stated By Aggregate Stated
Principal Balance Principal Balance
Number of Outstanding of Outstanding of
Initial Contracts Initial Contracts Initial Contracts
Original Term (Months) As of Cut-off Date As of Cut-off Date As of Cut-off Date
---------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
36 to 59 ........................... 3 $ 25,586 0.03%
60 to 89 ........................... 38 595,185 0.70
90 to 119 ........................... 5 79,587 0.09
120 to 179 ........................... 99 1,982,885 2.35
180 to 209 ........................... 372 10,532,558 12.46
210 to 239 ........................... 1 20,419 0.02
240 to 269 ........................... 1,373 54,847,282 64.86
270 to 301 ........................... 261 16,483,201 19.49
----- ----------- -------
Total .............................. 2,152 $84,566,703 100.00%
- --------- ===== =========== =======
</TABLE>
The weighted average original term to maturity of the Initial Contracts as
of the Cut-off Date was approximately 240 months.
<TABLE>
<CAPTION>
Distribution of Remaining Contract Amounts
% of Contract Pool
Aggregate Stated By Aggregate Stated
Principal Balance Principal Balance
Number of Outstanding of Outstanding of
Remaining Contract Initial Contracts Initial Contracts Initial Contracts
Amount (in Dollars)(1) As of Cut-off Date As of Cut-off Date As of Cut-off Date
---------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
$ 0 - $ 9,999.................... 28 $ 225,332 0.27%
$ 10,000 - $19,999.................... 158 2,580,550 3.05
$ 20,000 - $29,999.................... 517 13,241,610 15.66
$ 30,000 - $39,999.................... 532 18,403,178 21.76
$ 40,000 - $49,999.................... 435 19,384,465 22.92
$ 50,000 - $59,999.................... 254 13,880,779 16.42
$ 60,000 - $69,999.................... 122 7,787,707 9.21
$ 70,000 - $79,999.................... 50 3,725,013 4.40
$ 80,000 - $89,999.................... 23 1,914,010 2.26
$ 90,000 - $99,999.................... 16 1,518,726 1.80
$100,000 or greater...................... 17 1,905,333 2.25
----- ----------- -------
Total ................................. 2,152 $84,566,703 100.00%
- --------- ===== =========== =======
</TABLE>
(1) The largest remaining principal balance of any Initial Contract as of
the Cut-off Date is $134,471, which represents 0.16% of the Cut-off Date Pool
Principal Balance.
S-27
<PAGE>
<TABLE>
<CAPTION>
Distribution of Original Loan-to-Value Ratios
% of Contract Pool
Aggregate Stated By Aggregate Stated
Principal Balance Principal Balance
Loan-to Number of Outstanding of Outstanding of
Value Initial Contracts Initial Contracts Initial Contracts
Ratio(1) As of Cut-off Date As of Cut-off Date As of Cut-off Date
---------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
0 - 49.99% ................................. 37 $ 936,805 1.11%
50.00 - 54.99% ................................. 11 297,027 0.35
55.00 - 59.99% ................................. 19 566,190 0.66
60.00 - 64.99% ................................. 28 910,065 1.08
65.00 - 69.99% ................................. 36 1,115,998 1.32
70.00 - 74.99% ................................. 61 2,181,461 2.58
75.00 - 79.99% ................................. 113 4,452,907 5.27
80.00 - 84.99% ................................. 217 8,962,733 10.60
85.00 - 89.99% ................................. 531 20,732,296 24.52
90.00 - 94.99% ................................. 663 27,423,040 32.43
95.00 - 95.99% ................................. 410 15,594,824 18.44
96.00 - 96.99% ................................. 10 428,592 0.51
97.00 - 97.99% ................................. 3 101,506 0.12
98.00 - 98.99% ................................. 1 53,327 0.06
99.00 - 99.99% ................................. 1 77,246 0.09
Above 100% ....................................... 11 732,686 0.86
----- ----------- -------
Total ........................................ 2,152 $84,566,703 100.00%
===== =========== =======
</TABLE>
- ---------
(1) The term "Value" as used in this table is defined above. As of the Cut-off
Date, the weighted average original Loan- to-Value Ratio of the Initial
Contracts was 87.73%.
<TABLE>
<CAPTION>
Contract Rates
% of Contract Pool
Aggregate Stated By Aggregate Stated
Principal Balance Principal Balance
Number of Outstanding of Outstanding of
Contract Initial Contracts Initial Contracts Initial Contracts
Rate As of Cut-off Date As of Cut-off Date As of Cut-off Date
- ---------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
7.50 - 7.99% ........................ 6 $ 500,752 0.59%
8.00 - 8.99% ........................ . 41 2,450,040 2.90
9.00 - 9.99% ........................ 133 6,742,531 7.97
10.00 - 10.99% ........................ 511 23,422,614 27.70
11.00 - 11.99% ........................ 798 30,209,852 35.72
12.00 - 12.99% ........................ 340 11,664,260 13.79
13.00 - 13.99% ........................ 207 6,261,822 7.41
14.00 - 14.99% ........................ 95 2,787,568 3.30
15.00 - 15.99% ........................ 12 363,228 0.43
16.00 - 16.99% ........................ 5 101,896 0.12
17.00 - 17.99% ........................ 3 51,591 0.06
18.00 - 18.99% ........................ 1 10,549 0.01
----- ----------- -------
Total ............................... 2,152 $84,566,703 100.00%
===== =========== =======
</TABLE>
The weighted average Contract Rate of the Initial Contracts as of the
Cut-off Date was approximately 11.32%.
S-28
<PAGE>
<TABLE>
<CAPTION>
Remaining Months to Maturity
Aggregate Stated % of Contract Pool
Principal Balance By Principal Balance
Remaining Number of Outstanding of Outstanding of
Months to Initial Contracts Initial Contracts Initial Contracts
Maturity As of Cut-off Date As of Cut-off Date As of Cut-off Date
- ----------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
34 - 59 ...................................... 11 $ 120,006 0.14%
60 - 89 ...................................... 30 500,764 0.59
90 - 119 ..................................... 41 794,059 0.94
120 - 149 ..................................... 63 1,268,414 1.50
150 - 179 ..................................... 272 7,768,451 9.19
180 - 209 ..................................... 100 2,764,106 3.27
210 - 239 ..................................... 983 39,236,207 46.40
240 - 269 ..................................... 391 15,631,494 18.48
270 - 299 ..................................... 194 12,231,356 14.46
300 ..................................... 67 4,251,846 5.03
----- ----------- -------
Total .................................... 2,152 $84,566,703 100.00%
===== =========== =======
</TABLE>
The weighted average remaining term to maturity of the Initial Contracts
as of the Cut-off Date was approximately 239 months.
Delinquency, Loan Loss and Repossession Experience
The following Delinquency Experience and Loan Loss/Repossession Experience
tables set forth data for CITSF's and CITCF-NY's non-recourse conventional
manufactured housing portfolio originated and serviced by CITSF and CITCF-NY
(including contracts acquired from dealers which originated the contracts
pursuant to CITSF's underwriting criteria). The following table sets forth the
delinquency experience for the five years ended December 31, 1994 of such
portfolio, excluding contracts which are already in repossession, contracts
which are subject to dealer recourse arrangements, contracts acquired by CITSF
through portfolio purchases and, except as provided below, contracts which are
serviced for others. All of the Contracts in the Trust will be conventional
Contracts, not subject to dealer recourse arrangements and not acquired by CITSF
in portfolio purchases.
<TABLE>
<CAPTION>
Delinquency Experience
(Dollars in thousands)
Year Ended December 31,
------------------------------------------------------------------------------------
1990 1991 1992 1993(3) 1994(3)
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Number of Contracts
Serviced .............................. 2,631 4,348 5,590 9,021 14,503
Principal Balance of Contracts
Serviced .............................. $76,724 $137,669 $186,476 $289,001 $507,388
Principal Balance of Delinquent
Contracts(1):
30-59 Days ........................... $369 $720 $1,043 $1,678 $4,223
60-89 Days ........................... 85 294 428 189 1,290
90 Days or More ...................... 81 486 647 991 1,443
Principal Balance of Delinquent
Contracts .............................. $535 $1,500 $2,118 $2,858 $6,956
Delinquencies as a Percent of
Principal Balances
Serviced(2) ........................... 0.70% 1.09% 1.14% 0.99% 1.37%
</TABLE>
-----------
(1) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a contract
due on the first day of a month is not 30 days delinquent until the first
day of the next month.
(2) Based on dollar percent delinquent.
(3) Includes manufactured housing contracts sold by CITSF in July 1993 in
connection with another securitization which CITSF is servicing.
S-29
<PAGE>
The following table sets forth the loan loss and repossession experience
for the five years ended December 31, 1994, of the portfolio of conventional
manufactured housing contracts originated and serviced by CITSF, excluding
contracts which are subject to dealer recourse arrangements, contracts acquired
by CITSF through portfolio purchases and, except as provided below, contracts
which are serviced for others.
<TABLE>
<CAPTION>
Loan Loss/Repossession Experience
(Dollars in thousands)
Year Ended December 31,
----------------------------------------------------------------------------------------
1990 1991 1992 1993(5) 1994(5)
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Number of Contracts(1) .............. 2,631 4,348 5,590 9,021 14,503
Principal Balance of
Contracts Serviced(1) ............ $ 76,724 $137,669 $186,746 $289,001 $507,388
Contract Liquidations(2) ............ 0.11% 0.37% 0.39% 0.57% 0.79%
Net Losses:
Dollars(3) ........................ $ 168 $ 206 $ 547 $ 1,310 $ 2,085
Percentage(4) ..................... 0.22% 0.15% 0.29% 0.45% 0.41%
</TABLE>
- --------
(1) As of period end.
(2) As a percentage of the total number of contracts being serviced as of
period end.
(3) The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4) As a percentage of the principal balance of contracts as of period end.
(5) Includes manufactured housing contracts sold by CITSF in July 1993 in
connection with another securitization which CITSF is servicing.
The management of CITSF believes that its underwriting, high quality park
criteria, and emphasis on financing borrowers who own the underlying real estate
have contributed to relatively low delinquency, default and loss rates during
the period from January 1990 through December 31, 1994. Since 1990, the level of
delinquency (more than 30 days past due after contractual due date) in CITSF's
nonrecourse manufactured housing portfolio has approximated 1%. Since 1990 the
delinquency ratio ranged from .70% to 1.37% and stood at 1.37% as of December
31, 1994. This trend reflects the normal seasoning of the portfolio. The net
charge-off rate on the portfolio for the period from 1990 through the year ended
1994 has ranged from .15% to .45%. The increase in the net charge-off rate in
1993 and 1994 to .45% and .41%, respectively, is within the range of loan losses
that management expected for these receivables at their stage of seasoning.
The data presented in the foregoing tables is for illustrative purposes
only. CITSF's nonrecourse conventional manufactured housing portfolio has
experienced rapid growth over the past year and the delinquency and loss
percentages may be affected by the size and relative lack of seasoning of its
servicing portfolio. In addition, such data relates to the performance of
CITSF's entire nonrecourse manufactured housing portfolio, and is not historical
data regarding solely the portion of CITSF's portfolio constituting the
Contracts. In July 1994 CITSF's credit criteria was changed in line with
industry practice to include manufactured housing units located on land leased
by the Obligor from a third party and to permit greater reliance on credit
scores and overall evaluation instead of using specific disqualifying criteria
(e.g., a minimum of five years of employment). In connection with this change,
the minimum credit score for approval was reduced. The interest rates charged on
manufactured housing contracts originated since July 1994 reflects CITSF's
evaluation of the relative risk associated with an individual's application. It
is expected that the changes in CITSF's underwriting standards will result in
higher delinquency and loan loss experience than is shown in the above tables
since almost all of the manufactured housing contracts included in such tables
were originated using CITSF's former underwriting guidelines. All of the Initial
Contracts were originated and all Subsequent Contracts, if any, will be
originated under these new credit criteria. Accordingly, the data presented in
the foregoing tables should not necessarily be considered as a basis for
assessing the likelihood, amount or severity of delinquency or losses on the
Contracts. For an additional discussion of CITSF's underwriting guidelines, see
"The CIT Group/Sales Financing, Inc., Servicer--CITSF's Underwriting Guidelines"
in the Prospectus.
S-30
<PAGE>
The delinquency and loan loss experience of manufactured housing contracts
historically has been sharply affected by a downturn in regional or local
economic conditions. In recent years, such a downturn and higher levels of
delinquency, loan loss and repossession were experienced in many areas of the
country in which the Manufactured Homes are located, including New England and
areas dependent on the oil and gas industry, notably certain areas of Texas,
Oklahoma and Louisiana. These regional or local economic conditions are often
volatile, and no predictions can be made regarding future economic conditions in
any of the regions in which the Manufactured Homes are located. These downturns
have tended to increase the severity of loss on repossession because of the
increased supply of used units, which in turn may affect the supply in other
regions. In order to achieve geographic dispersion and to limit the effect of
regional and local economic conditions on the Contract Pool, Initial Contracts
with Obligors with mailing addresses in any one state (except with respect to
Initial Contracts with Obligors with mailing addresses in Texas) will not exceed
10.83% of the Cut-off Date Pool Principal Balance. The Agreement provides that
no Subsequent Contract will be sold to the Trust if after giving effect to the
sale of all such Subsequent Contracts on such Subsequent Transfer Date more than
27% of the Contracts based on the Subsequent Cut-off Date Pool Principal Balance
(by aggregate unpaid balance) will have Obligors with mailing addresses in
Texas.
S-31
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under the heading "Yield
Considerations".
The Initial Contracts have maturities at origination ranging from 3 years
to 25 years, but may be prepaid in full or in part at any time. The prepayment
experience of the Contracts (including prepayments due to liquidations of
defaulted Contracts) will affect the average life of the Offered Certificates.
Based on CITSF's experience with the portfolio of manufactured housing contracts
serviced by it, CITSF anticipates that a number of the Contracts will be prepaid
prior to their maturity. A number of factors, including homeowner mobility,
general and regional economic conditions and prevailing interest rates, may
influence prepayments. Natural disasters may also influence prepayments. In
addition, repurchases of Contracts by CITSF on account of certain breaches of
representations and warranties have the effect of prepaying such Contracts and
therefore would affect the average life of the Offered Certificates. The
prepayment experience on manufactured housing contracts varies greatly. Although
most of the Contracts contain a "due-on-sale" clause that would permit the
Servicer to accelerate the maturity of a Contract upon the sale of the related
Manufactured Home, CITSF currently expects to permit assumptions of Contracts if
the purchaser of the related Manufactured Home satisfies CITSF's then-current
underwriting standards.
In the event that, on the last day of the Funding Period, not all of the
approximate $39,433,297 funded from the proceeds of the sale of the Certificates
and deposited into the Pre-Funding Account has been used to acquire Subsequent
Contracts, then the remaining funds will be used to make prepayments to the
Holders of the Senior Certificates on a sequential basis, at par, first to the
Holders of the Class A-1 Certificates, then to the Holders of the Class A-2
Certificates and then to the Holders of the Class A-3 Certificates in accordance
with their respective Percentage Interests from and to the extent of such
remaining amounts on the first Remittance Date thereafter, or if the end of the
Funding Period is on a Reimittance Date, then in such date. Although no
assurances can be given, it is anticipated by CITSF that the principal amount of
Subsequent Contracts sold to the Trust will require the application of
substantially all the amount on deposit in the Pre-Funding Account and that
there should be no material principal prepaid to the Holders of the Senior
Certificates.
The allocation of distributions of principal to the Senior
Certificateholders on each Remittance Date prior to the Class A-3 Cross-over
Date will have the effect of accelerating the amortization of the Senior
Certificates from the amortization that would be applicable if the principal
were distributed pro rata according to the Principal Balance of each Class. In
addition, the sequential allocation of distributions of principal among the
Senior Certificates will have the effect of accelerating the amortization first
of the Class A-1 Certificates, then the Class A-2 Certificates and then the
Class A-3 Certificates from the amortization that would be applicable if the
principal were distributed pro rata according to the Senior Certificate
Principal Balance. 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 on such Class of Offered 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.
Until the Class A-4 Cross-over Date, the Senior Certificateholders and the
Class A-4 Certificateholders will receive all payments of principal which are
made on the Contracts except for payment of the Class A-5 Principal Liquidation
Loss Amount to the Class A-5 Certificateholders. The rate of principal payments
on the Class A-5 Certificates and the aggregate amount of distributions on the
Class A-5 Certificates will be affected by the rate of Obligor defaults
resulting in losses on Liquidated Contracts, by the severity of those losses and
by the timing of those losses. See "Description of the
Certificates--Subordination of the Subordinated Certificates".
There can be no assurance that the delinquency or repossession experience
set forth under "The Contract Pool--Delinquency and Loan Loss Experience" will
be representative of the results that may be experienced with respect to the
Contracts.
Each of the Company and the Servicer has the option to purchase from the
Trust all remaining Contracts, and thereby effect early retirement of the
Certificates, on any Remittance Date when the Pool Stated Principal Balance is
less than 10% of the Initial Pool Principal Balance (as hereafter defined). See
"Description of the Certificates--Repurchase Option".
S-32
<PAGE>
Although Contract Rates on the Contracts vary, in the event that, with
respect to a particular class of Certificates, a large number of Contracts
having Net Contract Rates equal to or higher than the applicable Remittance Rate
(without giving effect to the maximum rate) were to prepay while Contracts
having Net Contract Rates lower than such Remittance Rate did not prepay, with
the result that the interest collections on the remaining Contracts were not
sufficient to support such Remittance Rate, then the Remittance Rate for such
Class of Certificates would be equal to the weighted average of the Net Contract
Rates on each Contract remaining in the Contract Pool. The "Net Contract Rate"
is the contractual rate of interest payable under a Contract (the "Contract
Rate"), less the Monthly Servicing Fee allocable to such Contract for such Due
Period. The weighted average Net Contract Rate of all Initial Contracts in the
Contract Pool as of the Cut-off Date was approximately 10.32% although such
weighted average will change when the Subsequent Contracts are added to the
Contract Pool but such weighted average based on the Subsequent Cut-off Date
Pool Principal Balance will not be reduced to less than 10.40% on each
Subsequent Transfer Date as a result of the addition of Subsequent Contracts to
the Contract Pool. Although partial prepayments of principal on Contracts are
applied on scheduled payment dates for such Contracts, Obligors are not required
to pay interest on Contracts after the date of a full prepayment of principal.
As a result, full prepayments on Contracts in advance of the scheduled payment
dates for such Contracts in any Due Period will reduce the amount of interest
received from Obligors during such Due Period and available to be passed through
to Holders of Certificates on the following Remittance Date. Subject to the
availability of the subordination provided by the Class A-4 Certificates, the
Class A-5 and the Class R Certificates, such subordination would apply to the
net shortfall of interest received on account of prepayments in full in any Due
Period so that the amount of interest paid on each Class of Senior Certificates
on the following Remittance Date would not be affected by such shortfall.
The final scheduled payment date on the Initial Contract with the latest
maturity is in February 2020.
Certain statistical information relating to the payment behavior of
nonrecourse manufactured housing contracts originated by CITSF and CITCF-NY
(including contracts acquired from dealers which originated the contracts in
accordance with CITSF's underwriting criteria) is set forth below. In evaluating
the information contained in this table and its relationship to the expected
prepayment behavior of the Contracts, prospective Certificateholders should
consider that the Company has performed no statistical analysis to determine
whether the contracts to which the table relates constitute a statistically
significant sample of nonrecourse manufactured housing contracts for purposes of
determining expected prepayment behavior. Furthermore, no assurance can be given
that the prepayment experience of the Contracts will exhibit prepayment behavior
similar to the behavior summarized in the following table. In addition to the
foregoing, prospective Certificateholders should consider that the table set
forth below is limited to the period covered therein and thus cannot reflect the
effects, if any, of aging on the prepayment behavior of manufactured housing
contracts beyond such periods.
The following table sets forth, with respect to all of the nonrecourse
manufactured housing contracts originated by CITSF and CITCF-NY (including
contracts acquired from dealers which originated the contracts in accordance
with CITSF's underwriting criteria) in each year since 1990, the aggregate
initial principal balance of the contracts originated in such year, the
approximate aggregate principal balance outstanding on the contracts originated
in such year as of the last day of such year and the approximate aggregate
principal balance outstanding on the contracts originated in such year as of the
end of the subsequent fiscal quarter.
S-33
<PAGE>
<TABLE>
<CAPTION>
Information Regarding Principal Reduction on Nonrecourse Manufactured
Housing Contracts Originated by CITSF and CITCF-NY
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year of Origination ............ 1990(3) 1991(3) 1992(3) 1993(3) 1994
Volume (1) ..................... $ 69,611 $ 74,262 $ 70,109 $139,200 $262,522
Aggregate Principal Balance (2):
12/31/90 ....................... $ 62,800
03/31/91 ....................... 61,900
06/30/91 ....................... 61,000
09/30/91 ....................... 59,900
12/31/91 ....................... 59,100 $ 65,700
03/31/92 ....................... 56,700 63,400
06/30/92 ....................... 54,000 61,500
09/30/92 ....................... 52,100 59,700
12/31/92 ....................... 50,400 57,900 $ 67,200
03/31/93 ....................... 48,700 56,700 65,200
06/30/93 ....................... 47,100 54,900 61,900
09/30/93 ....................... 44,600 53,000 59,900
12/31/93 ....................... 41,200 49,800 56,700 $134,400
03/31/94 ....................... 38,900 47,300 53,600 130,500
06/30/94 ....................... 37,000 44,700 51,100 127,000
09/30/94 ....................... 35,400 42,800 49,400 124,400
12/31/94 ....................... 33,500 40,500 47,900 121,100 $255,900
</TABLE>
- --------
(1) Volume represents aggregate initial principal balance of each contract
originated in a particular year.
(2) Approximate aggregate principal balance as of any date represents the
approximate aggregate principal balance outstanding on each contract
originated in a particular year.
(3) Includes manufactured housing contracts sold by CITSF in July 1993 in
connection with another securitization which CITSF is servicing.
Weighted Average Life of the Offered Certificates
The following information is given solely to illustrate the effect of
prepayments of the Contracts on the weighted average life of the Offered
Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of each Class of Offered
Certificates will be influenced by the rate at which principal on the Contracts
is paid. Principal payments on Contracts may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
repayments and liquidations due to default or other dispositions of Contracts).
Prepayments on Contracts may be measured by a prepayment standard or model. The
model used in this Prospectus ("MH Prepayment Model") is based on an assumed
rate of prepayment each month of the then unpaid principal balance of a pool of
new Contracts.
As used in the following tables, a prepayment assumption of "100% of the MH
Prepayment Model" assumes constant prepayment rates of 3.7% per annum of the
then unpaid principal balance of such Contracts in the first month of the life
of the Contracts and an additional 0.1% per annum in each month thereafter until
the 24th month. Beginning in the 24th month and in each month thereafter during
the life of all of the Contracts, 100% of the MH Prepayment Model assumes a
constant prepayment rate of 6.0% per annum each month. As used in the following
table "0% of the MH Prepayment Model" assumes no prepayments on the Contracts;
"150% of the MH Prepayment Model" assumes the Contracts will prepay at rates
S-34
<PAGE>
equal to 150% of the MH Prepayment Model assumed prepayment rates; "200% of the
MH Prepayment Model" assumes the Contracts will prepay at rates equal to 200% of
the MH Prepayment Model assumed prepayment rates; and "300% of the MH Prepayment
Model" assumes the Contracts will prepay at rates equal to 300% of the MH
Prepayment Model assumed prepayment rates.
There is no assurance, however, that prepayment of the Contracts will
conform to any level of the MH Prepayment Model, and no representation is made
that the Contracts will prepay at the prepayment rates shown or any other
prepayment rate. The rate of principal payments on pools of manufactured housing
contracts is influenced by a variety of economic, geographic, social and other
factors, including the level of interest rates and the rate at which
manufactured homeowners sell their manufactured homes or default on their
contracts. Other factors affecting prepayment of contracts include changes in
obligors' housing needs, job transfers, unemployment and obligors' net equity in
the manufactured homes. In the case of mortgage loans secured by site-built
homes, in general, if prevailing interest rates fall significantly below the
interest rates on such mortgage loans, the mortgage loans are likely to be
subject to higher prepayment rates than if prevailing interest rates remained at
or above the rates borne by such mortgage loans. Conversely, if prevailing
interest rates rise above the interest rates on such mortgage loans, the rate of
prepayment would be expected to decrease. In the case of manufactured housing
contracts, however, because the outstanding principal balances are, in general,
much smaller than mortgage loan balances and the original term to maturity of
each such contract is generally shorter, the reduction or increase in the size
of the monthly payment on a contract arising from a change in the interest rate
thereon is generally much smaller. Consequently, changes in prevailing interest
rates may not have a similar effect, or may have a similar effect, but to a
smaller degree, on the prepayment rates on manufactured housing contracts.
As described under "Description of the Certificates--Principal on Class A-5
Certificates", except for payments of the Class A-5 Principal Liquidation Loss
Amount, payments of principal on the Class A-5 Certificates will not commence
until the Class A-4 Cross-over Date. This will have the effect of accelerating
the amortization of the Senior Certificates and the Class A-4 Certificates while
increasing the respective interest in the Trust of the Class A-5 Certificates.
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the MH Prepayment Model set forth in the table; (ii)
neither the Servicer nor the Company exercises its right of optional termination
described above; (iii) the Contracts have been grouped into ten pools having the
characteristics as of the Cut-off Date set forth in the table entitled "Assumed
Contract Characteristics" below; (iv) the Class A-1 Certificates initially
represent $ of the Cut-off Date Pool Principal Balance and will
have a Class A-1 Remittance Rate of _____%, the Class A-2 Certificates initially
represent $_____________ of the Cut-off Date Pool Principal Balance and will
have a Class A-2 Remittance Rate of ____%, the Class A-3 Certificates initially
represent $_____________ of the Cut-off Date Pool Principal Balance and will
have a Class A-3 Remittance Rate of ____%, the Class A-4 Certificates initially
represent $_____________ of the Cut-off Date Pool Principal Balance and will
have a Class A-4 Remittance Rate of ____% and the Class A-5 Certificates
initially represent $___________ of the Cut-off Date Pool Principal Balance and
will have a Class A-5 Remittance Rate of ________%; (v) no interest shortfalls
will arise in connection with prepayment in full of the Contracts; (vi) no
delinquencies or losses are experienced on the Contracts; (vii) distributions
are made on the Offered Certificates on the 15th day of each month (or, if the
15th day is not a business day, the next business day thereafter), commencing on
March 15, 1995; (viii) the Offered Certificates are issued on February __, 1995
and (ix) all of the Subsequent Contracts purchased with funds from the
Pre-Funding Account are purchased during March and April 1995.
No representation is made that the Contracts will not experience
delinquencies, or that losses will not be experienced at the rates assumed above
or at any other rate and in fact historically there have been delinquencies and
losses.
S-35
<PAGE>
<TABLE>
<CAPTION>
Assumed Contract Characteristics
Remaining Term Date of First
Current Original Term to to Maturity Payment
Pool Principal Balance Contract Rate Maturity (Months) (Months) to Trust
- ---- ----------------- ------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1................ $ %
2................
3................
4................
5................
6................
7*...............
8*...............
9*...............
10*...............
------------ ------ ----------- ----------- ----------
Total ........... $ %
============ ====== =========== =========== ==========
* Subsequent Contracts.
</TABLE>
Since the tables were prepared on the basis of the assumptions in the
preceding paragraph, there are discrepancies between the characteristics of the
actual Contracts and the characteristics of the Contracts assumed in preparing
the tables. Any such discrepancy may have an effect upon the percentages of the
Original Principal Balances outstanding and the weighted average life of each
Class of the Offered Certificates set forth in the tables. In addition, since
the actual Contracts and the Trust have characteristics which differ from those
assumed in preparing the tables set forth below, the distributions of principal
on each of the Offered Certificates may be made earlier or later than as
indicated in the tables.
It is not likely that Contracts will prepay at any constant percentage of
the MH Prepayment Model to maturity or that all Contracts will prepay at the
same rate. In addition, the diverse remaining terms to maturity of the Contracts
(which include recently originated Contracts) could produce slower distributions
of principal than as indicated in the tables at the various percentages of the
MH Prepayment Model specified even if the weighted average remaining term to
maturity of the Contracts is 239 months.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
projected weighted average life of the Offered Certificates and set forth the
percentages of the Original Class A-1 Principal Balance, the Original Class A-2
Principal Balance, the Original Class A-3 Principal Balance, the Original Class
A-4 Principal Balance and the Original Class A-5 Principal Balance that would be
outstanding after each of the dates shown at the indicated percentages of the MH
Prepayment Model.
Percentage of the Original Principal Balance of the Class A-1
Certificates at the Respective Percentages of the MH Prepayment Model
Set Forth Below:
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- --- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Life
(1) (years).............
</TABLE>
- --------
(1) The weighted average life of a Class A-1 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Class A-1 Certificate by the number of years from the date
of issuance of such Class A-1 Certificate to the stated Remittance Date,
(ii) adding the results, and (iii) dividing the sum by the initial
principal balance of such Class A-1 Certificate.
S-36
<PAGE>
Percentage of the Original Principal Balance of the Class A-2
Certificates at the Respective Percentages of the
MH Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Life
(1) (years)..........
</TABLE>
- --------
(1) The weighted average life of a Class A-2 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class A-2 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-2 Certificate.
Percentage of the Original Principal Balance of the Class A-3
Certificates at the Respective Percentages of the
MH Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Life
(1) (years)............
</TABLE>
- ----------
(1) The weighted average life of a Class A-3 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class A-3 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-3 Certificate.
Percentage of the Original Principal Balance of the Class A-4
Certificates at the Respective Percentages of the
MH Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Life
(1) (years)...........
</TABLE>
- --------
(1) The weighted average life of a Class A-4 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class A-4 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-4 Certificate.
Percentage of the Original Principal Balance of the Class A-5
Certificates at the Respective Percentages of the
MH Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Date 0% 75% 100% 150% 200% 300%
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Life
(1) (years)............
</TABLE>
- ---------
(1) The weighted average life of a Class A-5 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class A-5 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-5 Certificate.
Attached hereto as Annex A are tables which set forth the weighted average
life, first principal payment date, last principal payment date and the yield at
various assumed offering prices of each Class of Offered Certificates under
various prepayment scenarios.
S-37
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "Description of
the Certificates".
The Certificates will be issued pursuant to the Agreement between the
Company, CITSF, as Servicer, and the Trustee. A copy of the execution form of
the Agreement will be filed in a Current Report on Form 8-K with the Securities
and Exchange Commission after the initial issuance of the Certificates. The
following summary describes certain terms of the Agreement, does not purport to
be complete and is qualified in its entirety by the Agreement, which is
incorporated herein by reference. Wherever provisions of the Agreement are
referred to, such provisions are incorporated herein by reference.
General
The Offered Certificates will be issued in book-entry form only in
denominations equal to $1,000 or any integral multiple of $1,000 in excess
thereof, except for one Certificate of each Class with a denomination
representing any remainder of the Original Principal Balance of such Class. The
percentage interest (the "Percentage Interest") of an Offered Certificate will
be equal to the percentage obtained from dividing its denomination by the
Original Class A-1 Principal Balance, the Original Class A-2 Principal Balance,
the Original Class A-3 Principal Balance, the Original Class A-4 Principal
Balance and, the Original Class A-5 Principal Balance, as appropriate.
The Senior Certificates in the aggregate will represent an initial ___%
(approximate) undivided interest in the Trust. The Class A-4 Certificates will
represent an initial ___% (approximate) undivided interest in the Trust. The
Class A-5 Certificates will represent an initial ___% (approximate) undivided
interest in the Trust. The Trust will consist of all right, title and interest
of the Company in and to the Contracts, including, without limitation, the
security interests in the Manufactured Homes securing such Contracts and any
related mortgages, deeds of trust or similar instruments, all rights to payments
received by the Company on or with respect to the Contracts on and after the
Cut-off Date or, in the case of any Subsequent Contracts on and after the
applicable Subsequent Cut-off Date therefor, all rights under certain hazard
insurance policies on individual Manufactured Homes, proceeds from the errors
and omissions protection policy and any blanket hazard insurance policies
maintained pursuant to the Agreement, to the extent such proceeds relate to the
Contracts or the Manufactured Homes, all documents contained in the Contract
files, all rights to any rebated portions of force-placed insurance premiums,
amounts held for the Trust in the Certificate Account, any funds on deposit in
the Pre-Funding Account and the Capitalized Interest Account and all proceeds in
any way derived from any of the foregoing. (Section 2.01.)
Distributions on the Certificates will be made by the paying agent as
specified in the Agreement, which shall be an Eligible Institution (the "Paying
Agent"), on each Remittance Date to persons in whose names the Certificates are
registered as of the preceding Record Date. The Remittance Date for the
Certificates will be the 15th day of each calendar month (or if such day is not
a business day, the next succeeding business day) commencing on March 15, 1995.
Payments will be made by check mailed to such Certificateholder at the address
appearing on the Certificate Register, provided that a Certificateholder who
holds an aggregate Percentage Interest of at least 5% of a Class of Certificates
may request payment by wire transfer or immediately available funds pursuant to
written instructions delivered to the Trustee at least 10 days prior to such
Remittance Date. Final payments will be made only upon tender of the
Certificates to the Paying Agent for cancellation. (Articles I and VIII.) See
"Registration of the Offered Certificates" below.
Conveyance of Contracts
Pursuant to the Agreement, on the Closing Date and on each Subsequent
Transfer Date the Company will sell without recourse, except for certain
representations and warranties made by CITSF in the Agreement and certain
indemnities by the Servicer, to the Trustee in trust all right, title and
interest of the Company in each Initial Contract and each Subsequent Contract,
as applicable, and all its right, title and interest in all principal and
interest received on each such Initial Contract and Subsequent Contract on and
after the Cut-off Date or Subsequent Cut-off Date, as the case may be; provided,
however, that the Company will reserve and retain all its right, title and
interest in principal and interest collected (including Prepayments) on each
Contract prior to the Cut-off Date or Subsequent Cut-off Date, as the case may
be.
