Registration Statement No. 333-14033
Rules 424(b)(5)
Prospectus Supplement
(To Prospectus dated January 30, 1997)
$193,184,000 (APPROXIMATE)
VANDERBILT MORTGAGE AND FINANCE, INC.
SELLER AND SERVICER
MANUFACTURED HOUSING CONTRACT
SENIOR/SUBORDINATE PASS-THROUGH CERTIFICATES, SERIES 1997A
$28,500,000 (APPROXIMATE) CLASS I A-1 $58,714,000 (APPROXIMATE)CLASS II A-1
$24,900,000 (APPROXIMATE) CLASS I A-2 $ 9,526,000 (APPROXIMATE)CLASS II B-1
$18,200,000 (APPROXIMATE) CLASS I A-3 $ 4,082,000 (APPROXIMATE)CLASS II B-2
$10,700,000 (APPROXIMATE) CLASS I A-4 $ 5,445,000 (APPROXIMATE)CLASS II B-3
$12,919,000 (APPROXIMATE) CLASS I A-5
$ 9,233,000 (APPROXIMATE) CLASS I A-6
$ 6,347,000 (APPROXIMATE) CLASS I B-1
$ 4,618,000 (APPROXIMATE) CLASS I B-2
(Principal and interest payable on the 7th day of each month, beginning
February, 1997)
The Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1997A (the "Certificates") will represent interests in a
trust fund (the "Trust Fund") consisting of a pool (the "Contract Pool")
which includes two groups (each, a "Group") of manufactured housing
installment sales contracts and installment loan agreements (the "Contracts")
and certain related property conveyed by Vanderbilt Mortgage and Finance,
Inc. (the "Company"). The Company will serve as servicer of the Contracts
(together with any successor servicer, herein referred to as the "Servicer").
The Contracts were originated or purchased by the Company in the ordinary
course of its business. The term "Approximate," with respect to the
aggregate principal amount of any Certificates, means that the amount is
subject to a permitted variance of plus or minus 5%. Terms used and not
otherwise defined herein have the respective meanings ascribed to such terms
in the Prospectus, dated January 30, 1997, attached hereto (the
"Prospectus").
(Continued on next page)
________________
CERTAIN FACTORS SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
CERTIFICATES. SEE "RISK FACTORS" HEREIN AND IN THE PROSPECTUS.
THE OFFERED CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS
OF THE COMPANY OR ANY OF ITS AFFILIATES. THE OFFERED CERTIFICATES WILL NOT
BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY, THE
UNDERWRITERS OR ANY OF THEIR AFFILIATES OR THE COMPANY OR, EXCEPT FOR THE
LIMITED GUARANTEE APPLICABLE TO THE CLASS I B-2 AND CLASS II B-3
CERTIFICATES, ANY OF ITS AFFILIATES, AND, EXCEPT FOR PAYMENTS, IF ANY, UNDER
THE LIMITED GUARANTEE OR ALTERNATE CREDIT ENHANCEMENT IN RESPECT OF THE CLASS
I B-2 AND CLASS II B-3 CERTIFICATES, WILL BE PAYABLE ONLY FROM COLLECTIONS ON
THE CONTRACTS AS DESCRIBED HEREIN.
THE 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.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Public Discount Company(2)
<S> <C> <C> <C>
Class I A-1 Certificates . . . . . . . . 100.000000% 0.35% 99.650000%
Class I A-2 Certificates(1) . . . . . . . 99.968750% 0.35% 99.618750%
Class I A-3 Certificates(1) . . . . . . . 99.937500% 0.35% 99.587500%
Class I A-4 Certificates(1) . . . . . . . 99.953125% 0.35% 99.603125%
Class I A-5 Certificates(1) . . . . . . . 99.937500% 0.35% 99.587500%
Class I A-6 Certificates(1) . . . . . . . 100.000000% 0.35% 99.650000%
Class I B-1 Certificates(1) . . . . . . . 99.890625% 0.50% 99.390625%
Class I B-2 Certificates (1) . . . . . . 99.937500% 0.50% 99.437500%
Class II A-1 Certificates . . . . . . . . 100.000000% 0.35% 99.650000%
Class II B-1 Certificates . . . . . . . . 100.000000% 0.35% 99.650000%
Class II B-2 Certificates . . . . . . . . 100.000000% 0.50% 99.500000%
Class II B-3 Certificates . . . . . . . . 100.000000% 0.50% 99.500000%
Total . . . . . . . . . . . . . . . $193,141,925.47 $706,882 $192,435,043.47
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from January 1,
1997.
(2) Before deducting expenses, estimated to be $250,000.
The Offered Certificates will be purchased by the Underwriters from the
Company and will be offered by the Underwriters from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined, in each case, at the time of sale.
The Offered Certificates are offered subject to receipt and acceptance
by the Underwriters, to prior sale and to the Underwriters' right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Offered Certificates
will be made in book-entry form through the facilities of DTC, Cedel Bank,
soci t anonyme and the Euroclear System on or about February 6, 1997,
against payment therefor in immediately available funds.
PRUDENTIAL SECURITIES INCORPORATED GOLDMAN, SACHS & CO.
The date of this Prospectus Supplement is January 30, 1997.
(Continued from the cover page)
The Certificates will consist of (a) two groups of certificates (each, a
"Group") including the "Group I Certificates" consisting of five classes of
senior certificates (the "Class I A-1 Certificates," the "Class I A-2
Certificates," the "Class I A-3 Certificates", the "Class I A-4 Certificates"
and the "Class I A-5 Certificates"; collectively, the "Group I Senior
Certificates") and three classes of subordinated certificates (the "Class I
A-6 Certificates," the "Class I B-1 Certificates," and the "Class I B-2
Certificates") and the "Group II Certificates" consisting of one class of
senior certificates (the "Class II A-1 Certificates") and three classes of
subordinated certificates (the "Class II B-1 Certificates," the "Class II B-2
Certificates" and the "Class II B-3 Certificates") and (b) one class of
residual certificates (the "Class R Certificate"). The Class I A-1
Certificates, Class I A-2 Certificates, Class I A-3 Certificates, Class I A-4
Certificates, Class I A-5 Certificates and Class I A-6 Certificates will
evidence in the aggregate approximate initial 24.69%, 21.57%, 15.77%, 9.27%,
11.19% and 8.00% undivided interests, respectively, in the "Group I
Contracts" which are fixed rate contracts. The Class I B-1 Certificates and
Class I B-2 Certificates will evidence in the aggregate approximate initial
5.50% and 4.00% undivided interests, respectively, in the Group I Contracts.
The Class II A-1 Certificates, the Class II B-1 Certificates, the Class II B-
2 Certificates and the Class II B-3 Certificates will evidence in the
aggregate approximate initial 75.50%, 12.25%, 5.25% and 7.00% undivided
interests, respectively, in the "Group II Contracts" which are adjustable
rate contracts. The Class I A-1, Class I A-2, Class I A-3, Class I A-4,
Class I A-5, Class I A-6 and Class II A-1 Certificates are referred to
collectively as "Class A Certificates" herein. The Class I B-1, Class I B-2,
Class II B-1, Class II B-2 and Class II B-3 Certificates are referred to
collectively as "Class B Certificates" herein. The Class R Certificate is
not being offered hereby. All of the Certificates, other than the Class R
Certificates, are being offered hereby and are referred to herein as the
"Offered Certificates."
The Trust Fund will be created pursuant to a Pooling and Servicing
Agreement among the Company, as Seller and Servicer of the Contracts, The
Chase Manhattan Bank, as trustee (the "Trustee") and Clayton Homes, Inc.
("CHI") as provider of the Limited Guarantee. The Trust Fund property will
include all rights to payments received on each Contract on or after December
26, 1996 (the "Cut-off Date"), security interests in the manufactured homes
securing the Contracts, any related mortgages or deeds of trust, all rights
under certain hazard insurance policies with respect to the manufactured
homes and the amounts in the Certificate Accounts.
Payments of principal and interest on the Offered Certificates will be
distributed to Certificateholders on the 7th day of each month (or if the 7th
day is not a business day, the next business day) (each, a "Remittance
Date"), beginning in February 1997. On each Remittance Date, holders of
Group I Certificates and Group II Certificates will be entitled to receive
distributions of interest and principal calculated as set forth herein.
With respect to the Group I Certificates, the rights of the holders of
the Class I A-6 Certificates to receive distributions of interest and
principal are subordinated to the rights of the holders of the Group I Senior
Certificates, the rights of the holders of the Class I B-1 Certificates to
receive distributions of interest and principal are subordinated to the
rights of the Group I Senior Certificates and Class I A-6 Certificates and
the rights of the holders of the Class I B-2 Certificates to receive
distributions of interest and principal are subordinated to the rights of the
Group I Senior Certificates, the Class I A-6 Certificates and Class I B-1
Certificates, all as described herein. With respect to the Group II
Certificates, the rights of the holders of the Class II B-1 Certificates to
receive distributions of interest and principal are subordinated to the
rights of the holders of the Class II A-1 Certificates, the rights of the
holders of the Class II B-2 Certificates to receive distributions of interest
and principal are subordinated to the rights of the Class II A-1 and Class II
B-1 Certificates, and the rights of the holders of the Class II B-3
Certificates to receive distributions of interest and principal are
subordinated to the rights of the holders of the Class II A-1, Class II B-1
and Class II B-2 Certificates, all as described herein.
The Class I B-2 Certificates and the Class II B-3 Certificates, will
initially have the benefit of a limited guarantee (the "Limited Guarantee")
of CHI to protect against losses that would otherwise be absorbed by such
Certificates. Pursuant to the Limited Guarantee, to the extent that funds in
the Group I or Group II Certificate Accounts, as applicable, are insufficient
to distribute to the holders of the Class I B-2 Certificates the Class I B-2
Formula Distribution Amount (as described herein) or to the holders of the
Class II B-3 Certificates the Class II B-3 Formula Distribution Amount (as
described herein), CHI will be obligated to pay an Enhancement Payment (as
defined herein). See "Description of the Certificates--Limited Guarantee of
CHI" herein. The Limited Guarantee may be replaced by an Alternate Credit
Enhancement (as defined herein).
An election will be made to treat the Trust Fund as a real estate
mortgage investment conduit (a "REMIC") for federal income tax purposes. See
"Certain Federal Income Tax Consequences" herein and in the Prospectus. The
Group I and Group II Certificates will represent "regular interests" in the
REMIC, and the Class R Certificate will represent the residual interest in
the REMIC.
The obligations of the Servicer (including the Company as initial
Servicer) with respect to the Certificates are limited to its contractual
servicing obligations. The Company, as seller, however, will make certain
representations and warranties relating to the Contracts. In the event of an
uncured breach of any such representation or warranty that materially
adversely affects a Contract, the Company may, under certain circumstances,
be obligated to repurchase such Contract or substitute another Contract
therefor, as described herein.
The interests of the owners of the Offered Certificates (the
"Certificate Owners") will be represented by book-entries on the records of
The Depository Trust Company and participating members thereof. See
"Description of the Certificates--Registration of the Offered Certificates"
herein. Prudential Securities Incorporated and Goldman, Sachs & Co. (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 for the Offered Certificates will develop, or if it
does develop, that it will continue or provide sufficient liquidity.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
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 DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE OFFERED CERTIFICATES. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE OFFERED
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
____________________
SUMMARY OF TERMS OF THE CERTIFICATES
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings assigned them in the
Prospectus or elsewhere in this Prospectus Supplement.
Securities Offered The Class I A-1, Class I A-2, Class I A-3, Class I
A-4, Class I A-5, Class I A-6, Class I B-1 and Class
I B-2 Certificates (collectively, the "Group I
Certificates") and the Class II A-1, Class II B-1,
Class II B-2 and Class II B-3 Certificates
(collectively, the "Group II Certificates" and
together with the Group I Certificates, the "Offered
Certificates") of the Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series
1997A. The Class R Certificate is not being offered
hereby. The Class R Certificate and the Offered
Certificates are collectively referred to as the
"Certificates" herein.
Seller Vanderbilt Mortgage and Finance, Inc. (the "Company"),
an indirect subsidiary of Clayton Homes, Inc. ("CHI").
Neither CHI nor any of its affiliates, including the
Company, has guaranteed or is otherwise obligated with
respect to the Certificates, except to the extent of the
Limited Guarantee of CHI or the Alternate Credit
Enhancement with respect to the Class I B-2 Certificates
and the Class II B-3 Certificates. See "Risk Factors"
herein and in the Prospectus.
Servicer Vanderbilt Mortgage and Finance, Inc. (in such
capacity referred to herein as the "Servicer"). The
Servicer may perform any of its obligations under
the Agreement through one or more subservicers.
Notwithstanding any such subservicing arrangement,
the Servicer will remain liable for its servicing
duties and obligations under the Agreement as if the
Servicer alone were servicing the Contracts.
Trustee The Chase Manhattan Bank, a New York banking corporation
(the "Trustee").
Group I Cut-off Date
Principal Balance As of the Cut-off Date, the aggregate principal
balance of the Group I Contracts was $115,417,699.95
(Approximate, subject to a permitted variance of
plus or minus 5%) (the "Group I Cut-off Date
Principal Balance").
Group II Cut-off Date
Principal Balance As of the Cut-off Date, the aggregate principal
balance of the Group II Contracts was $77,767,930.26
(Approximate, subject to a permitted variance of
plus or minus 5%) (the "Group II Cut-off Date
Principal Balance").
Cut-off Date Pool
Principal Balance As of the Cut-off Date, the aggregate principal
balance of the Contracts was $193,185,630.21
(Approximate, subject to a permitted variance of
plus or minus 5%) (the "Cut-off Date Pool Principal
Balance").
Certificates
Offered $193,184,000 Manufactured Housing Contract Senior/
Subordinate Pass-Through Certificates, Series 1997A,
to be issued in the following Classes (each, a
"Class"):
Original Certificate Remittance
Principal Balance(1) Rate Class
-------------------- ---- -----
$28,500,000 (2)(9) Class I A-1 Certificates
$24,900,000 6.525%(3) Class I A-2 Certificates
$18,200,000 6.800%(3) Class I A-3 Certificates
$10,700,000 7.075%(3) Class I A-4 Certificates
$12,919,000 7.300%(3) Class I A-5 Certificates
$9,233,000 7.600%(3) Class I A-6 Certificates
$6,347,000 7.500%(3) Class I B-1 Certificates
$4,618,000 8.125%(3) Class I B-2 Certificates
$58,714,000 (4)(8)(9) Class II A-1 Certificates
$9,526,000 (5)(8)(9) Class II B-1 Certificates
$4,082,000 (6)(8)(9) Class II B-2 Certificates
$5,445,000 (7)(8)(9) Class II B-3 Certificates
(1) Approximate, subject to a permitted variance of plus or minus
5%.
(2) The Remittance Rate for the Class I A-1 Certificates shall
be the lesser of (a) the sum of (i) the London interbank
offered rate for one-month United States dollar deposits
("LIBOR") (calculated as described herein) and (ii) 0.08%
and (b) the Group I Weighted Average Net Contract Rate (as
defined herein) for such Remittance Date. The "Group I
Weighted Average Net Contract Rate" shall be equal to (a)
the weighted average of the Group I Contract Rates
applicable to the scheduled payments due on the outstanding
Group I Contracts in the Due Period preceding such
Remittance Date minus (b) 1.25%.
(3) Subject to a maximum rate equal to the Group I Weighted Average
Net Contract Rate for such Remittance Date.
(4) The Class II A-1 Remittance Rate shall be the lesser of (a) the
Class II A-1 Formula Rate (as defined below) and (b) the Net
Funds Cap (as defined below) for such Remittance Date. The
Class II A-1 Formula Rate shall be a per annum rate equal to the
sum of (a) LIBOR (as defined herein) plus (b) (i) with respect
to any Remittance Date which occurs on or prior to the Call
Option Date (as defined herein), 0.20% or (ii) with respect to
any Remittance Date which occurs after the Call Option Date,
0.40%. The Net Funds Cap for any Remittance Date shall equal
the per annum rate equal to a fraction, expressed as a
percentage, the numerator of which equals the sum of (a) the
aggregate amount of interest due on the Group II Contracts on
the related Due Date and (b) the Overcollateralization Reduction
Amount, if any, for such Distribution Date less (c) one-twelfth
of (if the Company is the Servicer) 0.50% of the Group II Pool
Scheduled Principal Balance on the first day of the Due Period
or (if the Company is no longer the Servicer) 1.75% of the Group
II Scheduled Pool Principal Balance on the first day of the Due
Period and the denominator of which is equal to the Certificate
Principal Balance of the Group II Certificates (adjusted to
reflect the actual number of days elapsed in the Interest Period
divided by 360). The Call Option Date shall be the day on which
the outstanding balance of the Contracts in the Trust Fund has
declined to 10% or less of the Cut-off Date Pool Principal
Balance.