S-38
<PAGE>
Following the Cut-off Date, the Trust will be obligated to purchase the
Subsequent Contracts from time to time on or before the May 15, 1995 Remittance
Date, subject to the availability of Subsequent Contracts originated on or
before such date by CITSF or its affiliates (including contracts acquired from
dealers which originated the contracts in accordance with CITSF's underwriting
criteria) in the ordinary course of business for subsequent sale by CITSF to the
Company and by the Company to the Trust pursuant to a Subsequent Transfer
Agreement between the Company and the Trust (the "Subsequent Transfer
Agreement"). The approximate aggregate principal amount of Subsequent Contracts
which may be acquired by the Trust is $39,433,297. Under the Agreement, the
Company will be obligated to sell Subsequent Contracts to the Trust and the
Trust will be obligated, subject to the satisfaction of certain conditions set
forth therein, to purchase such Subsequent Contracts. The Company will designate
as a Subsequent Cut-off Date the first day of the month in which the related
Subsequent Contracts are conveyed to the Trust during the Funding Period. In
connection with each purchase of Subsequent Contracts, the Trust will be
required to pay to the Company a cash purchase price of 100% of the unpaid
principal amount thereof as of the Subsequent Cut-off Date from the Pre-Funding
Account. The Trust may purchase the Subsequent Contracts only from the Company
and not from any other person. The obligation of the Trust to purchase the
Subsequent Contracts on a Subsequent Transfer Date is subject to certain
requirements as described under "The Contract Pool".
CITSF will make certain representations and warranties described in the
Prospectus under "Description of the Certificates-Conveyance of Contracts", with
respect to each Contract as of the Closing Date. The Agreement will require the
Company to make the same representations and warranties with respect to each
individual Subsequent Contract as it is required to make with respect to each
Initial Contract sold to the Trust except that each such representation and
warranty shall be made as of the Subsequent Transfer Date relating to such
Subsequent Contract. In addition to the representations and warranties described
in the Prospectus under "Description of the Certificates--Conveyance of
Contracts," CITSF will make certain warranties with respect to the Initial
Contracts in the aggregate, including that (i) the aggregate principal amount
payable by the Obligors on the Initial Contracts as of the Cut-off Date equals
the Cut-off Date Pool Principal Balance; (ii) as of the Cut-off Date no more
than 10.83% of the Initial Contracts by Cut-off Date Pool Principal Balance are
secured by Manufactured Homes with mailing addresses in any one state (except
with respect to Initial Contracts secured by Manufactured Homes with mailing
addresses in Texas) and no more than 0.72% of the Initial Contracts by Cut-off
Date Pool Principal Balance are secured by Manufactured Homes located in an area
with the same zip code; (iii) no more than 7.00% of the Cut-off Date Pool
Principal Balance is attributable to loans to purchase used Manufactured Homes;
(iv) as of the Cut-off Date, no Initial Contract has a remaining term to stated
maturity of less than 34 or more than 300 months; (v) the first payment date of
each Contract is on or after December 1, 1994; (vi) except for the effect of the
representations and warranties of CITSF, no adverse selection procedures were
employed in selecting the Contracts; (vii) at the time of origination (a) no
more than 53% of the Contracts by Cut-off Date Pool Principal Balance had
Loan-Value Ratios of greater than 90% and (b) each of the Contracts had a
Loan-to-Value Ratio not greater than 125% and, in the case of a Contract that
has been modified, not greater than 125% at the time of origination and the time
such Contract was modified; and (viii) the weighted average of the Contract
Rates of all the Initial Contracts in the Contract Pool as of the Cut-off Date
was approximately 11.32%. (Article III.) In addition, no Subsequent Contract
will be sold to the Trust on a Subsequent Transfer Date if after giving effect
to the sale of all such Subsequent Contracts on such Subsequent Transfer Date
(i) the weighted average original Loan-to-Value Ratio of the Contracts based on
the Subsequent Cut-off Date Pool Principal Balance would exceed 88%, (ii) more
than 53% (by Subsequent Cut-off Date Pool Principal Balance) of the Contract
Pool would have original Loan-to-Value Ratios of greater than 90%, (iii) the
weighted average Net Contract Rate of the Contracts based on the Subsequent
Cut-off-Date Pool Principal Balance would be less than 10.40%, (iv) at the
weighted average Contract Rates of the Contracts based on the Subsequent Cut-off
Date Pool Principal Balance would be less than 11.40%, (v) more than 27% of the
Contracts based on the Subsequent Cut-off-Date Pool Principal Balance will have
Obligors with mailing addresses in Texas, (vi) more than 10% of the Contracts by
Subsequent Cut-off Date Principal Balance would be attributable to loans to
purchase Manufactured Homes which were used at the time the related Contracts
was originated, (vii) less than 70% of the Contracts by Subsequent Cut-off-Date
Principal Balance would be attributable to loans to purchase double-wide
Manufactured Homes, (viii) the weighted average remaining term to maturity of
the Contracts based on the Subsequent Cut-off Date Pool Principal Balance would
be less than 235 months or more than 241 months or (ix) the weighted average
credit score of the Contracts based on the Subsequent Cut-off Date Pool
Principal Balance would decrease by more than 6% from the weighted average
credit score of the Initial Contracts as of the Cut-off Date.
S-39
<PAGE>
Payments on Contracts; Distributions on Certificates
The Trustee, on behalf of the Trust, will establish and maintain the
Certificate Account at a depository institution or trust company (which may be
the Trustee or an affiliate of the Trustee) organized under the laws of the
United States or any state, the deposits of which are insured to the full extent
permitted by law by the Bank Insurance Fund (currently administered by the
Federal Deposit Insurance Corporation), which is subject to supervision and
examination by federal or state authorities and (unless the Certificate Account
is a trust account maintained in the corporate trust department of such
depository institution) whose short-term securities or unsecured long-term debt
has a rating of at least P-1 by Moody's in the case of short-term securities, or
in one of the two highest rating categories by Moody's in the case of unsecured
long-term debt (an "Eligible Institution"). (Section 1.02.) The Servicer may
(except in certain instances specified in the Agreement) authorize the Trustee
to invest the funds in the Certificate Account, the Pre-Funding Account and the
Capitalized Interest Account in Eligible Investments (as defined in the
Agreement) that will mature not later than the business day preceding the
applicable monthly Remittance Date. Eligible Investments include, among other
investments, obligations of the United States or of any agency thereof backed by
the full faith and credit of the United States; federal funds, certificates of
deposit, time deposits and bankers' acceptances sold by eligible financial
institutions; certain repurchase agreements with eligible institutions;
corporate securities assigned at least a Aa rating by Moody's; commercial paper
assigned a P-1 rating by Moody's at the time of such investment; and money
market funds rated P-1 or Aaa by Moody's (which may include money market or
other funds for which the Trustee or any affiliate of the Trustee serves as an
investment advisor, administrator, shareholder, servicing agent and/or custodian
or subcustodian and collects certain fees and expenses in connection therewith).
(Section 5.05.)
Except as set forth in the succeeding sentence, all payments from or on
behalf of Obligors on the Contracts received by the Servicer, including
principal prepayments and advance payments by Obligors not constituting
principal prepayments ("Advance Payments"), shall be paid into the Certificate
Account no later than two business days following receipt thereof, except
amounts received as late payment fees, extension fees, assumption fees or
similar fees, which fees, together with any net income and gain from investments
of funds in the Certificate Account, are included as part of the Servicer's
servicing fees; provided, however, that, subject to compliance with the
Agreement, for as long as CITSF remains the Servicer under the Agreement and
CITSF remains a direct or indirect subsidiary of CIT, and if CIT has and
maintains a short-term debt rating of P-1 or higher by Moody's, and the Trustee
shall have received an opinion of counsel that any action taken pursuant to this
sentence shall not adversely affect the status of the Trust as a REMIC or result
in the imposition of a tax on the Trust, the Servicer will not be required to
make such deposits into the Certificate Account (the "Delayed Deposits") until
the business day immediately preceding the Remittance Date following the last
day of the Due Period within which such payments were processed by the Servicer.
In addition, (i) amounts paid by CITSF for Contracts repurchased as a result of
breach of warranties under the Agreement, and amounts required to be deposited
upon substitution of a Contract because of breach of warranties, as described
under "Description of the Certificates--Conveyance of Contracts" in the
Prospectus, (ii) Monthly Advances and (iii) at the end of the Funding Period,
the sum of (A) any investment earnings on funds in the Pre-Funding Account that
were not used to pay interest on the Offered Certificates on any of the
Remittance Dates during the Pre-Funding Period, (B) funds on deposit in the
Capitalized Interest Account, if any, which were not used to pay interest on the
Offered Certificates, on any Remittance Date during the Funding Period, shall be
paid into the Certificate Account. The Servicer will not be required to deposit
in the Certificate Account amounts relating to the Contracts attributable to the
following: (a) amounts received with respect to each Contract (or property
acquired in respect thereof) that has been purchased by CITSF pursuant to the
Agreement and that are not required to be distributed to Certificateholders, (b)
Liquidation Expenses to the extent permitted by the Agreement, (c) the payment
of certain taxes that are reimbursable under the Agreement, (d) net investment
earnings on funds deposited in the Certificate Account and (e) amounts to be
reimbursed to the Servicer in respect of unrecoverable Monthly Advances. See
"Description of the Certificates--Servicing--Servicing Compensation and Payment
of Expenses" in the Prospectus. "Liquidation Expenses" are out-of-pocket
expenses (exclusive of any overhead expenses) incurred by the Servicer in
connection with the liquidation of a defaulted Contract, including, without
limitation, legal fees and expenses and any related and unreimbursed
expenditures for property taxes, property preservation or restoration of the
property to marketable condition. (Section 1.02.) Except with respect to Monthly
Advances as set forth below, the Servicer will not make any advances with
respect to delinquent payments on the Contracts.
S-40
<PAGE>
On the Determination Date the Servicer will determine the Amount Available
and the amounts to be distributed on the Certificates for such Remittance Date.
The Amount Available is the amount in the Certificate Account on the last day of
the preceding Due Period (or the Delayed Deposit, if applicable) less the
following amounts: any repossession profits on defaulted Contracts; Advance
Payments in respect of the Due Period just ended; amounts payable to the
Servicer to reimburse it for any REMIC "prohibited transaction" tax imposed on
the Trust and paid by the Servicer; Liquidation Expenses incurred and taxes
advanced by the Servicer in respect of Manufactured Homes that are reimbursable
to the Servicer under the Agreement; any amounts incorrectly deposited in the
Certificate Account; and net investment earnings on the funds in the Certificate
Account due to the Servicer pursuant to the Agreement and any other amounts
permitted to be withdrawn from the Certificate Account by the Servicer pursuant
to the Agreement. (Sections 1.02 and 8.02.) Under the Agreement, if on the
Determination Date the Servicer determines that the Amount Available is
otherwise sufficient to make all required distributions to the Holders of the
Offered Certificates on the next succeeding Remittance Date, the Servicer
(provided CITSF is the Servicer) shall not be obligated to deposit into the
Certificate Account the amount of the Monthly Servicing Fee due and owing to the
Servicer on such Remittance Date. The Servicer shall not be permitted to
withhold the amount of its Monthly Servicing Fee, however, if, on such
Determination Date, the Amount Available at such time is not sufficient to make
the required distributions to the Holders of the Offered Certificates.
The Trustee will withdraw funds from the Certificate Account to make
payments to Certificateholders at the direction of the Servicer. From time to
time, as provided in the Agreement, the Trustee will also withdraw funds from
the Certificate Account to make payments to the Servicer and to make payments to
CIT for the Guarantee Fee. In the event CITSF is no longer the Servicer, the
Monthly Servicing Fee will be paid to the successor Servicer prior to any
distributions to Certificateholders. (Sections 1.02 and 8.02.)
Distributions
Distributions of interest and principal on each Remittance Date to Holders
of each Class of the Offered Certificates will be made first on account of
interest and then principal in the following order of priority: first to the
Senior Certificateholders, then to the Class A-4 Certificateholders and then to
the Class A-5 Certificateholders, in each case in the amounts and according to
the priority described below.
The Record Date is the last business day of the month prior to the month of
the related Remittance Date. Interest on the outstanding Principal Balance of
each Class of Offered Certificates will accrue from the most recent Remittance
Date on which interest has been paid to but excluding the following Remittance
Date (or, in the case of the initial Remittance Date, from February __, 1995 to
but excluding such initial Remittance Date) (the "Interest Accrual Period").
The Remittance Rate for the Class A-1, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates on each Remittance Date will be %, %, %, % and %,
respectively, and, in each case, will be subject to a maximum rate equal to the
weighted average of the Net Contract Rates on each Contract in the Contract
Pool, computed on the basis of a 360-day year of twelve 30-day months. In the
event that, with respect to a particular Class of Certificates, a large number
of Contracts having Net Contract Rates equal to or higher than the applicable
stated Remittance Rate were to prepay while the Contracts having Net Contract
Rates lower than such Remittance Rate (without giving effect to the maximum
rate) did not prepay, with the result that the interest collections on the
remaining Contracts were not sufficient to support such Remittance Rate, then
the Remittance Rate for such Class of Certificates would be equal to the
weighted average of the Net Contract Rates on each Contract remaining in the
Contract Pool as of the first day of the related Due Period.
Each Class of the Offered Certificates initially will be represented by one
or more Certificates registered in the name of Cede & Co., as nominee of the
Depository Trust Company ("DTC") and will only be available in the form of
book-entries on the records of DTC and its Participants (as hereafter defined).
Each distribution with respect to a Book-Entry Certificate will be paid to DTC,
which will credit the amount of such distribution to the accounts of its
Participants in accordance with its normal procedures. Each Participant will be
responsible for disbursing such distribution to the Certificate Owners that it
represents and to each indirect participating brokerage firm (a "brokerage firm"
or "indirect participating firm") for which it acts as agent. Each brokerage
firm will be responsible for disbursing funds to the Certificate Owners that it
represents. All such credits and disbursements with respect to a Book-Entry
Certificate are to be made by DTC and the Participants in accordance with DTC's
rules.
S-41
<PAGE>
The Servicer will furnish to the Trustee, and the Trustee, so long as it
has received such statement or statements, will send with each distribution on a
Remittance Date to each Holder of Offered Certificates (or to DTC), a statement
or statements setting forth, among other things, (i) the amount of such
distribution allocable to principal (including principal prepayments, if any)
and (ii) the amount of such distribution allocable to interest. (Section 6.05).
Interest on Senior Certificates
Interest accruing during the related Interest Accrual Period (computed on
the basis of a 360-day year of twelve 30-day months), will be paid concurrently
on each outstanding Class of Senior Certificates on each Remittance Date, to the
extent of the Amount Available (including any Monthly Advances) on such date, at
the Remittance Rates applicable to the then outstanding Class A-1 Principal
Balance, Class A-2 Principal Balance and Class A-3 Principal Balance, subject in
each case, to a maximum rate equal to the weighted average of the Net Contract
Rate on each Contract in the Contract Pool. (Sections 1.02 and 8.01.) The Class
A-1 Principal Balance as of any Remittance Date is the Original Class A-1
Principal Balance less all amounts previously distributed to holders of Class
A-1 Certificates on account of principal; the Class A-2 Principal Balance as of
any Remittance Date is the Original Class A-2 Principal Balance less all amounts
previously distributed to holders of Class A-2 Certificates on account of
principal; and the Class A-3 Principal Balance as of any Remittance Date is the
Original Class A-3 Principal Balance less all amounts previously distributed to
holders of Class A-3 Certificates on account of principal. (Section 1.02.) In
the event that, on a particular Remittance Date, the Amount Available (including
any Monthly Advances) in the Certificate Account is not sufficient to make a
full distribution of the amount of interest to which the Holders of each Class
of Senior Certificates are entitled, the Amount Available will be distributed
among the outstanding Classes of Senior Certificateholders pro rata based on the
aggregate amount of interest due on each such Class of Senior Certificates, and
the amount of the shortfall will be allocated among each outstanding Class of
Senior Certificates pro rata based on the aggregate amount of interest due on
each such Class. The portion of the shortfall allocated to each such Class will
be carried forward and added to the amount the Holders of such Class will be
entitled to receive on the next Remittance Date and every succeeding Remittance
Date thereafter until paid. (Section 1.02.) Such a shortfall could occur, for
example, if losses realized on the Contracts were exceptionally high and were
concentrated in a particular Due Period. Any such amount so carried forward will
bear interest at the Class A-1 Remittance Rate, the Class A-2 Remittance Rate
and the Class A-3 Remittance Rate, as applicable, to the extent permitted by
law.
The aggregate amount, as of any Remittance Date, to be distributed to all
Classes of Senior Certificateholders in respect of interest is hereinafter
referred to as the "Senior Interest Distribution Amount".
Principal on Senior Certificates
Commencing on the first Remittance Date and on each Remittance Date
thereafter, Holders of the Senior Certificates will be entitled to receive on
each Remittance Date as payment of principal, to the extent of the Amount
Available in the Certificate Account on such date after the payment of the
Senior Interest Distribution Amount, the sum (such sum referred to as the
"Formula Principal Distribution Amount") of (i) all payments of principal
received in respect of each outstanding Contract during such Due Period, (ii)
the Stated Principal Balance of each Contract which, during the related Due
Period, was purchased by CITSF pursuant to the Agreement on account of certain
breaches of its representations and warranties, (iii) all partial principal
prepayments applied and all principal prepayments in full received during such
Due Period, (iv) the Stated Principal Balance of each Contract that became a
Liquidated Contract during such Due Period and (v) any Formula Principal
Distribution Amount for any prior Remittance Date which was not distributed on a
prior Remittance Date.
The "Stated Principal Balance" of a Contract as of any Remittance Date is
its unpaid principal balance. The "Due Date" for a Contract is its scheduled
payment date. The "Pool Stated Principal Balance" is the aggregate of the Stated
Principal Balance of each of the Contracts outstanding at the end of a Due
Period. A "Liquidated Contract" is a defaulted Contract as to which all amounts
that the Servicer expects to recover through the date of disposition of the
Manufactured Home and the real estate, if any, securing such Contract have been
recovered. (Section 1.02.)
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The Formula Principal Distribution Amount will be distributed sequentially,
to the extent of the Amount Available after payment of the Senior Interest
Distribution Amount first to the Class A-1 Certificateholders until the Class
A-1 Principal Balance has been reduced to zero, then to the Class A-2
Certificateholders until the Class A-2 Principal Balance has been reduced to
zero and then to the Class A-3 Certificateholders until the Class A-3 Principal
Balance has been reduced to zero (the "Class A-3 Cross-over Date"). When the
Principal Balance of a Class of Senior Certificates is reduced to zero, no
further distributions will be made to the Holders of such Class.
In the event that, on any Remittance Date prior to the Class A-3 Cross-over
Date the sum of the Pool Stated Principal Balance and the amounts remaining on
deposit in the Pre-Funding Account, if any, at the close of business on the last
day of the related Due Period would be less than the sum of the Class A-1
Principal Balance, the Class A-2 Principal Balance and the Class A-3 Principal
Balance on such Remittance Date after giving effect to distributions of
principal to be made on such date (the "Senior Principal Balance"), then the
Amount Available remaining after distribution of the Senior Interest
Distribution Amount will be distributed to the Classes of Senior Certificates on
a pro rata basis as a distribution of the Formula Principal Distribution Amount,
and the amount of the shortfall will be allocated pro rata among the outstanding
Classes of Senior Certificates, based upon their respective outstanding
Principal Balances. On any Remittance Date on which there exists any previously
undistributed shortfalls in Formula Principal Distribution Amounts which have
been allocated among the outstanding Classes of Senior Certificates, the
aggregate amount of such shortfalls will be distributed to the extent of the
Amount Available remaining after distribution of the Senior Interest
Distribution Amount, pro rata among such Classes of Senior Certificates based
upon their respective unreimbursed shortfalls. Such distributions in respect of
previously allocated shortfalls with respect to the Formula Principal
Distribution Amounts will be made prior to any distribution being made on a
Remittance Date to the Class of Senior Certificates then entitled to receive the
Formula Principal Distribution Amount.
Interest on Class A-4 Certificates
Following the payment to the Senior Certificateholders of the Senior
Interest Distribution Amount and the Formula Principal Distribution Amount to be
payable to the Senior Certificateholders, interest accruing during the related
Interest Accrual Period (computed on the basis of a 360-day year of twelve
30-day months), will be paid to the Class A-4 Certificateholders on each
Remittance Date, to the extent of the remaining Amount Available, at the Class
A-4 Remittance Rate on the then outstanding Class A-4 Principal Balance, subject
to a maximum rate equal to the weighted average of the Net Contract Rates on
each Contract in the Contract Pool. The Class A-4 Principal Balance is the
Original Class A-4 Principal Balance less the sum of all amounts previously
distributed to Class A-4 Certificateholders in respect of principal. In the
event that, on a particular Remittance Date, the Amount Available after payment
of the Senior Interest Distribution Amount and the Formula Principal
Distribution Amount payable to the Senior Certificateholders, is not sufficient
to make a full distribution of the amount of interest to which the Class A-4
Certificateholders are entitled, the amount of such deficiency will be carried
forward and added to the amount such Holders will be entitled to receive on the
next Remittance Date, and every Remittance Date thereafter until paid. Any such
amount so carried forward will bear interest at the Class A-4 Remittance Rate,
to the extent permitted by law.
The amount, as of any Remittance Date, to be distributed to Class A-4
Certificateholders in respect of interest is hereinafter referred to as the
"Class A-4 Interest Distribution Amount".
Principal on Class A-4 Certificates
Payments of principal on the Class A-4 Certificates will not commence until
the Remittance Date on or after the Class A-3 Cross-over Date. On each
Remittance Date on or after the Class A-3 Cross-over Date, Holders of Class A-4
Certificates will be entitled to receive as payments of principal, to the extent
of the Amount Available after payment of all interest payable on the Class A-4
Certificates on such Remittance Date, the Formula Principal Distribution Amount
until the Class A-4 Principal Balance has been reduced to zero.
Interest on Class A-5 Certificates
Following the payment to the Senior Certificateholders of the Senior
Interest Distribution Amount and the Formula Principal Distribution Amount
payable to the Senior Certificateholders, and the payment to the Class A-4
Certificateholders of the Class A-4 Interest Distribution Amount and the Formula
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Principal Distribution Amount payable to the Class A-4 Certificateholders,
interest accruing during the related Interest Accrual Period (computed on the
basis of a 360-day year of twelve 30-day months), at the Class A-5 Remittance
Rate on the then outstanding Class A-5 Principal Balance, will be paid to the
Class A-5 Certificateholders on each Remittance Date, to the extent of the
remaining Amount Available on such Remittance Date, subject to a maximum rate
equal to the weighted average of the Net Contract Rates on each Contract in the
Contract Pool. The Class A-5 Principal Balance is the Original Class A-5
Principal Balance less the sum of all amounts previously distributed to Class
A-5 Certificateholders in respect of principal. In the event that, on a
particular Remittance Date, the Amount Available, after payment of the Senior
Interest Distribution Amount and the Formula Principal Distribution Amount
payable to the Senior Certificateholders to the Senior Certificateholders and
the payment of the Class A-4 Interest Distribution Amount and the Formula
Principal Distribution Amount payable to the Class A-4 Certificateholders, is
not sufficient to make a full distribution of interest to the Class A-5
Certificateholders and CIT fails to pay such amount under the Limited Guarantee,
the amount of such deficiency will be carried forward and added to the amount
such Holders will be entitled to receive on the next Remittance Date, and every
Remittance Date thereafter until paid. Any such amount so carried forward will
bear interest at the Class A-5 Remittance Rate, to the extent permitted by law.
The amount, as of any Remittance Date, to be distributed to Class A-5
Certificateholders in respect of interest is hereinafter referred to as the
"Class A-5 Interest Distribution Amount".
Principal on Class A-5 Certificates
Except for payments of the Class A-5 Principal Liquidation Loss Amount
(described below), there will be no distributions of principal on the Class A-5
Certificates prior to the Remittance Date on which the Class A-4 Principal
Balance has been reduced to zero (the "Class A-4 Cross-over Date").
On each Remittance Date on or after the Class A-4 Cross-over Date, the
Class A-5 Certificateholders will be entitled to receive, as payments of
principal, the Formula Principal Distribution Amount, to the extent of the
Amount Available after payment of interest on the Class A-5 Certificates and to
the extent of any Guarantee Payment made by CIT until the Class A-5 Principal
Balance has been reduced to zero.
Notwithstanding the distributions to Certificateholders described above,
amounts otherwise distributable to Certificateholders pursuant to the Agreement
which are required to be withheld and remitted to a taxing authority shall be
withheld and remitted to such taxing authority and such amounts shall be treated
as actually distributed to such Certificateholders for all purposes of the
Agreement.
Subordination of the Subordinated Certificates
The rights of the Holders of the Subordinated Certificates to receive
distributions with respect to the Contracts in the Trust will be subordinated to
such rights of the Senior Certificateholders, to the extent described herein.
The protection afforded to each Class of Senior Certificateholders by means of
the subordination feature will be accomplished by the preferential right of the
Senior Certificateholders to receive, prior to any distribution being made on a
Remittance Date in respect of the Subordinated Certificates, the amounts of
principal and interest due such Classes on each Remittance Date out of the
Amount Available in the Certificate Account on such date and, to the extent
described below, by the right of the Senior Certificateholders to receive future
distributions on the Contracts that would otherwise be payable to the
Subordinated Certificates. This subordination is intended to enhance the
likelihood of regular receipt by the Senior Certificateholders of the full
amount of principal and interest which they are entitled to receive and to
afford such Holders protection against losses on Liquidated Contracts. On each
Remittance Date, the Class A-4 Certificateholders will be entitled to receive
only distributions from the Certificate Account described under "--Interest on
Class A-4 Certificates" and "--Principal on Class A-4 Certificates" and the
Class A-5 Certificateholders will be entitled to receive only distributions from
the Certificate Account described above under "--Interest on Class A-5
Certificates" and "--Principal on Class A-5 Certificates".
In addition, the right of the Holders of the Class A-5 Certificates and
the Class R Certificates to receive distributions will be subordinate to such
rights of the Class A-4 Certificateholders. This subordination is intended to
enhance the likelihood of regular receipt by the Holders of the Class A-4
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Certificates of the full amount of principal and interest which they are
entitled to receive and to afford such Holders protection against losses on
Liquidated Contracts. The protection afforded to the Class A-4
Certificateholders to receive, prior to any principal distribution being made on
a Remittance Date in respect of the Class A-5 Certificates and prior to any
distribution being made in respect of the Class R Certificates, the amount of
principal and interest due them on each Remittance Date out of the remaining
Amount Available in the Certificate Account on such date and, to the extent
described below, by the right of the Class A-4 Certificateholders to receive
future distributions on the Contracts that would otherwise be payable to the
Holders of Class A-5 and Class R Certificates.
The rights of the Class R Certificateholders to receive distributions with
respect to the Contracts in the Trust will be subordinated to the rights of the
Senior Certificateholders, the Class A-4 Certificateholders and the Class A-5
Certificateholders. On each Remittance Date the Class R Certificateholders will
receive the remaining Amount Available, if any, after payment of the amount
distributed to the Senior Certificateholders, Class A-4 Certificateholders and
Class A-5 Certificateholders as described above (less the Monthly Servicing Fee,
less amounts retained by the Servicer to reimburse itself for taxes paid in
respect to prohibited transactions and less the Guarantee Fee paid to CIT) plus
aggregate Repossession Profits (as defined in the Agreement) and all other
amounts which the Servicer is entitled to withdraw from or not deposit into the
Certificate Account pursuant to the Agreement.
As described above, prior to the time that the Senior Principal Balance is
reduced to zero the distribution of principal to the Senior Certificateholders
is intended to include the Stated Principal Balance of each Contract that became
a Liquidated Contract during the Due Period next preceding the Remittance Date.
If the Liquidation Proceeds, net of related Liquidation Expenses, from such
Liquidated Contract are less than its Stated Principal Balance plus accrued
interest thereon, the deficiency will, in effect, be absorbed by the Class R
Certificateholders, then CIT to the extent of the Guarantee Fee, then the
Servicer to the extent of the Monthly Servicing Fee (so long as CITSF remains
Servicer), then the Class A-5 Certificateholders and then the Class A-4
Certificateholders since the Senior Certificateholders are entitled to all
principal payments received during the related Due Period pursuant to the
Formula Distribution Amount for any Remittance Date until the Senior Principal
Balance is reduced to zero. If the Amount Available is not sufficient to cover
the amounts distributable to the Senior Certificateholders on a particular
Remittance Date, then the amount of the Pool Stated Principal Balance available
to the Class A-4 Certificateholders and Class A-5 Certificateholders on future
Remittance Dates (i.e., such Pool Stated Principal Balance less the Senior
Principal Balance) will not be available to the extent of such deficiency. If
the Amount Available is sufficient to cover the amounts distributable in respect
of principal to the Senior or Class A-4 Certificateholders but is not sufficient
to cover the amounts distributable in respect of principal to the Class A-5
Certificateholders (if any) on a particular Remittance Date, then the amount of
the deficiency will be carried forward as an amount that the Class A-5
Certificateholders are entitled to receive on the next Remittance Date.
Consequently, but for the effect of the relative subordination of the Guarantee
Fee, the Monthly Servicing Fee (so long as CITSF remains Servicer) and amounts
otherwise distributable to the Class A-5 and Class R Certificateholders, the
Class A-4 Certificateholders will absorb all losses on each Liquidated Contract
in the amount by which its Liquidation Proceeds, net of the related Liquidation
Expenses, are less than its unpaid principal balance plus accrued and unpaid
interest thereon. But for the effect of the relative subordination of the
Guarantee Fee, the Monthly Servicing Fee (so long as CITSF remains Servicer) and
amounts otherwise distributable to the Class R Certificateholders on each
Remittance Date, and amounts paid under the Limited Guarantee as described
below, the Class A-5 Certificateholders will absorb all losses on each
Liquidated Contract in the amount by which its Liquidation Proceeds, net of the
related Liquidation Expenses are less than its unpaid principal balance plus
accrued and unpaid interest thereon. Class A-5 Certificateholders, however, will
be entitled to receive Guarantee Payments and amounts otherwise distributable on
Remittance Dates as (i) the amount distributable to the Class R
Certificateholders, (ii) the Guarantee Fee, and (iii) the Monthly Servicing Fee
payable to the Servicer (so long as CITSF remains Servicer), and would be
entitled to receive those amounts, if any, not received by the Class A-5
Certificateholders on a prior Remittance Date. If CIT fails to make a payment
required under the Limited Guarantee, the Class A-5 Certificateholders will
incur a loss on their investment in the Class A-5 Certificates.
If further liquidation losses were to continue to decrease the Pool Stated
Principal Balance (which is reduced by all collections of principal on the
Contracts and by the Stated Principal Balances of all Contracts that become
Liquidated Contracts or were repurchased by CITSF pursuant to the Agreement,
including Contracts repurchased as a result of certain breaches of
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representations and warranties) faster than distributions of principal to the
Senior Certificateholders reduce the Senior Principal Balance, then the amount
of the Pool Stated Principal Balance available to the Class A-4 Certificates and
the Class A-5 Certificates, and therefore the level of protection afforded by
the subordination of the Class A-4 Certificates and the Class A-5 Certificates
for the benefit of the Senior Certificates, would be reduced. In the event that
the sum of the Pool Stated Principal Balance and the Pre-Funded Amount, if any,
is reduced by liquidation losses to an amount less than or equal to the Senior
Principal Balance, all additional losses on Liquidated Contracts, to the extent
not covered by future collections on the Contracts, will be absorbed by the
Senior Certificates.
Limited Guarantee of CIT
In order to mitigate the effect of the subordination of the Class A-5
Certificates, CIT will provide a guarantee (the "Limited Guarantee") against
losses that would otherwise be absorbed by the Class A-5 Certificates. Each
payment required to be made under the Limited Guarantee is referred to as a
"Guarantee Payment." Prior to the Class A-4 Cross-over Date, the Guarantee
Payment will equal the amount, if any, by which (i) the sum of (a) the Class A-5
Interest Distribution Amount for such Remittance Date (which will be interest at
the Class A-5 Remittance Rate on the Class A-5 Principal Balance for the related
Interest Accrual Period) and (b) the Class A-5 Principal Liquidation Loss Amount
for such Remittance Date exceeds (ii) the Amount Available remaining for
distribution to the Class A-5 Certificateholders after distributions of interest
and principal to Holders of the Senior and Class A-4 Certificates on such
Remittance Date. The Class A-5 Principal Liquidation Loss Amount for any
Remittance Date equals the amount, if any, by which the sum of the Senior
Principal Balance, the Class A-4 Principal Balance, and the Class A-5 Principal
Balance for such Remittance Date (after giving effect to all distributions of
principal on such Remittance Date) exceeds the sum of the Pool Stated Principal
Balance plus the amounts remaining on deposit in the Pre-Funding Account, if
any, at the close of business on the last day of the related Due Period. The
Class A-5 Principal Liquidation Loss Amount is, in substance, the amount of
delinquencies and losses experienced on the Contracts during the related due
period that was not absorbed by the Class R Certificates, the Guarantee Fee and
the Monthly Servicing Fee (as long as CITSF is the Servicer). On each Remittance
Date on or after the Class A-4 Cross-over Date, the Guarantee Payment will equal
the amount, if any, by which (i) the sum of the Class A-5 Interest Distribution
Amount and the Formula Principal Distribution Amount payable to the Class A-5
Certificateholders for such Remittance Date exceeds (ii) the Amount Available.
CIT shall not be obligated to pay any amount allocable to taxes which the Trust
was required to withhold.
The Limited Guarantee will be an unsecured general obligation of CIT and
will not be supported by any letter of credit or other credit enhancement
arrangement. The Limited Guarantee will not benefit in any way, or result in any
payment to, the Holders of the Senior Certificates, the Class A-4 Certificates
or the Class R Certificates. See "CIT" in the Prospectus.
As compensation for providing the Limited Guarantee, CIT will be entitled
to receive a Guarantee Fee on each Remittance Date equal to 1/12 of the product
of 0.25% and the Pool Stated Principal Balance at the end of the second Due
Period preceding such Remittance Date (or, in the case of the first Remittance
Date, the Cut-off Date) (the "Guarantee Fee").
Distributions from the Certificate Account
On or before the Determination Date preceding a Remittance Date, the
Servicer will make a determination and inform the Trustee of the following
amounts with respect to the preceding Due Period: (i) the aggregate amount of
collections on the Contracts; (ii) the aggregate amount of Monthly Advances to
be remitted by the Servicer; (iii) the aggregate purchase price of Contracts to
be purchased by CITSF or the Servicer pursuant to the Agreement; (iv) the
aggregate amount to be distributed as principal and interest on the Certificates
on the related Remittance Date; (v) the Monthly Servicing Fee; and (vi) the
Guarantee Fee.