(5) The Class II B-1 Remittance Rate shall be the lesser of (a) the
Class II B-1 Formula Rate (as defined below) and (b) the Net
Funds Cap for such Remittance Date. The "Class II B-1 Formula
Rate" shall be a per annum rate equal to the sum of (a) LIBOR
(as defined herein) plus (b) (i) with respect to any Remittance
Date which occurs on or prior to the Call Option Date, 0.45% or
(ii) with respect to any Remittance Date which occurs after the
Call Option Date, 0.90%.
(6) The Class II B-2 Remittance Rate shall be the lesser of (a) the
Class II B-2 Formula Rate (as defined below) and (b) the Net
Funds Cap for such Remittance Date. The "Class II B-2 Formula
Rate" shall be a per annum rate
equal to the sum of (a) LIBOR (as defined herein) plus (b) (i)
with respect to any Remittance Date which occurs on or prior to
the Call Option Date, 0.85% or (ii) with respect to any
Remittance Date which occurs after the Call Option Date, 1.35%.
(7) The Class II B-3 Remittance Rate shall be the lesser of (a) the
Class II B-3 Formula Rate (as defined below) and (b) the Net
Funds Cap for such Remittance Date. The Class II B-3 Formula
Rate shall be a per annum rate equal to the sum of (a) LIBOR (as
defined herein) plus (b) (i) with respect to any Remittance Date
which occurs on or prior to the Call Option Date, 1.05% or (ii)
with respect to any Remittance Date which occurs after the Call
Option Date, 1.55%.
(8) If on any Remittance Date, the Remittance Rate for any of the
Group II Certificates is based on the Net Funds Cap,
Certificateholders of such Class will be entitled to receive on
subsequent Remittance Dates the applicable Net Funds Cap
Carryover Amount (as defined herein) to the extent of funds
available therefore as described herein; provided, however,
additional funds resulting -------- -------
from the cross-collateralization provisions described herein
shall not be available to Group II Certificateholders to pay the
Net Funds Cap Carryover Amount.
(9) With respect to the Class I A-1 Certificates and the Group II
Certificates, the Remittance Rates for the first Remittance Date
(the "Initial Remittance Rates") will not be determined until
two days prior to the Closing Date. Therefore, the Initial
Remittance Rates have not been determined as of the date of this
Prospectus Supplement.
Designations
Offered Certificates Class I A-1, Class I A-2, Class I A-3, Class I
A-4 and Class I A-5, Class I A-6, Class I B-1
and Class I B-2. Class II A-1, Class II B-1,
Class II B-2 and Class II B-3.
Group I Certificates Class I A-1, Class I A-2, Class I A-3, Class I
A-4 and Class I A-5, Class I A-6, Class I B-1
and Class I B-2.
Group II Certificates Class II A-1, Class II B-1, Class II B-2 and
Class II B-3.
Group I Senior
Certificates Class I A-1, Class I A-2, Class I A-3, Class I
A-4 and Class I A-5.
Group II Senior
Certificates Class II A-1.
Senior Certificates Class I A-1, Class I A-2, Class I A-3, Class I
A-4, Class I A-5 and Class II A-1.
Group I Subordinate
Certificates Class I A-6, Class I B-1 and Class I B-2.
Group II Subordinate
Certificates Class II B-1, Class II B-2 and Class II B-3.
Subordinate
Certificates Class I A-6, Class I B-1, Class I B-2, Class II
B-1, Class II B-2 and Class II B-3.
Group I Senior
Subordinate Certificates Class I A-6.
Group II Senior
Subordinate Certificates Class II B-1.
Senior Subordinate
Certificates Class I A-6 and Class II B-1.
Group I Junior
Subordinate Certificates Class I B-1 and Class I B-2.
Class II Junior
Subordinate Certificates Class II B-2 and Class II B-3.
Junior Subordinate
Certificates Class I B-1, Class I B-2, Class II B-2 and
Class II B-3.
Fixed Rate Certificates Class I A-2, Class I A-3, Class I A-4, Class I
A-5, Class I A-6, Class I B-1 and Class I B-2.
Floating Rate
Certificates Class I A-1 and the Group II Certificates.
Limited Guarantee
Certificates Class I B-2 and Class II B-3 Certificates.
Remittance Date The 7th day of each month (or if such 7th day is not
a business day, the next succeeding business day),
commencing in February 1997.
Record Date With respect to the Fixed Rate Certificates, the
last business day of the month preceding the month
of the related Remittance Date. With respect to the
Floating Rate Certificates, the business day
preceding the related Remittance Date. With respect
to the initial Remittance Date, however, the Record
Date for both the Fixed Rate Certificates and the
Floating Rate Certificates is February 6, 1997.
Cut-off Date December 26, 1996.
Agreement The Pooling and Servicing Agreement, dated as
of December 26, 1996 (the "Agreement"), between
the Company, as Seller and Servicer, CHI, as
provider of the Limited Guarantee with respect
to the Class I B-2 Certificates and the Class
II B-3 Certificates, and the Trustee.
Description of the
Offered Certificates The Offered Certificates evidence undivided
interests in the Contract Pool and certain
other property held in trust for the benefit of
the Certificateholders (the "Trust Fund"). The
Group I Certificates evidence undivided
interests in the Group I Contracts. The Group
II Certificates evidence undivided interests in
the Group II Contracts. The Offered
Certificates will be offered in denominations
of $50,000 and integral multiples of $1,000 in
excess thereof. The undivided percentage
interest (the "Percentage Interest") of each
Class of Certificates in the distributions on
such Certificates will be equal to the
percentage obtained from dividing the denomina-
tion of such Certificate by the Original
Certificate Principal Balance of such Class of
Certificates.
Distributions Distributions to the holders of Certificates of
a Class will be made in an amount equal to
their respective Percentage Interests
multiplied by the aggregate amount distributed
on such Class of Certificates for the related
Remittance Date, commencing in February 1997.
Distributions will be made on each Remittance
Date to holders of record on the preceding
Record Date, except that the final distribution
in respect of the Certificates will only be
made upon presentation and surrender of the
Certificates at the office or agency appointed
by the Trustee for that purpose in New York,
New York. Distributions to the Certificate-
holders of a Class will be applied first to the
payment of interest and, if any principal is
then due, then to the payment of principal.
The funds available in the Group I and Group
II Certificate Account for distribution on a
Remittance Date (the "Group I Available Distri-
bution Amount" and "Group II Available
Distribution Amount," respectively) will be
applied in the amounts and the order of
priority set forth below. See "Description of
the Certificates--Distributions" for a detailed
description of the amounts on deposit in the
Certificate Accounts that will constitute the
Group I and Group II Available Distribution
Amount on each Remittance Date. The aggregate
amounts distributed to the holders of the Class
I A-1, Class I A-2, Class I A-3, Class I A-4,
Class I A-5, Class I A-6, Class I B-1, Class I
B-2, Class II A-1, Class II B-1, Class II B-2
and Class II B-3 Certificates from the Group I
Available Distribution Amount or Group II
Available Distribution Amount, as applicable,
in respect of a Remittance Date are the Class I
A-1 Distribution Amount, the Class I A-2
Distribution Amount, the Class I A-3 Distribu-
tion Amount, the Class I A-4 Distribution
Amount, the Class I A-5 Distribution Amount,
the Class I A-6 Distribution Amount, the Class
I B-1 Distribution Amount, the Class I B-2
Distribution Amount, the Class II A-1
Distribution Amount, the Class II B-1
Distribution Amount, the Class II B-2
Distribution Amount and the Class II B-3
Distribution Amount, respectively.
A. On each Remittance Date on which the Class I B
Principal Distribution Test is not met, the Group I
Available Distribution Amount will be distributed in
the following amounts in the following order of
priority:
(i) interest accrued during the related Interest
Period on the Class I A-1, Class I A-2, Class I A-3,
Class I A-4 and Class I A-5 Certificates, at their
respective Remittance Rates on the outstanding Class
I A-1, Class I A-2, Class I A-3, Class I A-4 and
Class I A-5 Principal Balances, respectively,
together with any previously undistributed
shortfalls in interest due on the Class I A-1, Class
I A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates, respectively, in respect of prior
Remittance Dates; if the Group I Available Distribu-
tion Amount is not sufficient to distribute the full
amount of interest due on the Class I A-1, Class I
A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates, the Group I Available Distribution
Amount will be distributed on such Classes of
Certificates pro rata on the basis of the interest
due thereon;
(ii) the Group I Formula Principal Distribution
Amount in the following order of priority:
(a) to the Class I A-1 Certificates until the
Class I A-1 Principal Balance is reduced to
zero;
(b) to the Class I A-2 Certificates until the
Class I A-2 Principal Balance is reduced to
zero;
(c) to the Class I A-3 Certificates until the
Class I A-3 Principal Balance is reduced to
zero;
(d) to the Class I A-4 Certificates until the
Class I A-4 Principal Balance is reduced to
zero; and
(e) to the Class I A-5 Certificates until the
Class I A-5 Principal Balance is reduced to
zero;
(iii) interest accrued during the related Interest
Period on the Class I A-6 Principal Balance to the
Class I A-6 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class I A-6
Certificates in respect of prior Remittance Dates;
(iv) the remainder of the Group I Formula Principal
Distribution Amount, if any, to the Class I A-6
Certificates until the Class I A-6 Principal Balance
is reduced to zero;
(v) interest accrued during the related Interest
Period on the Class I B-1 Principal Balance to the
Class I B-1 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-1
Certificates in respect of prior Remittance Dates;
(vi) the remainder of the Group I Formula Principal
Distribution Amount, if any, to the Class I B-1
Certificates until the Class I B-1 Principal Balance
is reduced to zero;
(vii) interest accrued during the related Interest
Period on the Class I B-2 Principal Balance to the
Class I B-2 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-2
Certificates in respect of prior Remittance Dates;
(viii) the remainder of the Group I Formula
Principal Distribution Amount, if any, to the Class
I B-2 Certificates until the Class I B-2 Principal
Balance is reduced to zero;
(ix) any Group I Monthly Excess Spread (as defined
below) to fund any Group II Available Funds
Shortfall;
(x) any remaining Group I Monthly Excess Spread to
fund any unfunded Accelerated Principal Payment (as
defined below) on the Group II Certificates after
giving effect to the distribution described in
clause C(ix) or D(ix), as applicable, below;
(xi) so long as the Company is the Servicer, any
remaining available funds up to the amount equal to
1/12th of the product of 1.25% and the Group I Pool
Scheduled Principal Balance for the immediately
preceding Remittance Date (the "Group I Monthly
Servicing Fee"), to the Servicer;
(xii) the amount of any reimbursement to CHI for
Enhancement Payments with respect to the Class I B-2
Certificates as provided in the Agreement;
(xiii) so long as the Company is the Servicer, any
remaining available funds up to the amount of the
Group II Monthly Servicing Fee (as defined herein),
if any, remaining unpaid after giving effect to the
distribution described in clause C(xii) or D(xii),
as applicable, below, to the Servicer;
(xiv) the amount of any reimbursement to CHI for
Enhancement Payments with respect to the Class II B-
3 Certificates as provided in the Agreement, which
remains unpaid after giving effect to the
distribution described in clause C(xiii) or D(xiii),
as applicable, below; and
(xv) any remaining available funds to the holder of
the Class R Certificate, which will initially be a
special purpose subsidiary of the Company.
B. On each Remittance Date on which the Class I B
Principal Distribution Test is met, the Group I
Available Distribution Amount will be distributed in
the following amounts in the following order of
priority:
(i) interest accrued during the related Interest
Period on the Class I A-1, Class I A-2, Class I A-3,
Class I A-4 and Class I A-5 Certificates, at their
respective Remittance Rates on the outstanding Class
I A-1, Class I A-2, Class I A-3, Class I A-4 and
Class I A-5 Principal Balances, respectively,
together with any previously undistributed
shortfalls in interest due on the Class I A-1, Class
I A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates, respectively, in respect of prior
Remittance Dates; if the Group I Available Distribu-
tion Amount is not sufficient to distribute the full
amount of interest due on the Class I A-1, Class I
A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates, the Group I Available Distribution
Amount will be distributed on such Classes of
Certificates pro rata on the basis of the interest
due thereon;
(ii) the Class I A Percentage of the Group I Formula
Principal Distribution Amount in the following order
of priority:
(a) to the Class I A-1 Certificates until the
Class I A-1 Principal Balance is reduced to
zero;
(b) to the Class I A-2 Certificates until the
Class I A-2 Principal Balance is reduced to
zero;
(c) to the Class I A-3 Certificates until the
Class I A-3 Principal Balance is reduced to
zero;
(d) to the Class I A-4 Certificates until the
Class I A-4 Principal Balance is reduced to
zero; and
(e) to the Class I A-5 Certificates until the
Class I A-5 Principal Balance is reduced to
zero;
(iii) interest accrued during the related Interest
Period on the Class I A-6 Principal Balance to the
Class I A-6 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class I A-6
Certificates in respect of prior Remittance Dates;
(iv) the remainder of the Class I A Percentage of
the Group I Formula Principal Distribution Amount,
if any, to the Class I A-6 Certificates until the
Class I A-6 Principal Balance is reduced to zero;
(v) interest accrued during the related Interest
Period on the Class I B-1 Principal Balance to the
Class I B-1 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-1
Certificates in respect of prior Remittance Dates;
(vi) the Class I B Percentage of the Group I
Formula Principal Distribution Amount to the Class I
B-1 Certificates until the Class I B-1 Principal
Balance is reduced to zero;
(vii) interest accrued during the related Interest
Period on the Class I B-2 Principal Balance to the
Class I B-2 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-2
Certificates in respect of prior Remittance Dates;
(viii) the remainder of the Group I Formula
Principal Distribution Amount to the Class I B-2
Certificates until the Class I B-2 Principal Balance
is reduced to zero;
(ix) any Group I Monthly Excess Spread to fund any
Group II Available Funds Shortfall;
(x) any remaining Group I Monthly Excess Spread to
fund any unfunded Accelerated Principal Payment (as
defined below) on the Group II Certificates after
giving effect to the distribution described in
clause C(ix) or D(ix), as applicable, below;
(xi) so long as the Company is the Servicer, any
remaining available funds up to the Group I Monthly
Servicing Fee, to the Servicer;
(xii) the amount of any reimbursement to CHI for
Enhancement Payments with respect to the Class I B-2
Certificates as provided in the Agreement;
(xiii) so long as the Company is the Servicer, any
remaining available funds up to the amount of the
Group II Monthly Servicing Fee, if any, remaining
unpaid after giving effect to the distribution
described in clause C(xii) or D(xii), as applicable,
below, to the Servicer;
(xiv) the amount of any reimbursement to CHI for
Enhancement Payments with respect to the Class II B-
3 Certificates as provided in the Agreement, which
remains unpaid after giving effect to the
distribution described in clause C(xiii) or D(xiii),
as applicable, below; and
(xv) any remaining available funds to the holder of
the Class R Certificate.
C. On each Remittance Date on which the Class II B
Principal Distribution Test is not met, the Group II
Available Distribution Amount will be distributed in
the following amounts in the following order of
priority:
(i) interest accrued during the related Interest
Period on the Class II A-1 Principal Balance to the
Class II A-1 Certificates, together with any
previously undistributed shortfalls in interest due
on the Class II A-1 Certificates in respect of prior
Remittance Dates;
(ii) the Group II Formula Principal Distribution
Amount, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, to the Class II A-1
Certificates until the Class II A-1 Principal
Balance is reduced to zero;
(iii) interest accrued during the related Interest
Period on the Class II B-1 Principal Balance to the
Class II B-1 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-1
Certificates in respect of prior Remittance Dates;
(iv) the remaining Group II Formula Principal
Distribution Amount, if any, to the Class II B-1
Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II
B-1 Principal Balance is reduced to zero;
(v) interest accrued during the related Interest
Period on the Class II B-2 Principal Balance to the
Class II B-2 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-2
Certificates in respect of prior Remittance Dates;
(vi) the remaining Group II Formula Principal
Distribution Amount, if any, to the Class II B-2
Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II
B-2 Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest
Period on the Class II B-3 Principal Balance to the
Class II B-3 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-3
Certificates in respect of prior Remittance Dates;
(viii) the remainder of the Group II Formula
Principal Distribution Amount, if any, to the Class
II B-3 Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II
B-3 Principal Balance is reduced to zero;
(ix) any remaining Group II Available Distribution
Amount to fund any Accelerated Principal Payment on
the Group II Certificates;
(x) any Group II Monthly Excess Spread, together
with any Overcollateralization Reduction Amount, to
fund any Group I Available Funds Shortfall;
(xi) any remaining available funds up to the Class
II A-1 Net Funds Cap Carryover Amount, Class II B-1
Net Funds Cap Carryover Amount, Class II B-2 Net
Funds Cap Carryover Amount and Class II B-3 Net
Funds Cap Carryover Amount to the applicable
Certificateholder; if such available funds are not
sufficient to distribute the total Net Funds Cap
Carryover Amount to the applicable Classes of
Certificates, such remaining available funds will be
distributed on such Classes of Certificates pro rata
based on the amount of the Net Funds Cap Carryover
Amount owing to each such Class of Certificates;
(xii) so long as the Company is the Servicer, any
remaining available funds up to the amount equal to
1/12th of the product of 1.25% and the Group II Pool
Scheduled Principal Balance for the immediately
preceding Remittance Date (the "Group II Monthly
Servicing Fee"), to the Servicer;
(xiii) the amount of any reimbursement to CHI for
Enhancement Payments with respect to the Class II B-
3 Certificates as provided in the Agreement;
(xiv) so long as the Company is the Servicer, any
remaining available funds up to the amount of the
Group I Monthly Servicing Fee, if any, remaining
unpaid after giving effect to the distribution
described in clause A(xi) or B(xi), as applicable,
above, to the Servicer;
(xv) the amount of any reimbursement to CHI for
Enhancement Payments with respect to the Class I B-2
Certificates as provided in the Agreement, which
remains unpaid after giving effect to the
distribution described in clause A(xii) or B(xii),
as applicable, above; and
(xvi) any remaining available funds to the holder
of the Class R Certificate.
D. On each Remittance Date on which the Class II B
Principal Distribution Test is met, the Available
Distribution Amount will be distributed in the
following amounts in the following order of
priority:
(i) interest accrued during the related Interest
Period on the Class II A-1 Principal Balance to the
Class II A-1 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class II A-1
Certificates, in respect of prior Remittance Dates;
(ii) the Class II A Percentage of the Group II
Formula Principal Distribution Amount, net of any
portion of the Overcollateralization Reduction
Amount, if any, then applicable to such
Certificates, to the Class II A-1 Certificateholders
until the Class II A-1 Principal Balance is reduced
to zero;
(iii) interest accrued during the related Interest
Period on the Class II B-1 Principal Balance to the
Class II B-1 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-1
Certificates in respect of prior Remittance Dates;
(iv) the Class II B Percentage of the Group II
Formula Principal Distribution Amount to the Class
II B-1 Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II
B-1 Principal Balance is reduced to zero;
(v) interest accrued during the related Interest
Period on the Class II B-2 Principal Balance to the
Class II B-2 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-2
Certificates in respect of prior Remittance Dates;
(vi) the remainder of the Class II B Percentage, if
any, of the Group II Formula Principal Distribution
Amount to the Class II B-2 Certificates, net of any
portion of the Overcollateralization Reduction
Amount, if any, then applicable to such
Certificates, until the Class II B-2 Principal
Balance is reduced to zero;
(vii) interest accrued during the related Interest
Period on the Class II B-3 Principal Balance to the
Class II B-3 Certificates at the related Remittance
Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-3
Certificates in respect of prior Remittance Dates;
(viii) the remainder of the Group II Formula
Principal Distribution Amount to the Class II B-3
Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II
B-3 Principal Balance is reduced to zero;
(ix) any remaining Group II Available Distribution
Amount to fund any Accelerated Principal Payment on
the Group II Certificates;
(x) any Group II Monthly Excess Spread, together
with any Overcollateralization Reduction Amount, to
fund any Group I Available Funds Shortfall;
(xi) any remaining available funds up to the Class
II A-1 Net Funds Cap Carryover Amount, Class II B-1
Net Funds Cap Carryover Amount, Class II B-2 Net
Funds Cap Carryover Amount and Class II B-3 Net
Funds Cap Carryover Amount to the applicable
Certificateholder; if such available funds are not
sufficient to distribute the total Net Funds Cap
Carryover Amount to the applicable Classes of
Certificates, such remaining available funds will be
distributed on such Classes of Certificates pro rata
based on the amount of the Net Funds Cap Carryover
Amount owing to each such Class of Certificates;
(xii) so long as the Company is the Servicer, any
remaining available funds up to the Group II Monthly
Servicing Fee, to the Servicer;
(xiii) the amount of any reimbursement to CHI for
Enhancement Payments with respect to the Class II B-
3 Certificates as provided in the Agreement;
(xiv) so long as the Company is the Servicer, any
remaining available funds up to the amount of the
Group I Monthly Servicing Fee, if any, remaining
unpaid after giving effect to the distribution
described in clause A(xi) or B(xi), as applicable,
above, to the Servicer;
(xv) the amount of any reimbursement to CHI for
Enhancement Payments with respect to the Class I B-2
Certificates as provided in the Agreement, which
remains unpaid after giving effect to the
distribution described in clause A(xii) or B(xii),
as applicable, above; and
(xvi) any remaining available funds to the holder
of the Class R Certificate.
The "Class I B Principal Distribution Test" is met
in respect of a Remittance Date on which each of the
following requirements is satisfied:
(i) such Remittance Date is on or after the February
2002 Remittance Date;
(ii) the Class I B Percentage for such Remittance
Date is equal to at least 16.625% (which is 1.75
times the original Class I B Percentage);
(iii) the Group I Performance Tests are satisfied;
and
(iv) the Class I B-2 Principal Balance is not less
than $2,308,354 (which represents approximately 2%
of the Group I Cut-off Date Principal Balance).
The "Class II B Principal Distribution Test" is met
in respect of a Remittance Date on which each of the
following requirements is satisfied:
(i) such Remittance Date is on or after the February
2002 Remittance Date;
(ii) the Class II B Percentage for such Remittance
Date is equal to at least 50% (which is the sum of
(a) 2 times the original Class II B Percentage and
(b) 1%);
(iii) the Group II Performance Tests are satisfied;
and
(iv) the sum of the Group II Junior Subordinate
Certificate Principal Balance and the
Overcollateralization Amount is not less than
$1,555,358 (which represents approximately 2% of the
Group II Cut-off Date Principal Balance.)
The "Group I Performance Tests" are satisfied in
respect of a Remittance Date if all of the following
conditions with respect to Group I are met:
(i) the Average Sixty-Day Delinquency Ratio (as
defined in the Agreement) as of such Remittance Date
does not exceed 5% for the Group I Contracts;
(ii) the Average Thirty-Day Delinquency Ratio (as
defined in the Agreement) as of such Remittance Date
does not exceed 7% for the Group I Contracts;
(iii) the Cumulative Realized Losses (as defined in
the Agreement) for the Group I Contracts as of such
Remittance Date do not exceed a certain specified
percentage of the Group I Cut-off Date Principal
Balance, depending on the year in which such Remit-
tance Date occurs; and
(iv) the Current Realized Loss Ratio (as defined in
the Agreement) as of such Remittance Date does not
exceed 2.75% for the Group I Contracts.
The "Group II Performance Tests" are satisfied in
respect of a Remittance Date if all of the following
conditions with respect to the Group II Contracts
are met:
(i) the Average Sixty-Day Delinquency Ratio as of
such Remittance Date does not exceed 5% for the
Group II Contracts;
(ii) the Average Thirty-Day Delinquency Ratio as of
such Remittance Date does not exceed 7% for the
Group II Contracts;
(iii) the Cumulative Realized Losses for the Group
II Contracts as of such Remittance Date do not
exceed a certain specified percentage of the Group
II Cut-off Date, depending on the year in which such
Remittance Date occurs; and
(iv) the Current Realized Loss Ratio (as defined in
the Agreement) as of such Remittance Date does not
exceed 2.75% for the Group II Contracts.
The Group I Monthly Excess Spread (as defined
herein) with respect to any Remittance Date will
generally be equal to the excess interest
collections on the Group I Contracts for the related
Due Period which remain available after payment of
all required distributions on the Group I
Certificates and certain other required payments for
such Remittance Date as specified in the Agreement.
The Group II Monthly Excess Spread (as defined
herein) with respect to any Remittance Date will
generally be equal to the excess interest
collections on the Group II Contracts for the
related Due Period (together with interest on the
Overcollateralization Amount to the extent provided
in the Agreement) which remain available after
payment of all required distributions on the Group
II Certificates (including any Accelerated Principal
Payment for such Remittance Date) and certain other
required payments for such Remittance Date as
specified in the Agreement.
The "Group I Available Funds Shortfall", if any,
with respect to any Remittance Date, will be equal
to the amount, if any, by which the Group I
Available Distribution Amount is less than the
amount required to be distributed to the Group I
Certificates on such Remittance Date pursuant to
clauses A(i) through (viii) or clauses B(i) through
(viii), as the case may be, of the distribution
priorities set forth above.
The "Group II Available Funds Shortfall", if any,
with respect to any Remittance Date, will be equal
to the amount, if any, by which the Group II
Available Distribution Amount is less than the
amount required to be distributed to the Group II
Certificates on such Remittance Date pursuant to
clauses C(i) through (viii) or clauses D(i) through
(viii), as the case may be, of the distribution
priorities set forth above.
The "Class II A-1 Net Funds Cap Carryover Amount"
means, on any Remittance Date, the sum of (A) if on
such Remittance Date, the Remittance Rate for the
Class II A-1 Certificates is based upon the Net
Funds Cap, the excess of (i) the lesser of (a) the
product of (i) the Weighted Average Lifetime Cap (as
defined herein) and (ii) the Class II A-1
Certificate Principal Balance and (b) the amount of
interest the Class II A-1 Certificates would
otherwise be entitled to receive on such Remittance
Date had such rate been calculated at the Class II
A-1 Formula Rate for such Remittance Date over (ii)
the amount of interest payable on the Class II A-1
Certificates at the Net Funds Cap for such
Remittance Date and (B) the Class II A-1 Net Funds
Cap Carryover Amount, together with accrued interest
thereon, for all previous Remittance Dates not
previously paid pursuant to clause C(xi) or D(xi)
above. The "Weighted Average Lifetime Cap" with
respect to any Remittance Date shall equal, on such
Remittance Date, the weighted average of the
Lifetime Caps of the Group II Contracts multiplied
by a fraction the numerator of which is the actual
number of days elapsed in the related Interest
Period and the denominator of which is 360.
The "Class II B-1 Net Funds Cap Carryover Amount"
means, on any Remittance Date, the sum of (A) if on
such Remittance Date, the Remittance Rate for the
Class II B-1 Certificates is based upon the Net
Funds Cap, the excess of (i) the lesser of (a) the
product of (i) the Weighted Average Lifetime Cap and
(ii) the Class II B-1 Certificate Principal Balance
and (b) the amount of interest the Class II B-1
Certificates would otherwise be entitled to receive
on such Remittance Date had such rate been
calculated at the Class II B-1 Formula Rate for such
Remittance Date over (ii) the amount of interest
payable on the Class II B-1 Certificates at the Net
Funds Cap for such Remittance Date and (B) the Class
II B-1 Net Funds Cap Carryover Amount, together with
accrued interest thereon, for all previous
Remittance Dates not previously paid pursuant to
clause C(xi) or D(xi) above.
The "Class II B-2 Net Funds Cap Carryover Amount"
means, on any Remittance Date, the sum of (A) if on
such Remittance Date, the Remittance Rate for the
Class II B-2 Certificates is based upon the Net
Funds Cap, the excess of (i) the lesser of (a) the
product of (i) the Weighted Average Lifetime Cap and
(ii) the Class II B-2 Certificate Principal Balance
and (b) the amount of interest the Class II B-2
Certificates would otherwise be entitled to receive
on such Remittance Date had such rate been
calculated at the Class II B-2 Formula Rate for such
Remittance Date over (ii) the amount of interest
payable on the Class II B-2 Certificates at the Net
Funds Cap for such Remittance Date and (B) the Class
II B-2 Net Funds Cap Carryover Amount, together with
accrued interest thereon, for all previous
Remittance Dates not previously paid pursuant to
clause C(xi) or D(xi) above.
The "Class II B-3 Net Funds Cap Carryover Amount"
means, on any Remittance Date, the sum of (A) if on
such Remittance Date, the Remittance Rate for the
Class II B-3 Certificates is based upon the Net
Funds Cap, the excess of (i) the lesser of (a) the
product of (i) the Weighted Average Lifetime Cap and
(ii) the Class II B-3 Certificate Principal Balance
and (b) the amount of interest the Class II B-3
Certificates would otherwise be entitled to receive
on such Remittance Date had such rate been
calculated at the Class II B-3 Formula Rate for such
Remittance Date over (ii) the amount of interest
payable on the Class II B-3 Certificates at the Net
Funds Cap for such Remittance Date and (B) the Class
II B-3 Net Funds Cap Carryover Amount, together with
accrued interest thereon, for all previous
Remittance Dates not previously paid pursuant to
clause C(xi) or D(xi) above.
The "Net Funds Cap Carryover Amount" with respect to
each Class of Group II Certificates shall equal each
of the Class II A-1 Net Funds Cap Carryover Amount,
Class II B-1 Net Funds Cap Carryover Amount, Class
II B-2 Net Funds Cap Carryover Amount and Class II
B-3 Net Funds Cap Carryover Amount, as applicable.
The "Net Funds Cap Carryover Amount" with respect to
all Classes of Group II Certificates shall equal the
sum of the Class II A-1 Net Funds Cap Carryover
Amount, the Class II B-1 Net Funds Cap Carryover
Amount, the Class II B-2 Net Funds Cap Carryover
Amount and the Class II B-3 Net Funds Cap Carryover
Amount. The Class II B-3 Net Funds Cap Carryover
Amount shall not have the benefit of the Limited
Guarantee or the Alternate Credit Enhancement.
The Principal Balance of each Class of Certificates
is its original Principal Balance reduced by all
distributions on such Class in respect of principal.
The Class I A Principal Balance is the sum of the
Class I A-1, Class I A-2, Class I A-3, Class I A-4,
Class I A-5 and Class I A-6 Principal Balances. The
Class I B Principal Balance is the sum of the Class
I B-1 Principal Balance and the Class I B-2
Principal Balance. The Class II B Principal Balance
is the sum of the Class II B-1 Principal Balance,
the Class II B-2 Principal Balance and the Class II
B-3 Principal Balance.
The Class I A Percentage for a Remittance Date is
the percentage derived from the fraction (which
shall not be greater than 1), the numerator of which
is the aggregate Principal Balance of the Class I A
Certificates immediately prior to such Remittance
Date and the denominator of which is the Pool
Scheduled Principal Balance for the Group I
Contracts. The Class I B Percentage is equal to
100% less the Class I A Percentage.
The Class II A Percentage for a Remittance Date is
the percentage derived from the fraction (which
shall not be greater than 1), the numerator of which
is the aggregate Principal Balance of the Class II
A-1 Certificates immediately prior to such
Remittance Date and the denominator of which is the
Pool Scheduled Principal Balance for the Group II
Contracts. The Class II B Percentage is equal to
100% less the Class II A Percentage.
The Formula Principal Distribution Amount in respect
of a Remittance Date and a Group equals the sum of
(i) all scheduled payments of principal due on each
outstanding Contract in such Group during the Due
Period preceding the month in which the Remittance
Date occurs, (ii) the Scheduled Principal Balance
(as defined below) of each Contract in such Group
which, during the Due Period preceding the month of
such Remittance Date, was purchased by the Company
pursuant to the Agreement on account of certain
breaches of its representations and warranties,
(iii) all Partial Prepayments (as defined in the
Agreement) of Contracts in such Group received
during such preceding Due Period, (iv) the Scheduled
Principal Balance of each Contract in such Group
that was prepaid in full during such preceding Due
Period, (v) the Scheduled Principal Balance of each
Contract in such Group that became a Liquidated
Contract during such preceding Due Period and (vi)
any previously undistributed shortfalls in the
amounts in clauses (i) through (v) in respect of the
prior Remittance Dates (other than any such
shortfall with respect to which an Enhancement
Payment has been made to the related
Certificateholders). The Due Period with respect to
any Remittance Date is the period beginning on the
26th day of the second month preceding the month of
such Remittance Date and ending on the 25th day of
the month preceding the month of such Remittance
Date.