On each Remittance Date, after reimbursement to the Servicer of any
previously unreimbursed Monthly Advances as provided in the Agreement, the
Trustee will withdraw and apply amounts on deposit in the Certificate Account
attributable to collections or deposits made in respect of the Contracts in the
related Due Period to make the following payments (to the extent sufficient
funds are available therefor) in the following order:
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(a) Distributions on account of interest and principal to the
Holders of the Offered Certificates in the amount and priority set forth
herein, including any overdue interest distributions and principal
distributions with respect to each such Class of Certificates, and, to the
extent permitted by applicable law, interest thereon at the applicable
Remittance Rate;
(b) The Monthly Servicing Fee, including any overdue Monthly
Servicing Fee will (to the extent not previously retained by the Servicer)
be paid to the Servicer;
(c) The Guarantee Fee to be paid to CIT; and
(d) Distribution of the balance, constituting the remaining Amount
Available, to the Holders of the Class R Certificates.
In the event CITSF is not the Servicer, the Monthly Servicing Fee will be
paid to the Servicer prior to any distributions on theCertificates.
Servicing Compensation and Payment of Expenses
The Servicer will be entitled to receive on each Remittance Date a Monthly
Servicing Fee equal to 1/12th of the product of 1.00% and the Pool Stated
Principal Balance as of the end of the Due Period second preceding such
Remittance Date (or, in the case of the first Remittance Date, the Cut-off
Date).
The Servicer is obligated to pay certain on-going expenses associated with
the Contract Pool and incurred by the Servicer in connection with its
responsibilities under the Agreement. See "Description of the
Certificates--Servicing--Servicing Compensation and Payment of Expenses" in the
Prospectus for information regarding other possible compensation to the Servicer
and for information regarding expenses payable by the Servicer.
Advances
On or prior to each Determination Date, the Servicer is obligated to make
Monthly Advances by depositing into the Certificate Account cash for
distribution to the Holders of the Offered Certificates equal to the difference
between the interest due on the Contracts at the Contract Rate on the Due Date
during the related Due Period and the interest received on the Contracts during
such Due Period, but only to the extent that the Servicer determines that the
payments of interest not received during the related Due Period will be
recoverable from future payments and collections on the Contracts. Monthly
Advances are intended to maintain a regular flow of interest to the
Certificateholders, not to guarantee or insure against losses. Accordingly, any
funds so advanced are recoverable by the Servicer out of amounts received on the
related Contracts which represent late collections respecting which any such
Monthly Advance is made. Additionally, Monthly Advances which become
nonrecoverable (as described in the Agreement) will be reimbursed to the
Servicer out of any funds to be deposited in the Certificate Account. Such
reimbursement will be made by the Servicer deducting such amounts due to it from
any payments on the Contracts which would otherwise have been deposited in the
Certificate Account. Therefore, such reimbursements to the Servicer will reduce
the Amount Available for distribution to Certificateholders.
Indemnification
The Agreement requires CITSF to defend and indemnify the Company, the
Trust, the Trustee and the Certificateholders for any taxes which may at any
time be asserted with respect to, and as of the date of, the conveyance of the
Contracts to the Trust (but not including any federal, state or other tax
arising out of the creation of the Trust and the issuance of the Certificates or
distributions with respect thereto). (Article X.)
The Agreement also requires the Servicer, in connection with its duties as
servicer of the Contracts, to defend, hold harmless and indemnify the Company,
the Trust, the Trustee and the Certificateholders (which indemnification will
survive any removal of the Servicer as servicer of the Contracts) against any
and all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel and expenses of litigation, in respect
of any negligent or wrongful action taken by the Servicer with respect to any
Contract while it was the Servicer. (Section 10.03.)
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Reports to Offered Certificateholders
The Servicer will furnish to the Trustee, and the Trustee will include with
each distribution to a Certificateholder, a statement in respect of the related
Remittance Date setting forth, among other things:
(a) the amount of such distribution to Holders of each Class of
Certificates allocable to interest (including interest shortfall, if any);
(b) the amount of such distribution to Holders of each Class of
Certificates allocable to principal, separately identifying the aggregate
amount of any principal prepayments included therein and the Principal
Liquidation Loss Amount distributable to the Holders of the Class A-5
Certificates;
(c) the amount of any shortfall in the Formula Principal Distribution
Amount allocated to each Class of Certificateholders for such Remittance
Date, as applicable;
(d) the Principal Balance of each Class of Certificates after giving
effect to the distribution of principal on such Remittance Date, as
applicable;
(e) the Pool Stated Principal Balance of the Contracts for the
following Remittance Date;
(f) the Pool Factor (a percentage derived from a fraction the
numerator of which is the amount specified in (e) and the denominator of
which is the Initial Pool Principal Balance);
(g) the number and aggregate principal balance of Contracts delinquent
(i) 30-59 days and (ii) 60 or more days;
(h) the number of Manufactured Homes that were repossessed during the
Due Period ending immediately prior to such Remittance Date;
(i) the number of Manufactured Homes that were repossessed but remain
in inventory as of the last day of the Due Period ending immediately prior
to such Remittance Date;
(j) the weighted average Contract Rate of all outstanding Contracts;
(k) during the Funding Period, the amount of funds on deposit in the
Pre-Funding Account and the Capitalized Interest Account;
(l) during the Funding Period, the number and aggregate principal
balance of Subsequent Contracts;
(m) the amount of any Guarantee Payment made by CIT to Holders of the
Class A-5 Certificates; and
(n) the number and aggregate Stated Principal Balance of the
Subsequent Contracts purchased by the Trustee.
Information furnished pursuant to clauses (a) through (d) will be expressed
as dollar amounts for a Certificate with a 1% Percentage Interest or per
$1,000 denomination of Certificate. (Section 6.05.) In addition, within a
reasonable period of time after the end of each calendar year, the Servicer
will furnish a report to each Certificateholder of record at any time
during such calendar year as to the aggregate of amounts reported pursuant
to (a) and (b) above for such calendar year.
Repurchase Option
The Agreement provides that on any Remittance Date on which the Pool
Stated Principal Balance is less than 10% of the Initial Pool Principal Balance,
the Company or the Servicer will have the option to repurchase for cash, upon
the Company or the Servicer giving notice mailed to the Certificateholders no
earlier than the 15th day and no later than the 25th day of the month next
preceding the month of such final distribution, all outstanding Contracts at a
price equal to the greater of (i) the sum of (A) 100% of the Stated Principal
Balance of each Contract (other than any Contract as to which title to the
underlying property has been acquired and whose fair market value is included
pursuant to clause (B) below as of the final Remittance Date), and (B) the fair
market value of such acquired property (as determined by the Servicer on the
third business day next preceding the date upon which notice of such termination
is furnished to Certificateholders pursuant to the Agreement), and (ii) the
aggregate fair market value (as determined by the Servicer as of the close of
business on such third business day) of all of the assets of the Trust, and
(iii) the remaining Pool Stated Principal Balance as of the close of business on
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such third business day, plus, in each case, any unpaid interest on the Senior
Certificates, any unpaid interest on the Class A-4 Certificates and any unpaid
interest on the Class A-5 Certificates, as well as one month's interest at the
applicable Contract Rate on the Stated Principal Balance of each Contract
(including any Contract as to which the related Manufactured Home has been
repossessed). (Section 8.03.) The "Initial Pool Principal Balance" equals the
sum of (i) the Cut-off Date Pool Principal Balance and (ii) the aggregate Stated
Principal Balances of all Subsequent Contracts added to the Trust as of their
respective Subsequent Cut-off Dates.
Termination of the Agreement
The Agreement will terminate upon the earlier of (i) the purchase by the
Company or the Servicer of all Contracts and all property acquired in respect of
any Contract remaining in the Trust as described under "Repurchase Option" above
or (ii) the final payment or other liquidation of the last Contract remaining in
the Trust or the disposition of all property acquired upon repossession of any
Manufactured Home.
Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed, in the following order of priority, to
Certificateholders on the final Remittance Date in proportion to their
respective Percentage Interests an amount equal to (i) as to the Senior
Certificates, the Senior Principal Balance, together with any unpaid interest at
the related Remittance Rate and interest for the related Interest Accrual Period
at the related Remittance Rate on the Class A-1 Principal Balance, the Class A-2
Principal Balance and the Class A-3 Principal Balance, as appropriate, (ii) as
to the Class A-4 Certificates, any unpaid interest thereon at the Class A-4
Remittance Rate and interest for the related Interest Accrual Period at the
Class A-4 Remittance Rate on the Class A-4 Principal Balance, (iii) as to the
Class A-5 Certificates, any unpaid interest thereon at the Class A-5 Remittance
Rate and interest for the related Interest Accrual Period at the Class A-5
Remittance Rate on the Class A-5 Principal Balance, (iv) as to each outstanding
Class of Senior Certificates, the outstanding Principal Balances thereof, (v) as
to the Class A-4 Certificates, the outstanding Principal Balance thereof, (vi)
as to the Class A-5 Certificates, the outstanding Principal Balance thereof, and
(vii) as to the Class R Certificates, the amount which remains on deposit in the
Certificate Account (other than amounts retained to meet claims) after
application pursuant to clauses (i)-(vi) above. (Section 12.03.)
Amendment
The Agreement may be amended by agreement of the Trustee, the Company and
the Servicer at any time, without the consent of the Certificateholders, to
correct manifest error, to cure any ambiguity, to correct or supplement any
provision which may be inconsistent with any other provision, to make such
changes as are necessary to maintain the status of the Trust as a REMIC, to add
or amend any provision as required by Moody's or any other nationally recognized
statistical rating organization to maintain the rating of any of the Offered
Certificates or to add other provisions not inconsistent with the Agreement upon
receipt of an Opinion of Counsel to the Servicer that such amendment will not
adversely affect in any material respect the interests of any Certificateholder.
Neither the Company nor the Servicer is obligated to take any action to maintain
or improve the rating given to any of the Offered Certificates. (Section 12.07.)
The Agreement may also be amended from time to time by the Trustee, the
Company and the Servicer, with the consent of the holders of Certificates of
each Class affected thereby evidencing, as to each such Class, Percentage
Interests aggregating at least 51%, provided that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, collections of
payments on Contracts or distributions which are required to be made on any
Certificate without the consent of the holder of each Certificate affected
thereby, (ii) reduce the aforesaid percentages of Certificateholders required
for any amendment of the Agreement, without the unanimous consent of the
Certificateholders, (iii) result in the disqualification of the Trust as a REMIC
under the Code or adversely affect the status of the Trust as a REMIC or the
status of the Certificates as "regular interests" therein, or cause any tax to
be imposed on the Trust or (iv) adversely affect in any material respect the
interest of the Class R Certificateholders without the unanimous written consent
of the Class R Certificateholders. (Section 12.07.)
The Agreement may also be amended from time to time, without the consent of
any Certificateholders, by the Company, the Trustee and the Servicer to modify,
eliminate or add to the provisions of the Agreement to (i) maintain the
qualification of the Trust as a REMIC under the Code and under relevant state
and local law or avoid, or reduce the risk of, the imposition of any tax on the
Trust under the Code that would be a claim against the Trust assets, provided
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that (A) an Opinion of Counsel is delivered to the Trustee to the effect that
such action is necessary to maintain such qualification or avoid any such tax or
reduce the risk of its imposition and (B) such amendment shall not materially
adversely affect the interests of any Certificateholder or (ii) prevent the
Trust from entering into any "prohibited transaction" as defined in Section 860F
of the Code.
The Trustee is required under the Agreement to furnish Certificateholders
affected thereby with notice promptly upon execution of any amendment to the
Agreement pursuant to the second preceding paragraph. (Section 12.07.)
The Trustee
The Chase Manhattan Bank (National Association) (the "Trustee") has its
corporate trust offices at 4 Chase MetroTech Center, Brooklyn, New York 11245.
The Trustee and certain of its affiliates maintain commercial banking
relationships with CIT, CITSF and the Company.
The Agreement requires the Trustee to maintain, at its own expense, an
office or agency in New York where Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Trustee and the certificate registrar and transfer agent in respect of the
Certificates pursuant to the Agreement may be served. On the date hereof, the
Trustee's offices for such purposes are located at 4 Chase MetroTech Center,
Brooklyn, New York 11245. The Trustee will promptly give written notice to the
Certificateholders of any change thereof. (Section 12.02.)
S-50
<PAGE>
REGISTRATION OF THE OFFERED CERTIFICATES
The Offered Certificates will be registered in the name of Cede & Co., the
nominee of DTC. DTC is a limited-purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC accepts securities for deposit
from its participating organizations ("Participants") and facilitates the
clearance and settlement of securities transactions between Participants in such
securities through electronic book-entry changes in accounts of Participants,
thereby eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("indirect participants").
Certificate Owners who are not Participants but desire to purchase, sell or
otherwise transfer ownership of the Offered Certificates may do so only through
Participants (unless and until Definitive Senior Certificates, Definitive Class
A-4 Certificates or Definitive Class A-5 Certificates, as defined below, are
issued). In addition, Certificate Owners will receive all distributions of
principal of, and interest on, the Offered Certificates from the Trustee through
DTC and Participants. Certificate Owners will not receive or be entitled to
receive certificates representing their respective interests in the Offered
Certificates, as the case may be, except under the limited circumstances
described below.
Unless and until Definitive Senior Certificates, Definitive Class A-4
Certificates or Definitive Class A-5 Certificates are issued, it is anticipated
that the only "Certificateholder" of the Offered Certificates will be Cede &
Co., as nominee of DTC. Certificate Owners will not be Certificateholders as
that term is used in the Agreement and will not receive reports or payments
directly from the Trustee or the Servicer. Certificate Owners are only permitted
to exercise the rights of Certificateholders indirectly through Participants and
DTC.
While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "DTC Rules"), DTC is required
to make book-entry transfers among Participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants with whom Certificate Owners have accounts with respect to the
Offered Certificates are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective
Certificate Owners. Accordingly, although Certificate Owners will not possess
Certificates, the DTC Rules provide a mechanism by which Certificate Owners will
receive distributions and will be able to transfer their interests.
Senior Certificates, Class A-4 Certificates and Class A-5 Certificates will
be issued in registered form to Certificate Owners, or their nominees, rather
than to DTC (such Certificates being referred to herein as "Definitive Senior
Certificates", "Definitive Class A-4 Certificates" and "Definitive Class A-5
Certificates"), respectively, only if (i) DTC or the Company advises the Trustee
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the Offered Certificates,
respectively, and the Company or the Trustee is unable to locate a qualified
successor or (ii) the Company at its sole option advises the Trustee in writing
that it elects to terminate the book-entry system through DTC. Upon issuance of
Definitive Senior Certificates, Definitive Class A-4 Certificates or Definitive
Class A-5 Certificates to Certificate Owners, such Certificates will be
transferable directly (and not exclusively on a book-entry basis) and registered
Holders will deal directly with the Trustee with respect to transfers, notices
and distributions.
DTC has advised the Company and the Trustee that, unless and until
Definitive Senior Certificates, Definitive Class A-4 Certificates and Definitive
Class A-5 Certificates are issued, DTC will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one or
more Participants to whose DTC accounts the Offered Certificates, respectively,
are credited. DTC has advised the Company that DTC will take such action with
respect to any Percentage Interests of the Offered Certificates only at the
direction of and on behalf of such Participants with respect to such Percentage
Interests of the Offered Certificates. DTC may take actions, at the direction of
the related Participants, with respect to some Offered Certificates which
conflict with actions taken with respect to other Offered Certificates,
respectively.
S-51
<PAGE>
Issuance of the Offered Certificates in book-entry form rather than as
physical certificates may adversely affect the liquidity of Offered Certificates
in the secondary market and the ability of Certificate Owners to pledge them. In
addition, since distributions on the Offered Certificates will be made by the
Trustee to DTC and DTC will credit such distributions to the accounts of its
Participants, which will further credit them to the accounts of indirect
participants of Certificate Owners, Certificate Owners may experience delays in
the receipt of such distributions. Furthermore, if the Certificates are in
book-entry form, the statements furnished by the Servicer with each distribution
to the Certificateholders as described herein will be delivered to DTC as
opposed to the Certificate Owners.
USE OF PROCEEDS
The Company will sell the Initial Contracts to the Trust concurrently with
the sale of the Offered Certificates and the net proceeds from the sale of the
Offered Certificates will be applied by the Trustee to the purchase of the
Initial Contracts, to the payment of certain expenses connected with pooling the
Contracts and issuing the Certificates, and to the deposit of the Pre-Funded
Amount in the Pre-Funding Account and to the deposit of certain amounts to the
Capitalized Interest Account. Such net proceeds less the payment of such
expenses and the Pre-Funded Amount and the amount deposited in the Capitalized
Interest Account will (together with the Class R Certificates retained by the
Company or its affiliates) represent the purchase price paid by the Trust to the
Company for the sale of the Initial Contracts to the Trust. Such amount will be
determined as a result of the pricing of the Offered Certificates, through the
offering described in this Prospectus Supplement. The net proceeds to be
received from the sale of the Initial Contracts will be added to the Company's
general funds and will be available for general corporate purposes, including
the purchase of new manufactured housing installment sales contracts and
installment loan agreements.
ERISA CONSIDERATIONS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "ERISA
Considerations".
Senior Certificates
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 regard to the ERISA restrictions,
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 CS First Boston Corporation (formerly First Boston Corporation)
(Prohibited Transaction Exemption 89-90; Exemption Application No. D-6555, 54
Fed. Reg. 42,597 (1989)) and any member of CS First Boston Corporation's
underwriting syndicate (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;
S-52
<PAGE>
(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 either Standard & Poor's Corporation,
Moody's Investors Service Inc., Duff & Phelps Inc. 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 Company 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 (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 Company, the Underwriters, the Trustee, the Servicer, any
obligor with respect to Contracts included in the Trust constituting more than
five percent of the aggregate unamortized principal balance of the assets in the
Trust, or any affiliate of such parties (the "Restricted Group").
The Company believes that the Exemption will apply to the acquisition and
holding of Senior Certificates sold by the Underwriter and by Plans and that all
conditions of the Exemption other than those within the control of the investors
have been met. In addition, as of the date hereof, no obligor with respect to
Contracts included in the Trust constitutes more than five percent of the
aggregate unamortized principal balance of the assets of the Trust.
Any Plan fiduciary who proposes to cause a Plan to purchase Senior
Certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership of
the Senior Certificates. Assets of a Plan or individual retirement account
should not be invested in the Senior Certificates unless it is clear that the
assets of the Trust will not be plan assets or unless it is clear that the
Exemption or a prohibited transaction class exemption will apply and exempt all
potential prohibited transactions. See "ERISA Considerations" in the Prospectus.
Class A-4 and A-5 Certificates
No transfer of Class A-4 or A-5 Certificates will be permitted to be made
to a Plan unless such Plan, at its expense, delivers to the Trustee and the
Company an opinion of counsel (in form satisfactory to the Trustee and the
Company) to the effect that the purchase or holding of a Class A-4 or A-5
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 Company 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 Class A-4 or A-5
Certificate will be deemed to represent to the Trustee, the Company 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.
S-53
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "Certain Federal
Income Tax Considerations".
Original Issue Discount
The Offered Certificates bear interest at the Remittance Rate, which is the
lower of a specified fixed rate for each class of Certificates and the Net
Contract Rate. It is generally anticipated that the Remittance Rate for each
class of Offered Certificates will be determined based upon the fixed rate
specified herein.
In the absence of authority to the contrary, the Company intends to treat
payments of interest at the Remittance Rate as payments of qualified stated
interest for purposes of determining whether the Offered Certificates are issued
with original issue discount. Treasury Regulations were proposed on December 16,
1994 which address the treatment of debt instruments with contingent payments
(the "Proposed Contingent Payment Regulations") and which supersede the
previously proposed regulations dealing with contingent payments described in
the Prospectus under "Certain Federal Income Tax Consequences - REMIC Series -
Variable Rate Regular Certificates". The Proposed Contingent Payment Regulations
state that they do not apply to REMIC regular interests. Thus, there is
currently no guidance under the Code or Treasury Regulations with respect to the
treatment of contingent payments on REMIC regular interests for purposes of
applying the original issue discount rules.
If payments of interest at the Remittance Rate were not treated as payments
of qualified stated interest, such interest would be treated as issued with
original issue discount on the Offered Certificates. As a result, a holder of an
Offered Certificate, instead of including in income interest on an accrual
basis, would be required to a account for all interest on the Offered
Certificates, including any amounts that would otherwise be treated as a de
minimis original issue discount, as original issue discount, which generally
accrues on a daily basis under a constant yield method that takes into account
the compounding of interest, prepayments and a prepayment assumption.
[The Company intends to treat the Offered Certificates as issued with [no]
[de minimis] original issue discount.] [The Offered Certificates will be issued
with original issue discount.] [The prepayment assumption that will be used in
determining the rate of accrual of original issue discount for federal income
tax purposes is ___% of the MH Prepayment Model.]
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will not constitute "mortgage related securities"
under the SMMEA and, as such, will not be "legal investments" for certain types
of institutional investors to the extent provided in that Act. The appropriate
characterization of the Certificates under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase the 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
to what extent, the Offered Certificates will constitute legal investments for
them.
The Company makes no representation as to the proper characterization of
the Certificates for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase the
Certificates under applicable legal investment restrictions. The uncertainties
described above (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the
Certificates) may adversely affect the liquidity of the Certificates. See "Legal
Investment Considerations" in the Prospectus.
S-54
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated February , 1995 (the "Underwriting Agreement"), among CIT,
CITSF, the Company and the Underwriters, the Company has agreed to sell and the
Underwriters have agreed to purchase the respective principal amounts of Offered
Certificates upon issuance, as set forth opposite their names below:
Class A-1 Class A-2 Class A-3
Underwriter Certificates Certificates Certificates
- ------------ ------------ ------------ ------------
CS First Boston Corporation........ $ $ $
First Chicago Capital Markets, Inc.
Total......................... $ $ $
Class A-4 Class A-5
Underwriter Certificates Certificates
- ------------ ------------ ------------
CS First Boston Corporation...................... $ $
First Chicago Capital Markets, Inc.
Total....................................... $ $
The Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all such Offered Certificates if any are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Offered Certificates to the public initially at the public
offering price set forth on the cover page of this Prospectus Supplement and to
certain dealers at such price less a concession not to exceed ___% of the Class
A-1 Principal Balance, ____% of the Class A-2 Principal Balance, ___% of the
Class A-3 Principal Balance, ___ % of the Class A-4 Principal Balance and ___%
of the Class A-5 Principal; that the Underwriters and such dealers may allow a
discount of ___% of the Class A-1 Principal Balance, ___% of the Class A-2
Principal Balance, ___% of the Class A-3 Principal Balance; ___% of the Class
A-4 Principal Balance and ___% of the Class A-5 Principal Balance on sales to
certain other dealers. After the initial public offering, the public offering
price and concession and discount to dealers may be changed by the Underwriters.
The Certificates have no established trading market. The Underwriters have
advised the Company that they intend to act as market makers for the
Certificates. However, the Underwriters are not obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Certificates.
CIT and CITSF have jointly and severally agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.
CIT maintains commercial banking relationships with one or more affiliates
of First Chicago Capital Markets, Inc.
S-55
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Schulte Roth &
Zabel, New York, New York, and for the Underwriters by Stroock & Stroock &
Lavan, New York, New York. The material federal income tax consequences of the
Offered Certificates will be passed upon for the Company by Schulte Roth &
Zabel. Paul N. Roth, a director of CIT, is a partner of Schulte Roth & Zabel.
S-56
<PAGE>
ANNEX A
PRICE/YIELD TABLES
The tables set forth below show the weighted average life, first principal
payment date, last principal payment date and the yield at various assumed
offering prices of each Class of Offered Certificates under various prepayment
scenarios. The yields set forth in the following tables were calculated by
determining the monthly discount rates which, when applied to the assumed stream
of cash flows to be paid on each Class of Offered Certificates, would cause the
discounted present value of such assumed stream of cash flows as of February 23,
1995 to equal the assumed purchase prices and converting such monthly rates to
corporate bond equivalent rates. Such calculation does not take into account
variations that may occur in the interest rates at which Certificateholders may
be able to reinvest funds received by them as reductions of the Principal
Balance on such Classes of Certificates and consequently does not purport to
reflect the return on any investment in such Classes of Certificates when such
reinvestment rates are considered. None of the prices in the tables take into
account any accrued interest that may be payable in excess of the stated
offering or purchase prices. The tables below indicate the weighted average
life, first principal payment date, last principal payment date and yield to
maturity of each Class of the Offered Certificates assuming that the Contracts
prepay at the percentage indicated therein.
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the MH Prepayment Model set forth in the table; (ii)
neither the Servicer nor the Company exercises its right of optional termination
described above; (iii) the Contracts have been grouped into 10 pools having the
characteristics as of the Cut-off Date set forth in the table entitled "Assumed
Contract Characteristics" below; (iv) the Class A-1 Certificates initially
represent $40,716,000 of the Cut-off Date Pool Principal Balance and will have a
Class A-1 Remittance Rate of 7.80%, the Class A-2 Certificates initially
represent $28,346,000 of the Cut-off Date Pool Principal Balance and will have a
Class A-2 Remittance Rate of 8.10%, the Class A-3 Certificates initially
represent $34,478,000 of the Cut-off Date Pool Principal Balance and will have a
Class A-3 Remittance Rate of 8.50%, the Class A-4 Certificates initially
represent $9,920,000 of the Cut-off Date Pool Principal Balance and will have a
Class A-4 Remittance Rate of 9.00%, and the Class A-5 Certificates initially
represent $10,540,000 of the Cut-off Date Pool Principal Balance and will have a
Class A-5 Remittance Rate of 9.15%; (v) no interest shortfalls will arise in
connection with prepayment in full of the Contracts; (vi) no delinquencies or
losses are experienced on the Contracts; (vii) distributions are made on the
Offered Certificates on the 15th day of each month (or, if the 15th day is not a
business day, the next business day thereafter), commencing on March 15, 1995;
(viii) the Offered Certificates are issued on February 23, 1995 and (ix) all of
the Subsequent Contracts purchased with funds from the Pre-Funding Account are
purchased during March and April 1995.
Assumed Contract Characteristics
Original Remaining
Current Term to Term to Date of
Principal Contract Maturity Maturity First Payment
Pool Balance Rate (Months) (Months) to Trust
- ---- ----------------- ------------- -------- ------------- ------------
1 ........... $ 604,821 11.54% 75 74 February
2 ........... 1,044,143 11.74 117 116 February
3 ........... 11,002,840 11.61 177 176 February
4 ........... 52,499,695 11.51 240 239 February
5 ........... 15,979,491 10.31 299 298 February
6 ........... 3,370,729 11.92 239 239 March
7* .......... 13,303,417 12.10 225 225 March
8* .......... 3,325,854 11.00 298 298 March
9* .......... 18,295,208 12.10 225 225 April
10* ......... 4,573,802 11.00 298 298 April
---------- ----- --- ---
Total ....... $124,000,000 11.50% 240 239
=========== ===== === ===
- --------
*Subsequent Contracts.
A-1
<PAGE>
Since the tables were prepared on the basis of the assumptions in the
preceding paragraph, there are discrepancies between the characteristics of the
actual Contracts and the characteristics of the Contracts assumed in preparing
the tables. Any such discrepancy may have an effect upon the percentages of the
Original Principal Balances outstanding and the weighted average life of each
Class of the Offered Certificates set forth in the tables. In addition, since
the actual Contracts and the Trust have characteristics which differ from those
assumed in preparing the tables set forth below, the distributions of principal
on each of the Offered Certificates may be made earlier or later than as
indicated in the tables.
The following information is given solely to illustrate the yield to
maturity for each Class of the Offered Certificates at various assumed offering
prices with respect to each such Class of Certificates under the stated
assumptions and is not a prediction of the actual yield to maturity of any Class
of the Offered Certificates.
No representation is made that the Contracts will not experience
delinquencies, or that losses will not be experienced at the rate assumed herein
or at any other rate and in fact historically there have been delinquencies and
losses. This Annex A should be read in conjunction with the information set
forth in "Yield and Prepayment Considerations" in the Prospectus Supplement and
"Yield Considerations" in the Prospectus.
<TABLE>
<CAPTION>
Weighted Average Life, First Principal Payment Date, Last Principal Payment Date
and Yield to Maturity of Class A-1 Certificates
at Various Assumed Prices and Percentages of MHP
MHP Prepayment Assumption
-----------------------------------------------------
Price (%) 75% 100% 150% 200% 300%
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
3.15 2.64 2.00 1.62 1.19 Weighted Average Life (years)
03/95 03/95 03/95 03/95 03/95 First Principal Payment Date
04/01 04/00 01/99 04/98 06/97 Last Principal Payment Date
99.00 8.31 8.38 8.50 8.63 8.86 Yield to Maturity (%)
99.25 8.22 8.27 8.36 8.45 8.63 Yield to Maturity (%)
99.50 8.12 8.15 8.22 8.28 8.39 Yield to Maturity (%)
99.75 8.02 8.04 8.07 8.10 8.16 Yield to Maturity (%)
100.00 7.93 7.93 7.93 7.93 7.93 Yield to Maturity (%)
100.25 7.83 7.82 7.79 7.76 7.70 Yield to Maturity (%)
100.50 7.74 7.71 7.64 7.58 7.47 Yield to Maturity (%)
100.75 7.64 7.60 7.50 7.41 7.24 Yield to Maturity (%)
101.00 7.55 7.49 7.36 7.24 7.01 Yield to Maturity (%)
</TABLE>
<TABLE>
<CAPTION>
Weighted Average Life, First Principal Payment Date, Last Principal Payment Date
and Yield to Maturity of Class A-2 Certificates
at Various Assumed Prices and Percentages of MHP
MHP Prepayment Assumption
-----------------------------------------------------
Price (%) 75% 100% 150% 200% 300%
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
8.37 7.17 5.48 4.40 3.16 Weighted Average Life (years)
04/01 04/00 01/99 04/98 06/97 First Principal Payment Date
10/05 06/04 05/02 12/00 04/99 Last Principal Payment Date
99.00 8.41 8.43 8.48 8.52 8.61 Yield to Maturity (%)
99.25 8.37 8.38 8.42 8.45 8.52 Yield to Maturity (%)
99.50 8.32 8.33 8.36 8.38 8.43 Yield to Maturity (%)
99.75 8.28 8.29 8.30 8.31 8.33 Yield to Maturity (%)
100.00 8.24 8.24 8.24 8.24 8.24 Yield to Maturity (%)
100.25 8.20 8.19 8.18 8.17 8.15 Yield to Maturity (%)
100.50 8.15 8.14 8.12 8.10 8.05 Yield to Maturity (%)
100.75 8.11 8.10 8.06 8.03 7.96 Yield to Maturity (%)
101.00 8.07 8.05 8.00 7.96 7.87 Yield to Maturity (%)
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Weighted Average Life, First Principal Payment Date, Last Principal Payment Date
and Yield to Maturity of Class A-3 Certificates
at Various Assumed Prices and Percentages of MHP
MHP Prepayment Assumption
-----------------------------------------------------
Price (%) 75% 100% 150% 200% 300%
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
13.56 12.29 10.05 8.29 5.97 Weighted Average Life (years)
10/05 06/04 05/02 12/00 04/99 First Principal Payment Date
10/11 09/10 07/08 08/06 07/03 Last Principal Payment Date
99.00 8.78 8.79 8.81 8.83 8.88 Yield to Maturity (%)
99.25 8.75 8.76 8.77 8.79 8.82 Yield to Maturity (%)
99.50 8.72 8.72 8.73 8.74 8.76 Yield to Maturity (%)
99.75 8.68 8.69 8.69 8.70 8.71 Yield to Maturity (%)
100.00 8.65 8.65 8.65 8.65 8.65 Yield to Maturity (%)
100.25 8.62 8.62 8.61 8.61 8.60 Yield to Maturity (%)
100.50 8.59 8.58 8.58 8.56 8.54 Yield to Maturity (%)
100.75 8.56 8.55 8.54 8.52 8.49 Yield to Maturity (%)
101.00 8.52 8.52 8.50 8.48 8.43 Yield to Maturity (%)
</TABLE>
<TABLE>
<CAPTION>
Weighted Average Life, First Principal Payment Date, Last Principal Payment Date
and Yield to Maturity of Class A-4 Certificates
at Various Assumed Prices and Percentages of MHP
MHP Prepayment Assumption
-----------------------------------------------------
Price (%) 75% 100% 150% 200% 300%
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
17.55 16.70 14.74 12.79 9.60 Weighted Average Life (years)
10/11 09/10 07/08 08/06 07/03 First Principal Payment Date
08/13 12/12 05/11 06/09 03/06 Last Principal Payment Date
99.00 9.29 9.29 9.30 9.31 9.33 Yield to Maturity (%)
99.25 9.26 9.26 9.27 9.27 9.29 Yield to Maturity (%)
99.50 9.23 9.23 9.24 9.24 9.25 Yield to Maturity (%)
99.75 9.20 9.20 9.20 9.21 9.21 Yield to Maturity (%)
100.00 9.17 9.17 9.17 9.17 9.17 Yield to Maturity (%)
100.25 9.14 9.14 9.14 9.14 9.13 Yield to Maturity (%)
100.50 9.11 9.11 9.11 9.10 9.09 Yield to Maturity (%)
100.75 9.08 9.08 9.08 9.07 9.05 Yield to Maturity (%)
101.00 9.05 9.05 9.04 9.03 9.01 Yield to Maturity (%)
</TABLE>
<TABLE>
<CAPTION>
Weighted Average Life, First Principal Payment Date, Last Principal Payment Date
and Yield to Maturity of Class A-5 Certificates
at Various Assumed Prices and Percentages of MHP
MHP Prepayment Assumption
Price (%) 75% 100% 150% 200% 300%
<S> <C> <C> <C> <C> <C> <C>
20.47 19.85 18.56 17.11 14.07 Weighted Average Life (years)
08/13 12/12 05/11 06/09 03/06 First Principal Payment Date
02/20 02/20 02/20 02/20 02/20 Last Principal Payment Date
99.00 9.44 9.44 9.44 9.45 9.46 Yield to Maturity (%)
99.25 9.41 9.41 9.41 9.42 9.43 Yield to Maturity (%)
99.50 9.38 9.38 9.39 9.39 9.39 Yield to Maturity (%)
99.75 9.36 9.36 9.36 9.36 9.36 Yield to Maturity (%)
100.00 9.33 9.33 9.33 9.33 9.33 Yield to Maturity (%)
100.25 9.30 9.30 9.30 9.30 9.29 Yield to Maturity (%)
100.50 9.27 9.27 9.27 9.27 9.26 Yield to Maturity (%)
100.75 9.24 9.24 9.24 9.24 9.23 Yield to Maturity (%)
101.00 9.21 9.21 9.21 9.21 9.20 Yield to Maturity (%)
</TABLE>
A-3
<PAGE>
PROSPECTUS DATED FEBRUARY 10, 1995
THE CIT GROUP SECURITIZATION CORPORATION II, SELLER
MANUFACTURED HOUSING CONTRACT PASS-THROUGH CERTIFICATES
(Issuable In Series)
(The CIT Group/Sales Financing, Inc., Servicer)
Manufactured Housing Contract Pass-Through Certificates of one or more
series (each, a "Series") may be sold from time to time under this Prospectus
and a Prospectus Supplement for each such Series. The Certificates of each
Series may be issued in one or more Classes or subclasses, as further described
herein. If the Certificates of a Series are issued in more than one Class, all
or less than all of such Classes may be sold under this Prospectus, and there
may be separate Prospectus Supplements for one or more of such Classes so sold.