The Scheduled Principal Balance of a Contract for
any Due Period is its principal balance after giving
effect to any previous Partial Prepayments and after
giving effect to all previous scheduled principal
payments (whether or not paid) and the scheduled
principal payment, or payments, in the case of Bi-
weekly Contracts, due on the Due Date (or Due Dates,
as applicable) in that Due Period, but without
giving effect to any adjustments due to bankruptcy
or similar proceedings.
In general, 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 any real property
securing such Contract have been received.
Notwithstanding the prioritization of the
distribution of the Group I Formula Principal
Distribution Amount among the Class I A-1, Class I
A-2, Class I A-3, Class I A-4 andClass I A-5 Certif-
icates pursuant to clauses A(ii) and B(ii) above, on
each Remittance Date on and after the Remittance
Date, if any, on which a Deficiency Event occurs,
the Available Distribution Amount remaining after
making the distributions of interest to the Class I
A-1, Class I A-2, Class I A-3, Class I A-4 and Class
I A-5 Certificateholders required by clauses A(i)
and B(i) above will be applied to distribute the
Formula Principal Distribution Amount on each Class
of Class I A-1, Class I A-2, Class I A-3, Class I A-
4 and Class I A-5 Certificates pro rata in
accordance with the outstanding Principal Balance of
each such Class of Certificates. A "Deficiency
Event" will occur if the sum of the Principal
Balances of each Class of Class I A-1, Class I A-2,
Class I A-3, Class I A-4 and Class I A-5 Certifi-
cates becomes equal to or greater than the Pool
Scheduled Principal Balance for Group I Contracts.
The "Pool Scheduled Principal Balance" for a Group
as of a Remittance Date is equal to (i) the Cut-off
Date Pool Principal Balance for such Group less (ii)
the aggregate of the Formula Principal Distribution
Amounts for such Group (exclusive of the amounts in
clause (vi) of the definition thereof) for all prior
Remittance Dates.
In no event will the aggregate distributions of
principal to the holders of any Class of
Certificates (including, in the case of the Class I
B-2 Certificates and the Class II B-3 Certificates,
any principal amounts included in any Enhancement
Payments) exceed the Original Class Principal
Balance for such Class of Certificates.
Any undistributed interest shortfalls which are
carried forward will, to the extent legally
permissible, bear interest at the Remittance Rate
applicable to the affected Class or Classes of
Certificates.
Group II Certificates;
Overcollateralization
Provisions The Group II Weighted Average Contract Rate for
the Group II Contracts is expected generally to
be higher than the weighted average of the
Remittance Rates applicable to the Group II
Certificates, thus generating certain excess
interest collections which in the absence of
losses and delinquencies, will not be needed to
fund distributions on the Group II
Certificates. The Agreement provides that this
excess interest is to be applied, to the extent
available, to make accelerated payments of
principal to the Class or Classes of Group II
Certificates then entitled to receive
distributions of principal. Such accelerated
payments are expected to cause the aggregate
Principal Balance of the Group II Certificates
to amortize more rapidly than the principal
balance of the Group II Contracts, resulting in
"overcollateralization" (i.e., the excess of
the Group II Pool Scheduled Principal Balance
over the aggregate Principal Balance of the
Group II Certificates). This interest for a
Due Period, together with interest on the
Overcollateralization Amount, remaining after
distributions in clauses C(i) to C(ix) or D(i)
to D(ix) above is the "Group II Monthly Excess
Spread" for the Remittance Date immediately
following the applicable Due Period. On any
Remittance Date, the "Overcollateralization
Amount" will be an amount equal to the
difference between the Group II Pool Scheduled
Principal Balance as of the end of the
immediately preceding Due Period and the
aggregate Certificate Principal Balance of the
Group II Certificates on such Remittance Date
(after taking into account all other
distributions to be made on such Remittance
Date).
The Group II Monthly Excess Spread will be applied
to make accelerated payments of principal on each
Remittance Date until the Overcollateralization
Amount is equal to approximately $3,305,137 (the
"Initial Required Overcollateralization Amount"
which represents approximately 4.25% of the initial
Group II Contract Pool Balance). Thereafter, the
Group II Monthly Excess Spread will not be applied
to further increase the Overcollateralization Amount
unless, due to losses, the Overcollateralization
Amount is decreased, in which event such
applications will commence to the extent necessary
to increase the actual Overcollateralization Amount
to the Required Overcollateralization Amount. The
level of the Required Overcollateralization Amount
is equal to, for any Remittance Date, (x) prior to
the date on which the Class II B Principal
Distribution Test is satisfied, the Initial Required
Overcollateralization Amount and (y) on and after
the date on which the Class II B Principal
Distribution Test is satisfied, the lesser of (i)
the Initial Required Overcollateralization Amount
and (ii) the greater of (a) 8.5% of the then current
Group II Pool Scheduled Principal Balance and (b)
0.75% of the Group II Cut-off Date Pool Principal
Balance.
If, on any Remittance Date, the level of Required
Overcollateralization Amount is permitted to be
reduced, the "Excess Overcollateralization Amount"
(the excess of (x) the actual Overcollateralization
Amount on such Remittance Date (after taking into
account all other distributions on such Remittance
Date) over (y) the Required Overcollateralization
Amount for such Remittance Date) will be deducted
from the Group II Formula Principal Distribution
Amount (but only to the extent of such Group II
Formula Principal Distribution Amount) otherwise
distributable to the holders of the Group II
Certificates on such Remittance Date (any such
amount so deducted, an "Overcollateralization
Reduction Amount") and will be applied as provided
herein under "Description of the Certificates--
Distributions". The Overcollateralization Reduction
Amount, if any, on any Remittance Date shall be
funded, first, from that portion of the Group II
-----
Formula Principal Distribution Amount otherwise
distributable to the holders of the most junior
class of Group II Certificates on such Remittance
Date, and, if such amount is insufficient to fund in
full the Overcollateralization Reduction Amount on
such Remittance Date, then, second, from
------
that portion of the Group II Formula Principal
Distribution Amount otherwise distributable to the
holders of each succeeding Class of Group II
Certificates in ascending order of seniority, until
such Overcollateralization Reduction Amount is
completely funded. The Agreement provides that in
no event shall an Overcollateralization Reduction
Amount be deducted from the Group II Formula
Principal Distribution Amount if, after deducting
such amount, the sum of the aggregate Principal
Balance of the Group II Junior Subordinate
Certificates and the Overcollateralization Amount,
taken together, would be less than 2.0% of the Group
II Cut-off Date Principal Amount.
The amount, if any, actually applied as an
accelerated payment of principal on any Remittance
Date is referred to herein as the "Accelerated
Principal Payment" for such Remittance Date. The
Accelerated Principal Payment, if any, on any
Remittance Date will be an amount equal to the
lesser of (x) the excess of (i) the Required
Overcollateralization Amount over (ii) the actual
Overcollateralization Amount on such Remittance Date
and (y) the sum of the Group II Monthly Excess
Spread, if any, and the Group I Monthly Excess
Spread, if any, remaining after payment of all then
applicable prior requirements for such Remittance
Date. The Accelerated Principal Payment will be
distributed to the holders of the Class of Group II
Certificates then entitled to receive distributions
in respect of principal on such date.
Cross Collateralization
Provisions The Agreement provides for cross
collateralization through the application of
excess amounts generated by one Contract Group
to fund shortfalls in available funds in the
other Contract Group, subject to certain prior
requirements of such Contract Group.
Therefore, as to any Remittance Date, the
amount, if any, of Group I Monthly Excess
Spread remaining after payment of all then
applicable prior requirements relating to the
Group I Certificates will be used to fund,
first, any Group II Available Funds Shortfall
and, second, to the extent of any remaining
Group I Monthly Excess Spread, any unfunded
Accelerated Principal Payment on the Group II
Certificates for such Remittance Date.
Likewise, as to any Remittance Date, the
amount, if any, of Group II Monthly Excess
Spread (together with any Overcollateralization
Reduction Amount) remaining after payment of
all then applicable prior requirements relating
to the Group II Certificates (including any
Accelerated Principal Payment for such
Remittance Date) will be used to fund any Group
I Available Funds Shortfall for such Remittance
Date. See "Description of Certificates --
Distributions" and "--Group II Certificates;
Overcollateralization Provisions".
Additional funds resulting from the cross-
collateralization provisions described herein shall
not be available to Group II Certificateholders to
pay the Net Funds Cap Carryover Amount.
Effect of Priority Sequence
of Principal Distributions The principal amounts described in clause A(ii)
above will be distributed, if the Class I B
Principal Distribution Test is not met, to the
extent of the Group I Available Distribution
Amount after payment of interest on the Group I
Senior Certificates, to the Group I Senior
Certificateholders (but only to the extent of
the outstanding principal balance of the Group
I Senior Certificates). The principal amounts
described in clause C(ii) above will be
distributed, if the Class II B Principal
Distribution Test is not met, to the extent of
the Group II Available Distribution Amount
after payment of interest on the Group II
Senior Certificates, to the Group II Senior
Certificateholders (but only to the extent of
the outstanding principal balance of the Group
II Senior Certificates). With respect to each
Group of Certificates, this should, unless
offset by other cash flow insufficiencies due
to delinquencies and liquidation losses, have
the effect of accelerating the amortization of
the Senior Certificates, and delaying the
amortization of the Subordinate Certificates,
from what such amortization would be without
such prioritization, thereby increasing the
interest in the applicable Group of Contracts
evidenced by the Subordinate Certificates.
With respect to each Group of Certificates,
increasing the interest of the Subordinate
Certificates relative to that of the Senior
Certificates is intended to preserve, as
provided herein, the availability on each
Remittance Date of the subordination provided
by the Subordinate Certificates. See
"Description of the Certificates."
Prepayment Considerations and
Risks
In general, the Contracts may be prepaid at any time
without penalty and, accordingly, the rate of
principal payments thereon is likely to vary
considerably from time to time. The Offered
Certificates may be sold at a discount to their
principal amounts. A slower than anticipated rate of
principal payments on the Contracts is likely to
result in a lower than anticipated yield on the
Offered Certificates if they are purchased at a
discount. See "Yield Considerations" and "Maturity
and Prepayment Considerations" in the Prospectus and
"Yield and Prepayment Considerations" herein.
Subordination of the
Senior Subordinate,
Junior Subordinate
and Class R Certificates With respect to each Group, the rights of the
holders of the Senior Subordinate Certificates
to receive distributions of amounts collected
on the Contracts in the Trust Fund 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 receipt by the
holders of the Senior Certificates of the full
amount of the scheduled monthly payments of
interest and the ultimate receipt by such
holders of principal equal to the Original
Certificate Principal Balance of such
Certificates.
With respect to each Group, the protection afforded
to the holders of Senior Certificates by means of
the subordination of the Senior Subordinate
Certificates will be accomplished (i) by the
application of the Group I or Group II Available
Distribution Amount, as applicable, in the order
specified under "Distributions" above, and (ii) if
the applicable Available Distribution Amount on any
Remittance Date is not sufficient to permit the
distribution of the entire specified portion of the
applicable Formula Principal Distribution Amount, to
the Senior Certificateholders, by the right of the
Senior Certificateholders to receive, until any such
shortfall is distributed, a portion of the future
distributions of Available Distribution Amounts that
would otherwise have been distributable to the
holders of the Subordinate or Class R Certificates.
With respect to each Group, the rights of holders of
the Junior Subordinate Certificates and Class R
Certificate to receive distributions of amounts
collected on the Contracts in the Trust Fund will be
subordinated, to the extent described herein, to
such rights of the holders of the Senior and Senior
Subordinate Certificates. This subordination is
intended to enhance the likelihood of receipt by the
holders of the Senior and Senior Subordinate
Certificates of the full amount of the scheduled
monthly payments of interest and the ultimate
receipt by such holders of principal equal to the
Original Certificate Principal Balance of such
Certificates.
With respect to each Group, the protection afforded
to the holders of the Senior and Senior Subordinate
Certificates by means of the subordination, to the
extent provided herein, of the Junior Subordinate
and Class R Certificates will be accomplished (i) by
the application of the Group I or Group II Available
Distribution Amount, as applicable, in the order
specified under "Distributions" above and (ii) if
the applicable Available Distribution Amount on such
Remittance Date is not sufficient to permit the
distribution of the entire specified portion of the
applicable Formula Principal Distribution Amount to
the Senior and Senior Subordinate
Certificateholders, by the right of the Senior and
Senior Subordinate Certificateholders to receive,
until, if ever, any such shortfall is distributed, a
portion of the future distributions of Available
Distribution Amounts that would otherwise have been
payable to the holders of the Junior Subordinate and
Class R Certificates.
With respect to each Group, the rights of the
holders of the Limited Guaranteed Certificates to
receive distributions of amounts collected on the
Contracts in the Trust Fund will be subordinated, to
the extent described herein, to such rights of the
Senior Certificates and the Senior Subordinate
Certificates. This subordination is intended to
enhance the likelihood of receipt by the holders of
the Senior Certificates, the Senior Subordinate
Certificates and the Class I B-1 and Class II B-2
Certificates, as applicable, of the full amount of
the scheduled monthly payments of interest and the
ultimate receipt by such holders of principal equal
to the Original Certificate Principal Balance of
such Certificates. The "Limited Guaranteed
Certificates" are, with respect to Group I, the
Class I B-2 Certificates and with respect to Group
II, the Class II B-3 Certificates.
With respect to each Group, the protection afforded
to the Senior Certificates, the Senior Subordinate
Certificates and the Class I B-1 and Class II B-2
Certificates, as applicable, by means of the
subordination of the Limited Guaranteed Certificates
will be accomplished by (i) the application of the
applicable Available Distribution Amount in the
order specified under "Distributions" above and (ii)
if the applicable Available Distribution Amount on
such Remittance Date is not sufficient to permit the
distribution of the entire specified portion of the
applicable Formula Principal Distribution Amount, as
applicable, to the holders of the Senior
Certificates, the Senior Subordinate Certificates
and the Class I B-1 and Class II B-2 Certificates,
as applicable, and the subordination provided by the
Limited Guaranteed Certificates has not been
exhausted, by the right of the holders of the Senior
Certificates, the Senior Subordinate Certificates
and the Class I B-1 and Class II B-2 Certificates,
as applicable, to receive, until, if ever, any such
shortfall is distributed, a portion of the future
distributions of applicable Available Distribution
Amounts that would otherwise have been distributable
to the holders of the Limited Guaranteed
Certificates.
See "Description of the Certificates--Group I
Certificates and the Senior/Subordinate Structure"
and "--Group II Certificates and the
Senior/Subordinate Structure" herein.
Losses on Liquidated
Contracts As described above, the distribution of
principal to the holders of the Senior
Certificates in each Group is intended to
include the Scheduled Principal Balance of each
Contract in the related Group that became a
Liquidated Contract during the Due Period
immediately preceding the month of such
distribution. If the Liquidation Proceeds, net
of related Liquidation Expenses, from such
Liquidated Contract are less than the Scheduled
Principal Balance of such Liquidated Contract,
and accrued and unpaid interest thereon, then
to the extent such deficiency is not covered by
any excess interest collections on non-
defaulted Contracts, the deficiency may, in
effect, be absorbed by the Subordinate
Certificates since a portion of future
Available Distribution Amounts funded by future
principal collections on the Contracts, up to
the aggregate amount of such deficiencies, that
would otherwise have been distributable to them
may be paid to the holders of the Senior
Certificates. If the protection afforded to
the holders of a Class of Subordinate
Certificates by the subordination of one or
more Classes of more junior Subordinate
Certificates is exhausted, the holders of such
Class of Subordinate Certificates will incur a
loss on their investment.
If the Group I or Group II Available Distribution
Amount, as applicable, for any Remittance Date is
not sufficient to cover, in addition to interest
distributable to the related Senior
Certificateholders, the entire specified portion of
the applicable Formula Principal Distribution Amount
distributable to any such Senior Certificateholders
then entitled to such payment on such Remittance
Date, then the amount of the related Pool Scheduled
Principal Balance available to the Class B
Certificates (i.e., such Pool Scheduled Principal
Balance less the Class I A Principal Balance or the
Class II A Principal Balance, as applicable) on
future Remittance Dates will be reduced. If,
because of liquidation losses, the Pool Scheduled
Principal Balance of a Group were to decrease
proportionately faster than distributions to the
related Class of Senior Certificateholders reduce
the related Certificate Principal Balance, the level
of protection afforded by the subordination of the
related Subordinate Certificates (i.e., the
percentage of the Pool Scheduled Principal Balance
available to such Subordinate Certificates) would be
reduced. On each Remittance Date, if any, on or
after the date on which the Class I A Principal
Balance equals or becomes greater than the Pool
Scheduled Principal Balance, and so long as the
Class I A-6 Certificates are outstanding, the Class
I A-6 Certificateholders will bear all losses on
Liquidated Contracts (with no ability to recover the
amount of any liquidation loss from future principal
collections on the Contracts) and incur a loss on
their investment in the Class I A-6 Certificates.