Any reference herein to the Prospectus Supplement relating to a Series comprised
of more than one Class should be understood to refer to each of the Prospectus
Supplements relating to the Classes sold hereunder.
The Certificates evidence specified interests in separate pools of
manufactured housing installment sales contracts and installment loan agreements
(the "Contracts"), as more particularly described herein, and in certain other
property conveyed by The CIT Group Securitization Corporation II (the
"Company"). The Contracts included in any pool of contracts will be described in
the related Prospectus Supplement. Except as otherwise specified in the related
Prospectus Supplement, the Contracts will have been originated in the ordinary
course of business by The CIT Group/Sales Financing, Inc. ("CITSF") or its
affiliates or by a manufactured housing dealer and purchased by CITSF or its
affiliates in the ordinary course of business. See "The CIT Group/Sales
Financing, Inc., Servicer--Contract Origination". CITSF will act as Servicer (in
such capacity referred to herein as the "Servicer") of the Contracts. Specific
information, to the extent available, regarding the size and composition of the
pool of Contracts relating to each Series of Certificates will be set forth in
the related Prospectus Supplement. The related Prospectus Supplement may provide
that monies will be on deposit in a separate trust account (the "Pre-Funding
Account") to be maintained with the Trustee, which will be used to purchase
additional manufactured housing installment sales contracts and installment loan
agreements from the Company from time to time during the funding period
specified in such Prospectus Supplement in the manner set forth therein. In
addition, if specified in the related Prospectus Supplement, a pool insurance
policy, letter of credit, surety bond, a guarantee by The CIT Group Holdings,
Inc. ("CIT"), its affiliates or an unaffiliated third party (which may be
limited in nature), cash reserve fund, or other form of credit enhancement, or
any combination thereof, may be provided with respect to a Series of
Certificates (which may include one or more Classes of Senior Certificates), or
one or more Classes of such Series, evidencing interests in the Contracts.
Each Series of Certificates will consist of one or more Classes of
Certificates, which may include one or more senior Classes of Certificates and
one or more subordinate Classes of Certificates. Certificates of a Series may be
divided into two or more Classes or sub-classes representing interests in
specified percentages (which may be 0%) of principal or interest, or both, in
distributions on the pool of Contracts relating to such Series, as specified in
the related Prospectus Supplement. Each Prospectus Supplement will describe the
Series and Class or Classes of Certificates offered thereby.
The Prospectus Supplement will set forth the Remittance Rate that will be
paid to Certificateholders of each Class or sub-class of such Series. Such
Remittance Rate may be fixed, variable or adjustable, as specified in the
related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement, the
only obligations of CITSF with respect to a Series of Certificates will be
pursuant to certain limited representations and warranties. Except for certain
representations and warranties relating to the Contracts and certain other
exceptions, the Servicer's obligations with respect to the Certificates
evidencing interests in a pool of Contracts are limited to its contractual
servicing obligations. If so specified in the related Prospectus Supplement, the
Servicer may be obligated, under certain terms and conditions, to advance the
amount of any delinquent payments of principal and interest during the
immediately preceding Due Period (as defined herein), but only to the extent the
Servicer determines such advances are recoverable from future payments and
collections on the Contracts or otherwise. See "Description of the
Certificates--Advances" and "--Distributions on 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.
The Company may elect to cause the Trust relating to a Series of
Certificates to be treated as a real estate mortgage investment conduit (a
"REMIC") for federal income tax purposes. See "Certain Federal Income Tax
Consequences" herein.
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF CIT,
THE COMPANY, CITSF, THE SERVICER OR ANY OF THEIR AFFILIATES, EXCEPT TO THE
LIMITED EXTENT DESCRIBED HEREIN OR IN THE RELATED PROSPECTUS SUPPLEMENT. 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 February 10, 1995
<PAGE>
REPORTS TO CERTIFICATEHOLDERS
The Company will cause to be provided to the Holders of the Certificates
of each Series certain monthly and annual reports concerning such Certficates
and the related Trust as further described in the related Prospectus Supplement
under "Description of the Certificates--Reports to Certificateholders".
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of certain material terms of certain of the
documents referred to herein and therein, but neither contains nor will contain
all of the information set forth in the Registration Statement of which this
Prospectus is a part (the "Registration Statement"). For further information,
reference is made to such Registration Statement and the exhibits thereto which
the Company has filed with the Securities and Exchange Commission (the
"Commission"), under the Securities Act of 1933, as amended (the "Act").
Statements contained in this Prospectus and any Prospectus Supplement describing
a provision of any contract or other document are summaries, and if this
Prospectus or such Prospectus Supplement indicates that such contract or other
document has been filed as an exhibit to the Registration Statement, reference
is made to the copy of the contract or other document filed as an exhibit. CIT
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith, files
reports and other information with the Commission. Such reports, copies of the
Registration Statement and other information can be inspected and copied at the
offices of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission, at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549; at prescribed rates. Certain securities of
CIT are listed on the New York Stock Exchange and reports and other information
concerning CIT can also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company will be subject to the informational requirements of the
Securities Exchange Act of 1934 and, in connection therewith, will file reports
and other information with the Commission. Such reports and other information
filed by the Company will be available for inspection as set forth above.
2
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission by CIT are incorporated
by reference in this Prospectus:
(a) CIT's Annual Report on Form 10-K for the year ended December 31,
1993 together with the report of KPMG Peat Marwick LLP, independent
certified public accountants. The report of KPMG Peat Marwick LLP covering
the aforementioned financial statements refers to a change in the method
of accounting for post-retirement benefits other than pensions in 1993;
(b) CIT's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994, June 30, 1994 and September 30, 1994; and
(c) CIT's Current Reports on Form 8-K dated January 14, 1994,
February 28, 1994, April 12, 1994, July 14, 1994, October 13, 1994 and
January 18, 1995.
All documents filed by CIT pursuant to Sections 13(a) and (c), 14, or
15(d) of the Exchange Act after the date hereof and prior to the termination of
the offering of the securities offered hereby shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of 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 purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
CIT will provide without charge to each person to whom this Prospectus is
delivered, upon request, a copy of any or all of the foregoing documents
described above which have been or may be incorporated by reference in this
Prospectus other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such request should
be directed to:
Corporate Secretary
The CIT Group Holdings, Inc.
1211 Avenue of the Americas
New York, New York 10036
(212) 536-1950
3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and on the accompanying
Prospectus Supplement. Reference is made to the Index of Defined Terms and the
Glossary for the location herein of the definitions of certain capitalized terms
used herein. Unless the context requires otherwise, capitalized terms used in
this Prospectus and in any accompanying Prospectus Supplement refer only to the
particular Series being offered by such Prospectus Supplement.
Title of Securities.................. Manufactured Housing Contract Pass-Through
Certificates (Issuable in Series) (the
"Certificates").
Seller............................... The CIT Group Securitization Corporation
II (the "Company"), a wholly-owned,
limited purpose subsidiary of The CIT
Group Holdings, Inc. ("CIT"). Neither
The CIT Group/Sales Financing, Inc.
("CITSF") nor any of its affiliates,
including the Company and CIT, has
guaranteed or is otherwise obligated
with respect to the Certificates, except
as otherwise specified in the related
Prospecuts Supplement. See "Special
Considerations".
Servicer............................. The CIT Group/Sales Financing, Inc. (the
"Servicer"), a wholly-owned subsidiary
of CIT.
Special Considerations............... Certain special considerations are
particularly relevant to a decision to
invest in any Certificates sold
hereunder. See "Special Considerations",
herein.
Securities Offered................... Certificates evidencing interests in pools
of Contracts (as defined herein) may be
issued from time to time in Series
pursuant to separate Pooling and
Servicing Agreements (each, an
"Agreement") between the Company, as
Seller, CITSF, as Servicer, and the
Trustee specified in the related
Prospectus Supplement for such Series of
Certificates (the "Trustee").
The Contracts........................ The Contracts evidenced by a Series of
Certificates (the "Contract Pool") will
be fixed or variable rate Contracts.
Such Contracts, as specified in the
related Prospectus Supplement, will
consist of manufactured housing
installment sales contracts and
installment loan agreements, some of
which may be conventional contracts
insured by the Federal Housing
Administration ("FHA") or partially
guaranteed by the Veterans
Administration ("VA"). Each Contract
will be secured by a new or used
Manufactured Home (as defined herein)
and/or, in certain cases, by a mortgage,
deed of trust or similar instrument on
the real estate on which the
manufactured home is located (a
"Land-Secured Contract"). Under the laws
of the jurisdiction in which such real
estate is located the Manufactured Home
may or may not be deemed permanently
affixed to the real estate on which such
Manufactured Home is situated and may or
may not be considered or classified as
part of the real estate regardless of
whether the Manufactured Home is deemed
affixed to the real estate on which it
is situated.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
The Prospectus Supplement for each Series
will provide information with respect to
(i) the aggregate principal balance of
the Contracts comprising the Contract
Pool, as of the date specified in the
Prospectus Supplement (the "Cut-off
Date"); (ii) the weighted average
contractual rate of interest (the
"Contract Rate") on the Contracts; (iii)
the weighted average term to scheduled
maturity as of origination; (iv) the
weighted average term to scheduled
maturity as of the Cut-off Date and the
range of terms to maturity; (v) the
percentage amount of Contracts secured
by new or used Manufactured Homes; (vi)
the average outstanding principal
balance of the Contracts, as of the
Cut-off Date; (vii) the range of
loan-to-value ratios at the time of
origination of the Contracts
("Loan-to-Value Ratios"); and (viii) the
geographic location and types of
Manufactured Homes securing the
Contracts.
Except as otherwise specified in the
related Prospectus Supplement, the
Contracts will have been originated by
CITSF (or a subsidiary of CIT) on an
individual basis in the ordinary course
of its business or by a manufactured
housing dealer acting in the ordinary
course of its business and purchased by
CITSF (or a subsidiary of CIT) in the
ordinary course of its business. See
"The CIT Group/Sales Financing, Inc.,
Servicer--Contract Origination".
If so provided in the related Prospectus
Supplement, the original principal
amount of a Series of Certificates may
exceed the principal balance of the
Contracts initially being delivered to
the Trustee. Cash in an amount equal to
such difference will be deposited into a
separate trust account (the "Pre-Funding
Account") maintained with the Trustee.
During the period set forth in the
related Prospectus Supplement, amounts
on deposit in the Pre-Funding Account
may be used to purchase additional
Contracts for the related Trust. In
addition, if so provided in the related
Prospectus Supplement, certain
additional amounts in respect of
interest will be deposited into the
Pre-Funding Account or in a separate
trust account. Any amounts remaining in
the Pre-Funding Account at the end of
such period will be distributed as a
principal prepayment to the holders of
the related Series of Certificates at
the time and in the manner set forth in
the related Prospectus Supplement, which
will affect the average life of each
such Class of Certificates.
Description of Certificates.......... Each Class of Certificates within a Series
will evidence the interest specified in
the related Prospectus Supplement in the
Contract Pool and certain other property
held in trust for the benefit of the
Certificateholders (the "Trust").
Each Series of Certificates may consist of
one or more Classes, one or more of
which may be senior Certificates
("Senior Certificates") and one or more
of which may be subordinated
Certificates ("Subordinated
Certificates"). A Class of Certificates
of a Series may be divided into two or
more sub-classes, as and on the terms
specified in the related Prospectus
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Supplement. Within a Class, one or more
of the sub-classes may be subordinated
to other sub-classes or may be entitled
to a specified priority in distributions
specified in the related Prospectus
Supplement. Each Class or sub-class of a
Series may evidence the right to receive
a specified portion (which may be 0%) of
each distribution of principal or
interest, or both, on the Contracts.
Each Class or sub-class of a Series may
be assigned a principal balance (the
"Stated Balance") based on the cash flow
from the assets in the Trust, and a
fixed, variable or adjustable stated
annual interest rate, and may be
entitled to receive distributions in
reduction of Stated Balance to the
extent available therefor in the manner,
priority and amounts specified in the
related Prospectus Supplement. A Class
or sub-class of Certificates may be
Compound Interest Certificates on which
interest will accrue, but not be paid
for the period set forth in the related
Prospectus Supplement. The Certificates
will be issuable in fully registered
form in the authorized denominations
specified in the related Prospectus
Supplement. See "Description of the
Certificates". The Subordinated
Certificates of a Series will be
subordinated in certain respects to the
Senior Certificates of the same Series.
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. The Certificates
will not be guaranteed or insured by any
government agency or, unless otherwise
specified in the related Prospectus
Supplement, other insurer and, except as
described below and in the related
Prospectus Supplement, the Contracts
will not be guaranteed or insured by any
government agency or other insurer.
Subordinated Certificates............ One or more Classes or sub-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 Senior Certificateholders to
the extent and in the manner specified
in the related Prospectus Supplement. If
a Series of Certificates contains more
than one Class (or sub-class) of
Subordinated Certificates, distributions
and losses will be allocated among such
classes in the manner specified in the
related Prospectus Supplement. The
rights of the Subordinated
Certificateholders, to the extent not
subordinated, may be on a parity with
those of Senior Certificateholders. This
subordination is intended to enhance the
likelihood of regular receipt by Senior
Certificateholders of the full amount of
scheduled monthly payments of principal
and interest due them and to protect the
Senior Certificateholders against
losses.
Credit Enhancement................... As an alternative, or in addition, to the
subordination of the Subordinated
Certificates, credit enhancement with
respect to a Series of Certificates
(which may include one or more Classes
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
of Senior Certificates) may be provided
by a pool insurance policy, letter of
credit, surety bond, a guarantee by CIT,
its affiliates or an unaffiliated third
party (which may be limited in nature),
cash reserve fund, cash collateral
account or other form of enhancement, or
any combination thereof, acceptable to
each nationally recognized statistical
rating organization rating such Series
of Certificates,in each case as
described in the related Prospectus
Supplement.
Interest............................. Except as otherwise set forth in the
related Prospectus Supplement, interest
on the Certificates will be paid on the
dates specified in the related
Prospectus Supplement (each, a
"Remittance Date"), commencing on the
date specified in the related Prospectus
Supplement. The related Prospectus
Supplement will set forth for each Class
or sub-class of Certificates the
interest rate, if any, for each such
Class or sub-class or the method of
determining such interest rate. See
"Yield Considerations" and "Description
of the Certificates". As specified in
the related Prospectus Supplement,
Classes of a Series of Certificates or
sub-classes within a Class may be
entitled to receive no interest or
interest which is not proportionate to
the principal allocable to such
Certificates.
Principal (Including Prepayments).... Except as otherwise set forth in the
related Prospectus Supplement, principal
on each Contract, including any
principal prepayments, will be passed
through on each Remittance Date. See
"Maturity and Prepayment Considerations"
and "Description of the Certificates".
If so specified in the Prospectus
Supplement with respect to a Class or
sub-class of a Series having a Stated
Balance, such distributions may be made
in reduction of the Stated Balance, in
an amount equal to the Certificate
Remittance Amount or such other amounts
as are specified in the related
Prospectus Supplement. See "Maturity and
Prepayment Considerations" and
"Description of the
Certificates--Distributions on
Certificates" and "--Payments on
Contracts".
Optional Termination................. Unless otherwise specified in the related
Prospectus Supplement, CITSF may at its
option repurchase all Contracts relating
to a Series of Certificates remaining
outstanding at such time and under the
circumstances specified in such
Prospectus Supplement. Unless otherwise
provided in the related Prospectus
Supplement, the repurchase price will
equal the principal amount of such
Contracts plus accrued interest from the
first day of the month of repurchase to
the first day of the next succeeding
month at the Contract Rates borne by
such Contracts. See "Description of the
Certificates--Termination of the
Agreement".
Global Certificate................... Unless otherwise 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 global certificates
(each, a "Global Certificate") to be
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
held by a depositary (the "Depositary")
on behalf of the beneficial owners of
the Certificates, as described herein
under "Description of the
Certificates--Global Certificates." The
description of the Certificates in this
Prospectus assumes that the Certificates
of a Series will not be issued in the
form of Global Certificates. If some or
all of the Certificates of a Series are
issued in the form of one or more Global
Certificates, the term "Global
Certificateholder", as used herein, will
refer to such beneficial owners of such
Certificates and the rights of such
Certificateholders will be limited as
described herein under "Description of
the Certificates--Global Certificates".
Representations and Warranties
of CITSF............................ As a condition to CITSF's conveyance of
any Contract Pool to the Company and the
Company's conveyance of such Contract
Pool to the Trust, CITSF will be
required to make certain representations
and warranties in the related Agreement
regarding the Contracts. Under the terms
of the Agreement, if CITSF becomes aware
of a breach of any such representation
or warranty that materially and
adversely affects the Trust's interest
in any Contract or receives written
notice of such a breach from the Trustee
or the Servicer, then CITSF will be
obligated either to cure such breach or
to repurchase or substitute for the
affected Contract, in each case under
the conditions further described herein.
See "Description of the
Certificates--Conveyance of Contracts"
herein.
Federal Income Tax Considerations.... If an election (a "REMIC Election") is
made to treat the Trust represented by a
Series of Certificates or a segregated
portion thereof as a "real estate
mortgage investment conduit" (a "REMIC")
under the Internal Revenue Code of 1986,
as amended (the "Code"), each class of
Certificates which is offered hereby
will constitute "regular interests" in
such REMIC under the Code, with the tax
consequences under the Code described
herein and in such Prospectus
Supplement. If so specified in the
applicable Prospectus Supplement, a
Class of Certificates offered hereby may
represent interests in a "two-tier"
REMIC, but all interests in the first
and second tier REMIC will be created
under the same Pooling and Servicing
Agreement. See "Certain Federal Income
Tax Consequences--REMIC Series".
If a REMIC Election is not made with
respect to a Series of Certificates, the
Trust represented by such Certificates
will be treated as a grantor trust for
federal income tax purposes and will not
be classified as an association taxable
as a corporation. In such event, each
Certificateholder will be treated as the
owner of an undivided pro rata interest
in income and corpus attributable to the
related Contract Pool and any other
assets held by the Trust and will be
considered the equitable owner of an
undivided interest in the Contracts
included in such Contract Pool. See
"Certain Federal Income Tax
Consequences--Non-REMIC Series".
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
ERISA Considerations................ A fiduciary of any employee benefit plan
subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or the Code, should review
carefully with its legal advisors
whether the purchase or holding of
Certificates could give rise to a
transaction prohibited or otherwise
impermissible under ERISA or the Code.
See "ERISA Considerations" herein.
Legal Investment..................... Unless otherwise indicated in the
applicable Prospectus Supplement, any
Certificates offered hereby and by the
related Prospectus Supplement 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
(unless otherwise indicated in the
applicable Prospectus Supplement) will
be "legal investments" for certain types
of institutional investors to the extent
provided in that Act. Some Classes of
Certificates offered hereby may not be
rated in one of the two highest rating
categories by at least one nationally
recognized statistical rating
organization and thus would not
constitute "mortgage related
securities". See "Legal Investment
Considerations" herein.
Ratings.............................. It is a condition precedent to the
issuance of any Class of Certificates
sold under this Prospectus that they be
rated in one of the four highest rating
categories (within which there may be
sub-categories or gradations indicating
relative standing) 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" herein.
- --------------------------------------------------------------------------------
9
<PAGE>
SPECIAL CONSIDERATIONS
Prospective investors in Certificates should consider, among other things,
the following risk factors in connection with the purchase of the Certificates:
1. General. 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 the Contracts. In the
event of defaults by the obligors under the Contracts, the Trust will have to
look primarily to the value of the Manufactured Homes securing such Contracts
for recovery of the outstanding principal and unpaid interest of the defaulted
Contracts. Regardless of its location, manufactured housing generally
depreciates in value. Consequently, it is possible that the market value of a
Manufactured Home could be or become lower than the outstanding principal
balances of the Contracts that it secures. 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 credit 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. See "The Trust--The Contract Pools".
2. Limited Obligations. The Certificates will not represent an interest in
or obligation of the Company or any Servicer (including CITSF), except to the
limited extent described herein. The Certificates will not be insured or
guaranteed by any governmental agency or instrumentality, any Underwriter or its
affiliates, CIT or any of its affiliates (except as otherwise specified in the
related Prospectus Supplement), including the Company and CITSF, or any Servicer
or any of its affiliates and will be payable only from amounts collected on the
Contracts (except as otherwise specified in the related Prospectus Supplement).
3. Limited Liquidity. 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 continue for the term of any Series of Certificates. Unless
otherwise specified in the related Prospectus Supplement, Certificateholders
have no right to request the repurchase of the Certificates.
4. Prepayment Considerations. The prepayment experience on the related
Contracts will affect the average life of each Class 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,
casualty losses and unemployment. In the event a Contract is prepaid in full,
interest on such Contract will accrue only to the date of prepayment. 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. See "Maturity and Prepayment Considerations".
5. Security Interests and Certain Other Aspects of the Contracts. Each
Contract will be secured by a security interest in a Manufactured Home (and/or,
in the case of a Land-Secured Contract, by a mortgage, deed of trust or similar
instrument on the real estate on which the Manufactured Home is located).
Perfection of security interests in the Manufactured Homes and enforcement of
rights to realize upon the value of the Manufactured 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 each state and, in most
states, certificate of title statutes, but generally not state real estate laws.
The steps necessary to perfect the security interest in a Manufactured Home will
vary from state to state. In most cases, the certificates of title relating to
the Manufactured Homes name the originator of the contract (or its affiliates or
predecessors) as the secured party. Because of the expense and administrative
inconvenience involved, CITSF will not amend the certificates of title to name
CITSF as the lienholder where CITSF is not the originator of the Contract and
CITSF will not amend any certificate of title to name the Company or the Trustee
as the lienholder and the Company will not deliver any certificate of title to
the Trustee or note thereon the Trustee's interest. Consequently, in some
states, in the absence of such an amendment to the certificate of title of the
successive assignments (directly or by mesne assignment) to CITSF, the Company
and the Trustee of the security interest in the Manufactured Home 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
other creditors or a trustee in bankruptcy. Because of the expense and
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administrative inconvenience involved, CITSF will not record the successive
assignments (directly or by mesne assignment) to CITSF, the Company and the
Trustee of the mortgage, deed of trust or similar instrument securing each
Land-Secured Contract. Consequently, in some states, in the absence of such
recordation the assignment to the Trustee of the mortgage, deed of trust or
similar instrument securing a Land-Secured Contract may not be effective and, in
the absence of such recordation, the assignment of the mortgage, deed of trust
or similar instrument to the Trustee may not be effective against other
creditors or a trustee in bankruptcy.
In addition, numerous federal and state consumer protection laws impose
requirements on lenders under installment sales contracts and installment loan
agreements, such as the Contracts. 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 to set-off against claims by
such assignees. These laws would apply to the Trust as assignee of the
Contracts. Neither the Trust nor the Company has obtained any license required
under any federal or state consumer or mortgage banking laws or regulations, and
the absence of such licenses may impede the enforcement of certain rights or
give rise to certain defenses in actions seeking enforcement rights. From time
to time, CITSF has been involved in administrative proceedings before
governmental and regulatory bodies and in litigation under consumer or debtor
protection laws, some of which have been class actions.
Pursuant to the Agreement, CITSF will represent and warrant that each
Contract complies with all requirements of law and will provide certain
warranties relating to the validity, perfection and priority of the security
interest in each Manufactured Home securing a Contract. A breach by CITSF of any
such warranty that materially adversely affects the Trust's interest in any
Contract would require CITSF to repurchase, or at its option substitute another
manufactured housing contract which is an Eligible Substitute Contract (as
herein defined) for, such Contract unless such breach is cured within 85 days
after it receives written notice of such breach or within 90 days after it
becomes aware of such breach. If CITSF does not honor its repurchase obligation
in respect of a Contract and such Contract were to become defaulted, recovery of
amounts due on such Contract would be dependent on repossession and resale of
the Manufactured Home securing such Contract. Certain other factors may limit
the ability of the Certificateholders to realize upon the Manufactured Homes or
may limit the amount realized to less than the amount due. See "Certain Legal
Aspects of the Contracts".
6. Certain Matters Relating to Insolvency. CITSF and the Company intend
that each transfer of Contracts from CITSF to the Company and from the Company
to the related Trust constitutes a sale, rather than a pledge of the Contracts
to secure indebtedness. However, if CITSF or the Company were to become a debtor
under Title 11 of the United States Code, 11 U.S.C. ss.101 et seq. (the
"Bankruptcy Code"), it is possible that a creditor, receiver, other party in
interest or trustee in bankruptcy of CITSF or the Company, or CITSF or the
Company as debtor-in-possession, may argue that the sale of the Contracts by
CITSF to the Company, or by the Company to the Trust, respectively, was a pledge
of the Contracts rather than a sale and that, accordingly, such Contracts should
be part of such entity's bankruptcy estate. Such a position, if presented to a
court, even if ultimately unsuccessful, could result in a delay in or reduction
of distributions to the Certificateholders.
A case recently decided by the United States Court of Appeals for the Tenth
Circuit contains language to the effect that accounts sold by an entity which
subsequently became bankrupt remained property of the debtor's bankruptcy
estate. Although the Contracts constitute chattel paper rather than accounts
under the UCC, sales of chattel paper, like sales of accounts, are governed by
Article 9 of the UCC. If the Company were to become a debtor under the federal
bankruptcy code and a court were to follow the reasoning of the Tenth Circuit
and apply such reasoning to chattel paper, Certificateholders could experience a
delay or reduction in distributions.
THE TRUST
General
Each Trust will include (i) a Contract Pool, (ii) the amounts held from
time to time in a trust account (the "Certificate Account") maintained by the
Trustee pursuant to the Agreement, (iii) proceeds from certain hazard insurance
on individual Manufactured Homes and Manufactured Homes (or the related real
estate, in the case of Land-Secured Contracts) acquired by repossession, (iv)
any letter of credit, guarantee, surety bond, insurance policy, cash reserve
fund or other credit enhancement securing payment of all or part of a Series of
Certificates, and (v) such other property as may be specified in the related
Prospectus Supplement.
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Each Certificate will evidence the interest specified in the related
Prospectus Supplement in one Trust, containing one Contract Pool 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. Holders of Certificates of a Series will have interests
only in such Contract Pool and will have no interest in the Contract Pool
created with respect to any other Series of Certificates.
Except as otherwise specified in the related Prospectus Supplement, all of
the Contracts will have been originated by CITSF (or a subsidiary of CIT) on an
individual basis in the ordinary course of its business or by a manufactured
housing dealer in the ordinary course of its business and purchased by CITSF (or
a subsidiary of CIT). The following is a brief description of the Contracts
expected to be included in the Trust. Specific information respecting the
Contracts will be provided in the Prospectus Supplement and, to the extent not
contained in the related Prospectus Supplement, 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. A copy of the Agreement with respect to
each Series of Certificates will be attached to the Form 8-K and 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 the Agreement delivered to the Trustee upon
delivery of the Certificates.
Whenever in this Prospectus terms such as "Contract Pool," "Trust,"
"Agreement" or "Remittance Rate" are used, those terms respectively apply,
unless the context otherwise indicates, to the Contract Pool, Trust, Agreement
and Remittance Rate applicable to the related Series of Certificates.
The Contract Pools
Except as otherwise specified in the related Prospectus Supplement, each
pool of Contracts with respect to a Series of Certificates (the "Contract Pool")
will consist of manufactured housing installment sales contracts and installment
loan agreements (collectively, the "Contracts") originated by CITSF (or a
subsidiary of CIT) on an individual basis in the ordinary course of business or
by a manufactured housing dealer in the ordinary course of its business and
purchased by CITSF (or a subsidiary of CIT) in the ordinary course of business
and conveyed to the Company. The Contracts may be conventional manufactured
housing contracts or contracts insured by the Federal Housing Administration
(the "FHA") or partially guaranteed by the Veterans Administration (the "VA").
Each Contract will be secured by a Manufactured Home (as defined below) and/or
by a mortgage, deed of trust or similar instrument relating to the real estate
to which the Manufactured Home is deemed permanently affixed or, in certain
cases, by a mortgage, deed of trust or similar instrument relating to the real
estate on which such Manufactured Home is situated, which Manufactured Home is
not considered or classified as part of the real estate under the laws of the
jurisdiction in which such real estate is located (a "Land-Secured Contract").
Except as otherwise specified in the related Prospectus Supplement, the
Contracts will be fully amortizing and will bear interest at a fixed or variable
annual percentage rate (the "Contract Rate").
CITSF will represent 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."
For each Series of Certificates, the Company will assign the Contracts
constituting the Contract Pool to the trustee named in the related Prospectus
Supplement (the "Trustee"). CITSF, as Servicer (in such capacity referred to
herein as 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 will be held by the
Servicer as custodian for the Trustee.
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Each Contract Pool will be composed of Contracts bearing interest at the
annual fixed or variable Contract Rates specified in the Prospectus Supplement.
Unless otherwise stated in the related Prospectus Supplement, each registered
Holder of a Certificate will be entitled to receive periodic distributions,
which will be monthly unless otherwise specified in the related Prospectus
Supplement, of all or a portion of principal on the underlying Contracts or
interest on the principal balance of such Certificate at the Remittance Rate, or
both.
The related Prospectus Supplement will specify for the Contracts contained
in the related Contract Pool, among other things, the dates of origination of
the Contracts; the Contract Rates on the Contracts; the loan-to-value ratios at
the time of origination of the Contracts (the "Loan-to-Value Ratios"), the
minimum and maximum outstanding principal balances as of the Cut-off Date and
the average outstanding principal balance; the outstanding principal balances of
the Contracts included in the Contract Pool; and the original maturities of the
Contracts and the last maturity date of any Contract.
If provided in the related Prospectus Supplement, the original principal
amount of a Series of Certificates may exceed the principal balance of the
Contracts initially being delivered to the Trustee. Cash in an amount equal to
such difference will be deposited into a separate trust account (the
"Pre-Funding Account") maintained with the Trustee. During the period set forth
in the related Prospectus Supplement, amounts on deposit in the Pre-Funding
Account may be used to purchase additional Contracts for the related Trust. In
addition, if so provided in the related Prospectus Supplement, certain
additional amounts in respect of interest will be deposited into the Pre-Funding
Account or in a separate trust account. The related Prospectus Supplement will
specify the conditions which must be satisfied prior to the transfer of any such
additional Contracts, including the requisite characteristics of such Contracts.
Any amounts remaining in the Pre-Funding Account at the end of such period will
be distributed as a principal prepayment to the holders of the related Series of
Certificates at the time and in the manner set forth in the related Prospectus
Supplement.
CITSF will make representations and warranties as to the types and
geographical distribution of the Contracts included in a Contract Pool and as to
the accuracy in all material respects of certain information furnished to the
Trustee in respect of each such Contract. Upon a breach of any representation
that materially and adversely affects the interests of the Certificateholders in
a Contract, CITSF will be obligated either to cure the breach in all material
respects, to purchase the Contract or to substitute another Contract as
described below. This repurchase or substitution obligation constitutes the sole
remedy available to the Certificateholders or the Trustee for a breach of
representation by CITSF. See "Description of the Certificates--Conveyance of
Contracts".
USE OF PROCEEDS
Unless otherwise specified in an applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Certificates will be used by the Company to purchase the Contracts
from CITSF and to pay expenses connected with pooling the Contracts and issuing
the Certificates of such Series.
THE CIT GROUP SECURITIZATION CORPORATION II, SELLER
The CIT Group Securitization Corporation II (the "Company") was
incorporated in the State of Delaware on June 24, 1994 and is a wholly-owned,
limited purpose finance subsidiary of The CIT Group Holdings, Inc., a Delaware
corporation ("CIT"), which is a successor to a company founded in St. Louis,
Missouri, in February 1908. CIT is 60% owned by The Dai-Ichi Kangyo Bank, Ltd.
and 40% owned by MHC Holdings (Delaware) Inc., a subsidiary of Chemical Banking
Corporation. The Company maintains its principal office at 650 CIT Drive,
Livingston, New Jersey 07039. Its telephone number is (201) 740-5000.
As described herein and in the related Prospectus Supplement, the
obligations, if any, of the Company with respect to any Series of Certificates
are limited. The Company will have no ongoing servicing obligations or
responsibilities with respect to any Contract Pool and will not make any
representations or warranties regarding the Contracts.
CITSF is an affiliate of the Company. The Company will acquire each
Contract Pool in a privately negotiated transaction from CITSF. If so specified
in the related Prospectus Supplement, CITSF will acquire a portion of the
Contracts from The CIT Group/Consumer Finance, Inc. (NY), a wholly-owned
subsidiary of CIT.
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Unless otherwise specified in the related Prospectus Supplement, neither
CIT nor any of its affiliates, including the Company and CITSF, will be
obligated with respect to any Series of Certificates. Accordingly, the Company
has determined that financial statements of CITSF and its affiliates, including
the Company, are not material to the offering of any Series of Certificates. If,
with respect to a Series of Certificates any such financial statements are
material, they will be included in the related Prospectus Supplement.
THE CIT GROUP/SALES FINANCING, INC., SERVICER
General
The CIT Group/Sales Financing, Inc., a Delaware corporation ("CITSF"), is a
wholly-owned subsidiary of CIT. It has its principal executive office at 650 CIT
Drive, Livingston, New Jersey 07039, and its telephone number is (201) 740-5000.