On each Remittance Date, if any, on or after the
date on which the Deficiency Event occurs, the Group
I Senior Certificateholders will receive only their
respective percentage interest of Liquidation
Proceeds (net of Liquidation Expenses) realized in
respect of Liquidated Contracts, rather than the
Scheduled Principal Balances thereof, and will
therefore bear all losses on Liquidated Contracts
(with no ability to recover the amount of any
liquidation loss from future principal collections
on the Contracts) and incur a loss on their invest-
ment in the Group I Senior Certificates. See
"Description of the Certificates--Group I
Certificates and the Senior/Subordinate Structure--
Subordination of the Group I Junior Subordinate
Certificates and Class R Certificates" and "--
Subordination of the Group I Senior Subordinate
Certificates" and "Yield and Prepayment Considera-
tions."
Enhancement Payments to the
Limited Guaranteed Certificates
under the Limited Guarantee of
CHI
In order to mitigate the effect of the subordination
of the Class I B-2 and Class II B-3 Certificates and
liquidation losses and delinquencies on the
Contracts, CHI will initially provide a Limited
Guarantee. Such Limited Guarantee may be replaced
by an Alternate Credit Enhancement. See "Alternate
Credit Enhancement" herein and "Description of the
Certificates--Alternate Credit Enhancement."
Pursuant to the Limited Guarantee, the holders of
the Limited Guaranteed Certificates are entitled to
receive on each Remittance Date the amount equal to
the Enhancement Payment, if any. Prior to the
Remittance Date (the "Initial Class I B-2 Principal
Remittance Date") on which the Class I B-1 Principal
Balance is reduced to zero, the Enhancement Payment
will equal the amount, if any, by which (a) the sum
of (i) the Class I B-2 Formula Distribution Amount
(which will be equal to one month's interest on the
Class I B-2 Principal Balance) for such Remittance
Date and (ii) the Class I B-2 Principal Liquidation
Loss Amount, if any, exceeds (b) the amount (other
than the Enhancement Payment) that will otherwise be
distributed on the Class I B-2 Certificates on such
Remittance Date (the "Class I B-2 Distribution
Amount"). On each Remittance Date on or after the
Initial Class I B-2 Principal Remittance Date, the
Enhancement Payment will equal the amount, if any,
by which the Class I B-2
Formula Distribution Amount (which will include both
interest and principal) exceeds the Class I B-2
Distribution Amount for such Remittance Date. Prior
to the Remittance Date (the "Initial Class II B-3
Principal Remittance Date") on which the Class II
B-2 Principal Balance is reduced to zero, the
Enhancement Payment will equal the amount, if any,
by which (a) the sum of (i) the Class II B-3 Formula
Distribution Amount (which will be equal to one
month's interest on the Class II B-3 Principal
Balance) for such Remittance Date and (ii) the Class
II B-3 Principal Liquidation Loss Amount, if any,
exceeds (b) the amount (other than the Enhancement
Payment) that will otherwise be distributed on the
Class II B-3 Certificates on such Remittance Date
(the "Class II B-3 Distribution Amount"). On each
Remittance Date on or after the Initial Class II B-3
Principal Remittance Date, the Enhancement Payment
will equal the amount, if any, by which the Class II
B-3 Formula Distribution Amount (which will include
both interest and principal) exceeds the Class II B-
3 Distribution Amount for such Remittance Date;
provided, however, that the Enhancement Payment with
respect to the Class II B-3 Certificates will not
include amounts in respect of the Class II B-3 Net
Funds Cap Carryover Amount.
The "Class I B-2 Principal Liquidation Loss Amount"
for any Remittance Date will equal the amount, if
any, by which (a) the Group I Formula Principal
Distribution Amount (exclusive of the portion
thereof specified in clause (vi) of the definition
of Formula Principal Distribution Amount) for such
Remittance Date exceeds (b) the amount (exclusive of
the Enhancement Payment) distributed on the Group I
Certificates on account of principal on such
Remittance Date. The Class I B-2 Principal
Liquidation Loss Amount represents future principal
payments on the Contracts that, because of the
subordination of the Class I B-2 Certificates and
liquidation losses on the Contracts, will not be
paid to the Class I B-2 Certificateholders from the
assets of the Trust Fund but may be paid to the
Class I B-2 Certificateholders in the form of an
Enhancement Payment.
The "Class II B-3 Principal Liquidation Loss Amount"
for any Remittance Date will equal the amount, if
any, by which (a) the Group II Formula Principal
Distribution Amount (exclusive of the portion
thereof specified in clause (vi) of the definition
of Formula Principal Distribution Amount) for such
Remittance Date exceeds (b) the amount (exclusive of
the Enhancement Payment) distributed on the Group II
Certificates on account of principal on such
Remittance Date. The Class II B-3 Principal
Liquidation Loss Amount represents future principal
payments on the Contracts that, because of the
subordination of the Class II B-3 Certificates and
liquidation losses on the Contracts, will not be
paid to the Class II B-3 Certificateholders from the
assets of the Trust Fund but may be paid to the
Class II B-3 Certificateholders in the form of an
Enhancement Payment.
The Limited Guarantee, if applicable, will be an
unsecured general obligation of CHI and will not be
supported by any letter of credit or other
enhancement arrangement.
In the event that, on a particular Remittance Date,
the Class I B-2 Distribution Amount or the Class II
B-3 Distribution Amount, as applicable, in the
applicable Certificate Account plus any amounts
actually paid under the Limited Guarantee or
Alternative Credit Enhancement are not sufficient to
make a full distribution of interest to the Class I
B-2 Certificateholder or Class II B-3
Certificateholder, as applicable, the amount of the
deficiency will be carried forward as an amount that
the Class I B-2 or Class II B-3 Certificateholders
are entitled to receive on the next Remittance Date.
Alternate Credit
Enhancement In the event that, at CHI's option, Alternate
Credit Enhancement (as defined herein) is
provided and, upon prior written notice to
Moody's (as defined herein), Moody's shall have
notified CHI, the Company, the Servicer and the
Trustee in writing that substitution of such
Alternate Credit Enhancement for the Limited
Guarantee will not result in the downgrade or
withdrawal of the then current rating of any
class of the Certificates, and upon the
delivery by CHI to the Trustee of an opinion of
counsel, acceptable to the Trustee, that such
action would not cause the Trust to fail to
qualify as a REMIC, the Limited Guarantee shall
be released and shall terminate. The Alternate
Credit Enhancement may consist of cash or
securities deposited by CHI or any other person
in a segregated escrow, trust or collateral
account or a letter of credit, certificate
insurance policy or surety bond provided by a
third party (an "Alternate Credit Enhance-
ment"). On each Remittance Date after delivery
of the Alternate Credit Enhancement, an amount,
equal to the lesser of the amount which would
have been payable under the Limited Guarantee
and the amount available under such Alternate
Credit Enhancement, shall be transferred from
such account to the applicable Certificate
Account to make payments to the Class I B-2 or
Class II B-3 Certificates, as applicable (an
"Enhancement Payment"). CHI shall have no
obligation to replace such enhancement once it
has been exhausted.
Monthly Advance For each Remittance Date, the Servicer will be
obligated to make advances ("Monthly Advances") in
respect of delinquent scheduled payments on the
Contracts that were due in the preceding Due Period
and would, in the Servicer's judgment, be
recoverable from related late payments, Liquidation
Proceeds or otherwise. Assuming that in the
judgment of the Servicer all delinquent payments on
the Contracts were recoverable, the amount of the
Monthly Advance paid out of the funds of the
Servicer is calculated such that, if it is made, it
will permit a distribution to both the Senior
Certificateholders and Subordinate
Certificateholders undiminished by such delinquent
payments. Monthly Advances are reimbursable to the
Servicer as described under "Description of the
Certificates--Advances."
Optional Repurchase of the
Contracts by the Servicer The Company (if it is no longer the Servicer)
and the Servicer will each have the option to
purchase, on any Remittance Date, from the
Trust Fund all Contracts then outstanding and
all other property in the Trust Fund if on the
preceding Remittance Date the aggregate Pool
Scheduled Principal Balance of both Groups was
less than 10% of the Cut-off Date Pool
Principal Balance. See "Description of the
Certificates--Optional Termination" herein.
The Contracts Fixed rate and variable manufactured housing
installment sales contracts and installment
loan agreements (collectively, the "Contracts")
secured by security interests in manufactured
homes, as defined herein (the "Manufactured
Homes"), purchased with the proceeds of the
Contracts and, with respect to certain of the
Contracts ("Land-and-Home Contracts"), secured
by liens on the real estate on which the
related Manufactured Homes are located. The
Contract Pool conveyed to the Trust Fund on the
Closing Date (the "Contract Pool") will consist
of approximately 6,392 Contracts having an
aggregate unpaid principal balance as of the
Cut-off Date of approximately $193,185,630.
5,544 of the Contracts, having an aggregate
unpaid principal balance of approximately
$164,665,468.42 as of the Cut-off Date, are
manufactured housing installment sales
contracts originated by manufactured housing
dealers and purchased by the Company from such
dealers or originated by the Company. Certain
of these dealers are affiliates of CHI, the
parent of the Company. The Company purchased
the remaining 244 Contracts (the "Acquired
Contracts") having an aggregate unpaid
principal balance of approximately
$6,953,464.59 as of the Cut-off Date, from
different financial institutions, as described
under "The Contract Pool" herein. Approximately
604 of the Acquired Contracts having an
aggregate unpaid principal balance of
approximately $21,566,697.20 as of the Cut-off
Date were originated or acquired by 21st
Century Mortgage Corporation. The Contracts,
as of origination, were secured by Manufactured
Homes located in 41 states, the District of
Columbia and Puerto Rico and have been selected
by the Company from the Company's portfolio of
manufactured housing installment sale contracts
and installment loans on the basis of criteria
specified in the Agreement. Monthly or
bi-weekly payments of principal and interest on
the Contracts will be due on various days (each
a "Due Date") throughout each Due Period, as
defined herein. Approximately 14.06% of the
Contracts by Cut-off Date principal balance
have scheduled level payments of principal and
interest due every two weeks (the "Bi-weekly
Contracts") and the remainder have one such
payment due each month.
Group I Contracts The Group I Contracts will consist of
approximately 3,913 fixed rate Contracts having
an aggregate unpaid principal balance of
$115,417,699.95. The APRs on the Group I
Contracts range from 8.000% to 19.950% with a
weighted average of approximately 11.438% each
as of the Cut-off Date. The Group I Contracts
had a weighted average term to scheduled
maturity as of origination of approximately
188.22 months and a weighted average term to
scheduled maturity as of the Cut-off Date of
approximately 186.23 months. The final
scheduled payment date on the Group I Contract
with the latest maturity is August 1, 2027.
The Group I Contracts were originated from
March 1985 through December 1996, inclusive.
Group II Contracts The Group II Contracts will consist of
approximately 2,479 adjustable rate Contracts
having an aggregate unpaid principal balance of
$77,767,930.26. 98.75% of the Group II
Contracts will consist of variable rate
Contracts that adjust annually or semi-annually
based on the monthly average yield on United
States treasury securities adjusted to a
constant maturity of five years and .94% of the
Group II Contracts adjust based on the monthly
average yield on United State treasury
securities adjusted to a constant maturity of
one year (collectively, the "CMT Contracts").
.31% of the Group II Contracts adjust based on
other indices. 99% of the Group II Contracts
reset annually. 1% of the Group II Contracts
reset semi-annually. 44.18% of the Group II
Contracts have periodic caps of 2%. 54.57% of
the Group II Contracts have an periodic cap of
1%. 1.25% of the Group II Contracts have no
periodic or lifetime cap. 27.28% of the Group
II Contracts have a lifetime cap of 5% plus the
related initial APR, while 71.46% of the Group
II Contracts have a lifetime cap of 6% plus the
initial APR.
Subject to certain limited exceptions, the APR borne
by each Group II Contract has a weighted average
reset frequency of approximately 12 months and
adjusts on the date set forth in the related CMT
(each, a "Change Date") to equal the sum of (i) the
monthly average yield on U.S. Treasury securities
adjusted to a constant maturity of five years, as
made available by the Federal Reserve Board (the
"Index") on a "lookback date" (a date specified in
each Contract which occurs up to a specified number
of days before the applicable Change Date) and (ii)
the number of basis points set forth in such
Contract (the "Gross Margin"), subject to rounding
and to the effects of the Periodic Cap, the
applicable Lifetime Cap and the applicable Lifetime
Floor. The "Periodic Cap" limits changes in the APR
for each Group II Contract on each Change Date. The
"Lifetime Cap" is the maximum APR that may be borne
by a CMT Contract over its life. The "Lifetime
Floor" is the minimum APR that may be borne by a CMT
Contract over its life and is equal to the Gross
Margin for such CMT Contract. The CMT Contracts do
not provide for negative amortization.
As of the Cut-Off Date, the average Contract Balance
of the Group II Contracts was $31,370.69. As of the
Cut-Off Date, the initial APRs on the Group II
Contracts ranged from 8.000% to 15.250% with a
weighted average of approximately 9.881% each as of
the Cut-off Date. The weighted average maximum APR
of the Group II Contracts was 15.618%. The maximum
APRs of the Group II Contracts ranged from 13.250%
to 21.250%. The weighted average minimum APR of the
Group II Contracts was 3.477%. The minimum APRs of
the Group II APRs ranged from 1.280% to 8.650%. The
weighted average Gross Margin of the Group II
Contracts was 3.477%. The minimum Gross Margin of
the Group II Contracts was 1.280% and the maximum
Gross Margin of the Group II Contracts was 8.650%.
The Group II Contracts had a weighted average term
to scheduled maturity as of origination of
approximately 207.76 months and a weighted average
term to scheduled maturity as of the Cut-off Date of
approximately 201.493 months. The final scheduled
payment date on the Group II Contract with the
latest maturity is January 15, 2027. The Group II
Contracts were originated from September 1984
through December 1996, inclusive.
See "The Contract Pool" herein and "Yield
Considerations" in the Prospectus. The Agreement
requires the Servicer to maintain one or more
standard hazard insurance policies with respect to
each Manufactured Home (other than a Manufactured
Home in repossession) in an amount at least equal to
the lesser of its maximum insurable value or the
remaining principal balance on the related Contract.
The standard hazard insurance policies, at a mini-
mum, are required to provide fire and extended
coverage on terms and conditions customary in manu-
factured housing hazard insurance policies, with
customary deductible amounts. No other insurance
policies will be provided with respect to any
Contract or the Contract Pool. See "Description of
the Certificates--Servicing" in the Prospectus.
Security Interests and Mortgages
on the Manufactured Homes;
Repurchase or Substitution
Obligations In connection with the transfer of the
Contracts to the Trustee, the Company will
assign the security interests in the
Manufactured Homes and (with respect to the
Land-and-Home Contracts) the liens on the real
property on which the Manufactured Homes are
located to the Trustee. Assignments in
recordable form for the mortgages or deeds of
trust (each, a "Mortgage") evidencing the liens
on real property that secure the Land-and-Home
Contracts will not be delivered by the Company.
However, the Company will deliver to the
Trustee a power of attorney to enable the
Trustee to execute such assignments of such
Mortgages securing the Land-and-Home Contracts,
in the event that the recordation of such
assignments becomes necessary to foreclose upon
the related real property. The Servicer, with
the cooperation of the Company, is required to
take such steps as are necessary to perfect and
maintain perfection of the security interest in
each Manufactured Home, but as long as the
Company is the Servicer, the Servicer will not
be required to cause notations to be made on
any document of title relating to any
Manufactured Home or to execute any instrument
relating to any Manufactured Home (other than a
notation or a transfer instrument necessary to
show the Company as the lienholder or legal
titleholder).
Consequently, the security interests in the
Manufactured Homes in certain states may not be
effectively transferred to the Trustee or perfected.
See "Risk Factors--Security Interests and Mortgages
on the Manufactured Homes" in the Prospectus. To
the extent such security interest is perfected and
is effectively transferred to the Trustee, the
Trustee will have a prior claim over subsequent
purchasers of the Manufactured Home, holders of
subsequently perfected security interests and
creditors of the Company. Under the laws of most
states, Manufactured Homes constitute personal
property, and perfection of a security interest in
the Manufactured Home is obtained, depending on
applicable state law, either by noting the security
interest on the certificate of title for the Manu-
factured Home or by filing a financing statement
under the Uniform Commercial Code. If the
Manufactured Home were relocated to another state
without re-perfection of the security interests, or
if the Manufactured Home were to become attached to
its site and a determination were made that the
security interest was subject to real estate title
and recording laws, or as a result of fraud or
negligence, the Trustee could lose its prior
perfected security interest in a Manufactured Home.
Federal and state consumer protection laws impose
requirements upon creditors in connection with
extensions of credit and collections on installment
sales contracts, and certain of these laws make an
assignee of such a contract, such as the Trust Fund,
liable to the obligor thereon for any violation by
the lender. The Company is obligated, subject to
certain conditions described under "Description of
the Certificates--Conveyance of Contracts" to
repurchase or, at its option, to substitute another
contract for, any Contract as to which it has failed
to perfect a security interest in the Manufactured
Home securing such Contract, or as to which a breach
of federal or state laws exists if such breach
materially adversely affects the Trustee's interest
in the Contract, unless such failure or breach has
been cured within 90 days from notice of such
breach. See "Risk Factors--Security Interests and
Mortgages on the Manufactured Homes," "--Consumer
Protection Laws and Other Limitations on Lenders"
and "--Priority of Possible Tennessee Tax Lien" in
the Prospectus.
The discussion in the previous paragraph as it
relates to maintaining a security interest in a
Manufactured Home does not apply to any Mortgages
securing Land-and-Home Contracts. See "Risk
Factors--Security Interests and Certain Other
Aspects of the Contracts" herein for a description
of certain considerations relating to the assignment
of liens on the real property securing Land-and-Home
Contracts.
Certain Federal Income Tax
Consequences For federal income tax purposes, the Trust Fund
will be treated as a real estate mortgage
investment conduit ("REMIC"). The Senior and
Subordinate Certificates will constitute
"regular interests" in the REMIC and generally
will be treated as debt instruments of the
Trust Fund for federal income tax purposes with
payment terms equivalent to the terms of such
Certificates. The Class R Certificate will be
treated as the residual interest for federal
income tax purposes. The Offered Certificates
may be issued with original issue discount for
federal income tax purposes. For purposes of
determining the amount and the rate of accrual
of original issue discount and market discount,
the Company intends to assume that there will
be prepayments on the Contracts at a rate equal
to 185% of the Prepayment Model (as defined
herein) for the Group I Contracts and 200% of
the Prepayment Model for the Group II
Contracts. No representation is made as to
whether the Contracts will prepay at that rate
or any other rate. See "Certain Federal Income
Tax Consequences" herein and in the Prospectus.
ERISA Considerations A fiduciary of an employee benefit plan subject
to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section 4975
of the Internal Revenue Code of 1986, as
amended (the "Code"), should carefully review
with its legal advisors whether the purchase or
holding of the Senior Certificates could give
rise to a transaction prohibited or not
otherwise permissible under ERISA or the Code.
See "ERISA Considerations" herein and in the
Prospectus.
An employee benefit plan or other plan subject to
ERISA and/or Section 4975 of the Code will not be
permitted to purchase or hold the Subordinate
Certificates unless the certification or opinion of
counsel described under "ERISA Considerations" is
delivered to the Trustee. See "ERISA
Considerations" herein and in the Prospectus.
Legal Investment
Considerations The Senior Certificates and the Senior
Subordinate Certificates will constitute
"mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of
1984 and, as such, will be "legal investments"
for certain types of institutional investors to
the extent provided in that Act.
Since the Junior Subordinate Certificates will not
be rated by a nationally recognized rating agency in
one of its two highest rating categories, the Junior
Subordinate Certificates will not constitute
"mortgage related securities" under the Secondary
Mortgage Market Enhancement Act of 1984. No
representation is made as to the appropriate
characterization of the Junior Subordinate
Certificates under any laws relating to investment
restrictions, as to which investors should consult
their legal advisors. See "Legal Investment
Considerations" herein and in the Prospectus.
Rating It is a condition to the issuance of the Senior
Certificates that they be rated "Aaa" by Moody's
Investors Service, Inc. ("Moody's"). It is a
condition to the issuance of the Senior Subordinate
Certificates that they be rated at least "Aa3" by
Moody's. It is a condition to the issuance of the
Junior Subordinate Certificates that they be rated
at least "Baa2" by Moody's. The Company has not
requested a rating on the Certificates by any rating
agency other than Moody's. However, there can be no
assurance as to whether any other rating agency will
rate the Certificates, or if it does, what rating
would be assigned by any such other rating agency.
A rating on any or all of the Offered Certificates
by certain other rating agencies, if assigned at
all, may be lower than the ratings assigned to such
Certificates 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. The rating of the Limited Guarantee
Certificates is based in part on an assessment of
CHI's ability to make payments under the Limited
Guarantee. Any reduction in Moody's rating of CHI's
debt securities may result in a similar reduction of
the rating of the Limited Guarantee Certificates.
See "Ratings" in the Prospectus.
Registration of the Offered
Certificates The Offered Certificates initially will be
represented by certificates registered in the
name of Cede & Co. ("Cede") as the nominee of
The Depository Trust Company ("DTC"), and will
only be available in the form of book-entries
on the records of DTC and participating members
thereof.
Certificates representing the Offered Certificates
will be issued in definitive form only under the
limited circumstances described herein. All
references herein to "holders" or "holders of the
Offered Certificates" shall reflect the rights of
Owners of the Offered Certificates as they may
indirectly exercise such rights through DTC in the
United States, or Cedel Bank, soci t anonyme
("Cedel") or the Euroclear System ("Euroclear"), in
Europe, and participating members thereof, except as
otherwise specified herein. See "Risk Factors" and
"Description of the Certificates--Registration of
the Offered Certificates" herein and "Description of
the Certificates--Global Certificates" in the
Prospectus.
RISK FACTORS
Prospective investors in the Offered Certificates should consider among
other things, the following special considerations and the special
considerations in the Prospectus in connection with the purchase of the
Offered Certificates. See "Risk Factors" in the Prospectus.
1. General. An investment in the Offered Certificates evidencing
interests in Contracts 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 manufactured housing installment
sales contracts. The geographic location of the Manufactured Homes is set
forth under "The Contract Pool" herein. As set forth under "The Contract
Pool," approximately 26.39%, 19.25%, 13.04% and 7.64% of the Group I
Contracts by outstanding principal balance are located in Texas, North
Carolina, Tennessee and Virginia, respectively. As set forth under "The
Contract Pool," approximately 22.03%, 26.33%, 16.16% and 8.00% of the Group
II Contracts by outstanding principal balance are located in Texas, North
Carolina, South Carolina and Kentucky, respectively. See "The Trust Fund--
The Contract Pools" in the Prospectus. Moreover, regardless of its location,
manufactured housing generally depreciates in value. Consequently, the
market value of the Manufactured Homes could be or become lower than the
principal balances of the related Contracts. See "The Contract Pool" herein.
With respect to each Group of Certificates, high delinquencies and
liquidation losses on the Contracts related to such Group will have the
effect of reducing, and could eliminate, the protection against loss afforded
by, with respect to the Senior Certificates, the subordination of the
Subordinate Certificates and Class R Certificates, and with respect to the
Senior Subordinate Certificates, the subordination of the Junior Subordinate
Certificates and Class R Certificates. If such protection is eliminated, the
Senior Certificateholders will bear the risk of losses on the Contracts and
must rely on the value of the Manufactured Homes for recovery of the
outstanding principal of and unpaid interest on any defaulted Contracts. See
"--Subordination of the Senior Subordinate Certificates" and "--Subordination
of the Junior Subordinate and Class R Certificates." With respect to the
Senior Subordinate Certificates, sufficiently high delinquencies and
liquidation losses on the Contracts will have the effect of reducing, and
could eliminate, the protection against loss afforded the Senior Subordinate
Certificates by the subordination of the Junior Subordinate and Class R
Certificates. If such protection is eliminated, the Senior Subordinate
Certificateholders will bear the risk of losses on the Contracts and must
rely on the value of the Manufactured Homes for recovery of the outstanding
principal of and unpaid interest on any defaulted Contracts. With respect to
the Limited Guarantee Certificates, sufficiently high delinquencies and
liquidation losses on the Contracts will have the effect of reducing, and
could eliminate, the protection against loss afforded by the collections of
interest, if any, on the Contracts in excess of the aggregate amount of
interest due to be distributed on the Offered Certificates, which excess
interest amount, if any, would otherwise be distributable on the Class R
Certificate. If such protection is eliminated and CHI fails to make payments
as required under the Limited Guarantee or the Alternate Credit Enhancement
is less than the Class I B-2 or Class II B-3 Formula Distribution Amount, as
applicable, the Class I B-2 or Class II B-3 Certificateholders, as
applicable, will bear the risk of losses on the Contracts.
Certain statistical information relating to the losses experienced by
the Company and its affiliates upon the liquidation of certain manufactured
housing contracts is set forth herein under "Vanderbilt Mortgage and Finance,
Inc." Such statistical information relates only to certain manufactured
housing contracts serviced by the Company during the periods indicated and is
included herein only for illustrative purposes. There is no assurance that
the Contracts will have the characteristics that are similar to the
manufactured housing contracts to which such statistical information relates.
In addition, the losses experienced upon recovery of principal upon the
liquidation of manufactured housing contracts historically have been sharply
affected by downturns in regional or local economic conditions. These
regional or local economic conditions are often volatile, and no predictions
can be made regarding future economic loss upon liquidation. In light of the
foregoing, no assurance can be given that the losses experienced upon the
liquidation of defaulted Contracts will be similar to any statistical
information contained herein under "Vanderbilt Mortgage and Finance, Inc."
See "The Trust Fund--The Contract Pools" in the Prospectus.
2. Prepayment Considerations. The prepayment experience on the
Contracts may affect the average life of the Offered Certificates. In the
event a Contract is prepaid in full, interest on such Contract will cease to
accrue on the date of prepayment. If such prepayments and related interest
shortfalls were sufficiently high in a month, the Group I or Group II
Available Distribution Amount, as applicable, for the next Remittance Date
could be less than the amount of principal and interest that would be
distributable to the Group I or Group II Certificateholders, as applicable,
in the absence of such shortfalls. See "Yield and Prepayment Considerations"
herein and "Maturity and Prepayment Considerations" in the Prospectus.
3. Limited Obligations. The Offered Certificates will not represent an
interest in or obligation of the Company or any Servicer. The Offered
Certificates will not be insured or guaranteed by any governmental agency or
instrumentality, the Underwriters or any of their affiliates, or the Company
or any of its affiliates (except to the extent of the Limited Guarantee of
CHI in respect of the Limited Guarantee Certificates) and will be payable
only from amounts held in the Trust Fund.
4. Limited Liquidity. There can be no assurance that a secondary
market will develop for any Class of 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. Issuance of the Offered Certificates in book-entry form may
reduce the liquidity of such Certificates in the secondary trading market
since investors may be unwilling to purchase Offered Certificates for which
they cannot obtain physical certificates. See "Description of the
Certificates--Registration of the Offered Certificates" herein. The Junior
Subordinate Certificates will not 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 the Junior Subordinate
Certificates, limiting the market for such securities.
5. 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 "Risk Factors--Security Interests
and Mortgages on the Manufactured Homes" and "--Consumer Protection Laws and
Other Limitations on Lenders" in the Prospectus.
6. Certain Matters Relating to Insolvency. The bankruptcy or
insolvency of the Company could have certain consequences for the holders of
the Offered Certificates. See "Risk Factors--Certain Matters Relating to
Insolvency" in the Prospectus.
7. Priority of Possible Tennessee Tax Lien. See "Risk Factors--
Priority of Possible Tennessee Tax Lien" in the Prospectus.
8. Louisiana Law. See "Risk Factors--Louisiana Law" in the Prospectus.
9. Limitations on Subordination. See "Risk Factors--Limitations on
Subordination" in the Prospectus.
10. Difficulty in Pledging. Since transactions in the Offered
Certificates can be effected only through The Depository Trust Company
("DTC"), Cedel, Euroclear, participating organizations, indirect participants
and certain banks, the ability of an Owner of the Offered Certificates to
pledge an Offered Certificate to persons or entities that do not participate
in the DTC, Cedel or Euroclear system, or otherwise to take action in respect
of such Certificates, may be limited due to lack of a physical certificate
representing the Offered Certificates. See "Description of the Certificates-
- -Registration of the Offered Certificates" herein.
11. Potential Delays in Receipt of Distributions. Owners of the
Offered Certificates may experience some delay in their receipt of
distributions of interest and principal on the Offered Certificates since
such distributions will be forwarded by the Trustee to DTC and DTC will
credit such distributions to the accounts of its Participants (as defined
herein), which will thereafter credit them to the accounts of Owners of the
Offered Certificates either directly or indirectly through indirect
participants. See "Description of the Certificates--Registration of the
Offered Certificates" herein.
12. Limited Guarantee of CHI. The Limited Guarantee, if applicable,
will be an unsecured general obligation of CHI and will not be supported by
any letter of credit or other enhancement arrangement. See "Incorporation of
Certain Documents of CHI by Reference" in the Prospectus.
13. Alternate Credit Enhancement. If CHI has replaced the Limited
Guarantee with an Alternate Credit Enhancement and such Alternate Credit
Enhancement is exhausted, CHI has no obligation to replace such enhancement.
Consequently, the Limited Guarantee Certificates may bear a greater risk of
loss on the Contracts than if the Limited Guarantee was in place and CHI was
able to make payments pursuant to the Limited Guarantee.
14. Basis Risk. The majority of Group II Contracts accrue interest at
variable rates based primarily on changes in the monthly average yield on
United States treasury securities adjusted to a constant maturity of five
years ("CMT Rate") as described herein and such interest rate is adjusted
semi-annually or annually. The Group II Certificates, however, accrue
interest at variable rates based on changes in LIBOR or the Net Funds Cap in
certain instances and the interest rate of the Group II Certificates is
adjusted monthly. As a result, there may be periods during which the
weighted average rate at which the Group II Contracts are accruing interest
may not reflect the then current spread between the CMT Rate (assuming the
interest rate on all Group II Contracts is adjusted monthly) and LIBOR.
Accordingly, the amount of collections with respect to interest on the Group
II Contracts available to pay the interest requirement on the Group II
Certificates (which may have increased) and other amounts due on the Group II
Certificates during such period may be less than would be the case if the
interest rate on the Group II Contracts were adjusted monthly.
THE CONTRACT POOL
All of the Contracts in the Trust Fund (the "Contract Pool") will be
purchased or originated by the Company. Each Contract will be a manufactured
housing installment sales contract or installment loan agreement
(manufactured housing installment sales contracts and installment loan
agreements being collectively referred to herein as "manufactured housing
contracts" or "contracts"). The statistical information presented in this
Prospectus Supplement concerning the Contract Pool is based on the Contract
Pool of Contracts as of the Cut-off Date.
A description of the Company's general practice with respect to the
origination or purchase, on an individual basis, of manufactured housing
contracts is set forth under "Underwriting Policies" in the Prospectus.
Under the Agreement, the manufactured homes securing the Contracts (the
"Manufactured Homes") are required to comply with the requirements of certain
federal statutes which generally would require the Manufactured Homes to have
a minimum of 400 square feet of living space and a minimum width of 102
inches and to be of a kind customarily used at a fixed location. Such
statutes would also require the Manufactured Homes to be transportable in one
or more sections, built on a permanent chassis and designed to be used as
dwellings, with or without permanent foundations, when connected to the
required utilities. The Manufactured Homes are also required to include the
plumbing, heating, air conditioning, and electrical systems therein.
Management of the Company estimates that in excess of 95% of the Manufactured
Homes are used as primary residences by the Obligors under the Contracts
secured by such Manufactured Homes.
The Agreement requires the Servicer to maintain hazard insurance
policies with respect to each Manufactured Home in the amounts and manner set
forth herein under "Description of the Certificates--Servicing" in the
Prospectus. Generally, no other insurance will be maintained with respect to
the Manufactured Homes, the Contracts or the Contract Pool.
The Company will cause to be conveyed to the Trustee the Contracts and
all rights to receive payments on the Contracts that have not been received
prior to December 26, 1996, including any such payments that were due prior
to such date but were not received prior to such date. Payments due on or
after December 26, 1996, that have been received by the Company prior to
December 26, 1996 will be the property of the Company and will not be part of
the Trust Fund. The Servicer will retain physical possession of the Contract
documents. See "Description of the Certificates--Conveyance of Contracts"
herein.