CITSF originates, purchases, sells and services conditional sales contracts
for manufactured housing, recreational vehicles and other consumer goods
throughout the United States. CITSF has been a lender to the manufactured
housing industry for more than 30 years. CITSF has Regional Business Centers in
five cities and a centralized asset service facility (the "Asset Service
Center") in Oklahoma City, Oklahoma. Working through dealers and manufacturers,
CITSF offers retail installment credit. In addition to purchasing manufactured
housing contracts from dealers on an individual basis, CITSF makes bulk
purchases of manufactured housing contracts and services, on behalf of other
owners, manufactured housing contracts that were not originated by CITSF. These
bulk purchases may be from, and these servicing arrangements may be made with
respect to, the portfolios of other lending institutions or finance companies,
the portfolios of governmental agencies or instrumentalities or the portfolios
of other entities that purchase and hold manufactured housing contracts.
The Asset Service Center of CITSF services consumer credit transactions in
50 states and the District of Columbia. It provides full servicing for
manufactured housing and recreational vehicle retail installment credit
supplemented by outside collectors and field remarketers located throughout the
United States.
As of December 31, 1994, CITSF serviced for itself and others approximately
102,000 contracts (consisting primarily of manufactured housing and recreational
vehicle contracts), representing an outstanding balance of approximately $2.5
billion. Of this portfolio, approximately 39,600 contracts (representing
approximately $878 million outstanding balance) consisted of manufactured
housing contracts.
Since December 1991, CITSF has entered into arrangements to service, on
behalf of other owners, approximately 14,000 manufactured housing contracts
(determined as of December 31, 1994) which were originated by other
institutions. CITSF's management currently intends to pursue both the bulk
purchase of manufactured housing contracts and arrangements under which it would
service manufactured housing contracts, on behalf of other owners, that it
neither purchased nor originated.
CITSF's general policies with regard to the origination of manufactured
housing installment loans and the purchase of manufactured housing installment
sales contracts from manufactured housing dealers are described below under
"Contract Origination" and "CITSF's Underwriting Guidelines". See "Servicing"
below for a description of certain of CITSF's servicing policies.
Contract Origination
The following information on CITSF's origination practices is presented
for illustrative purposes and may not relate to each or any Contract in a
particular Contract Pool. As described in the related Prospectus Supplement,
some or all of the Contracts in a Contract Pool may not have been originated by
CITSF.
Through its Regional Business Centers, CITSF arranges to purchase
manufactured housing contracts from manufactured housing dealers located
throughout the United States. Regional Business Center personnel contact the
dealers located in their territories and explain CITSF's available financing
plans, terms, prevailing rates and credit and financing policies. If the dealer
wishes to use CITSF's available customer financing, the dealer must make an
application for dealer approval. Upon satisfactory results of CITSF's
investigation of the dealer's creditworthiness and general business reputation,
CITSF and the dealer execute a dealer agreement. CITSF also originates
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manufactured housing installment loan agreements directly. In addition, CITSF
purchases portfolios of manufactured housing contracts from other lending
institutions or finance companies, and from governmental agencies or
instrumentalities.
Contracts that CITSF purchases from dealers or originates itself (as
opposed to portfolios of contracts purchased from other lenders) are purchased
or originated on an individually approved basis in accordance with CITSF's
underwriting guidelines.
CITSF's Underwriting Guidelines
Manufactured housing contracts are either originated by being purchased by
CITSF from dealers or being entered into directly by CITSF with customers
referred by dealers or purchased by CITSF in bulk from third party financial
institutions. Forms for all contracts are provided by CITSF and are originated
on an individually approved basis. For all contracts, CITSF's general practice
is to have the dealer submit the customer's credit application, manufacturer's
invoice (if the contract is for a new home) and certain other information
relating to the contract to the applicable Regional Business Center. Personnel
at the Regional Business Center make an analysis of the creditworthiness of the
customer and of other aspects of the proposed transaction.
Since 1992, each credit application is entered into an automated
application processing system. CITSF's underwriting guidelines require, and have
required, a credit officer at a Regional Business Center with the appropriate
level of credit authority to examine each applicant's credit history, residence
history, employment history and debt-to-income payment ratio. Although, with
respect to these criteria, CITSF has, and has had, certain minimum requirements,
as described below, CITSF's management does not believe that these minimum
requirements are themselves generally sufficient to warrant credit approval of
an applicant. Thus, there were and are no requirements on the basis of which, if
they are met, credit is routinely approved. Based on credit score and other risk
factors, each applicant is either approved, declined or, if necessary, referred
to a credit officer with a higher credit authority. Funding of a contract is
authorized after verification of the conditions of approval of the application
and satisfactory delivery of the related manufactured home.
The targeted retail customer has a five year residence, employment and
credit history, a minimum of two years in his or her present job, a housing
ratio of 30% or less (the ratio of payments on the contract and park rental
payments to gross monthly income), a debt ratio (the ratio of total installment
debt and housing expenses to gross monthly income) of 40% or less, a down
payment of at least 15% and an overall favorable credit profile. Approval of
retail customers that do not meet the above-described retail customer profile
are considered by the appropriate level credit officer, on a case by case basis.
Such approval, if granted, is based on the applicant's length and likelihood of
continued employment, ability to pay, and a review of the applicants' paying
habits. No guarantors, endorsers or co-signers are to be considered in
considering whether to accept or reject an application.
Prior to implementing the automated credit scoring system, applicants
required a five year residence history, with no less than the last two years
verified, a minimum five years of employment history with a minimum of three
years or five years in his or her present job for home owners and renters,
respectively, which employment must be verified, a housing ratio of 28% or less,
a debt ratio of 40% or less, and a minimum of five years of established credit
history. The credit history was evidenced by a current credit bureau report
confirming a minimum of the last two years of good ratings indicated.
The credit review and approval practices of each Regional Business Center
are subject to internal reviews and internal audits that, through sampling,
examine the nature of the verification of credit histories, residence histories,
employment histories, debt ratios and housing ratios of the applicants and
evaluate the credit risks associated with the contracts purchased through such
regional office by rating the obligors on such contracts according to their
credit histories, employment histories, debt ratios and housing ratios.
The underwriting policies or standards applied by originators of contracts
other than CITSF may differ from those applied by CITSF.
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Servicing
CITSF services, through its Asset Service Center, manufactured housing,
home equity, recreational vehicle and other consumer loans. CITSF services all
of the manufactured housing contracts it purchases or originates, whether on an
individual basis or in bulk. CITSF is actively seeking arrangements pursuant to
which it will service manufactured housing contracts held by other entities.
Such contracts would not be purchased by CITSF or sold to such other entities by
CITSF. Generally, such servicing responsibilities are, and would be, also
carried out through CITSF's Asset Service Center. Servicing responsibilities
include collecting principal and interest payments, taxes, insurance premiums,
where applicable, and other payments from obligors and, where such contracts
have been sold, remitting principal and interest payments to the holders
thereof, to the extent such holders are entitled thereto. Collection procedures
include repossession and resale of manufactured homes securing defaulted
contracts and, if deemed advisable by CITSF, entering into workout arrangements
with obligors under certain defaulted contracts. Although decisions as to
whether to repossess any manufactured home are made on an individual basis,
CITSF's general policy is to institute repossession procedures promptly after
Asset Service Center personnel determine that it is unlikely that a defaulted
contract will be brought current, and thereafter to diligently pursue the resale
of such manufactured homes if the market is favorable. See "The Contract
Pool--Delinquency, Loan Loss and Repossession Experience" in the Prospectus
Supplement for certain historical statistical data relating to the delinquency
and repossession experience of the contracts serviced through CITSF's Asset
Service Center.
The following table shows the composition of the CITSF portfolio, including
conventional manufactured housing contracts serviced by CITSF on the dates
indicated:
<TABLE>
<CAPTION>
THE CIT GROUP/SALES FINANCING, INC
At December 31,
-----------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994
------------------ ------------------ ------------------ ------------------ ------------------
(Number) (Dollars) (Number) (Dollars) (Number) (Dollars) (Number) (Dollars) (Number) (Dollars)
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unpaid principal balance
of contracts being
serviced
MH - Non-Recourse 5,500 $ 163,287 11,397 $ 275,999 9,282 $ 281,838 9,959 $ 251,371 17,314 $ 498,296
MH - Recourse ... 23,423 260,076 19,739 215,568 17,081 183,129 14,031 142,246 0 0
MH - Service
Retained(1) ..... 0 0 0 0 3,328 43,831 6,983 175,554 8,118 188,381
MH - Serviced
For Others .... 0 0 675 17,833 19,949 296,547 16,925 240,499 14,167 191,475
------ --------- -------- --------- ------ --------- ------ -------- ------ ---------
Total MH ........ 28,923 $ 423,363 31,811 $ 509,400 49,640 $ 805,345 47,898 $ 809,670 39,599 $ 878,152
RV-Owned ........ 32,487 660,555 39,648 845,601 43,309 930,326 40,547 1,021,983 41,964 889,243
RV-Service
Retained(1) 0 0 0 0 0 0 0 0 4,833 118,267
------ --------- -------- --------- ------ --------- ------ -------- ------ ---------
Total RV ..... 32,487 $ 660,555 39,648 $ 845,601 43,309 $ 930,326 40,547 $1,021,983 46,797 $1,007,510
Home Equity .. 0 0 0 0 0 0 3,545 131,322 13,545 570,772
Other ........ 33,896 336,304 6,942 101,022 1,126 19,485 1,572 41,944 2,322 83,604
------ --------- -------- --------- ------ --------- ------ -------- ------ ---------
Total Contracts
Serviced ...... 95,306 $1,420,222 78,401 $1,456,023 94,075 $1,755,156 93,562 $2,004,919 102,263 $2,540,038
------ --------- -------- --------- ------ --------- ------ -------- ------ ---------
</TABLE>
- -------------
MH = Manufactured Housing
RV = Recreation Vehicle
(1) Represents Contracts securitized with servicing retained.
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YIELD CONSIDERATIONS
The Remittance Rates and the weighted average Contract Rate of the
Contracts relating to each Series of Certificates will be set forth in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
monthly accrual of interest on a Contract is calculated at one-twelfth of the
product of the Contract Rate and the principal balance outstanding on the
scheduled payment date for such Contract in the preceding month. Unless
otherwise specified in the related Prospectus Supplement, the Remittance Rate
with respect to each Certificate will be calculated similarly.
The Prospectus Supplement for each Series will indicate that a lower rate
of principal prepayments than anticipated would negatively affect the total
return to investors of any Class or such sub-class of Certificates that is
offered at a discount to its principal amount, and a higher rate of principal
prepayments than anticipated would negatively affect the total return to
investors of any such Class or sub-class of Certificates that is offered at a
premium to its principal amount or without any principal amount.
If a Series of Certificates contains Classes or sub-classes of Certificates
entitled to receive distributions of principal or interest or both, in a
specified order other than as a specified percentage of each distribution of
principal or interest or both, the Prospectus Supplement will set forth
information, measured relative to a prepayment standard or model specified in
such Prospectus Supplement, with respect to the projected weighted average life
of each such Class or sub-class and the percentage of the original Stated
Balance of each such Class or sub-class that would be outstanding on specified
Remittance Dates for such Series based on the assumptions stated in such
Prospectus Supplement, including assumptions that prepayments on the Contracts
in the related Trust are made at rates corresponding to the various percentages
of such prepayment standard or model.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless otherwise described in an applicable Prospectus Supplement, all of
the Contracts will have maturities at origination of not more than 25 years.
Prepayment Considerations
Contracts generally may be prepaid in full or in part without penalty. FHA
Contracts and VA Contracts may be prepaid at any time without penalty. Based on
CITSF's experience with the portfolio of manufactured housing contracts serviced
by it, CITSF anticipates that a number of the Contracts will be prepaid prior to
their maturity. A number of factors, including homeowner mobility, general and
regional economic conditions and prevailing interest rates, may influence
prepayments. In addition, repurchases of Contracts on account of certain
breaches of representations and warranties have the effect of prepaying such
Contracts and therefore would affect the average life of the Certificates. Most
of the Contracts contain a "due-on-sale" clause that would permit the Servicer
to accelerate the maturity of a Contract upon the sale of the related
Manufactured Home. In the case of those Contracts that do contain due-on-sale
clauses, the Servicer will permit assumptions of such Contracts if the purchaser
of the related Manufactured Home satisfies CITSF's then-current underwriting
standards.
Information regarding the Payment Model or any other rate of assumed
prepayment, as applicable, will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
See "Description of the Certificates--Termination of the Agreement" for a
description of CITSF's or the Company's option to repurchase the Contracts
comprising part of a Trust when the aggregate outstanding principal balance of
such Contracts is less than a specified percentage of the initial aggregate
outstanding principal balance of such Contracts as of the related Cut-off Date.
See also "The Trust--The Contract Pools" for a description of the obligations of
CITSF to repurchase a Contract in case of a breach of a representation or
warranty relative to such Contract.
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CIT
CIT is a successor to a company founded in St. Louis, Missouri on February
11, 1908. It has its principal executive offices at 1211 Avenue of the Americas,
New York, New York 10036, and its telephone number is (212) 536-1950. CIT,
operating directly or through its subsidiaries primarily in the United States,
engages in financial services activities through a nationwide distribution
network. CIT provides financing primarily on a secured basis to commercial
borrowers, ranging from middle-market to larger companies and to consumers in
connection with manufactured housing, recreational vehicles and boat financing,
as well as residential mortgages. While these secured lending activities reduce
the risk of losses from extending credit, CIT's results of operations can also
be affected by other factors, including general economic conditions, competitive
conditions, the level and volatility of interest rates, concentrations of credit
risk and government regulation and supervision. CIT does not finance the
development or construction of commercial real estate. CIT has eight strategic
business units, seven of which offer corporate financing, dealer and
manufacturer financing, and factoring products and services to clients, and an
eighth strategic business unit which commenced operations in the last quarter of
1992 offering consumer second mortgage financing and which began offering home
equity lines of credit and purchase money mortgage loans to consumers in 1994.
Effective at year-end 1989, The Dai-Ichi Kangyo Bank, Limited ("DKB")
purchased sixty percent (60%) of the issued and outstanding shares of common
stock of CIT from Manufacturers Hanover Corporation ("MHC"). MHC retained a
forty percent (40%) common stock interest in CIT. Effective March 29, 1990, MHC
transferred its forty percent (40%) common stock interest in CIT to MHC Holdings
(Delaware) Inc., a wholly-owned subsidiary of MHC ("MHC Holdings"). On December
31, 1991, MHC and Chemical Banking Corporation merged in a stock-for-stock
transaction. The merged corporation is called Chemical Banking Corporation
("CBC"). CBC retains a forty percent (40%) common stock interest in CIT through
MHC Holdings.
In accordance with a stockholders agreement among DKB, CBC, as successor to
MHC, and CIT (the "Stockholders Agreement"), CIT amended its Certificate of
Incorporation and its By-Laws in conformity therewith. Pursuant to the
Stockholders Agreement, immediately after MHC sold the sixty percent (60%)
interest in CIT to DKB, the stockholders elected a new Board of Directors
comprised of the President and Chief Executive Officer and the Vice Chairman of
CIT, six nominees designated by DKB, and two nominees designated by MHC. The
Stockholders Agreement also contains provisions for the management of CIT,
majority voting by DKB on CIT's Executive Committee, consent of MHC Holdings
with respect to major corporate and business changes, and restrictions with
respect to the transfer of stock of CIT to third parties.
CIT is subject to the informational requirements of the Exchange Act and,
in accordance therewith, files reports and other information with the
Commission. Such reports and other information can be inspected and copied at
the offices of the Commission and at the offices of the New York Stock Exchange,
Inc. See "Additional Information".
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate pooling
and servicing agreement (each an "Agreement") to be entered into among the
Company, as Seller, CITSF, as Servicer with respect to a Series of Certificates
evidencing an interest in the Contracts, and the trustee named in the related
Prospectus Supplement (the "Trustee"), and such other parties, if any, as are
described in the applicable Prospectus Supplement. The following summaries
describe certain provisions expected to be common to each Agreement and the
related Certificates, but do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, the provisions of the related
Agreement and the description set forth in the related Prospectus Supplement.
Section references contained herein refer to sections of the form of Agreement
filed as an exhibit to the Registration Statement of which this Prospectus is a
part (the "Registration Statement"). The portions of such sections described
herein may be contained in different numbered sections in the actual Agreement
pursuant to which any Series of Certificates is issued. The provisions of the
form of Agreement filed as an exhibit to the Registration Statement that are not
described herein may differ from the provisions of any actual Agreement. The
material differences will be described in the related Prospectus Supplement.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the form of Agreement filed as an exhibit to the
Registration Statement.
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Each Series of Certificates will have been rated in the rating category and
by the rating agency or agencies specified in the related Prospectus Supplement.
General
The Certificates may be issued in one or more Classes or sub-classes (each
referred to in this Prospectus as a "Class"). If the Certificate of a Series are
issued in more than one Class, the Certificates of all or less than all of such
Classes may be sold pursuant to this Prospectus, and there may be separate
Prospectus Supplements relating to one or more of such Classes so sold. Any
reference herein to the Prospectus Supplement relating to a Series comprised of
more than one Class should be understood as a reference to each of the
Prospectus Supplements relating to the Classes sold hereunder. Any reference
herein to the Certificates of a Class should be understood to refer to the
Certificates of a Class within a Series, the Certificates of a sub-class within
a Series or all of the Certificates of a single-Class Series, as the context may
require.
The Certificates of each Series will be issued in fully registered form
only and will represent the interests specified in the related Prospectus
Supplement in a separate trust fund (the "Trust") created pursuant to the
related Agreement. The Trust will be held by the Trustee for the benefit of the
Certificateholders. Each Trust, to the extent specified in the related
Prospectus Supplement, will include (i) Contracts (the "Contract Pool") which
are subject to the Agreement from time to time and any related mortgages, deeds
of trust or similar instruments, (ii) the amounts held in the Certificate
Account from time to time, (iii) proceeds from certain hazard insurance on
individual Manufactured Homes and Manufactured Homes (or the related real estate
in the case of Land-Secured Contracts) acquired by repossession, (iv) any letter
of credit, guarantee, surety bond, insurance policy, cash reserve fund, cash
collateral account or other credit enhancement securing payment of all or part
of a Series of Certificates and (v) such other property (including amounts on
deposit in the Pre-Funding Account) as may be specified in the related
Prospectus Supplement. Except as otherwise specified in the related Prospectus
Supplement, the Certificates will be freely transferable and exchangeable at the
corporate trust office of the Trustee at the address set forth in the related
Prospectus Supplement. No service charge will be made for any registration of
exchange or transfer of Certificates, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge.
Ownership of each Contract Pool may be evidenced by one or more classes of
Certificates, each representing the interest in the Contract Pool specified in
the related Prospectus Supplement. One or more Classes of Certificates
evidencing interests in Contracts may be Subordinated Certificates, evidencing
the right of the Holders thereof to receive any or a portion of distributions of
principal or interest or both on the Contracts subordinate to the rights of the
Holders of other Classes of Certificates ("Senior Certificates") as provided in
the related Prospectus Supplement. If a Series of Certificates contains more
than one Class of Subordinated Certificates, losses will be allocated among such
Classes in the manner described in the Prospectus Supplement.
A Series of Certificates may consist of Classes of Certificates evidencing
the right to receive distributions of principal or interest or both in the order
specified in the related Prospectus Supplement. A Class of Certificates of a
Series may be divided into two or more sub-classes. The related Prospectus
Supplement will specify whether a Class has been so divided and the terms of
each sub-class. Within a Class, one or more of the sub-classes may be
subordinated to other sub-classes or may be entitled to a specified priority in
the distributions specified in the related Prospectus Supplement. The Holders of
each sub-class of a Class of Certificates will be entitled to the percentages
(which may be 0%) of principal or interest payments or both on the related
Contracts as specified in the related Prospectus Supplement. The related
Prospectus Supplement will specify the minimum denomination or initial principal
amount of Contracts evidenced by a single Certificate of each Class of
Certificates of a Series (a "Single Certificate").
Distributions of principal and interest on the Certificates will be made on
the payment dates set forth in the related Prospectus Supplement (each, a
"Remittance Date") to the persons in whose names the Certificates are registered
at the close of business on the related record date specified in the related
Prospectus Supplement (the "Record Date"). Distributions will be made by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register, or, to the extent described in the related Agreement by
wire transfer, except that the final distribution in retirement of Certificates
will be made only upon presentation and surrender of the Certificates at the
office or agency of the Trustee specified in the final distribution notice to
Certificateholders.
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Global Certificates
The Certificates of a Class may be passed in whole or in part in the form
of one or more global certificates (each a "Global Certificate") that will be
deposited with, or on behalf of, and registered in the name of a nominee for a
depositary (the "Depositary") identified in the related Prospectus Supplement.
The description of the Certificates contained in this Prospectus assumes that
the Certificates will be issued in definitive form. If the Certificates of a
Class are issued in the form of one or more Global Certificates, the term
"Certificateholder" should be understood to refer to the beneficial owners of
the Global Certificates, and the rights of such Certificateholders will be
limited as described under this subheading.
Global Certificates will be issued in registered form. Unless and until it
is exchanged in whole or in part for Certificates in definitive form, a Global
Certificate may not be transferred except in whole by the Depositary for such
Global Certificate to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee of
such successor.
The specific terms of the depositary arrangement with respect to any
Certificates of a Class will be described in the related Prospectus Supplement.
It is anticipated that the following provisions will apply to all depositary
arrangements:
Upon the issuance of a Global Certificate, the Depositary for such Global
Certificate will credit on its book-entry registration and transfer
system, the respective denominations of the Certificates represented by
such Global Certificate to the accounts of institutions that have accounts
with such Depositary ("participants"). Ownership of beneficial interests
in a Global Certificate will be limited to participants or persons that
may hold interests through participants. Ownership of beneficial interests
in such Global Certificate will be shown on, and the transfer of that
ownership will be effected only through records maintained by the
Depositary for such Global Certificate or by participants or persons that
hold through participants. The laws of some states require that certain
purchases of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to
transfer beneficial interests in a Global Certificate.
So long as the Depositary for a Global Certificate, or its nominee, is the
owner of each Global Certificate, such Depositary or such nominee, as the
case may be, will be considered the sole owner or Holder of the
Certificates represented by such Global Certificate for all purposes under
the Agreement relating to such Certificates. Except as set forth below,
owners of beneficial interests in a Global Certificate will not be
entitled to have Certificates of the Series represented by such Global
Certificate registered in their names, will not receive or be entitled to
reserve physical delivery of Certificates of such Series in definitive
form and will not be considered the owners or Holders thereof under the
Agreement governing such Certificates.
Distributions or payments on Certificates registered in the name of or
held by a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner for the Holder of the
Global Certificate representing such Certificates. In addition, all
reports required under the applicable Agreement to be made to
Certificateholders (as described below under "Reports to
Certificateholders") will be delivered to the Depositary or its nominee,
as the case may be. None of the Company, Servicer, Trustee, or any agent
thereof (including any applicable Certificate Registrar or Paying Agent),
will have any responsibility or liability for any impact of the records
relating to or payments made on account of beneficial ownership interests
in a Global Certificate or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for providing
reports to the related beneficial owners.
The Company expects that the Depositary for Certificates of a Class, upon
receipt of any distribution or payment in respect of a Global Certificate,
will credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interest in such Global
certificate as shown on the records of such Depositary. The Company also
expects that payments by participants to owners of beneficial interests in
such Global Certificate held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in "street name,"
and will be the responsibility of such participants.
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If a Depositary for Certificates of a Class is at any time unwilling or
unable to continue as Depositary and a successor depositary is not
appointed by or on behalf of the Company within the time period specified
in the Agreement, the Company will cause to be issued Certificates of such
Class in definitive form in exchange for the related Global Certificate or
Certificates. In addition, the Company may at any time and in its sole
discretion determine not to have any Certificates of a Class represented
by one or more Global Certificates and, in such event, will cause to be
issued Certificates of such Class in definitive form in exchange for the
related Global Certificate or Certificates. Further, if the Company so
specifies with respect to the Certificates of a Class, an owner of a
beneficial interest in a Global Certificate representing Certificates of
such Class may, on terms acceptable to the Company and the Depositary for
such Global Certificate, receive Certificates of such Class in definitive
form. In any such instance, an owner of a beneficial interest in a Global
Certificate will be entitled to physical delivery in definitive form of
Certificates of the Class represented by such Global Certificate equal in
denominations to such beneficial interest and to have such Certificates
registered in its name.
Conveyance of Contracts
The Company will sell, transfer, assign, set over and otherwise convey to
the Trustee on behalf of the Trust all right, title and interest of the Company
in the Contracts, including, without limitation, all security interests created
thereby and any related mortgages, deeds of trust or similar instruments, all
principal and interest received on or with respect to the Contracts on and after
the Cut-off Date, all rights under certain hazard insurance policies on the
related Manufactured Homes, the proceeds from any errors and omissions
protection policy and any blanket hazard insurance policy maintained pursuant to
an Agreement to the extent such proceeds relate to the Contracts or the
Manufactured Homes, all documents contained in the Contract files, all rights to
the rebated portion of certain hazard insurance premiums for policies purchased
by CITSF prior to the Cut-off Date and all proceeds derived from any of the
foregoing. (Section 2.01.) On behalf of the Trust, as the issuer of the related
Series of Certificates, the Trustee, concurrently with such conveyance, will
execute and deliver the Certificates to the order of the Company. The Contracts
will be as described on a list attached to the Agreement. (Sections 1.02 and
2.02.) Such list will include, among other things, the approximate amount of
monthly payments due from obligors under the Contracts as of the Cut-off Date,
the Contract Rate on each Contract as of the Cut-off Date and the maturity date
of each Contract. Such list will be available for inspection by any
Certificateholder at the principal executive office of the Servicer. (Sections
1.02 and 5.04.) Prior to the conveyance of the Contracts to the Trust, CITSF
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 and confirm 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 Trust in such Contract will
be repurchased by CITSF or replaced with another Contract, or, if the
discrepancy relates to the unpaid principal balance of a Contract, CITSF 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
cure such discrepancy. (Section 3.05.) If the Trust includes a Pre-Funding
Account, the related Prospectus Supplement will specify the conditions that must
be satisfied prior to any transfer of Contracts purchased from funds on deposit
in the Pre-Funding Account, including the requisite characteristics of such
Contracts.
The Agreement will designate CITSF as custodian to maintain possession, as
the Trustee's agent, of the Contracts and any other documents related to the
Manufactured Homes. (Sections 2.03 and 4.01.) To facilitate servicing and save
administrative costs, the documents will not be physically segregated from other
similar documents that are in CITSF's possession. Uniform Commercial Code
financing statements will be filed in Oklahoma and New Jersey reflecting the
sale and assignment of the Contracts by CITSF to the Company and by the Company
to the Trustee and CITSF's and the Company's accounting records and computer
systems will also reflect such sales and assignments. The Contracts will not be
stamped to reflect their assignment by CITSF to the Company and by the Company
to the Trustee. Therefore, if through fraud, negligence or otherwise, a
subsequent purchaser from CITSF or the Company were able to take physical
possession of the Contracts without knowledge of the assignment, the Trustee's
interest in the Contracts could be defeated. See "Special Considerations -- 5.
Security Interests and Certain Other Aspects of the Contracts". The Agreement
will designate the Servicer as the Trustee's agent, to maintain possession of
the documents relating to all Land-Secured Contracts.
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Except as otherwise specified in the related Prospectus Supplement, CITSF
will make certain warranties in the Agreement with respect to each Contract as
of the Closing Date, including that (a) as of the Cut-off Date, or the date of
origination, if later, the most recent scheduled payment was made or was not
delinquent more than 60 days; (b) no provision of a Contract has been waived,
altered or modified in any respect, except by instruments or documents contained
in the Contract file; (c) each Contract is a legal, valid and binding obligation
of the obligor under such Contract (the "Obligor") and is enforceable in
accordance with its terms (except as may be limited by laws affecting creditors'
rights generally); (d) no right of rescission, set-off, counterclaim or defense
has been asserted with respect to any Contract; (e) each Contract is covered by
hazard insurance described below under "Servicing--Hazard Insurance"; (f) each
Contract was either (i) originated by a manufactured housing dealer acting in
the ordinary course of its business and was purchased by CITSF in the ordinary
course of its business, (ii) originated by an originating institution in the
ordinary course of its business or (iii) originated by CITSF in the ordinary
course of its business; (g) no Contract was originated in or is subject to the
laws of any jurisdiction whose laws would make the transfer of the Contract to
the Company pursuant to a purchase and sale agreement or to the Trustee pursuant
to the Agreement or pursuant to transfers of the Certificates or ownership of
the Trust unlawful; (h) each Contract complies with all requirements of law; (i)
no Contract has been satisfied, subordinated in whole or in part or rescinded,
and the Manufactured Home securing the Contract has not been released from the
lien of the Contract in whole or in part; (j) each Contract (other than a
Land-Secured Contract) creates a valid and enforceable perfected first priority
security interest in favor of CITSF (or, if CITSF did not originate the
Contract, the related contract originator or a successor to such contract
originator by direct or mesne assignment) in the Manufactured Home covered
thereby and, with respect to each Land-Secured Contract, the lien created
thereby is a valid and enforceable first or second lien in favor of CITSF (or,
if CITSF did not originate the Contract, the related contract originator or a
successor to such contract originator by direct or mesne assignment) on the
related real property (which, in a Land-Secured Contract, includes the
Manufactured Home) and such security interest or lien has been assigned by CITSF
to the Company and from the Company to the Trustee on behalf of the Trust; (k)
all parties to each Contract had legal capacity to execute such Contract; (l) no
Contract has been sold, assigned or pledged by CITSF to any person other than
the Company and, prior to the transfer of the Contracts by CITSF to the Company
and the Company to the Trust, CITSF had good and marketable title to each
Contract, free and clear of any encumbrance, equity, loan, pledge, charge, claim
or security interest, and was the sole owner and had full right to transfer such
Contract to the Company; (m) as of the Cut-off Date, or the date of origination
if later, there was no default, breach, violation or event permitting
acceleration under any Contract (except for payment delinquencies permitted by
clause (a) above), no event which with notice and the expiration of any grace or
cure period would constitute a default, breach, violation or event permitting
acceleration under such Contract, and CITSF has not waived any of the foregoing
(except for payment delinquencies permitted by clause (a) above); (n) as of the
Closing Date, there were, to the best of CITSF's knowledge, no liens or claims
which have been filed for work, labor or materials affecting a Manufactured Home
or any related Mortgaged Property securing a Contract, which are or may be liens
prior or equal to the lien of the Contract; (o) each Contract is a
fully-amortizing loan with a fixed Contract Rate and provides for level payments
over the term of such Contract; (p) each Contract contains customary and
enforceable provisions such as to render the rights and remedies of the Holder
thereof adequate for realization against the collateral of the benefits of the
security provided thereby (except as may be limited by creditors' rights
generally); (q) the description of each Contract set forth in the list delivered
to the Trustee is true and correct; (r) except as specified in the related
Prospectus Supplement, no more than 85% of the Contracts had a Loan-to-Value
Ratio at origination greater than 90% and none of the Contracts had a
Loan-to-Value Ratio at origination greater than 125%; (s) if a Manufactured Home
is considered or classified as part of the real estate on which it is located
under the laws of the jurisdiction in which it is located (i) a UCC fixture
filing was made or (ii) a mortgage, deed of trust or similar instrument was
recorded, or (iii) under applicable law, even though the Manufactured Home is
part of the real estate on which it is located, no fixture filing or mortgage
recording is required to protect the priority of CITSF's security interest on
these Manufactured Homes or (iv) irrespective of (i), (ii) or (iii) foregoing,
no person in fact holds a security interest or mortgage lien upon the
Manufactured Home prior to CITSF's security interest therein; (t) the related
Manufactured Home is a "manufactured home" within the meaning of 42 United
States Code, Section 5402(6), and each Contract was originated by (i) a savings
and loan association, savings bank, commercial bank, credit union, insurance
company, or similar institution which is supervised and examined by a federal or
state authority, (ii) a mortgagee approved by the Secretary of Housing and Urban
Development pursuant to Sections 203 and 211 of the National Housing Act, or
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(iii) a financial institution approved for insurance by the Secretary of Housing
and Urban Development pursuant to Section 2 of the National Housing Act; and (u)
if a Contract was, at the time of its origination, insured by the FHA or
partially guaranteed by the VA, it has been serviced in accordance with the
contractual agreements and regulations of the FHA or the VA ("FHA/VA
Regulations"), the insurance or guarantee of the Contract under the FHA/VA
Regulations and related laws is in full force and effect, and no event has
occurred which, with or without notice or lapse of time or both, would impair
such insurance or guarantee. (Article III.)
If the Company elects to cause the Trust relating to a Series of
Certificates to be treated as a REMIC, CITSF will make warranties in the
Agreement with respect to the related Contracts as of the Closing Date,
including that (a) each Contract is a "qualified mortgage" under Section
860G(a)(3) of the Code, (b) each Manufactured Home is a "single family
residence" within the meaning of Section 25(e)(10) of the Code and (i) has a
minimum of 400 square feet of living space, (ii) has a minimum width in excess
of 102 inches and (iii) is of a kind customarily used at a fixed location and
(c) none of the Contracts had a loan-to-value ratio greater than 125% at the
time of origination, and in the case of a Contract that has been modified, at
the time of origination and at the time such Contract has been modified. For
purposes of computing such loan-to-value ratio for a Contract which, with
respect to the real estate on which the related Manufactured Home is located, is
not secured by a first mortgage, the fair market value of the Manufactured Home
and other property securing the Contract must be reduced by the amount of any
lien that is senior to the Contract, and must be further reduced by a
proportionate amount of any lien that is in parity with the Contract.
Under the terms of the Agreement and subject to the conditions specified in
the preceding paragraph and to CITSF's option to effect a substitution as
described in the next paragraph, CITSF will be obligated to repurchase for the
Repurchase Price (as defined below) any Contract not later than 85 days after
CITSF receives written notice from the Trustee or the Servicer or not later than
90 days after CITSF becomes aware of (i) a breach of any representation or
warranty of CITSF in the Agreement that materially adversely affects the Trust's
interest in any Contract if such breach has not been cured or (ii) the
occurrence of certain other events specified in the Agreement, including events
rendering such Contract unenforceable, which have not been cured. (Section
3.05.) 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 Due Date in the month
immediately preceding such repurchase. (Section 1.02.) This repurchase
obligation constitutes the sole remedy available to the Trust and the
Certificateholders for a breach of a warranty under the Agreement with respect
to the Contracts (but not with respect to any other breach by CITSF of its
obligations under the Agreement). If a prohibited transaction tax under the
REMIC provisions of the Code is incurred in connection with such repurchase and
a REMIC Election has been made with respect to such Series, distributions
otherwise payable to the Holders of the Class which constitutes the "residual
interest" in such REMIC will be applied to pay such tax. CITSF will be required
to pay the amount of such tax that is not funded out of such distributions.
(Section 3.05.)
In lieu of purchasing a Contract as specified in the preceding paragraph,
during the two-year period following the Closing Date, CITSF 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 or does not cause to be incorrect, as of the date of its substitution,
the representations and warranties specified in Article III of 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. (Section 1.02.) CITSF 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 Schedule
Principal Balance of the Contract being substituted. Such deposit will be deemed
to be a Partial Principal Prepayment. (Sections 1.02 and 3.05.)
Payments on Contracts
Each Certificate Account will be a trust account established by the Trustee
on behalf of the Trust as to each Series of Certificates in the name of the
Trustee with the Trustee or any depository institution or trust company (which
may be the Trustee or an Affiliate of the Trustee) organized under the laws of
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the United States or any state, the deposits of which are insured to the full
extent permitted by law by the Bank Insurance Fund (presently administered by
the Federal Deposit Insurance Corporation), which is subject to supervision and
examination by federal or state authorities and whose short-term securities or
unsecured long-term debt has been rated P-1 or higher by Moody's Investors
Service, Inc. ("Moody's") in the case of short-term securities, or in the two
highest rating categories by Moody's in the case of unsecured long-term debt.
The collateral eligible to secure accounts in the Certificate Account is limited
to United States government securities and other high-quality investments
("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 herein or in the related Prospectus Supplement,
the Servicer will deposit in the Certificate Account no later than two business
days following receipt thereof the following payments and collections received
or made by it subsequent to the Cut-off Date (including scheduled payments of
principal and interest due on or after the Cut-off Date but received by the
Servicer before the Cut-off Date):
(i) all Obligor payments in respect of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments in respect of interest on the Contracts except
amounts received as late payment fees, extension fees, assumption
fees or similar fees, which fees together with any net income and
gain from investments of funds in the Certificate Account, are
included as part of the Servicer's servicing fees;
(iii) all amounts received and retained in connection with the liquidation
of defaulted Contracts ("Liquidation Proceeds"), 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;
(v) any Advances made as described under "Advances" below, and certain
other amounts required under the Agreement to be deposited in the
Certificate Account; and
(vi) all amounts received from any credit enhancement provided with respect
to a Series of Certificates.
Subject to compliance with the Agreement, for as long as CITSF remains the
Servicer under the Agreement, and CITSF remains a direct or indirect subsidiary
of CIT, and if CIT has and maintains a short-term debt rating of P-1 by Moody's
and the Trustee shall have received an opinion of counsel that any action taken
pursuant to this sentence shall not adversely affect the status of the Trust as
a REMIC, if applicable, or result in the imposition of a tax on the trust, the
Servicer will not be required to make such deposits into the Certificate Account
(the "Delayed Deposits") until the business day immediately preceding the next
Remittance Date.
Distributions on Certificates
Except as otherwise provided in the related Prospectus Supplement, on each
Remittance Date, the Trustee will withdraw from the applicable Certificate
Account and distribute to the Certificateholders of each Class (other than a
Series having a Class or sub-class of Subordinated Certificates, as described
below), either the specified interest of such Class in the Contract Pool times
the aggregate of all amounts on deposit in the Certificate Account as of the
third business day preceding the Remittance Date or such other date as may be
specified in the related Prospectus Supplement (the "Determination Date"), or,
in the case of a Series of Certificates comprised of Classes which have been
assigned a Stated Balance, payments of interest and payments in reduction of the
Stated Balance from all amounts on deposit in the Certificate Account on the
Determination Date, in the priority and calculated in the manner set forth in
the related Prospectus Supplement, except in each case: (i) all payments on the
Contracts that were due before the Cut-off Date; (ii) all payments or
collections received after the Due Period preceding the month in which the
Remittance Date occurs; (iii) all scheduled payments of principal and interest
due on a date or dates subsequent to the Due Period preceding the Determination
Date; (iv) amounts representing reimbursement for Advances, such reimbursements
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 (v) amounts
representing reimbursement for any unpaid Servicing Fees (as defined below) and
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expenses from Liquidation Proceeds, condemnation proceeds and proceeds of
insurance policies with respect to the related Contracts and other amounts which
either are not required to be deposited in the Certificate Account or which may
be withdrawn from the Certificate Account as set forth in the Agreement. The
"Due Period" is the period for which interest and principal on the Contracts is
calculated for a related Remittance Date, as specified in the related Prospectus
Supplement. The amounts on deposit in the Certificate Account on a Determination
Date, less the amounts specified in (i) through (v) above, with respect to a
Series of Certificates having a Class or sub-class of Subordinated Certificates,
are referred to herein as the "Amount Available".
Unless otherwise specified in the related Prospectus Supplement, with
respect to a Series of Certificates having a Class or sub-class of Subordinated
Certificates, on each Remittance Date, the Trustee will withdraw from the
applicable Certificate Account and distribute to the Holders of Senior
Certificates, in the aggregate, the lesser of (i) the Senior Distribution Amount
plus the Outstanding Senior Shortfall (each defined below) or (ii) the
percentage interest (which may vary as specified in the related Prospectus
Supplement) of the Classes (or sub-classes) of Senior Certificates times the
Amount Available plus (A) the percentage interest (which may vary as specified
in the related Prospectus Supplement) of the Classes (or sub-classes) of
Subordinated Certificates times the Amount Available not to exceed the Available
Subordinate Amount, if any, as defined in the related Prospectus Supplement and
(B) Advances, if any, made by the Servicer. The distributions made to the
Certificateholders of each Class or sub-class of Senior Certificates shall be
calculated as described in the related Prospectus Supplement and may vary as to
the allocation of principal or interest or both. Unless otherwise specified in
the related Prospectus Supplement, the "Senior Distribution Amount" is an amount
equal to the percentage interest of the Classes of Senior Certificates times:
(i) all regularly scheduled payments of principal and interest which were
due on Contracts during the related Due Period, whether or not
received, with the interest portions thereof adjusted to the
Remittance Rate;
(ii) all Principal Prepayments made by the Obligor during the prior Due
Period;
(iii) with respect to each Contract not described in (iv) below, all
insurance proceeds, all condemnation awards and any other cash
proceeds from a source other than the Obligor, to the extent required
to be deposited in the Certificate Account, which were received
during the prior Due Period, net of related unreimbursed Advances and
net of any portion thereof which, as to any Contract, constitutes
late collections;
(iv) with respect to each Contract as to which a receipt of Liquidation
Proceeds has been received during the prior Due Period or other event
of termination of the Contract has occurred during the prior Due
Period, an amount equal to the principal amount of the Contract
outstanding immediately prior to the date of receipt of such
Liquidation Proceeds or such other event of termination, reduced by
the principal portion of any unpaid payments due on or before such
date to the extent previously advanced against or otherwise received
by the Certificateholder, plus interest thereon from the most recent
Due Date at the Remittance Rate; and
(v) with respect to each Contract repurchased by CITSF for which the
repurchase price was not distributed previously, an amount equal to
the principal amount of the Contract outstanding on the date of such
repurchase reduced by the principal portion of any unpaid payments
due on or before such date (but only to the extent advanced against
or otherwise received by the Certificateholders), plus interest
thereon to the most recent Due Date.
The "Outstanding Senior Shortfall" for any sub-class of Senior Certificates
means as of any date, to the extent not previously paid, the aggregate of the
amounts by which the Senior Distribution Amount for such sub-class for any
Remittance Date exceeded the amount actually paid on such Remittance Date plus
interest at the Remittance Rate.
Unless otherwise specified in the related Prospectus Supplement, on each
Remittance Date, the Servicer shall distribute to the Classes (and sub-classes)
of Subordinate Certificateholders, in the order set forth in the Related
Prospectus Supplement, the balance of the Amount Available, if any, after the
payment to the Senior Certificateholders, as described above.
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Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates, one or more Classes or sub-classes of which have been
assigned a Stated Balance, distributions in reduction of the Stated Balance of
such Certificates will be made on each Remittance Date to the Certificateholders
of the Class or sub-class then entitled to receive such Certificate
distributions until the aggregate amount of such distributions have reduced the
Stated Balance of the Certificates of such Class or sub-class to zero.
Allocation of distributions in reduction of Stated Balance will be made to each
Class or sub-class of such Certificates in the order specified in the related
Prospectus Supplement, which, if so specified in such Prospectus Supplement, may
be concurrently. Unless otherwise specified in the related Prospectus
Supplement, distributions in reduction of the Stated Balance of each Certificate
of a Class or sub-class then entitled to receive such distributions will be made
pro rata among the Certificates of such Class or sub-class.
Unless otherwise specified in the related Prospectus Supplement, the
maximum amount which will be distributed in reduction of Stated Balance to
Holders of Certificates of a Class or sub-class then entitled thereto on any
Remittance Date will equal, to the extent funds are available, the sum of (i)
the amount of the interest, if any, that has accrued but is not yet payable on
the Compound Interest Certificates of such Series, if any, from the prior
Remittance Date (or since the date specified in the related Prospectus
Supplement in the case of first Remittance Date), (ii) the Certificate
Remittance Amount and (iii) the applicable percentage of the Excess Cash Flow,
if any, specified in such Prospectus Supplement.
The "Certificate Remittance Amount" means, unless otherwise specified in
the related Prospectus Supplement, with respect to a Series of Certificates
providing for sequential distributions in reduction of the Stated Balance of the
Classes of such Series, as of any Remittance Date, the amount, if any, by which
the then outstanding Stated Balance of the Classes of Certificates of such
Series (before taking into account the amount of interest accrued on any Class
of Compound Interest Certificates to be added to the Stated Balance thereof on
such Remittance Date) exceeds the asset value of the Contracts included in the
Trust for such Series as of the end of the related Due Period. "Compound
Interest Certificates" are Certificates on which interest may accrue but not be
paid for the period described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Certificate Remittance Amount with respect to a Remittance Date will equal the
amount, if any, by which the then outstanding Stated Balance of the Certificates
of the related Classes or sub-classes of Compound Interest Certificates of such
Series (before taking into account the amount of interest accrued on any Class
or sub-class of Compound Interest Certificates of such Series to be added to the
Stated Balance thereof on such Remittance Date) exceeds the asset value of the
Contracts in the Contract Pool underlying such Series as of the end of the
applicable Due Period specified in the related Prospectus Supplement. For the
purposes of determining the Certificate Remittance Amount with respect to a
Remittance Date, the asset value of the Contracts will be reduced to take into
account the interest evidenced by such Classes or sub-classes of Certificates in
the principal distributions on or with respect to such Contracts received by the
Trustee during the preceding Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates, one or more Classes or sub-classes of which have been
assigned a Stated Balance, Excess Cash Flow represents the excess of (i) the
interest evidenced by such Classes or sub-classes of Certificates in the
distributions received on the Contracts underlying such Series in the Due Period
preceding a Remittance Date for such Series (and, in the case of the first Due
Period, the amount deposited in the Certificate Account on the closing date for
the sale of such Certificates), together with income from the reinvestment
thereof, (ii) the sum of all interest accrued, whether or not then payable, on
the Certificates of such Classes or sub-classes since the preceding Remittance
Date (or since the date specified in the related Prospectus Supplement in the
case of the first Remittance Date), the Certificate Remittance Amount for the
then current Remittance Date and, if applicable, any payments made on any
Certificates of such Class or sub-class pursuant to any special distributions in
reduction of Stated Balance during such Due Period.
Within the time specified in the Agreement and described in the related
Prospectus Supplement, the Servicer will furnish a statement to the Trustee
setting forth the amount to be distributed on the related Remittance Date on
account of principal and interest, stated separately, and a statement setting
forth certain information with respect to the Contracts.
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If there are not sufficient funds in the Certificate Account to make the
full distribution to Certificateholders described above on any Remittance Date,
the Servicer will distribute the funds available for distribution to the
Certificateholders of each Class in accordance with the respective interests
therein, except that Subordinated Certificateholders, if any, will not, subject
to the limitations described in the related Prospectus Supplement, receive any
distributions until Senior Certificateholders receive the Senior Distribution
Amount plus the Outstanding Senior Shortfall. The difference between the amount
which the Certificateholders would have received if there had been sufficient
eligible funds in the Certificate Account and the amount actually distributed,
plus interest at the Remittance Rates of the respective Contracts to which such
shortfall is attributable, will be added to the amount which the
Certificateholders are entitled to receive on the next Remittance Date.
Special Distributions. To the extent specified in the Prospectus Supplement
relating to a Series of Certificates, one or more Classes or sub-classes of
which have been assigned a Stated Balance and having less frequent than monthly
Remittance Dates, such Classes or sub-classes may receive special distributions
in reduction of Stated Balance ("Special Distributions") in any month, other
than a month in which a Remittance Date occurs, if, as a result of principal
prepayments on the Contracts in the related Contract Pool or low reinvestment
yields, the Trustee determines, based on assumptions specified in the related
Agreement, that the amount of cash anticipated to be on deposit in the
Certificate Account on the next Remittance Date for such Series and available to
be distributed to the Holders of the Certificates of such Classes or sub-classes
may be less than the sum of (i) the interest scheduled to be distributed to
Holders of the Certificates of such Classes or sub-classes and (ii) the amount
to be distributed in reduction of Stated Balance of such Certificates on such
Remittance Date. Any such Special Distributions will be made in the same
priority and manner as distributions in reduction of Stated Balance would be
made on the next Remittance Date.
Subordinated Certificates. The rights of a Class or sub-class of
Certificateholders of a Series to receive any or a specified portion of
distributions of principal or interest or both with respect to the Contracts, to
the extent specified in the related Agreement and described in the related
Prospectus Supplement, may be subordinated to such rights of other
Certificateholders. With respect to a Series of Certificates having a Class or
sub-class of Subordinated Certificates, the Prospectus Supplement will set
forth, among other things, the extent to which such Class or sub-class is
subordinated (which may include a formula for determining the subordinated
amount or for determining the allocation of the Amount Available among Senior
Certificates and Subordinated Certificates), the allocation of losses among the
Classes or sub-classes of Subordinated Certificates, the period or periods of
such subordination, the minimum subordinated amount, if any, and any
distributions or payments which will not be affected by such subordination. The
protection afforded to the Senior Certificateholders from the subordination
feature described above will be effected by the preferential right of the Senior
Certificateholders to receive current distributions from the Contract Pool.
Advances
To the extent provided in the related Prospectus Supplement, the Servicer
is obligated to make periodic advances ("Advances") of cash from its own funds
or, if so specified in the related Prospectus Supplement, from excess funds in
the Certificate Account not then required to be distributed to
Certificateholders for distribution to all or certain of the Certificateholders
in an amount specified in related Prospectus Supplement but only to the extent
the Servicer determines such advances are recoverable from future payments and
collections on the Contracts. The Servicer's obligation to make Advances, if
any, may, as specified in the related Prospectus Supplement, be limited in
amount and/or limited to delinquent payments of interest. 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, for the
related Series is depleted. Advances are intended to maintain a regular flow of
scheduled interest and principal payments to the Senior Certificateholders, 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 principal or interest respecting which any
such Advance was made.
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Example of Distributions
The following is an example of the flow of funds as it would relate to a
hypothetical series of Certificates issued, and with a Cut-off Date occurring in
June, 1994 (all days are assumed to be business days):
July 1 - July 31............... (1) Due Period. Servicer receives scheduled
payments on the Contracts and any Principal
Prepayments made by Obligors and applicable
interest thereon.
July 29........................ (2) Record Date.
August 12...................... (3) Determination Date. Distribution amount
determined.
August 15...................... (4) Remittance Date.
- ---------------
(1) Scheduled payments and Principal Prepayments may be received at any time
during this period and will be deposited in the Certificate Account by the
Servicer for distribution to Certificateholders. When a Contract is prepaid
in full, interest in the amount prepaid is collected from the Obligor only
to the date of payment.
(2) Distributions on the Remittance Date will be made to Certificateholders of
record at the close of business or the last business day of the month
immediately preceding the month of distribution.
(3) On August 12 (the third business day prior to the Remittance Date), the
Servicer will determine the amounts of principal and interest which will be
passed through on the Remittance Date. In addition, the Servicer may
advance funds to cover any delinquencies, in which event the distribution
to Certificateholders on the Remittance Date will include the full amounts
of principal and interest due during the Due Period. The Servicer will also
calculate any changes in the relative interests evidenced by the Senior
Certificates and the Subordinated Certificates in the Trust.
(4) On August 15, the amounts determined on August 12 will be distributed to
Certificateholders.
Succeeding months follow the pattern of (2) through (4). The flow of funds
with respect to any Series of Certificates may differ from the above example, as
specified in the related Prospectus Supplement.
Indemnification
The Agreement requires CITSF to defend, hold harmless and indemnify the
Company, the Trustee and the Certificateholders (which indemnification will
survive any removal of the Servicer as servicer of the Contracts) from and
against any and all liability, loss, costs and expenses resulting from any
affirmative claims for recovery asserted or collected by Obligors under the
Contracts. (Section 11.10.) The Agreement also requires CITSF to pay, and to
defend, indemnify and hold harmless the Company, the Trust, the Trustee and the
Certificateholders for any taxes which may at any time be asserted with respect
to, and as of the date of, the conveyance of the Contracts to the Trust (but not
including any tax arising out of the creation of the Trust and the issuance of
the Certificates or distributions with respect thereto) and the costs, expenses
and reasonable counsel fees in defending the same. (Section 10.02.)
The Agreement also requires the Servicer, in connection with its duties as
servicer of the Contracts, to defend and indemnify the Company, the Trust, the
Trustee and the Certificateholders against any and all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel and expenses of litigation, in respect of any negligent or wrongful
action taken or failed to be taken by the Servicer with respect to any Contract
while it was the Servicer. (Section 10.03.)
Servicing
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,
exercising the degree of skill and care consistent with the same degree of skill
and care that the Servicer exercises with respect to similar contracts serviced
by it for its own account. 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, repossessions.
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.
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Hazard Insurance. Except as otherwise specified in the related Prospectus
Supplement, the terms of the Agreement will require the Servicer to cause to be
maintained with respect to each Contract and each Manufactured Home that has
been repossessed in connection with certain defaulted Contracts one or more
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; provided, however, that the amount of coverage provided by each hazard
insurance policy shall be sufficient to avoid the application of any
co-insurance clause contained therein and provided further that such hazard
insurance policies may provide for customary deductible amounts. Each hazard
insurance policy caused to be maintained by the Servicer shall 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 shall pay such premiums out of its
own funds, and may add separately such premium to the Obligor's obligation as
provided by the Contract, but may not add such premium to the remaining
principal balance of the Contract.
The Servicer may maintain, in lieu of causing individual hazard insurance
policies to be maintained with respect to each Manufactured Home, and shall
maintain, 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, one or more blanket insurance policies covering losses on the Obligors'
interest in the Contracts resulting from the absence or insufficiency of
individual hazard insurance policies. Any such blanket policy shall be
substantially in the form and in the amount carried by the Servicer as of the
date of the Agreement. The Servicer shall pay the premium for such policy on the
basis described therein but shall not be required to deposit any deductible
amount with respect to claims under individual hazard insurance policies
maintained as described in the immediately preceding paragraph or claims under
any blanket insurance policy. If the insurer thereunder shall cease to be
acceptable to the Servicer, the Servicer shall exercise its best reasonable
efforts to obtain from another insurer a replacement policy comparable to such
policy.
If the Servicer shall have repossessed a Manufactured Home on behalf of the
Trustee, the Servicer shall maintain at its expense hazard insurance with
respect to such Manufactured Home.
Evidence as to Compliance. Unless otherwise specified in the related
Prospectus Supplement, each Agreement will require the Servicer to deliver to
the Trustee a monthly report prior to each Remittance Date, setting forth
certain information regarding the Contract Pool and the Certificates of such
Series as is specified in the related Prospectus Supplement. Each such report to
the Trustee will be accompanied by a statement from an appropriate officer of
the Servicer certifying the accuracy of such report and stating that the
Servicer has not defaulted in the performance of its obligations under the
Agreement. Unless otherwise specified in the related Prospectus Supplement, each
Agreement will require that on or before April 1 of each year, the Servicer will
deliver to the Trustee a report of independent public accountants stating that
such firm has, with respect to the Servicer's overall servicing operations,
examined such operations in accordance with the requirements of the Uniform
Single Audit Program for Mortgage Bankers, and stating such firm's conclusions
relating thereto.
Tue dein che performance of its obligations under the
Agreement. Unless otherwise specified in the related Prospectus Supplement, each
Agreement will require that on or before ification or expense. (Article VI.)
Certain Matters Regarding the Servicer. The Servicer may not resign from
its obligations and duties under an Agreement except upon a determination that
its duties thereunder are no longer permissible under such Agreement or
applicable law. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Servicer's responsibilities and obligations
under such Agreement. The Servicer can only be removed as servicer pursuant to
an Event of Termination as discussed below. Any person with which the Servicer
is merged or consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Servicer is a party, or any person
succeeding to the business of the Servicer, will be the successor to the
Servicer under the Agreement. (Section 12.01.)
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will also provide that neither the Servicer nor the Company, nor any
director, officer, employee or agent of the Servicer or the Company, will be
under any liability to the Trustee or the Certificateholders for any action
taken or for refraining from the taking of any action in good faith pursuant to
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the Agreement, or for errors in judgment; provided, however, that the Servicer,
the Company or any such person will not be protected against any liability which
would otherwise be imposed by reason of the failure to perform its obligations
in compliance with the standards of care set forth in the Agreement. The
Servicer or the Company 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 and the Company will be entitled to be reimbursed
therefor out of the Certificate Account.
The Servicer shall keep in force throughout the term of the Agreement (i)
at such time as the long-term debt of its parent is rated less than A3 by
Moody's, a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by this Agreement, and (ii) a fidelity
bond. Such policy or policies and such fidelity bond shall be in such form and
amount as is generally customary among persons which service a portfolio of
manufactured housing contracts having an aggregate principal amount of $100
million or more and which are generally regarded as servicers acceptable to
institutional investors.
To the extent that nonpayment of any taxes or charges would result in the
creation of a lien upon any Manufactured Home having a priority equal or senior
to the lien of the related Contract (except for real estate taxes that would
create a lien for taxes that are not yet due and payable), the Servicer shall
advance any such delinquent tax or charge and be reimbursed by the related
Obligor or from Liquidation Proceeds in respect of such Contract.
Servicing Compensation and Payment of Expenses. For its servicing of the
Contracts, the Servicer will receive servicing fees ("Servicing Fees") which
include a monthly Servicing Fee ("Monthly Servicing Fee") for each Due Period
(paid on the next succeeding Remittance Date) which, unless otherwise stated in
the related Prospectus Supplement, will be equal to 1/12th of the product of
1.00% and the Pool Scheduled Principal Balance for such Remittance Date.
The Monthly 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, 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 realizing the
related Manufactured Home. (Section 5.08.)
As part of its Servicing Fees, the Servicer will also be entitled to
retain, as compensation for the additional services provided in connection
therewith, any fees for late payments made by Obligors, extension fees paid by
Obligors for the extension of scheduled payments and assumption fees for
permitted assumptions of Contracts by purchasers of the related Manufactured
Homes. (Section 1.02.) As part of its Servicing Fees, the Servicer will also be
entitled to retain the net income and gain from the investment of funds in the
Certificate Account.
Events of Termination. Except as otherwise specified in the related
Prospectus Supplement, Events of Termination under each Agreement will include
(i) any failure by the Servicer to make deposits required under an Agreement and
such failure continues unremedied for 5 business days (or such other period
specified in the related Prospectus Supplement) after the Servicer has become
aware that such deposit was required; (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 which continues unremedied for 30 days after the
giving of written notice of such failure; (iii) any assignment by the Servicer
of its duties or rights under the Agreement, except as specifically permitted
under the Agreement, or any attempt to make such an assignment; (iv) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Servicer; and (v) the Servicer
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is no longer an Eligible Servicer (as defined in the applicable Agreement).
Notice as used herein shall mean notice to the Servicer by the Trustee or the
Company, or to the Company, the Servicer and the Trustee by the Holders of
Certificates representing interests aggregating not less than 25% of the Trust.
Rights Upon Event of Termination. Except as otherwise specified in the
related Prospectus Supplement, so long as an Event of Termination remains
unremedied, the Trustee may, and at the written direction of the
Certificateholders of a Series evidencing interests aggregating 25% or more of
the related Trust, shall, unless prohibited by applicable law, terminate all
(but not less than all) of the Servicer's management, administrative, servicing
and collection functions under the related Agreement, whereupon (subject to
applicable law regarding the Trustee's ability to make advances if such advances
are required for the related series), unless prohibited by applicable law, the
Trustee 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 the Trustee will not assume
any obligation of CITSF to repurchase Contracts pursuant to the Agreement,
including for breaches of representations or warranties. Notwithstanding such
termination, the Servicer shall be entitled to payment of certain amounts
payable to it prior to such termination, for services rendered prior to such
termination. No such termination will affect in any manner CITSF's obligation to
repurchase certain Contracts pursuant to the Agreement, including for breaches
of representations or warranties under the Agreement. 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, unless the Trustee is prohibited by law from so acting.
The Trustee and such successor may agree upon the servicing compensation to be
paid, which in no event (unless 100% of the Certificateholders consent in
writing) 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 the Holders of Certificates
evidencing 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. 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 Certificateholders have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which the Trustee may incur.
Reports to Certificateholders
The Servicer or the Trustee, as applicable, will forward to each
Certificateholder on each Remittance Date, or as soon thereafter as is
practicable, a report, as described in the related Prospectus Supplement.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer or Trustee, as applicable, will furnish to each
Certificateholder of record at any time during such calendar year a report
containing information relating to interest accrued and principal paid on its
Certificates during such calendar year and such other information as the
Servicer deems necessary or desirable for Certificateholders to prepare their
tax returns. Information in the monthly and annual reports provided to the
Certificateholders will not have been examined and reported upon by an
independent public accountant. However, the Servicer will provide to the Trustee
annually a report by independent public accountants with respect to the
servicing of the Contracts as described under "Servicing--Evidence as to
Compliance" above.
In addition, to the extent applicable, such report shall include:
(i) in the case of Certificates which are assigned a Stated Balance, the
amount of the distribution being made in reduction of Stated Balance
specified in the related Prospectus Supplement, and the Stated
Balance of each such Class of Certificates and a Single Certificate
of the Holder's Class after giving effect to the distribution in
reduction of Stated Balance made on such Remittance Date and after
giving effect to all Special Distributions since the preceding
Remittance Date or since the Closing Date in the case of the first
Remittance Date; and
(ii) with respect to a Compound Interest Certificate (but only if the
Holder thereof shall not have received on such Remittance Date a
distribution of interest equal to the entire amount of interest
accrued on such Certificate during the related Due Period with
respect to such Remittance Date):
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(A) the interest accrued on such Class of Compound Interest
Certificates and on a Single Certificate of such Class during the Due
Period (or specified interest accrual period) with respect to such
Remittance Date and added to the principal of such Compound Interest
Certificates; and
(B) the Stated Balance of such Class of Compound Interest
Certificates and of a Single Certificate of such Class after giving
effect to the addition thereto of all interest accrued thereon during
the Due Period (or specified interest accrual period) with respect to
such Remittance Date.
Amendment
Unless otherwise specified in the related Prospectus Supplement, the
Agreement may be amended by the Company, the Servicer and the Trustee without
the consent of the Certificateholders (i) to correct manifest error or to cure
any ambiguity, (ii) to correct or supplement any provision therein that may be
inconsistent with any other provision therein, (iii) if an election has been
made with respect to a particular Series of Certificates to treat the Trust as a
real estate mortgage investment conduit ("REMIC") within the meaning of Section
860D(a) of the Internal Revenue Code of 1986, as amended, 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.
Unless otherwise specified in the related Prospectus Supplement, the
Agreement may be amended by the Company, the Servicer and the Trustee with the
consent of the Certificateholders evidencing, as to each Class of Certificates
affected thereby, interests aggregating not less than 51% of such Class, 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 payment received on or
with respect to Contracts which are required to be distributed on any
Certificate may be effective 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 the last action
required to be taken by the Trustee on the final Remittance Date following the
earlier of (i) the purchase by the Company or the Servicer of all Contracts and
all property acquired in respect of any Contract remaining in the Trust as
described below, or (ii) the final payment or other liquidation of the last
Contract remaining in the Trust or the disposition of all property acquired upon
repossession of any Manufactured Home. In addition, unless otherwise specified
in the related Prospectus Supplement, the Company or the Servicer may, at its
option, with respect to any Series of Certificates, repurchase all Certificates
or 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. Unless otherwise
provided in the related Prospectus Supplement, the repurchase price will equal
the principal amount of such Contracts plus accrued interest from the first day
of the month of repurchase to the first day of the next succeeding month at the
Contract Rates borne by such Contracts.
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 Company or its affiliates and the Servicer or its
affiliates.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company 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. 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 or the Certificates (other than its authentication or execution
thereof) or any Contract, Contract file or related document, and will not be
accountable for the use or application by the Company or CITSF of any funds paid
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to the Company or CITSF in consideration of the conveyance of the Contracts or
deposited into or withdrawn from the Certificate Account. (Section 11.03.) If no
Event of Termination has occurred and after the curing of all Events of
Termination which may have 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. (Section
11.01.) Whether or not an Event of Termination has occurred and after the curing
of all Events of Termination which may have occurred, the Trustee is not
required to expend or risk its own funds or otherwise incur any financial
liability in the performance of its duties or the exercise of its powers if it
has reasonable grounds to believe that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(Section 11.01.)
Under the Agreement, the Servicer agrees to pay to the Trustee on each
Remittance Date (a) reasonable compensation for all services rendered by it
thereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) and (b)
reimbursement for all reasonable expenses, disbursements and advances incurred
or made by the Trustee in accordance with any provision of the Agreement
(including the reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance as may be
attributable to the Trustee's negligence or bad faith. The Servicer has agreed
to indemnify the Trustee for, and to hold it harmless against, any loss,
liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
Trust and the Trustee's duties thereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of the Trustee's powers or duties thereunder. (Section
11.05.)
DESCRIPTION OF FHA INSURANCE AND VA GUARANTEES
Certain of the Contracts may be insured by the Federal Housing
Administration (the "FHA") or guaranteed by the Veterans' Administration (the
"VA"), the payments upon which, subject to the following discussion, are insured
by the FHA under Title I of the National Housing Act or partially guaranteed by
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 anum, (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-Secured
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 10% 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 10% of the reserve amount, and which is increased by an amount equal
to 10% of the original principal balance of insured loans subsequently
originated by the lender. If CITSF 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
CITSF, as Servicer of the FHA-insured Contracts.
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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.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects of
manufactured housing contracts, including Land-Secured Contracts, which are
general in nature. Because such legal aspects are governed by applicable state
law (which laws may differ substantially from state to state), 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 or
Land-Secured Contracts is situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing the
Contracts or Land-Secured Contracts.
The Contracts (Other than Land-Secured Contracts)
General. As a result of the assignment of the Contracts to the Trustee, the
Trust will succeed collectively to all of the rights (including the right to
receive payment on the Contracts) and will assume the obligations of the obligee
under the Contracts. Each 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. Certain
aspects of both features of the Contracts are described more fully below.
The 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. Under the Agreement, the Servicer will retain possession of the Contracts
as custodian of the Trustee, and will make an appropriate filing of a UCC-1
financing statement in Oklahoma and New Jersey to give notice of the Trustee's
ownership of the Contracts. The Contracts will not be stamped to reflect their
assignment from CITSF to the Company or from the Company to the Trustee.
Therefore, if through negligence, fraud or otherwise, a subsequent purchaser
were able to take physical possession of the Contracts without notice of such
assignment, the Trustee's interest in the 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. Security interests in manufactured homes may be perfected 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, depending on state law. In some nontitle states, perfection pursuant
to the provisions of the UCC is required. CITSF effects such notation or
delivery of the required documents and fees, and obtains possession of the
certificate of title, as appropriate under the laws of the state in which a
Manufactured Home is registered. However, contract originators other than CITSF
may not have effected such notation or delivery of the required documents and
fees, and may not have obtained possession of the certificate of title, as
appropriate under the laws of the state in which any manufactured home securing
a manufactured housing conditional sales contract is registered. In the event
CITSF or a contract originator other than CITSF fails, due to clerical errors,
to effect such notation or delivery, or files the security interest under the
wrong law (for example, under a motor vehicle title statute rather than under
the UCC, in a few states), the Trustee may not have a first priority security
interest in the Manufactured Home securing a Contract. 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 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 real estate
laws of some states, the holder of the security interest must file either a
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"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the home is located. See "Land-Secured
Contracts" below. These filings must be made in the real estate records office
of the county where the home is located. CITSF believes that a large portion of
the Contracts will 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 (depending upon the
requirements of applicable state law) 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 retained by the seller and subsequently
transferred to the Company. CITSF will represent that at the date of the initial
issuance of the related Series of Certificates it has obtained a perfected first
priority security interest with respect to the Manufactured Homes securing the
Contracts. Such representation will not, however, be based upon any inspection
of the sites of the Manufactured Homes.
The Company will cause the security interest in the Manufactured Homes to
be assigned to the Trustee on behalf of the Certificateholders. CITSF believes
that in most cases, the certificate of title names the contract originator (or
its affiliates or predecessors or assignee, directly or by mesne assignment) as
the secured party. Unless otherwise specified in the related Prospectus
Supplement, CITSF, the Company and the Trustee will not amend the certificates
of title to identify the Trustee as the new secured party or deliver the
certificates of title to the Trustee or note thereon the interest of the
Trustee. Accordingly, CITSF, or the related contract originator (or its
affiliate, predecessor or assignee) if other than CITSF, will continue to be
named as the secured party on the certificates of title relating to some of the
Manufactured Homes. In most states, such assignment from the related contract
originator (if other than CITSF) to CITSF, from CITSF to the Company and from
the Company to the Trustee is an effective conveyance of such security interest
without amendment of any lien noted on the related certificate of title and the
new secured party succeeds to the rights of the related contract originator (if
other than CITSF), CITSF or the Company, as the case may be, as the secured
party. However, in a few states in the absence of an amendment to the
certificate of title, any such assignment of the security interest in the
Manufactured Home may not be held 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 may not be
effective against creditors or a trustee in bankruptcy or against CITSF or the
Company as debtor-in-possession.