The Contract Pool will consist of approximately 6,392 Contracts having
an aggregate principal balance as of the Cut-off Date of approximately
$193,185,630.21. Each Contract was originated on or after September 1984.
5,544 of the Contracts, having an aggregate unpaid principal balance of
approximately $164,665,468 as of the Cut-off Date, are manufactured housing
installment sale contracts originated by manufactured housing dealers and
purchased by the Company from such dealers or originated by the Company.
Certain of these dealers are affiliates of CHI, the parent of the Company.
The Company purchased the remaining 848 Contracts (the "Acquired Contracts")
from different financial institutions. Approximately 604 of the Acquired
Contracts (the "21st Century Contracts") having an aggregate unpaid principal
balance of approximately $21,566,697.20 as of the Cut-off Date were
originated or acquired by 21st Century Mortgage Corporation, a Delaware
corporation ("21st Century"). The 21st Century Contracts constitute
approximately 11.16% of the Contract Pool. 21st Century was founded in 1995
for the origination, acquisition and servicing of manufactured housing
contracts like the Contracts. Certain of the officers of 21st Century were
previously officers of the Company and the President of the Company is on the
Board of Directors of 21st Century. CHI is a minority stockholder of 21st
Century. 21st Century will act as subservicer for the 21st Century
Contracts. The Servicer, however, will remain primarily liable for the
servicing of the 21st Century Contracts. See "Vanderbilt Mortgage and
Finance, Inc." in the Prospectus.
Based solely upon the Company's review of a sample of the Acquired
Contracts undertaken in connection with its purchase of such Contracts from
such institutions, the Company's management does not believe that the
Acquired Contracts, as a whole, were underwritten in accordance with
underwriting standards that are as strict as those used by the Company in
underwriting contracts that it originates or purchases on an individual
basis. See "Underwriting Policies" in the Prospectus.
Approximately 14.06% of the Contracts (the "Bi-weekly Contracts") by
principal balance as of the Cut-off Date have bi-weekly scheduled payments of
principal and interest, and the remainder of the Contracts have monthly
scheduled payments of principal and interest. Under a Bi-weekly Contract the
obligor authorizes the Company to automatically debit the obligor's account
for the payment of each scheduled payment. If the obligor terminates such
account or the authorization of the Company to debit such account, then such
Bi-weekly Contract is converted to a Contract with scheduled monthly
payments.
Approximately 5.28% of the Contracts (the "Escalating Principal Payment
Contracts") by principal balance as of the Cut-off Date provide for an annual
increase in monthly payments over the first five years of the term of the
Contract. Under an Escalating Principal Payment Contract, the original term
of the contract is 36 years, providing initially for lower monthly payments
than if the contract were of a shorter term. Each year for a period of five
years, the term of the Escalating Principal Payment Contract automatically
converts to a shorter term, and the monthly payment increases accordingly.
At year six, the monthly payment increases to a level monthly payment which
fully amortizes the remaining principal over a twelve year term. There is no
period in which the Escalating Principal Payment Contracts have negative
amortization.
Each Contract in Group I has a fixed annual percentage rate of interest
(the "APR") and, except for the Escalating Principal Payment Contracts,
generally provides for level payments over the term of such Contract. Each
Contract in Group II has an adjustable APR, as further described herein.
Each Contract fully amortizes the principal balance of the Contract over the
term of the Contract. All of the Contracts are actuarial obligations. The
portion of each scheduled payment for any Contract allocable to principal is
equal to the total amount thereof less the portion allocable to interest.
The portion of each scheduled payment due in a particular month that is
allocable to interest is a precomputed amount equal to one month's interest
(or 14 days' interest in the case of a Bi-weekly Contract) on the principal
balance of the Contract, which principal balance is determined by reducing
the initial principal balance by the principal portion of all scheduled
payments that were due in prior months (whether or not such scheduled
payments were timely made) and all prior partial principal prepayments.
Thus, each payment allocated to a scheduled monthly or bi-weekly payment of a
Contract will be applied to interest and to principal in accordance with such
precomputed allocation whether such scheduled payments are received in
advance of or subsequent to their Due Dates. All payments received on the
Contracts (other than payments allocated to items other than principal and
interest or payments sufficient to pay the outstanding principal balance of
and all accrued and unpaid interest on such Contracts) will be applied when
received to current and any previously unpaid scheduled monthly payments in
the order of the Due Dates of such payments and any payments that exceed the
amount necessary to bring the Contract current are applied to the partial
prepayment of principal of the Contract.
Except as otherwise provided herein with respect to certain Acquired
Contracts, for each Land-and-Home Contract, the Company financed the purchase
of the Manufactured Home and either took as additional security a Mortgage on
the property on which the Manufactured Home is located or, in certain cases,
the Company took a Mortgage on other property pledged on behalf of the
Obligor, or took a Mortgage on the property on which the Manufactured Home is
located in lieu of a down payment in the form of cash or the value of a
trade-in unit, or as additional security. Approximately 12.23% of the
Contracts by outstanding principal balance as of the Cut-off Date are secured
by a Mortgage on the property on which the Manufactured Home is located in
lieu of a down payment in the form of cash or the value of a trade-in unit.
See "Certain Legal Aspects of the Contracts" in the Prospectus.
GROUP I CONTRACTS
71.86% of the Group I Contracts by outstanding principal balance as of
the Cut-off Date are secured by Manufactured Homes which were new at the time
the related Group I Contracts were originated and 28.14% of the Group I
Contracts by outstanding principal balance as of the Cut-off Date are secured
by Manufactured Homes which were used at the time the related Group I
Contracts were originated. Each Group I Contract has an APR of at least
8.00% and not more than 19.950%. The weighted average APR of the Group I
Contracts as of the Cut-off Date is approximately 11.438%. The Group I
Contracts have remaining maturities as of the Cut-off Date of at least 48
months but not more than 368 months and original maturities of at least 48
months but not more than 369 months. As of the Cut-off Date, the Group I
Contracts had a weighted average original term to scheduled maturity of
approximately 188.22 months, and a weighted average remaining term to
scheduled maturity of approximately 186.23 months. The remaining term to
stated maturity of a Group I Contract is calculated as the number of months
from the Cut-off Date to the original scheduled maturity date of such Group I
Contract. The average outstanding principal balance of the Group I Contracts
as of the Cut-off Date was approximately $29,495.96. The weighted average
loan-to-value ratio at the time of origination of the Group I Contracts was
approximately 87.63%. Generally, "value" in such calculation is equal to the
sum of the down payment (which includes the value of any trade-in unit), the
original amount financed on the related Group I Contract, which may include
sales and other taxes, and, in the case of a Land-and-Home Contract, the
value of the land securing the Group I Contract as estimated by the dealer.
Manufactured Homes, unlike site-built homes, generally depreciate in value,
and it has been the Company's experience that, upon repossession, the market
value of a Manufactured Home securing a manufactured housing contract is
generally lower than the principal balance of the related manufactured
housing contract. The Group I Contracts are secured by Manufactured Homes
and real estate located in 41 states and the District of Columbia.
Approximately 26.39%, 19.25%, 13.04% and 6.29% of the Group I Contracts by
outstanding principal balance as of the Cut-off Date were secured by
Manufactured Homes or real estate located in Texas, North Carolina, Tennessee
and South Carolina, respectively; 7.64% in Virginia; and 5.67% in Kentucky.
No other state represented more than 4.77% of the Group I Contracts.
GROUP I STATISTICS
Set forth below is a description of certain additional characteristics
of the Group I Contracts as of the Cut-off Date. Percentages may not add to
100.00% due to rounding. Totals may not add to aggregate balances due to
rounding.
GEOGRAPHICAL DISTRIBUTION OF MANUFACTURED HOMES AS OF ORIGINATION - GROUP I
<TABLE>
<CAPTION>
Percentage of
Contract Pool
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
State As of Cut-off Date As of Cut-Off Date As of Cut-off Date
- ----- ------------------ -------------------- -------------------
<S> <C> <C> <C>
Alabama 39 $ 1,013,172 0.88
Arkansas 3 132,811 0.12
Arizona 58 2,394,280 2.07
California 9 412,092 0.36
Colorado 49 1,907,144 1.65
Connecticut 1 38,606 0.03
District of Columbia 1 13,827 0.01
Delaware 15 635,403 0.55
Florida 170 5,506,555 4.77
Georgia 81 1,868,387 1.62
Iowa 6 183,958 0.16
Idaho 2 90,818 0.08
Illinois 7 193,675 0.17
Indiana 18 474,561 0.41
Kansas 1 21,902 0.02
Kentucky 252 6,541,638 5.67
Louisiana 47 1,378,017 1.19
Massachusetts 1 28,211 0.02
Maryland 15 524,359 0.45
Michigan 5 198,265 0.17
Minnesota 1 36,857 0.03
Missouri 14 493,161 0.43
Mississippi 34 853,639 0.74
Montana 4 203,972 0.18
North Carolina 842 22,217,691 19.25
Nebraska 1 55,426 0.05
New Hampshire 1 26,154 0.02
New Jersey 3 255,702 0.22
New Mexico 37 1,273,195 1.10
Nevada 4 98,072 0.08
New York 23 841,805 0.73
Ohio 41 1,188,102 1.03
Oklahoma 53 1,797,181 1.56
Oregon 3 75,272 0.07
Pennsylvania 13 367,781 0.32
South Carolina 250 7,258,735 6.29
Tennessee 542 15,054,857 13.04
Texas 962 30,458,524 26.39
Virginia 294 8,819,876 7.64
Washington 4 223,301 0.19
Wisconsin 1 113,291 0.10
West Virginia 6 147,424 0.13
----- ------------ -------
Total 3,913 $115,417,700 100.00%
===== ============ =======
</TABLE>
YEARS OF ORIGINATION OF CONTRACTS - GROUP I
<TABLE>
<CAPTION> Percentage of
Number of Contract Pool
Contracts Aggregate Principal by Outstanding
As of Balance Outstanding Principal Balance
Year of Origination Cut-off Date As of Cut-off Date As of Cut-off Date
- ------------------- ------------ ------------------ ------------------
<S> <C> <C> <C>
1985 . . . . . . . . . . . 6 $ 62,022 .05
1986 . . . . . . . . . . . 15 144,444 .13
1987 . . . . . . . . . . . 12 148,963 .13
1988 . . . . . . . . . . . 7 110,090 .10
1989 . . . . . . . . . . . 10 152,329 .13
1990 . . . . . . . . . . . 19 316,030 .27
1991 . . . . . . . . . . . 4 66,267 .06
1992 . . . . . . . . . . . 4 68,502 .06
1993 . . . . . . . . . . . 5 87,382 .08
1994 . . . . . . . . . . . 4 56,120 .05
1995 . . . . . . . . . . . 47 1,827,885 1.58
1996 . . . . . . . . . . . 3,780 112,377,666 97.37
---------- --------------- ----------
Total . . . . . . . . . . 3,913 $115,417,700 100.00%
========== =============== ==========
</TABLE>
DISTRIBUTION OF ORIGINAL CONTRACT AMOUNTS - GROUP I
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Contract Pool
Contracts Principal Balance by Outstanding
Original Contract Amount As of Outstanding Principal Balance
(in Dollars) Cut-off Date As of Cut-off Date As of Cut-off Date
- ---------------------------- ------------ ------------------ ------------------
<S> <C> <C> <C>
$0 - 5,000 . . . . . . . . . . . 1 $ 12,140 0.01
$5,001 - 10,000 . . . . . . . . . 141 1,163,576 1.01
$10,001 - 15,000 . . . . . . . . . 466 5,884,603 5.10
$15,001 - 20,000 . . . . . . . . . 609 10,325,147 8.95
$20,001 - 25,000 . . . . . . . . . 532 11,825,806 10.25
$25,001 - 30,000 . . . . . . . . . 593 16,171,827 14.01
$30,001 - 35,000 . . . . . . . . . 480 15,441,508 13.38
$35,001 - 40,000 . . . . . . . . . 295 10,974,151 9.51
$40,001 - 45,000 . . . . . . . . . 201 8,479,813 7.35
$45,001 - 50,000 . . . . . . . . . 197 9,257,807 8.02
$50,001 - 55,000 . . . . . . . . . 119 6,195,204 5.37
$55,001 - 60,000 . . . . . . . . . 95 5,425,969 4.70
$60,001 - 65,000 . . . . . . . . . 58 3,605,335 3.12
$65,001 - 70,000 . . . . . . . . . 37 2,483,734 2.15
$70,001 - 75,000 . . . . . . . . . 30 2,169,534 1.88
$75,001 - 80,000 . . . . . . . . . 11 850,947 0.74
$80,001 - 85,000 . . . . . . . . . 15 1,239,255 1.07
$85,001 - 90,000 . . . . . . . . . 6 530,450 0.46
$90,001 - 95,000 . . . . . . . . . 3 276,795 0.24
$95,001 - 100,000 . . . . . . . . 7 670,204 0.58
$100,001 - 105,000 . . . . . . 4 408,859 0.35
$105,001 - 110,000 . . . . . . 3 322,166 0.28
$110,001 - 115,000 . . . . . . 3 338,029 0.29
$115,001 - 120,000 . . . . . . 1 117,040 0.10
$120,001 - 125,000 . . . . . . 1 122,107 0.11
$125,001 - 130,000 . . . . . . 1 128,999 0.11
$130,001 or Greater . . . . . . . . . 4 996,693 0.86
------- ------------ -------
Total . . . . . . . . . . . . . . . 3,913 $115,417,700 100.00%
======= ============ =======
</TABLE>
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS(1) (ROUNDED TO 1%) - GROUP I
<TABLE>
<CAPTION>
Percentage of
Number Contract Pool
of Contracts Aggregate Principal by Outstanding
Original As of Balance Outstanding Principal Balance
Loan-to-Value Ratio Cut-off Date As of Cut-off Date As of Cut-off Date
- --------------------------- ------------ ------------------- ------------------
<S> <C> <C> <C>
Less than 61% . . . . . . . . . 246 $ 5,185,966 4.49
61.00% - 65.999% . . . . . . 106 2,530,710 2.19
66.00% - 70.999% . . . . . . 126 3,973,649 3.44
71.00% - 75.999% . . . . . . 146 4,490,889 3.89
76.00% - 80.999% . . . . . . 256 7,700,520 6.67
81.00% - 85.999% . . . . . . 416 11,867,161 10.28
86.00% - 90.999% . . . . . . 960 29,156,402 25.26
91.00% - 100.00% . . . . . . 1,657 50,512,404 43.76
----- ------------ -------
Total . . . . . . . . . . . 3,913 $115,417,700 100.00%
===== ============ =======
</TABLE>
_________
(1) The definition of "Value" is set forth above. Manufactured Homes,
unlike site-built homes, generally depreciate in value, and it should
generally be expected, especially with Contracts with high loan-to-value
ratios at origination, that any time after the origination of a
Contract, the market value of the Manufactured Home securing such
Contract may be lower than the outstanding principal balance of such
Contract.