If there are any Manufactured Homes as to which the security interest
assigned to the Trustee 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 interest therein. 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.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another state
and not re-register the Manufactured Home in such state, and if steps were not
taken to re-perfect the Trustee's security interest in such state, the security
interest in the Manufactured Home would cease to be perfected. A majority of
states generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee (or the Servicer, as custodian for
the Trustee) must surrender possession if it holds the certificate of title to
such Manufactured Home or, in the case of Manufactured Homes registered in
states which provide for notation of lien, the contract originator would receive
notice of surrender if the security interest in the Manufactured Home is noted
on the certificate of title and the Servicer may not receive notice.
Accordingly, the Trustee would have the opportunity to re-perfect its security
interest in the Manufactured Home in the state of relocation in the case where
the Servicer holds the certificate of title and is noted as the secured party
thereon and may not have such an opportunity to re-perfect in other cases. In
states which do not require a certificate of title for registration of a
manufactured home, re-registration could defeat perfection. In the ordinary
course of servicing the manufactured housing conditional sales contracts, the
Servicer takes steps to effect such re-perfection upon receipt of notice of
re-registration or information from the obligor as to relocation. Similarly,
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when an obligor under a Contract sells a Manufactured Home, the Trustee (or the
Servicer, as custodian for the Trustee) must surrender possession of the
certificate of title or will receive notice as a result of its lien noted
thereon and, accordingly, will have an opportunity to require satisfaction of
the related manufactured housing conditional sales contract before release of
the lien. Such protections generally would not be available in the case of
security interests in manufactured homes located in nontitle states where
perfection of such security interest is achieved by appropriate filings under
the UCC (as in effect in such state). Under the Agreement, the Servicer is
obligated to take such steps, at the Servicer's expense, as are necessary to
maintain perfection of security interests in the Manufactured Homes.
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 10 to 30 days depending on the 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 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 the subordination of a Class of Subordinated Certificates, 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-Secured Contracts
General. The Land-Secured Contracts will be secured by (i) a first or
second mortgage, deed of trust, or similar instrument, upon the land on which
the Manufactured Home is located and (ii) either (A) a perfected first security
interest or (B) a recorded first mortgage, deed of trust or similar instrument
on the Manufactured Home (depending on whether the Manufactured Home is affixed
to the land and upon the specific provisions of applicable state law). A
mortgage creates a lien upon the real property described in the mortgage. There
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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 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 any necessary party 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
non-judicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
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
lienholder. 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, deed of trust or
similar instrument, 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 be 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. 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 non-judicial
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. A
bankruptcy court may grant a debtor in a bankruptcy case 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. For example, with respect to a
Land-Secured Contract, in a bankruptcy case commenced under Chapter 13 of the
Bankruptcy Code, when it has been determined that the value of a home is less
than the principal balance of the loan, bankruptcy courts historically have
prevented a lender from foreclosing on the home, and, as part of the
rehabilitation plan, reduced the amount of the secured indebtedness to the value
of the home as of the date the bankruptcy case was commenced, leaving the lender
with a general unsecured claim for the difference between that value and the
amount of outstanding indebtedness. This result may be sharply curtailed,
however, as a result of a recent decision by the United States Supreme Court
which denied confirmation of a Chapter 13 debtor's plan of rehabilitation which
proposed to bifurcate a lender's secured claim on the debtor's principal
residence into secured and unsecured claims and reduce the mortgage lien to the
fair market value of the debtor's residence.
The Code provides priority to certain tax liens over the lien of the
mortgage, deed of trust or similar instrument. The laws of some states provide
priority to certain tax liens over the lien of the mortgage, deed of trust or
similar instrument. Numerous federal and some state consumer protection laws
impose substantive requirements upon mortgage lenders in the connection with the
origination, servicing and 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.
Certain Matters Relating to Insolvency
Each of CITSF, as seller of the Contracts to the Company, and the Company,
as seller of the Contracts to the Trustee, intend that the transfer of such
Contracts from CITSF to the Company and from the Company to a Trust,
respectively, will constitute a sale rather than a pledge of the Contracts to
secure indebtedness of CITSF or the Company, respectively. However, if CITSF or
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the Company were to become a debtor under the Bankruptcy Code, it is possible
that a creditor, receiver, other party-in-interest or trustee in bankruptcy of
CITSF or the Company, or CITSF or the Company as a debtor-in-possession may
argue that the sale of the Contracts by CITSF to the Company or by the Company
to the Trust, respectively, was a pledge of the Contracts rather than a sale and
that, accordingly, such Contracts should be part of such entity's bankruptcy
estate. Such a position, if presented to a court, even if ultimately
unsuccessful, could result in a delay in or reduction of distributions to the
related Certificateholders.
A case (Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.),
cert. denied 114 S. Ct. 554 (1993)) decided by the United States Court of
Appeals for the Tenth Circuit contains language to the effect that accounts sold
by a debtor under Article 9 of the UCC would remain property of the debtor's
bankruptcy estate. Although the Contracts constitute chattel paper under the UCC
rather than accounts, sales of chattel paper are similarly governed by Article 9
of the UCC. If, following a bankruptcy of the Company, a court were to follow
the reasoning of the Tenth Circuit and apply such reasoning to chattel paper,
then delays or reductions in payments of collections on or in respect of the
Contracts could occur.
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 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. Neither the Trust nor the Company has
obtained any license required under any federal or state consumer or mortgage
banking laws or regulations, and the absence of such licenses may impede the
enforcement of certain rights or give rise to certain defenses in actions
seeking enforcement rights.
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 the case of those Contracts that do not
contain such due-on-sale clauses, CITSF may permit assumptions of such Contracts
if the purchaser of the related Manufactured Home satisfies CITSF's current
underwriting standards.
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 Depository 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, the Servicer may be prohibited from enforcing a "due-on-sale"
clause in respect of certain Manufactured Homes to the limited extent provided
in the Garn-St. Germain Depository Institutions Act of 1982.
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.
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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 subject to ERISA
("Plans") and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by such Plans. Among other
requirements, ERISA mandates that the assets of Plans be held in trust and that
the trustee, or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of such Plans. Under ERISA, any
person who exercises any authority or control with respect to the management or
disposition of the assets of a Plan is considered to be a fiduciary of such
Plan, subject to the standards of fiduciary conduct under ERISA. These standards
include the requirements that the assets of Plans be invested and managed for
the exclusive benefit of Plan participants and beneficiaries, a determination by
the Plan fiduciary that any such investment is permitted under the governing
Plan instruments and is prudent and appropriate for the Plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Certain employee benefit plans, such as governmental plans (as
defined in ERISA Section 3(32)) and certain church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA. Accordingly, assets of such plans may
be invested in Certificates without regard to the ERISA considerations described
herein, subject to provisions of other federal and applicable state laws. Any
such plan which is qualified and exempt from taxation under Sections 401(a) and
501(a) of the Code, however, is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
Code, prohibit 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. An investment in the Certificates
by a Plan might constitute prohibited transactions under the foregoing
provisions unless an administrative exemption applies. In addition, if an
investing Plan's assets were deemed to include an interest in the assets of the
Contract Pool and not merely an interest in the Certificates, transactions
occurring in the operation of the Contract Pool might constitute prohibited
transactions unless an administrative exemption applies. Certain such exemptions
which may be applicable to the acquisition and holding of the Certificates or to
the servicing and operation of the Contract Pool are noted below.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) (the "DOL Regulation") concerning the definition of what constitutes
the assets of a Plan. The DOL Regulation provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other 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. However, the DOL Regulation provides that, generally, the
assets of a corporation or partnership in which a Plan invests will not be
deemed for purposes of ERISA to be assets of such Plan if the equity interest
acquired by the investing Plan is a publicly-offered security. A
publicly-offered security, as defined under the DOL Regulation, is a security
that is widely held, freely transferable, and registered under the Securities
Exchange Act of 1934, as amended. The Certificates are not expected to be
publicly-offered securities under the terms of the DOL Regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of
ERISA (and from the prohibited transaction excise provisions of Section 4975 of
the Code) may be found under the provisions of specific statutory or
administrative exemptive relief authorities under Section 408 of ERISA. In
Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended Prohibited
Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited transaction
rules certain transactions relating to the operation of residential mortgage
pool investment trusts and the purchase, sale and holding of "mortgage pool
pass-through certificates" in the initial issuance of such certificates. PTE
83-1 permits, subject to certain conditions, transactions which might otherwise
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be prohibited between Plans and parties in interest with respect to those Plans
related to the origination, maintenance and termination of mortgage pools
consisting of mortgage loans secured by first or second mortgages or deeds of
trust on single-family residential property, and the acquisition and holding of
certain mortgage pool pass-through certificates representing an interest in such
mortgage pools by Plans. If the general conditions of PTE 83-1 are satisfied,
investments by a Plan in certificates that represent interests in a mortgage
pool consisting of single family loans will be exempt from the prohibitions of
Sections 406(a) and 407 of ERISA (relating generally to transactions with
parties in interest who are not fiduciaries) if the Plan purchases such
certificates at no more than fair market value, and will be exempt from the
prohibitions of Section 406(b)(1) and (2) of ERISA (relating generally to
transactions with fiduciaries) if, in addition, the purchase is approved by an
independent fiduciary, no sales commission is paid to the pool sponsor, the Plan
does not purchase more than 25% of such certificates, and at least 50% of all
such certificates are purchased by persons independent of the pool sponsor or
pool trustee. However, PTE 83-1 does not provide an exemption for transactions
involving subordinate certificates or for certificates representing an interest
in conditional sales contracts and installment sales or loan agreements secured
by manufactured housing like the Contracts.
There can be no assurance that any of the exceptions set forth in the DOL
Regulation, PTE 83-1 or any other administrative exemption under ERISA, will
apply to the purchase of Certificates offered hereby, and, as a result, an
investing Plan's assets could be considered to include an undivided interest in
the Contracts and any other assets held in the Contract Pool. In the event that
assets of a Contract Pool are considered assets of an investing Plan, the
Company, the Servicer, the Trustee and other persons, in providing services with
respect to the Contracts, may be considered fiduciaries to such Plan and subject
to the fiduciary responsibility provisions of Title I of ERISA and the
prohibited transaction provisions of Section 4975 of the Code with respect to
transactions involving such assets unless a statutory or administrative
exemption applies.
In addition, certain affiliates of the Company may be considered to be
parties in interest or disqualified persons with respect to some Plans. An
investment by such a Plan may be a prohibited transaction under ERISA and the
Code unless such investment is subject to a statutory or administrative
exemption.
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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership, and disposition of the
Certificates. The discussion is based upon laws, regulations, rulings, and
decisions now in effect, including Treasury Regulations issued on December 23,
1992 (the "REMIC Regulations"), all of which are subject to change or possibly
differing interpretations. The discussion does not purport to deal with federal
income tax consequences applicable to all categories of investors, some of which
may be subject to special rules. Investors should consult their own tax advisors
to determine the federal, state, local, and other tax consequences of the
purchase, ownership, and disposition of the Certificates.
Many aspects of the federal tax treatment of the purchase, ownership, and
disposition of the Certificates will depend upon whether an election is made to
treat the Trust, or a segregated portion thereof evidenced by a particular
series or sub-series of Certificates, as a REMIC within the meaning of Section
860D(a) of the Code. The Prospectus Supplement for each series will indicate
whether or not an election to be treated as a REMIC has been or will be made
with respect thereto. The following discussion deals first with Series with
respect to which a REMIC Election is made and then with Series with respect to
which a REMIC Election is not made.
REMIC Series
With respect to each Series of Certificates for which a REMIC Election is
made, counsel to the Company identified in the applicable Prospectus Supplement
will have advised the Company that in its opinion, assuming (i) the making of
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that election in accordance with the requirements of the Code and (ii) ongoing
compliance with the applicable Agreement, and in reliance upon the
representations and warranties in the Agreement, at the initial issuance of the
Certificates in such Series the Trust will qualify as a REMIC and the
Certificates in such Series ("REMIC Certificates") will be treated either as
regular interests in the REMIC within the meaning of Section 860G(a)(1) of the
Code ("Regular Certificates") or as residual interests in the REMIC within the
meaning of Section 860G(a)(2) of the Code ("Residual Certificates").
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with certain requirements and the following discussion assumes that
such requirements will be satisfied by the Trust as long as there are any REMIC
Certificates outstanding. Substantially all of the assets of the REMIC must
consist of "qualified mortgages" and "permitted investments" as of the close of
the third month beginning after the day on which the REMIC issues all of its
regular and residual interests (the "Startup Day") and at all times thereafter.
The term "qualified mortgage" means any obligation (including a participation or
certificate of beneficial ownership in such obligation) which is principally
secured by an interest in real property that is transferred to the REMIC on the
Startup Day in exchange for regular or residual interests in the REMIC or is
purchased by the REMIC within the three-month period beginning on the Startup
Day if such purchase is pursuant to a fixed price contract in effect on the
Startup Day. The REMIC Regulations provide that an obligation is principally
secured by an interest in real property if the fair market value of the real
property securing the obligation is at least equal to either (i) 80% of the
issue price (generally, the principal balance) of the obligation at the time it
was originated or (ii) 80% of the adjusted issue price (the then-outstanding
principal balance, with certain adjustments) of the obligation at the time it is
contributed to a REMIC. In the case of a second mortgage, the fair market value
of the underlying real property must be reduced by the amount of any lien that
is senior to such mortgage, and must be further reduced by a proportionate
amount of any lien which is in parity with such mortgage. Alternatively, an
obligation is principally secured by an interest in real property if
substantially all of the proceeds of the obligation were used to acquire or to
improve or protect an interest in real property that, at the origination date,
is the only security for the obligation (other than the personal liability of
the obligor). A qualified mortgage also includes a qualified replacement
mortgage that is used to replace any qualified mortgage within three months of
the Startup Day or to replace a defective mortgage within two years of the
Startup Day. The REMIC Regulations provide that obligations secured by
manufactured housing which are treated as "single family residences" under
Section 25(e)(10) of the Code will qualify as obligations secured by real
property without regard to state law classifications. See the discussion below
under "REMIC Series--Status of Manufactured Housing Contracts".
Permitted Investments. Permitted investments consist of (a) temporary
investments of cash received under qualified mortgages before distribution to
holders of interests in the REMIC ("cash-flow investments"), (b) amounts, such
as a fund (a "reserve fund"), if any, reasonably required to provide for full
payment of expenses of the REMIC, the principal and interest due on regular or
residual interests in the event of defaults on qualified mortgages, lower than
expected returns on cash-flow investments, prepayment interest shortfalls or
certain other contingencies ("qualified reserve assets"), and (c) certain
property acquired as a result of foreclosure of defaulted qualified mortgages
("foreclosure property"). Certain credit enhancement arrangements which provide
for full or partial payment on one or more classes of Regular Interests in the
event of defaults or delinquencies on qualified mortgages, unanticipated losses
or expenses incurred by the REMIC or lower than expected returns on cash flow
investments are not treated as separate assets of the REMIC under the REMIC
Regulations and payments under such arrangements are treated as payments
received on qualified mortgages. In addition, the REMIC Regulations do not treat
certain reserve funds maintained outside of the REMIC as an asset of the REMIC.
A reserve fund will not be qualified if more than 30% of the gross income from
the assets in the reserve fund is derived from the sale or other disposition of
property held for less than three months, unless such sale is necessary to
prevent a default in payment of principal or interest on a regular interest as
the result of a default on a qualified mortgage. In accordance with Section
860G(a)(7) of the Code, a reserve fund must be "promptly and appropriately"
reduced as payments on Contracts are received. Foreclosure property will be a
permitted investment only to the extent that such property is not held for more
than two years.
The Code requires that in order to qualify as a REMIC an entity must make
reasonable arrangements designed to ensure that certain specified entities,
generally including governmental entities or other entities that are exempt from
United States tax, including the tax on unrelated business income ("Disqualified
Organizations"), not hold residual interests in the REMIC. Consequently, in the
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case of any Trust for which a REMIC Election is made the transfer, sale or other
disposition of a Residual Certificate to a Disqualified Organization will be
prohibited and the ability of a Residual Certificate to be transferred will be
conditioned on the Trustee's receipt of a certificate or other document
representing that the proposed transferee is not a Disqualified Organization.
The transferor of a Residual Certificate must not, as of the time of the
transfer, have actual knowledge that such representation is false. The Code
further requires that reasonable arrangements must be made to enable a REMIC to
provide the Internal Revenue Service (the "Service") and certain other parties,
including transferors of residual interests in a REMIC, with the information
needed to compute the tax imposed by Section 860E(e)(1) of the Code if, in spite
of the steps taken to prevent Disqualified Organizations from holding residual
interests, such an organization does, in fact, acquire a residual interest.
If the Trust fails to comply with one or more of the ongoing requirements
for qualification as a REMIC, the Trust will not be treated as a REMIC for the
year during which such failure occurs and thereafter unless the Service
determines, in its discretion, that such failure was inadvertent (in which case,
the Service may require any adjustments which it deems appropriate). If the
ownership interests in the assets of the Trust consist of multiple classes,
failure to treat the Trust as a REMIC may cause the Trust to be treated as an
association taxable as a corporation. Such treatment could result in income of
the Trust being subject to corporate tax in the hands of the Trust and in a
reduced amount being available for distribution to Certificateholders as a
result of the payment of such taxes.
Status of Manufactured Housing Contracts. 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 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 Company will represent and warrant that each of the manufactured
homes securing the Contracts which is part of a Trust which makes a REMIC
Election meets this definition of a "single family residence." See the
discussion above under "REMIC Series--Qualification as a REMIC."
Two-Tier REMIC Structures. For certain Series of Certificates, two separate
elections may be made to treat segregated portions of the assets of a single
Trust as REMICs for federal income tax purposes (respectively, the "Subsidiary
REMIC" and the "Master REMIC"). Upon the issuance of any such Series of
Certificates, counsel will have advised the Company, as described above, that at
the initial issuance of the Certificates, the Subsidiary REMIC and the Master
REMIC will each qualify as a REMIC for federal income tax purposes, and that the
Certificates in such a series will be treated either as Regular Certificates or
Residual Certificates of the appropriate REMIC. Solely for the purpose of
determining whether such Regular Certificates will constitute qualifying real
estate or real property assets for certain categories of financial institutions
or real estate investment trusts as described below, both REMICs in a two-tier
REMIC structure will be treated as one. See the discussion below under "REMIC
Series--Taxation of Regular Interests".
Taxation of Regular Interests. Regular Certificates will be treated as new
debt instruments issued by the REMIC on the Startup Day. Stated interest on a
Regular Certificate will be taxable as ordinary income. Holders of Regular
Certificates that would otherwise report income under a cash method of
accounting will be required to report income with respect to such Regular
Certificates under the accrual method. Under Temporary Treasury Regulations, if
a Trust, with respect to which a REMIC Election is made, is considered to be a
"single-class REMIC," a portion of the REMIC's servicing fees, administrative
and other non-interest expenses, including assumption fees and late payment
charges retained by the Company, will be allocated as a separate item to those
Regular Certificateholders that are "pass-through interest holders". Generally,
a single-class REMIC is defined as a REMIC that would be treated as a fixed
investment trust under applicable law but for its qualification as a REMIC, or a
REMIC that is substantially similar to an investment trust but is structured
with the principal purpose of avoiding this allocation requirement imposed by
the Temporary Treasury Regulations. Generally, a pass-through interest holder
refers to individuals, entities taxed as individuals, such as certain trusts and
estates, which hold their Regular Certificates either directly or through
certain pass-through entities. Such a Holder of a Regular Certificate in a
single-class REMIC will be allowed to deduct the foregoing expenses under
Section 212 of the Code only to the extent that, in the aggregate and combined
with certain other miscellaneous itemized deductions, they exceed 2% of the
adjusted gross income of the holder. In addition, Section 68 of the Code
provides that the amount of certain itemized deductions (including those
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provided for in Section 212 of the Code) otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds an inflation-adjusted
threshold amount specified in the Code ($111,800 for taxable years beginning in
1994, in the case of a joint return) will be reduced by the lesser of (i) 3% of
the excess of adjusted gross income over the specified threshold amount or (ii)
80% of the amount of itemized deductions otherwise allowable for such taxable
year. As a result of the foregoing limitations, certain Holders of Regular
Certificates in "single-class REMICs" may not be entitled to deduct all of any
part of the foregoing expenses.
Tax Status of REMIC Certificates. In general, (i) Regular Certificates
held by a financial institution described in Section 593(a) of the Code will
represent interests in "qualifying real property loans" within the meaning of
Section 593(d) of the Code; (ii) Regular Certificates held by a "domestic
building and loan association" within the meaning of Section 7701(a)(19) of the
Code will constitute "a regular . . . interest in a REMIC" within the meaning of
Section 7701(a)(19)(c)(xi) of the Code; and (iii) Regular Certificates held by a
real estate investment trust will constitute "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code and interest thereon will be
considered "interest on obligations secured by mortgages on real property"
within the meaning of Section 856(c)(3)(B) of the Code. If less than 95% of the
average adjusted basis of the assets comprising the REMIC are assets qualifying
under any of the foregoing Sections of the Code (including assets described in
Section 7701(a)(19)(C) of the Code), then the Regular Certificates will be
qualifying assets only to the extent that the assets comprising the REMIC are
qualifying assets. Treasury Regulations promulgated pursuant to Section 593 of
the Code define "qualifying real property loans" to include a loan secured by
manufactured housing treated as a single family residence under Section
25(e)(10) of the Code. Section 7701(a)(19)(C)(v) of the Code provides that
"loans secured by an interest in real property" includes loans secured by mobile
homes not used on a transient basis. Treasury Regulations promulgated pursuant
to Section 856 of the Code provide that the term "real estate asset" includes
manufactured housing treated as a single family residence under Section
25(e)(10) of the Code. Furthermore, interest paid with respect to Certificates
held by a real estate investment trust will be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code to the same
extent that the Certificates themselves are treated as real estate assets.
Regular Certificates held by a regulated investment company or a real estate
investment trust will not constitute "Government securities" within the meaning
of Sections 851(b)(4)(A)(i) and 856(c)(5)(A) of the Code, respectively. In
addition, the REMIC Regulations provide that payments on Contracts held and
reinvested pending distribution to Certificateholders will be considered to be
"qualifying real property loans" within the meaning of Section 593(b) of the
Code and "real estate assets" within the meaning of Section 856(c)(5)(A) of the
Code. Entities affected by the foregoing provisions of the Code that are
considering the purchase of Certificates should consult their own tax advisors
regarding these provisions.
Original Issue Discount. Regular Certificates may be issued with "original
issue discount". Rules governing original issue discount are set forth in
Sections 1271-1273 and 1275 of the Code and Treasury Regulations issued
thereunder in January 1994 (the "OID Regulations"). Although the rules relating
to original issue discount contained in the Code were modified by the Tax Reform
Act of 1986 specifically to address the tax treatment of securities, such as the
Regular Certificates, on which principal is required to be prepaid based on
prepayments of the underlying assets, regulations under that legislation have
not yet been finalized. Certificateholders also should be aware that the OID
Regulations do not address certain issues relevant to prepayable securities such
as the Regular Certificates. Moreover, under the OID Regulations, there is some
uncertainty as to the requirements for treating stated interest on a debt
obligation like a Regular Certificate as "qualified stated interest". If the
stated interest payments on a Regular Certificate were not considered to be
"qualified stated interest", such interest would be treated as OID in the manner
described below and, in the case of a Regular Certificate otherwise issued with
de minimis OID, would cause all of the OID on such a Regular Certificate to be
treated as non-de minimis OID.
In general, in the hands of the original Holder of a Regular Certificate,
original issue discount, if any, is the difference between the "stated
redemption price at maturity" of the Regular Certificate and its "issue price".
The original issue discount with respect to a Regular Certificate will be
considered to be zero if it is less than .25% of the Regular Certificate's
stated redemption price at maturity multiplied by the number of complete years
from the date of issue of such Regular Certificate to its maturity date. The OID
Regulations, however, provide a special de minimis rule to apply to obligations
such as the Regular Certificates that have more than one principal payment or
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that have interest payments that are not qualified stated interest as defined in
the OID Regulations, payable before maturity ("installment obligations"). Under
the special rule, original issue discount on an installment obligation is
generally considered to be zero if it is less than .25% of the stated redemption
price at maturity (generally the principal amount) of the obligation multiplied
by the weighted average maturity of the obligation as defined in the OID
Regulations. Because of the possibility of prepayments, it is not clear whether
or how the de minimis rules will apply to the Regular Certificates. It is
possible that the anticipated rate of prepayments assumed in pricing the debt
instrument (the "Prepayment Assumption") will be required to be used in
determining the weighted average maturity of the Regular Certificates. In the
absence of authority to the contrary, the Company expects to apply the de
minimis rule applicable to installment obligations by using the Prepayment
Assumption. The OID Regulations provide a further special de minimis rule
applicable to any Regular Certificates that provide for payments of principal no
more rapidly than a "self-amortizing installment obligation," i.e., an
obligation that provides for equal payments composed of principal and qualified
stated interest payable unconditionally at least annually during its entire
term, with no significant additional payment required at maturity. Under this
special rule, original issue discount is generally considered to be zero if it
is less than .167% of the stated redemption price at maturity (generally the
principal amount) of the obligation multiplied by the number of complete years
from the date of issue of such a Regular Certificate to its maturity date.
Generally, the original Holder of a Regular Certificate that includes a de
minimis amount of original issue discount includes that original issue discount
in income as principal payments are made. The amount includable in income with
respect to each principal payment equals a pro rata portion of the entire amount
of de minimis original issue discount with respect to that Regular Certificate.
Any de minimis amount of original issue discount includable in income by a
Holder of a Regular Certificate is generally treated as a capital gain if the
Regular Certificate is a capital asset in the hands of the Holder thereof.
Pursuant to the OID Regulations, a Holder of a Regular Certificate may, however,
elect to include in gross income all interest that accrues on a Regular
Certificate, including any de minimis original issue discount and market
discount, by using the constant yield method described below with respect to
original issue discount.
The stated redemption price at maturity of a Regular Certificate generally
will be equal to the sum of all payments, whether denominated as principal or
interest, to be made with respect thereto other than "qualified stated
interest". Pursuant to the OID Regulations, qualified stated interest is stated
interest that is unconditionally payable at least annually at a single fixed
rate of interest (or, under certain circumstances, a variable rate tied to an
objective index. See "REMIC Series--Variable Rate Regular Certificates" below)
during the entire term of the Regular Certificate (including short periods). In
the absence of authority to the contrary and if otherwise appropriate, the
Company expects to determine the stated redemption price at maturity of a
Regular Certificate, by assuming that the anticipated rate of prepayment for all
Contracts will occur in such a manner that the initial Remittance Rate for a
Certificate will not change. Accordingly, interest at the initial Remittance
Rate will constitute qualified stated interest payments for purposes of applying
the original issue discount provisions of the Code. In general, the issue price
of a Regular Certificate is the price paid by the first buyer of the particular
Regular Certificate or, in the case of a Regular Certificate included in a class
that is publicly offered, the initial offering price to the public at which a
substantial amount of the Regular Certificates of such class are sold to the
public (excluding bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters or wholesalers). If a portion of the
initial offering price of a Regular Certificate is allocable to interest that
has accrued prior to its date of issue, the issue price of such a Regular
Certificate includes that pre-issuance accrued interest.
If the Regular Certificates are determined to be issued with original issue
discount, a Holder of a Regular Certificate must generally include the original
issue discount in ordinary gross income for federal income tax purposes as it
accrues in advance of the receipt of any cash attributable to such income. The
amount of original issue discount, if any, required to be included in a Regular
Certificateholder's ordinary gross income for federal income tax purposes in any
taxable year will be computed in accordance with Section 1272(a) of the Code and
the OID Regulations. Under such Section and the OID Regulations, original issue
discount accrues on a daily basis under a constant yield method that takes into
account the compounding of interest. The amount of original issue discount to be
included in income by a holder of a debt instrument, such as a Regular
Certificate, under which principal payments may be subject to acceleration
because of prepayments of other debt obligations securing such instruments, is
computed by taking into account the Prepayment Assumption.
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The amount of original issue discount includable in income by a Holder of a
Regular Certificate is the sum of the "daily portions" of the original issue
discount for each day during the taxable year on which the Holder held the
Regular Certificate. The daily portions of original issue discount are
determined by allocating to each day in any "accrual period" a pro rata portion
of the excess, if any, of the sum of (i) the present value of all remaining
payments to be made on the Regular Certificate as of the close of the "accrual
period" and (ii) the payments during the "accrual period" of amounts included in
the stated redemption price of the Regular Certificate over the "adjusted issue
price" of the Regular Certificate at the beginning of the "accrual period".
Generally, the "accrual periods" for the Regular Certificates correspond to the
intervals at which amounts are paid or compounded with respect to such Regular
Certificates beginning with their date of issuance and ending with their
maturity date. The "adjusted issue price" of a Regular Certificate at the
beginning of any accrual period is the sum of the issue price and accrued
original issue discount for each prior accrual period reduced by the amount of
payments other than payments of qualified stated interest made during each prior
accrual period. The Code requires the present value of the remaining payments to
be determined on the basis of (a) the original yield to maturity (determined on
the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period), (b) events including actual
prepayments, which have occurred before the close of the accrual period, and (c)
the assumption that the remaining payments will be made in accordance with the
original Prepayment Assumption. The effect of this method is to increase the
portions of original issue discount that a Regular Certificateholder must
include in income to take into account prepayments with respect to the Contracts
held by the Trust that occur at a rate that exceeds the Prepayment Assumption
and to decrease (but not below zero for any period) the portions of original
issue discount that a Regular Certificateholder must include in income to take
into account prepayments with respect to the Contracts that occur at a rate that
is slower than the Prepayment Assumption. Although original issue discount will
be reported to Regular Certificateholders based on the Prepayment Assumption, no
representation is made to Regular Certificateholders that the Contracts will be
prepaid at that rate or at any other rate.
A subsequent purchaser of a Regular Certificate will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Regular Certificate, unless the price paid equals or exceeds the Regular
Certificate's outstanding principal amount. If the price paid exceeds the sum of
the Regular Certificate's issue price plus the aggregate amount of original
issue discount accrued with respect to the Regular Certificate, but does not
equal or exceed the outstanding principal amount of the Regular Certificate, the
amount of original issue discount to be accrued will be reduced in accordance
with a formula set forth in Section 1272(a)(7)(B) of the Code.
The Company believes that the Holder of a Regular Certificate determined to
be issued with non-de minimis original issue discount will be required to
include the original issue discount in ordinary gross income for federal income
tax purposes computed in the manner described above. However, the OID
Regulations either do not address or are subject to varying interpretations with
respect to several issues concerning the computation of original issue discount
for obligations such as the Regular Certificates.
Variable Rate Regular Certificates. Regular Certificates may bear interest
at a variable rate. Under the OID Regulations, if a variable rate Regular
Certificate provides for qualified stated interest payments computed on the
basis of certain qualified floating rates or objective rates, then any original
issue discount on such a Regular Certificate is computed and accrued under the
same methodology that applies to Regular Certificates paying qualified stated
interest at a fixed rate. Accordingly, if the issue price of such a Regular
Certificate is equal to its stated redemption price at maturity, the Regular
Certificate will not have any original issue discount. Under the OID
Regulations, certain variable interest rates payable on Regular Certificates,
including rates based upon the weighted average interest rate of a Pool of
Contracts, may not be treated as qualified stated interest. In such case, the
OID Regulations would treat interest under such rates as contingent interest
which generally must be included in income by the Regular Certificateholder when
the interest becomes fixed, as opposed to when it accrues. Further information
regarding the treatment of variable interest that does not constitute qualified
stated interest will be provided, when necessary, in the Prospectus Supplement
relating to the issuance of such Regular Certificates.
For purposes of applying the original issue discount provisions of the
Code, all or a portion of the interest payable with respect to a variable rate
Regular Certificate may not be treated as qualified stated interest in certain
circumstances, including the following: (i) if the variable rate of interest is
subject to one or more minimum or maximum rate ceilings which are not fixed
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throughout the term of the Regular Certificate and which are reasonably expected
as of the issue date to cause the rate in certain accrual periods to be
significantly higher or lower than the overall expected return on the Regular
Certificate determined without such minimum or maximum rates; (ii) if it is
reasonably expected that the average value of the variable rate during the first
half of the term of the Regular Certificate will be either significantly less
than or greater than the average value of the rate during the final half of the
term of the Regular Certificate; or (iii) if interest is not payable in all
circumstances. In these situations, as well as others, it is unclear under the
OID Regulations whether or to what extent such interest payments constitute
qualified stated interest payments, must be treated either as part of a Regular
Certificate's stated redemption price at maturity resulting in original issue
discount, or represent contingent payments which are recognized as ordinary
gross income for federal income tax purposes only as the interest payments
become fixed in each accrual period.
If a variable rate Regular Certificate is deemed to have been issued with
original issue discount, as described above, the amount of original issue
discount accrues on a daily basis under a constant yield method that takes into
account the compounding of interest; provided, however, that the interest
associated with such a Regular Certificate generally is assumed to remain
constant throughout the term of the Regular Certificate at a rate that, in the
case of a qualified floating rate, equals the value of such qualified floating
rate as of the issue date of the Regular Certificate, or, in the case of an
objective rate, at a fixed rate that reflects the yield that is reasonably
expected for the Regular Certificate. A Holder of such a Regular Certificate
would then recognize original issue discount during such accrual period at a
rate equal to such a Regular Certificate's original, assumed yield to maturity,
adjusted to reflect the difference between the assumed and actual interest rate.
The OID Regulations either do not address or are subject to varying
interpretations with respect to several issues concerning the computation of
original issue discount with respect to the Regular Certificates, including
variable rate Regular Certificates. When available, additional information
regarding the manner of reporting original issue discount to the Service and to
Holders of variable rate Regular Certificates will be set forth in the
Prospectus Supplement relating to the issuance of such Regular Certificates.
Market Discount. Regular Certificates, whether or not issued with original
issue discount, will be subject to the market discount rules of the Code. A
purchaser of a Regular Certificate who purchases the Regular Certificate at a
market discount (i.e., a discount from its original issue price plus any accrued
original issue discount, if any, as described above) will be required to
recognize accrued market discount as ordinary income as payments of principal
are received on such Regular Certificate or upon the disposition of the Regular
Certificate. In general, the Holder of a Regular Certificate may elect to treat
market discount as accruing either (i) under a constant yield method that is
similar to the method for the accrual of original issue discount or (ii) in
proportion to accruals of original issue discount (or, if there is no original
issue discount, in proportion to accruals of stated interest), in each case
computed taking into account the Prepayment Assumption.
The Code provides that the market discount in respect of a Regular
Certificate will be considered to be zero if the amount allocable to the Regular
Certificate is less than 0.25% of the Regular Certificate's stated redemption
price at maturity multiplied by the number of complete years remaining to its
maturity after the Holder acquired the obligation. If market discount is treated
as de minimis under this rule, the actual discount would be allocated among a
portion of each scheduled distribution representing the stated redemption price
of such Regular Certificate and that portion of the discount allocable to such
distribution would be reported as income when such distribution occurs or is
due.
The Code further provides that any principal payment with respect to a
Regular Certificate acquired with market discount or any gain on disposition of
such a Regular Certificate shall be treated as ordinary income to the extent it
does not exceed the accrued market discount at the time of such payment. The
amount of accrued market discount for purposes of determining the amount of
ordinary income to be recognized with respect to subsequent payments on such a
Regular Certificate is to be reduced by the amount previously treated as
ordinary income.
The Code grants authority to the Treasury Department to issue regulations
providing for the computation of accrued market discount on debt instruments
such as the Regular Certificates. Until such time as regulations are issued,
rules described in the legislative history for these provisions of the Code will
apply. Under those rules, as described above, the Holder of a Regular
Certificate with market discount may elect to accrue market discount either on
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the basis of a constant interest rate or according to certain other methods.
Certificateholders who acquire a Regular Certificate at a market discount should
consult their tax advisors concerning various methods which are available for
accruing that market discount.
In general, limitations imposed by the Code that are intended to match
deductions with the taxation of income may require a Holder of a Regular
Certificate having market discount to defer a portion of the interest deductions
attributable to any indebtedness incurred or continued to purchase or carry such
Regular Certificate. Alternatively, a Holder of a Regular Certificate may elect
to include market discount in gross income as it accrues and, if he makes such
an election, is exempt from this rule. The adjusted basis of a Regular
Certificate subject to such election will be increased to reflect market
discount included in gross income, thereby reducing any gain or increasing any
loss on a sale or taxable disposition.
Amortizable Premium. A Holder of a Regular Certificate who holds the
Regular Certificate as a capital asset and who purchased the Regular Certificate
at a cost greater than its outstanding principal amount will be considered to
have purchased the Regular Certificate at a premium. In general, the Regular
Certificateholder may elect to deduct the amortizable bond premium as it accrues
under a constant yield method. A Regular Certificateholder's tax basis in the
Regular Certificate will be reduced by the amount of the amortizable bond
premium deducted. In addition, it appears that the same methods which apply to
the accrual of market discount on installment obligations are intended to apply
in computing the amortizable bond premium deduction with respect to a Regular
Certificate. It is not clear, however, (i) whether the alternatives to the
constant-yield method which may be available for the accrual of market discount
are available for amortizing premium on Regular Certificates and (ii) whether
the Prepayment Assumption should be taken into account in determining the term
of a Regular Certificate for this purpose. Certificateholders who pay a premium
for a Regular Certificate should consult their tax advisors concerning such an
election and rules for determining the method for amortizing bond premium.
Gain or Loss on Disposition. If a Regular Certificate is sold, the seller
will recognize gain or loss equal to the difference between the amount realized
from the sale and the seller's adjusted basis in such Regular Certificate. The
adjusted basis generally will equal the cost of such Regular Certificate to the
seller, increased by any original issue discount included in the seller's
ordinary gross income with respect to such Regular Certificate and reduced (but
not below zero) by any payments on the Regular Certificate previously received
or accrued by the seller (other than qualified stated interest payments) and any
amortizable premium. Similarly, a Regular Certificateholder who receives a
principal payment with respect to a Regular Certificate will recognize gain or
loss equal to the difference between the amount of the payment and the Holder's
allocable portion of his or her adjusted basis in the Regular Certificate.
Except as discussed below or with respect to market discount, any gain or loss
recognized upon a sale, exchange, retirement, or other disposition of a Regular
Certificate will be capital gain if the Regular Certificate is held as a capital
asset.
Gain from the disposition of a Regular Certificate that might otherwise be
capital gain, including any gain attributable to de minimis original issue
discount, will be treated as ordinary income to the extent of the excess, if
any, of (i) the amount that would have been includable in the Holder's income if
the yield on such Regular Certificate had equaled 110% of the applicable federal
rate determined as of the beginning of such Holder's holding period, over (ii)
the amount of ordinary income actually recognized by the Holder with respect to
such Regular Certificate.
Certain Taxes on the REMIC. The REMIC provisions of the Code impose a 100%
tax on any net income derived by a REMIC from certain prohibited transactions.
Such transactions are (i) any disposition of a qualified mortgage, other than
pursuant to the substitution of a qualified replacement mortgage for a qualified
mortgage (or the repurchase in lieu of substitution of a defective obligation),
a disposition incident to the foreclosure, default, or imminent default of a
mortgage, the bankruptcy or insolvency of the REMIC, or a qualified liquidation
of the REMIC; (ii) the receipt of income from assets other than qualified
mortgages and permitted investments; (iii) the receipt of compensation for
services; and (iv) the receipt of gain from the dispositions of cash flow
investments. The REMIC Regulations provide that the modification of the terms of
a Contract occasioned by default or a reasonably foreseeable default of the
Contract, the assumption of the Contract, the waiver of a due-on-sale clause or
the conversion of an interest rate by an Obligor pursuant to the terms of a
convertible adjustable-rate Contract will not be treated as a disposition of the
Contract. The Code also imposes a 100% tax on contributions to a REMIC made
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after the Startup Day, unless such contributions are payments made to facilitate
a cleanup call or a qualified liquidation of the REMIC, payments in a nature of
a guaranty, contributions during the three-month period beginning on the Startup
Day or contributions to a qualified reserve fund of the REMIC by a Holder of a
residual interest in the REMIC. The Code also imposes a tax on a REMIC at the
highest corporate rate on certain net income from foreclosure property that the
REMIC derives from the management, sale, or disposition of any real property, or
any personal property incident thereto, acquired by the REMIC in connection with
the default or imminent default of a loan. Generally, it is not anticipated that
a Trust which makes a REMIC Election will generate a significant amount of such
income.
Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a "qualified liquidation". A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation and sells all of its
assets (other than cash) within the ninety-day period beginning on the date of
the adoption of the plan of liquidation, provided that it distributes to Holders
of Regular or Residual Certificates, on or before the last day of the ninety-day
liquidation period, all the proceeds of the liquidation (plus all cash), less
amounts remained to meet claims.
Taxation of Certain Foreign Investors. For purposes of this discussion, a
"Foreign Holder" is a Certificateholder who holds a Regular Certificate and who
is not (i) a citizen or resident of the United States, (ii) a corporation,
partnership, or other entity organized in or under the laws of the United States
or a political subdivision thereof or (iii) an estate or trust the income of
which is includable in gross income for United States tax purposes regardless of
its source. Unless the interest on a Regular Certificate is effectively
connected with the conduct by the Foreign Holder of a trade or business within
the United States, the Foreign Holder is not subject to federal income or
withholding tax on interest (or original issue discount, if any) on a Regular
Certificate (subject to possible backup withholding of tax, discussed below),
provided the Foreign Holder is not a controlled foreign corporation related to
the Company (or subsequent holder of the Residual Certificates) and does not own
actually or constructively 10% or more of the voting stock of the Company (or
subsequent holder of the Residual Certificates). To qualify for this tax
exemption, the Foreign Holder will be required to provide periodically a
statement signed under penalties of perjury certifying that the Foreign Holder
meets the requirements for treatment as a Foreign Holder and providing the
Foreign Holder's name and address. The statement, which may be made on a Form
W-8 or substantially similar substitute form, generally must be provided in the
year a payment occurs or in either of the two preceding years. The statement
must be provided either directly or through a clearing organization or financial
institution intermediaries, to the person that otherwise would withhold tax.
This exemption may not apply to a Foreign Holder that owns both Regular
Certificates and Residual Certificates. If the interest on a Regular Certificate
is effectively connected with the conduct by a Foreign Holder of a trade or
business within the United States, then the Foreign Holder will be subject to
tax at the regular graduated rates and such a Foreign Holder may avoid
withholding of tax on such interest (or original issue discount, if any) if the
Foreign Holder provides a properly completed Form 4224. Foreign Holders should
consult their own tax advisors regarding the specific tax consequences of their
owning a Regular Certificate.
Any gain recognized by a Foreign Holder upon a sale, retirement or other
taxable disposition of a Regular Certificate generally will not be subject to
United States federal income tax unless either (i) the Foreign Holder is a
non-resident alien individual who holds the Regular Certificate as a capital
asset and who is present in the United States for 183 days or more in the
taxable year of the disposition and either the gain is attributable to an office
or other fixed place of business maintained in the U.S. by the individual or the
individual has a "tax home" in the United States, or (ii) the gain is
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States.
A Regular Certificate will not be includible in the estate of a Foreign
Holder who does not own actually or constructively 10% or more of the voting
stock of the Company (or subsequent holder of the Residual Certificates).
Backup Withholding. Under certain circumstances, a REMIC Certificateholder
may be subject to "backup withholding" at a 31% rate. Backup withholding may
apply to a REMIC Certificateholder who is a United States person if the Holder,
among other circumstances, fails to furnish his Social Security number or other
taxpayer identification number to the Trustee. Backup withholding may apply,
under certain circumstances, to a REMIC Certificateholder who is a foreign
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person if the REMIC Certificateholder fails to provide the trustee or the REMIC
Certificateholder's securities broker with the statement necessary to establish
the exemption from federal income and withholding tax on interest on the REMIC
Certificate. Backup withholding, however, does not apply to payments on a
Certificate made to certain exempt recipients, such as corporations and
tax-exempt organizations, and to certain foreign persons. REMIC
Certificateholders should consult their tax advisors for additional information
concerning the potential application of backup withholding to payments received
by them with respect to a Certificate.
Reporting Requirements and Tax Administration. The Trustee will report
annually to the Service, Holders of record of the Regular Certificates that are
not excepted from the reporting requirements and, to the extent required by the
Code, other interested parties, information with respect to the interest paid or
accrued on the Regular Certificates, original issue discount, if any, accruing
on the Regular Certificates and information necessary to compute the accrual of
any market discount or the amortization of any premium on the Regular
Certificates.
The Treasury Department has issued temporary regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a Residual
Certificateholder must be designated as the REMIC's "tax matters person". The
tax matters person generally has responsibility for overseeing and providing
notice to the other Residual Certificateholders of certain administrative and
judicial proceedings regarding the REMIC's tax affairs. Unless otherwise
indicated in the related Prospectus Supplement, the Company will be designated
as the tax matters person for each REMIC, and in conjunction with the Trustee
will act as the agent of the Residual Certificateholders in the preparation and
filing of the REMIC's federal and state income tax and other information
returns.
Non-REMIC Series
Tax Status of the Trust. In the case of a Trust evidenced by a series or
sub-series of Certificates, or a segregated portion thereof, with respect to
which a REMIC Election is not made ("Non-REMIC Certificates"), counsel to the
Company identified in the applicable Prospectus Supplement will have advised the
Company that, in its opinion, each Contract Pool and the arrangement to be
administered by the Company under which the Trustee will hold and the Company
will be obligated to service the Contracts and pursuant to which Non-REMIC
Certificates will be issued to Non-REMIC Certificateholders will not be
classified as an association taxable as a corporation or a "taxable mortgage
pool," within the meaning of Code Section 7701(i), but rather will be classified
as a grantor trust under Subpart E, Part 1 of Subchapter J of the Code. Each
Non-REMIC Certificateholder will be treated as the owner of a pro rata undivided
interest in the ordinary income and corpus portions of the trust attributable to
the Contract Pool in which its Certificate evidences an ownership interest and
will be considered the equitable owner of a pro rata undivided interest in each
of the Contracts included therein.
Tax Status of Non-REMIC Certificates. In general, (i) Certificates held by
a financial institution taxed as described in Section 593(a) of the Code may
represent interests in "qualifying real property loans" within the meaning of
Section 593(d) of the Code, (ii) Certificates held by a "domestic building and
loan association" within the meaning of Section 7701(a)(19) of the Code may be
considered to represent "qualifying real property loans" within the meaning of
Section 7701(a)(19)(C)(v) of the Code, and (iii) Certificates held by a real
estate investment trust may constitute "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code and interest thereon may be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code. Treasury Regulations promulgated
pursuant to Section 593 of the Code define "qualifying real property loans" to
include a loan secured by a mobile unit "permanently fixed to real property"
except during a brief period in which the unit is transported to its site.
Section 7701(a)(19)(C)(v) of the Code provides that "loans secured by an
interest in real property" includes loans secured by mobile homes not used on a
transient basis. Investors should review the related Prospectus Supplement for a
discussion of the treatment of Non-REMIC Certificates and Contracts under these
Code sections and should, in addition, consult with their own tax advisors with
respect to these matters.
Tax Treatment of Non-REMIC Certificates. Non-REMIC Certificateholders will
be required to report on their federal income tax returns, and in a manner
consistent with their respective methods of accounting, their pro rata share of
the entire income arising from the Contracts comprising such Contract Pool,
including interest, original issue discount, if any, prepayment fees, assumption
fees, and late payment charges received by the Company, and any gain upon
disposition of such Contracts. (For purposes of this discussion, the term
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"disposition" when used with respect to the Contracts, includes scheduled or
prepaid collections with respect to the Contracts, as well as the sale or
exchange of a Non-REMIC Certificate.) Non-REMIC Certificateholders will be
entitled under Section 162 or 212 of the Code to deduct their pro rata share of
related servicing fees, administrative and other non-interest expenses,
including assumption fees and late payment charges retained by the Company. An
individual, an estate, or a trust that holds a Non-REMIC Certificate either
directly or through a pass-through entity will be allowed to deduct such
expenses under Section 212 of the Code only to the extent that, in the aggregate
and combined with certain other miscellaneous itemized deductions, they exceed
2% of the adjusted gross income of the Holder. In addition, Section 68 of the
Code provides that the amount of certain itemized deductions (including those
provided for in Section 212 of the Code) otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds an inflation-adjusted
threshold amount specified in the Code ($111,800 for taxable years beginning in
1994, in the case of a joint return) will be reduced by the lesser of (i) 3% of
the excess of adjusted gross income over the specified threshold amount or (ii)
80% of the amount of itemized deductions otherwise allowable for such taxable
year. To the extent that a Non-REMIC Certificateholder is not permitted to
deduct servicing fees allocable to a Non-REMIC Certificate, the taxable income
of the Non-REMIC Certificateholder attributable to that Non-REMIC Certificate
will exceed the net cash distributions related to such income. Non-REMIC
Certificateholders may deduct any loss on disposition of the Contracts to the
extent permitted under the Code.
Under current Service interpretations of applicable Treasury Regulations
the Company would be able to sell or otherwise dispose of any subordinated
Non-REMIC Certificates. In general, such subordination should not affect the
federal income tax treatment of either the subordinated or senior Certificates.
Holders of subordinated classes of Certificates should be able to recognize any
losses allocated to such class when and if losses are realized.
Gain on the prepayment of a Contract on which the obligor is an individual
will be treated as ordinary income. To the extent that any of the Contracts
comprising a Contract Pool were originated on or after March 2, 1984 and under
circumstances giving rise to original issue discount, Certificateholders will be
required to report annually an amount of additional interest income attributable
to such discount in such Contracts prior to receipt of cash related to such
discount. See the discussion above under "REMIC Series--Original issue
Discount". Similarly, Code provisions concerning (i) market discount will apply
to the Contracts comprising of a Contract Pool to the extent that the loans were
purchased after April 30, 1993 and (ii) amortizable bond premiums will apply to
the Contracts comprising a Contract Pool to the extent that the loans were
originated after September 27, 1985. See the discussions above under "REMIC
Series--Market Discount" and "REMIC Series--Amortizable Premium".
Stripped Non-REMIC Certificates. Certain classes of Non-REMIC Certificates
may be subject to the stripped bond rules of Section 1286 of the Code and for
purposes of this discussion will be referred to as "Stripped Certificates". In
general, a Stripped Certificate will be subject to the stripped bond rules where
there has been a separation of ownership of the right to receive some or all of
the principal payments on a Contract from an ownership of the right to receive
some or all of the related interest payments. Non-REMIC Certificates will
constitute Stripped Certificates and will be subject to these rules under
various circumstances, including the following: (i) if any servicing
compensation is deemed to exceed a reasonable amount; (ii) if the Company or any
other party retains a Retained Yield with respect to the Contracts comprising a
Contract Pool; (iii) if two or more classes of Non-REMIC Certificates are issued
representing the right to non-pro rata percentages of the interest or principal
payments on the Contracts; or (iv) if Non-REMIC Certificates are issued which
represent the right to interest only payments or principal only payments.
Although not entirely clear, each Stripped Certificate should be considered
to be a single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect to
a Stripped Certificate, if any, must be included in ordinary gross income for
federal income tax purposes as it accrues in accordance with the constant-yield
method that takes into account the compounding of interest and such accrual of
income may be in advance of the receipt of any cash attributable to such income.
See "REMIC Series--Original Issue Discount" above. For purposes of applying the
original issue discount provisions of the Code, the issue price of a Stripped
Certificate will be the purchase price paid by each Holder thereof and the
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stated redemption price at maturity may include the aggregate amount of all
payments to be made with respect to the Stripped Certificate whether or not
denominated as interest. The amount of original issue discount with respect to a
Stripped Certificate may be treated as zero under the original issue discount de
minimis rules described above. A purchaser of a Stripped Certificate will be
required to account for any discount on the certificate as market discount
rather than original issue discount if either (i) the amount of original issue
discount with respect to the certificate was treated as zero under the original
issue discount de minimis rule when the certificate was stripped or (ii) no more
than 100 basis points (including any amount of servicing in excess of reasonable
servicing) is stripped off of the Contracts. See "REMIC Series--Market Discount"
above.
When an investor purchases more than one class of Stripped Certificates it
is currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes of
applying the original issue discount rules described above.
It is possible that the Service may take a contrary position with respect
to some or all of the foregoing tax consequences. For example, a Holder of a
Stripped Certificate may be treated as the owner of (i) as many stripped bonds
or stripped coupons as there are scheduled payments of principal and/or interest
on each Contract or (ii) a separate installment obligation for each Contract
representing the Stripped Certificate's pro rata share of principal and/or
interest payments to be made with respect thereto. As a result of these possible
alternative characterizations, investors should consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
Gain or Loss on Disposition. Upon sale or exchange of a Non-REMIC
Certificate, a Non-REMIC Certificateholder will recognize gain or loss equal to
the difference between the amount realized in the sale and its aggregate
adjusted basis in the Contracts represented by the Non-REMIC Certificate.
Generally, the aggregate adjusted basis will equal the Non-REMIC
Certificateholder's cost for the Non-REMIC Certificate increased by the amount
of any previously reported income and gain 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. Except as provided above with respect to the original issue
discount and market discount rules, any such gain or loss would be capital gain
or loss if the Non-REMIC Certificate was held as a capital asset.
Tax Treatment of Certain Foreign Investors. Generally, interest or original
issue discount paid to or accruing for the benefit of a Non-REMIC
Certificateholder who is a Foreign Holder (as defined in "REMIC Series--Taxation
of Certain Foreign Investors") will be treated as "portfolio interest" and
therefore will be exempt from the 30% withholding tax, but only to the extent
the Contracts were originated after July 18, 1984 and provided that such
Non-REMIC Certificateholder periodically provides the Trustee (or other person
who would otherwise be required to withhold tax) with a statement certifying
under penalty of perjury that such Non-REMIC Certificateholder is not a United
States person and providing the name and address of such Non-REMIC
Certificateholder. The statement, which may be made on a Form W-8 or
substantially similar substitute form, generally must be provided in the year a
payment occurs or in either of the two preceding years. The statement must be
provided either directly or through clearing organization or financial
institution intermediaries, to the person that otherwise would withhold tax. If
the interest on a Non-REMIC Certificate is effectively connected with the
conduct by a Foreign Holder of a trade or business within the United States,
then the Foreign Holder will be subject to tax at the regular graduated rates
and such a foreign holder may avoid withholding tax on such interest (or
original issue discount, if any) if the Foreign Holder provides a properly
completed Form 4224. For additional information concerning the treatment of a
sale or exchange of a Non-REMIC Certificate by a Foreign Holder, which will
generally have the same tax consequences as the sale of a Regular Certificate,
see the discussion above under "REMIC Series--Taxation of Certain Foreign
Investors".
Tax Administration and Reporting. The Trustee will furnish to each
Non-REMIC Certificateholder with each distribution a statement setting forth the
amount of such distribution allocable to principal and to interest. In addition,
the Trustee will furnish, within a reasonable time after the end of each
calendar year, to each Non-REMIC Certificateholder who was a Certificateholder
at any time during such year, information regarding the amount of servicing
compensation received by the Company and any sub-servicer and such other
customary factual information as the Trustee deems necessary or desirable to
enable Certificateholders to prepare their tax returns. Reports will be made
annually to the Service and to Holders of record that are not excepted from the
reporting requirements regarding information as may be required with respect to
interest and original issue discount, if any, with respect to the Non-REMIC
Certificates.
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<PAGE>
Other Tax Consequences
No advice has been received as to local income, franchise, personal
property, or other taxation in any state or locality, or as to the tax effect of
ownership of Certificates in any state or locality. Certificateholders are
advised to consult their own tax advisors with respect to any state or local
income, franchise, personal property, or other tax consequences arising out of
their ownership of Certificates.
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 be 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
mortgage-backed 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.
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.
53
<PAGE>
UNDERWRITING
The Company may sell Certificates of each Series to or through underwriters
(the "Underwriters") by a negotiated firm commitment underwriting and public
reoffering by the Underwriters, and also may sell and place Certificates
directly to other purchasers or through agents. The Company intends that
Certificates will be offered through such various methods from time to time and
that offerings may be made concurrently through more than one of these methods
or that an offering of a particular Series of Certificates may be made through a
combination of such methods.
The distribution of the Certificates may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Company, CITSF or any affiliate thereof may purchase some or
all of one or more Classes of Certificates of such Series from the Underwriter
or Underwriters at a price specified in such Prospectus Supplement. Such
purchaser may thereafter from time to time offer and sell, pursuant to this
Prospectus, some or all of such Certificates so purchased directly, through one
or more Underwriters to be designated at the time of the offering of such
Certificates or through broker-dealers acting as agent and/or principal. Such
offering may be restricted in the manner specified in such Prospectus
Supplement. Such transactions may be effected at market prices prevailing at the
time of sale, at negotiated prices or fixed prices.
In connection with the sale of the Certificates, Underwriters may receive
compensation from the Company or from purchasers of Certificates for whom they
may act as agents in the form of discount, concessions or commissions.
Underwriters may sell the Certificates of a Series to or through dealers and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the Underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of the Certificates of a Series may be deemed to be
Underwriters, and any discounts or commissions received by them from the Company
and any profit on the resale of the Certificates by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended (the "Act"). Any such Underwriters or agents will be identified, and any
such compensation received from the Company will be described, in the Prospectus
Supplement.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of the Certificates may be entitled
to indemnification by the Company against certain liabilities, including
liabilities under the Act.
If so indicated in the Prospectus Supplement, the Company will authorize
Underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase the Certificates from the Company pursuant
to a contract providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational or
charitable institutions and others, but in all cases such institutions must be
approved by the Company. The obligation of any purchaser under any such contract
will be subject to the condition that the purchaser of the offered Certificates
shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject from purchasing such
Certificates. The Underwriters and such other agents will not have
responsibility in respect of the validity or performance of such contracts.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any such market, if established, will continue.
Certain of the Underwriters and their associates may engage in transactions
with and perform services for the Company, CIT or their affiliates in the
ordinary course of business.
54
<PAGE>
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Company by
Schulte Roth & Zabel, New York, New York. The material federal income tax
consequences of the Certificates will be passed upon for the Company by Schulte
Roth & Zabel. Paul N. Roth, a director of CIT, is a partner of Schulte Roth &
Zabel.
EXPERTS
The financial statements and schedule listed under the heading "Exhibits,
Financial Statement Schedule and Reports on Form 8-K" in the Corporation's 1993
Annual Report on Form 10-K incorporated by reference herein have been
incorporated by reference herein in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1993
consolidated financial statements refers to a change in the method of accounting
for post-retirement benefits other than pensions in 1993.
55
<PAGE>
INDEX OF DEFINED TERMS
Page
Act ....................................................................... 2
Advances .................................................................. 27
Agreement ................................................................. 4
Amount Available .......................................................... 25
Asset Service Center ...................................................... 14
Bankruptcy Code ........................................................... 11
Certificate Account ....................................................... 11
Certificate Remittance Amount ............................................. 26
Certificateholder ......................................................... 20
Certificates .............................................................. 4
CIT ....................................................................... 1
CITSF ..................................................................... 1
Class ..................................................................... 19
Code ...................................................................... 8
Commission ................................................................ 2
Company ................................................................... 1
Compound Interest Certificates ............................................ 26
Contract Pool ............................................................. 4
Contract Rate ............................................................. 5
Contracts ................................................................. 1
Cut-off Date .............................................................. 5
Delayed Deposits .......................................................... 24
Depositary ................................................................ 8
Determination Date ........................................................ 24
Disqualified Organizations ................................................ 42
disqualified persons ...................................................... 40
DOL ....................................................................... 40
DOL Regulation ............................................................ 40
Due Period ................................................................ 25
Due-on-Sale ............................................................... 22
Eligible Investments ...................................................... 24
ERISA ..................................................................... 9
FHA ....................................................................... 4
FHA/VA Regulations ........................................................ 23
Foreign Holder ............................................................ 49
Global Certificate ........................................................ 7
Global Certificateholder .................................................. 8
HUD ....................................................................... 33
Land-Secured Contract ..................................................... 4
Liquidation Proceeds ...................................................... 31
Loan-to-Value Ratio ....................................................... 58
Manufactured Home ......................................................... 58
Master REMIC .............................................................. 43
Monthly Servicing Fee ..................................................... 30
Moody's ................................................................... 24
Net Liquidation Proceeds .................................................. 24
Non-REMIC Certificates .................................................... 50
Obligor ................................................................... 22
OID Regulations ........................................................... 44
Outstanding Senior Shortfall .............................................. 25
Plans ..................................................................... 40
Pre-Funding Account ....................................................... 1
Prepayment Assumption ..................................................... 45
PTE 83-1 .................................................................. 40
Record Date ............................................................... 19
Registration Statement .................................................... 2
Regular Certificates ...................................................... 42
Relief Act ................................................................ 36
REMIC ..................................................................... 1
REMIC Election ............................................................ 8
Remittance Date ........................................................... 7
Remittance Rate ........................................................... 12
Replaced Contract ......................................................... 23
Residual Certificates ..................................................... 42
Senior Certificates ....................................................... 5
Senior Distribution Amount ................................................ 25
Series .................................................................... 1
Service ................................................................... 43
Servicer .................................................................. 1
Servicing Fees ............................................................ 30
Single Certificate ........................................................ 19
SMMEA ..................................................................... 53
Special Distributions ..................................................... 27
Startup Day ............................................................... 42
Stated Balance ............................................................ 6
Stripped Certificates ..................................................... 51
Subordinated Certificates ................................................. 5
Subsidiary REMIC .......................................................... 43
Trust ..................................................................... 5
Trustee ................................................................... 4
UCC ....................................................................... 10
Underwriters .............................................................. 54
VA ........................................................................ 4
56
<PAGE>
GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus and the Prospectus Supplement. Reference is also made to the
Index of Defined Terms herein and in 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 a Servicer (including from 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
Company, CITSF, as 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.
"Asset Service Center" means CITSF's asset service facility in Oklahoma
City, Oklahoma.
"Bankruptcy Code" means Title 11 of United States Code, 11 U.S.C. ss.101 et
seq.
"Certificate Account" means the account maintained by the Servicer or the
Trustee, as specified in the related Prospectus Supplement.
"Certificate Remittance Amount" means, unless otherwise specified in the
related Prospectus Supplement, with respect to a Series of Certificates
providing for sequential distributions in reduction of the Stated Balance of the
Classes of such Series, as of any Remittance Date, the amount, if any, by which
the then outstanding Stated Balance of the Classes of Certificates of such
Series (before taking into account the amount of interest accrued on any Class
of Compound Interest Certificates to be added to the Stated Balance thereof on
such Remittance Date) exceeds the asset value of the Contracts included in the
Trust for such Series as of the end of the related Due Period.
"Certificates" means the Manufactured Housing Contract Pass-Through
Certificates issued pursuant to an Agreement.
"CIT" means The CIT Group Holdings, Inc.
"CITSF" means The CIT Group/Sales Financing, Inc.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
"Company" means The CIT Group Securitization Corporation II.
"Compound Interest Certificates" means Certificates on which interest may
accrue but not be paid for the period described in the related Prospectus
Supplement.
"Contract Pool" means, with respect to each Series of Certificates, the
pool of manufactured housing installment sales contracts and installment loan
agreements transferred by the Company to the Trustee.
"Contract Rate" means, with respect to each Contract, the interest rate
specified in the Contract.
"Contracts" means the manufactured housing installment sales contracts and
installment loan agreements, which constitute the corpus of a Trust.
"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.
"Determination Date" means, unless otherwise specified in the related
Prospectus Supplement, the third Business Day immediately preceding the related
Remittance Date.
"DOL" means the United States Department of Labor.
"Due Period" means the period for which interest and principal on the
Contracts is calculated for a related Remittance Date, as specified in the
related Prospectus Supplement.
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<PAGE>
"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.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FHA" means the Federal Housing Administration.
"HUD" means the United States Department of Housing and Urban Development.
"Land-Secured Contract" means a Contract that is secured by a new or used
Manufactured Home and/or in certain cases, a mortgage, deed of trust or similar
instrument on real estate on which the related Manufactured Home is located.
Under the laws of the jurisdiction in which such real estate is located the
Manufactured Home may or may not be deemed permanently affixed to the real
estate on which such Manufactured Home is situated and may or may not be
considered or classified as part of the real estate regardless of whether the
Manufactured Home is deemed affixed to the real estate on which it is situated.
"Liquidation Proceeds" means all amounts received and retained in
connection with the liquidation of defaulted Contracts.
"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.
"Obligor" means each person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract.
"Record Date" means the date specified in the related Prospectus Supplement
for the list of Certificateholders entitled to distributions on the
Certificates.
"Relief Act" means the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
"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.
"Senior Distribution Amount" means, with respect to a Series of
Certificates having Subordinated Certificates, as of each Remittance Date and
for each Class of Senior Certificates, the amount due the holders of such Class
of Senior Certificates.
"Series" means a series of Certificates.
"Servicer" means, with respect to each Series of Certificates evidencing
interests in Contracts, the Servicer specified in the related Prospectus
Supplement.
"Servicing Fee" means the amount of the annual fee paid to the Servicer or
the Trustee as specified in the related Prospectus Supplement.
"Single Certificate" means, unless otherwise specified in the related
Prospectus Supplement, for each Class of Certificates of any Series, the initial
principal amount of Contracts evidenced by a single Certificate of such class.
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984.
"Stated Balance" means, with respect to a Series of Certificates providing
for sequential distributions in reduction of Stated Balance of the Classes of
such Series, the maximum specified dollar amount (exclusive of interest at the
related interest rate) to which the Holder thereof is entitled from the cash
flow of the Trust.
58
<PAGE>
"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 trust
created by the related Agreement.
"Trustee" means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
"UCC" means the Uniform Commercial Code.
"VA" means the Veterans' Administration.
59
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No dealer, salesperson or other person has been authorized to give any
information or make any representations not contained in this Prospectus
Supplement or the Prospectus and if given or made, such information or
representation may not be relied upon as having been authorized by the Company,
CITSF or any Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy the Senior
Certificates, the Class A-4 Certificates or the Class A-5 Certificates in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus
Supplement or the Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication the information herein is correct as of
any time subsequent to the date hereof or that there has been no change in the
affairs of the Company since such date.
-------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Summary of Terms ...................................... S-3
Special Considerations ................................ S-20
Structure of the Transaction .......................... S-23
The Contract Pool ..................................... S-23
Yield and Prepayment Considerations ................... S-32
Description of the Certificates ....................... S-38
Registration of the Offered Certificates .............. S-51
Use of Proceeds ....................................... S-52
ERISA Considerations .................................. S-52
Certain Federal Income Tax Considerations ............. S-54
Legal Investment Considerations ....................... S-54
Underwriting .......................................... S-55
Legal Matters ......................................... S-56
Annex A ............................................... A-1
PROSPECTUS
Reports to Certificateholders ......................... 2
Additional Information ................................ 2
Documents Incorporated by Reference ................... 3
Summary of Terms ...................................... 4
Special Considerations ................................ 10
The Trust ............................................. 11
Use of Proceeds ....................................... 13
The CIT Group Securitization Corporation II, Seller ... 13
The CIT Group/Sales Financing, Inc., Servicer ......... 14
Yield Considerations .................................. 17
Maturity and Prepayment Considerations ................ 17
CIT ................................................... 18
Description of the Certificates ....................... 18
Description of FHA Insurance and VA Guarantees ........ 33
Certain Legal Aspects of the Contracts ................ 34
ERISA Considerations .................................. 40
Certain Federal Income Tax Consequences ............... 41
Legal Investment Considerations ....................... 53
Ratings ............................................... 53
Underwriting .......................................... 54
Legal Matters ......................................... 55
Experts ............................................... 55
Index of Defined Terms ................................ 56
Glossary .............................................. 57
------------------
Until , 1995 (90 days after the commencement of the offering), all dealers
effecting transactions in the Offered Certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus Supplement and the
Prospectus to which it relates. 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The CIT Group Securitization
Corporation II, Seller
(The CIT Group/Sales Financing, Inc., Servicer)
$124,000,000 (Approximate)
Manufactured Housing Contract
Senior/Subordinate Pass-Through
Certificates, Series 1995-1
PROSPECTUS SUPPLEMENT
CS First Boston
First Chicago Capital
Markets, Inc.
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