CONTRACT RATES - GROUP I
<TABLE>
<CAPTION>
Percentage of
Contract Pool
Number of Aggregate Principal by Outstanding
Ranges of Contracts by Contracts Balance Outstanding Principal Balance
Contract Rate As of Cut-off Date As of Cut-off Date As of Cut-off Date
- ----------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
7.000% - 8.00% . . . . . . 20 $ 1,090,756 .95
8.001% - 9.00% . . . . . . 110 4,741,611 4.11
9.001% - 10.00% . . . . . . 290 11,602,512 10.05
10.001% - 11.00% . . . . . . 837 26,949,791 23.35
11.001% - 12.00% . . . . . . 1,122 37,695,426 32.66
12.001% - 13.00% . . . . . . 953 23,801,466 20.62
13.001% - 14.00% . . . . . . 391 6,911,953 5.99
14.001% - 15.00% . . . . . . 146 2,029,969 1.76
15.001% - 16.00% . . . . . . 25 360,227 .31
16.001% - 17.00% . . . . . . 4 49,041 .04
17.001% - 18.00% . . . . . . 13 161,158 .14
18.001% - 19.00% . . . . . . 1 10,320 .01
19.001% - 20.00% . . . . . . 1 13,469 .01
----- ------------ -------
Total . . . . . . . . . . . . 3,913 $115,417,700 100.00%
===== ============ =======
</TABLE>
REMAINING MONTHS TO MATURITY - GROUP I
<TABLE>
<CAPTION>
Percentage of
Contract Pool
Number of Aggregate Principal by Outstanding
Months Remaining Contracts Balance Outstanding Principal Balance
As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
- --------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
20-72 . . . . . . . . . . . . 238 $ 2,606,653 2.26
73-84 . . . . . . . . . . . . 375 5,847,033 5.07
85-120 . . . . . . . . . . . 731 15,272,379 13.23
121-156 . . . . . . . . . . . 566 14,723,491 12.76
157-180 . . . . . . . . . . . 686 20,741,361 17.97
181-240 . . . . . . . . . . . 1,033 40,524,293 35.11
241-299 . . . . . . . . . . . 158 8,494,447 7.36
300-360 . . . . . . . . . . . 125 7,152,746 6.20
Greater than 360 . . . . . . 1 55,297 .05
----- ------------ -------
Total . . . . . . . . . . . 3,913 $115,417,700 100.00%
===== ============ =======
</TABLE>
GROUP II CONTRACTS
82.80% of the Group II Contracts by outstanding principal balance as of
the Cut-off Date are secured by Manufactured Homes which were new at the time
the related Group II Contracts were originated and 17.20% of the Group II
Contracts by outstanding principal balance as of the Cut-off Date are secured
by Manufactured Homes which were used at the time the related Group II
Contracts were originated. Each Group II Contract has an APR of at least
8.000% and not more than 15.250%. The weighted average APR of the Group II
Contracts as of the Cut-off Date is approximately 9.881%. The Group II
Contracts have remaining maturities as of the Cut-off Date of at least 48
months but not more than 360 months and original maturities of at least 48
months but not more than 360 months. As of the Cut-off Date, the Group II
Contracts had a weighted average original term to scheduled maturity of
approximately 207.76 months, and a weighted average remaining term to
scheduled maturity of approximately 201.49 months. The remaining term to
stated maturity of a Group II Contract is calculated as the number of months
from the Cut-off Date to the original scheduled maturity date of such Group
II Contract. The average outstanding principal balance of the Group II
Contracts as of the Cut-off Date was approximately $31,370.69. The weighted
average loan-to-value ratio at the time of origination of the Group II
Contracts was approximately 87.790%. The calculation of the loan-to-value
for the Group II Contracts is as set forth under the "The Contract Pool--
Group I Contracts". Manufactured Homes, unlike site-built homes, generally
depreciate in value, and it has been the Company's experience that, upon
repossession, the market value of a Manufactured Home securing a manufactured
housing contract is generally lower than the principal balance of the related
manufactured housing contract. The Group II Contracts are secured by
Manufactured Homes and real estate located in 28 states, the District of
Columbia and Puerto Rico. Approximately 22.03%, 26.33%, 6.35% and 16.16% of
the Group II Contracts by outstanding principal balance as of the Cut-off
Date were secured by Manufactured Homes or real estate located in Texas,
North Carolina, Tennessee and South Carolina, respectively; 5.25% in Florida;
and 8.00% in Kentucky. No other state represented more than 4.68% of the
Group II Contracts.
The Periodic Cap for the Group II Contracts ranged from 1.00% to 2.00%
with a weighted average of approximately 1.447%. The Months to Interest Roll
for the Group II Contracts ranged from 1 to 14 months with a weighted average
of approximately 8.483 months. The Payment Roll Frequency was 12 months.
GROUP II STATISTICS
Set forth below is a description of certain additional characteristics
of the Contracts as of the Cut-off Date. Percentages may not add to 100.00%
due to rounding. Totals may not add to aggregate balances due to rounding.
GEOGRAPHICAL DISTRIBUTION OF MANUFACTURED HOMES AS OF ORIGINATION - GROUP II
<TABLE>
<CAPTION>
Percentage of
Contract Pool
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
State As of Cut-off Date As of Cut-Off Date As of Cut-off Date
- ----- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Alabama 18 $ 496,095 .64
Arkansas 21 745,663 .96
Arizona 5 140,782 .18
California 4 111,709 .14
Colorado 5 228,662 .29
Connecticut 3 137,712 .18
District of Columbia 3 116,381 .15
Florida 137 4,082,027 5.25
Georgia 95 1,846,590 2.37
Indiana 13 345,920 .44
Kentucky 220 6,219,279 8.00
Louisiana 50 1,460,743 1.88
Maryland 3 127,479 .16
Michigan 2 60,808 .08
Missouri 8 331,933 .43
Mississippi 12 355,660 .46
North Carolina 614 20,478,039 26.33
New Jersey 2 39,511 .05
New Mexico 22 802,683 1.03
New York 9 400,884 .52
Ohio 10 338,177 .43
Oklahoma 8 241,178 .31
Oregon 6 194,428 .25
Pennsylvania 2 71,628 .09
Puerto Rico 1 18,787 .02
South Carolina 379 12,570,830 16.16
Tennessee 172 4,939,172 6.35
Texas 544 17,132,400 22.03
Virginia 108 3,640,384 4.68
West Virginia 3 92,384 .12
----- ----------- -------
Total 2,479 $77,767,930 100.00%
===== =========== =======
</TABLE>
YEARS OF ORIGINATION OF CONTRACTS - GROUP II
<TABLE>
<CAPTION>
Percentage of
Aggregate Contract Pool
Number of Principal Balance by Outstanding
Contracts Outstanding Principal Balance
Year of Origination As of Cut-off Date As of Cut-off Date As of Cut-off Date
----------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
1984 . . . . . . . . . . . 1 $ 7,228 .01
1985 . . . . . . . . . . . 30 319,197 .41
1986 . . . . . . . . . . . 46 528,578 .68
1987 . . . . . . . . . . . 5 86,547 .11
1988 . . . . . . . . . . . 9 141,904 .18
1989 . . . . . . . . . . . 14 186,133 .24
1990 . . . . . . . . . . . 8 149,411 .19
1991 . . . . . . . . . . . 2 25,964 .03
1994 . . . . . . . . . . . 5 73,118 .09
1995 . . . . . . . . . . . 351 11,380,686 14.63
1996 . . . . . . . . . . . 2,008 64,869,166 83.41
----- ----------- -------
Total . . . . . . . . . . 2,479 $77,767,930 100.00%
===== =========== =======
</TABLE>
DISTRIBUTION OF ORIGINAL CONTRACT AMOUNTS - GROUP II
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Contract Pool
Contracts Principal Balance by Outstanding
Original Contract Amount As of Outstanding Principal Balance
(in Dollars) Cut-off Date As of Cut-off Date As of Cut-off Date
- --------------------------- ------------ ------------------ ------------------
<S> <C> <C> <C>
$5,000 - 10,000 . . . . . . . . . 38 $ 321,015 0.41
$10,001 - 15,000 . . . . . . . . . 157 1,963,047 2.52
$15,001 - 20,000 . . . . . . . . . 284 4,616,674 5.94
$20,001 - 25,000 . . . . . . . . . 359 7,706,740 9.91
$25,001 - 30,000 . . . . . . . . . 407 10,728,322 13.80
$30,001 - 35,000 . . . . . . . . . 346 10,928,414 14.05
$35,001 - 40,000 . . . . . . . . . 259 9,427,277 12.12
$40,001 - 45,000 . . . . . . . . . 179 7,475,727 9.61
$45,001 - 50,000 . . . . . . . . . 147 6,872,733 8.84
$50,001 - 55,000 . . . . . . . . . 108 5,630,174 7.24
$55,001 - 60,000 . . . . . . . . . 93 5,256,738 6.76
$60,001 - 65,000 . . . . . . . . . 42 2,599,158 3.34
$65,001 - 70,000 . . . . . . . . . 27 1,804,615 2.32
$70,001 - 75,000 . . . . . . . . . 24 1,724,722 2.22
$75,001 - 80,000 . . . . . . . . . 6 463,299 0.60
$80,001 - 85,000 . . . . . . . . . 2 161,929 0.21
$85,001 - 90,000 . . . . . . . . . 1 86,546 0.11
----- ----------- -------
Total . . . . . . . . . . . . . . . 2,479 $77,767,930 100.00%
===== =========== =======
</TABLE>
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS(1) - GROUP II
<TABLE>
<CAPTION>
Percentage of
Number Contract Pool
of Contracts Aggregate Principal by Outstanding
Original As of Balance Outstanding Principal Balance
Loan-to-Value Ratio Cut-off Date As of Cut-off Date As of Cut-off Date
------------------------ ------------ ------------------ ------------------
<S> <C> <C> <C>
Less than 61% . . . . . . . . . 67 $ 1,745,390 2.24
61.00% - 65.999% . . . . . . 58 1,719,488 2.21
66.00% - 70.999% . . . . . . 61 1,982,583 2.55
71.00% - 75.999% . . . . . . 106 3,795,473 4.88
76.00% - 80.999% . . . . . . 175 6,152,805 7.91
81.00% - 85.999% . . . . . . 279 9,771,126 12.56
86.00% - 90.999% . . . . . . 667 22,012,573 28.31
91.00% - 100.00% . . . . . . 1,066 30,588,493 39.33
----- ----------- -------
Total . . . . . . . . . . . 2,479 $77,767,930 100.00%
===== =========== =======
</TABLE>
_________
(1) The definition of "Value" is set forth above. Manufactured Homes,
unlike site-built homes, generally depreciate in value, and it should
generally be expected, especially with Contracts with high loan-to-value
ratios at origination, that any time after the origination of a
Contract, the market value of the Manufactured Home securing such
Contract may be lower than the outstanding principal balance of such
Contract.
CUT-OFF DATE CONTRACT RATES - GROUP II
<TABLE>
<CAPTION>
Percentage of
Contract Pool
Number of Contracts Aggregate Principal by Outstanding
Ranges of Contracts by As of Balance Outstanding Principal Balance
Contract Rate Cut-off Date As of Cut-off Date As of Cut-off Date
- ----------------------- -------------- ------------------- ------------------
<S> <C> <C> <C>
7.000% - 8.00% . . . . . . 5 $ 245,294 .32
8.001% - 9.00% . . . . . . 330 14,031,974 18.04
9.001% - 10.00% . . . . . . 1,036 35,651,048 45.84
10.001% - 11.00% . . . . . . 748 21,039,060 27.05
11.001% - 12.00% . . . . . . 261 5,145,895 6.62
12.001% - 13.00% . . . . . . 69 1,278,558 1.64
13.001% - 14.00% . . . . . . 29 360,088 .46
15.001% - 16.00% . . . . . . 1 16,014 .02
----- ----------- -------
Total . . . . . . . . . . . . 2,479 $77,767,930 100.00%
===== =========== =======
</TABLE>
REMAINING MONTHS TO MATURITY - GROUP II
<TABLE>
<CAPTION>
Percentage of
Contract Pool
Number of Aggregate Principal by Outstanding
Months Remaining Contracts Balance Outstanding Principal Balance
As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
- ---------------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
20-72 . . . . . . . . . . . . 154 $ 1,873,523 2.41
73-84 . . . . . . . . . . . . 114 1,788,338 2.30
85-120 . . . . . . . . . . . 247 4,810,590 6.19
121-156 . . . . . . . . . . . 229 5,586,749 7.18
157-180 . . . . . . . . . . . 839 25,361,369 32.61
181-240 . . . . . . . . . . . 739 30,105,890 38.71
241-299 . . . . . . . . . . . 98 4,954,161 6.37
299-360 . . . . . . . . . . . 59 3,287,309 4.23
----- ----------- -------
Total . . . . . . . . . . . 2,479 $77,767,930 100.00%
===== =========== =======
</TABLE>
DISTRIBUTION OF LIFETIME CAP -- GROUP II
<TABLE>
<CAPTION>
PERCENTAGE OF
CONTRACT POOL
NUMBER OF AGGREGATE PRINCIPAL BY OUTSTANDING
CONTRACTS BALANCE OUTSTANDING PRINCIPAL BALANCE
LIFETIME CAP AS OF CUT-OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE
- ------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
13.000 to 13.499 . . . . . 5 $ 194,483 0.25
13.500 to 13.999 . . . . . 57 2,473,025 3.18
14.000 to 14.499 . . . . . 132 5,211,870 6.70
14.500 to 14.999 . . . . . 377 15,440,886 19.86
15.000 to 15.499 . . . . . 544 19,088,373 24.55
15.500 to 15.999 . . . . . 453 14,527,443 18.68
16.000 to 16.499 . . . . . 381 10,490,132 13.49
16.500 to 16.999 . . . . . 196 4,869,810 6.26
17.000 to 17.499 . . . . . 106 2,095,102 2.69
17.500 to 17.999 . . . . . 69 1,208,989 1.55
18.000 to 18.499 . . . . . 23 404,038 0.55
18.500 to 18.999 . . . . . 12 184,259 0.24
19.000 to 19.499 . . . . . 18 265,519 0.34
19.500 to 19.999 . . . . . 16 246,143 0.32
20.000 to 20.499 . . . . . 4 57,146 0.07
21.000 to 21.499 . . . . . 1 16,014 0.02
No Lifetime Cap . . . . . . 85 974,698 1.25
----- ----------- -------
Total . . . . . . . . . . 2,479 $77,767,930 100.00%
===== =========== =======
</TABLE>
DISTRIBUTION OF GROSS MARGINS - GROUP II
<TABLE>
<CAPTION>
PERCENTAGE OF CONTRACT
NUMBER OF AGGREGATE PRINCIPAL POOL BY OUTSTANDING
CONTRACTS BALANCE OUTSTANDING PRINCIPAL BALANCE
GROSS MARGIN AS OF CUT-OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE
- -------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
1.000% to 2.000% . . . . 24 $ 1,122,989 1.44
2.001% to 3.000% . . . . 612 25,376,225 32.63
3.001% to 4.000% . . . . 1,012 31,579,633 40.61
4.001% to 5.000% . . . . 583 15,291,755 19.66
5.001% to 6.000% . . . . 199 3,581,742 4.61
6.001% to 7.000% . . . . 42 715,268 0.92
7.001% to 8.000% . . . . 6 84,305 0.13
8.001% to 9.000% . . . . 1 16,014 0.02
----- ----------- -------
Total . . . . . . . . . 2,479 $77,767,930 100.00%
===== =========== =======
</TABLE>
DISTRIBUTION OF NEXT CONTRACT RATE CHANGE -- GROUP II
<TABLE>
<CAPTION>
PERCENTAGE OF
CONTRACT POOL
NUMBER OF AGGREGATE PRINCIPAL BY OUTSTANDING
MONTH OF NEXT CONTRACTS BALANCE OUTSTANDING PRINCIPAL BALANCE
CONTRACT RATE CHANGE AS OF CUT-OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE
- ------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
February 1, 1997 . . . . 38 $ 916,573 01.18
March 1, 1997 . . . . . . 60 1,679,318 02.16
April 1, 1997 . . . . . . 73 2,081,292 02.68
May 1, 1997 . . . . . . . 115 3,353,855 04.31
June 1, 1997 . . . . . . 134 4,012,808 05.16
July 1, 1997 . . . . . . 202 6,137,060 07.89
August 1, 1997 . . . . . 213 6,836,327 08.79
September 1, 1997 . . . . 245 8,080,367 10.39
October 1, 1997 . . . . . 316 10,218,064 13.14
November 1, 1997 . . . . 422 13,797,603 17.74
December 1, 1997 . . . . 407 13,215,726 16.99
January 1, 1998 . . . . . 198 5,693,140 07.32
February 1, 1998 . . . . 55 1,715,109 02.21
March 1, 1998 . . . . . . 1 30,688 00.04
----- ----------- -------
Total . . . . . . . . . 2,479 $77,767,930 100.00%
===== =========== =======
</TABLE>
DISTRIBUTION OF PERIODIC CAP - GROUP II
<TABLE>
<CAPTION>
PERCENTAGE OF
CONTRACT POOL
NUMBER OF AGGREGATE PRINCIPAL BY OUTSTANDING
CONTRACTS BALANCE OUTSTANDING PRINCIPAL BALANCE
PERIODIC CAP AS OF CUT-OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE
- ------------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
1.000 . . . . . . . . . . 1,308 $42,438,516 54.57
2.000 . . . . . . . . . . 1,086 34,354,716 44.18
No Lifetime Cap . . . . . 85 974,698 1.25
----- ----------- -------
Total . . . . . . . . . 2,479 $77,767,930 100.00%
===== =========== =======
</TABLE>
VANDERBILT MORTGAGE AND FINANCE, INC.
The following information supplements the information in the Prospectus
under the heading "Vanderbilt Mortgage and Finance, Inc." and "Underwriting
Policies" in the Prospectus.
The volume of manufactured housing contracts originated by the Company
for the periods indicated below and certain other information at the end of
such periods are as follows:
CONTRACT ORIGINATION
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1996*
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Balance of
Contracts Originated
(in thousands) . . . $119,071 $156,340 $177,311 $230,733 $292,435 $345,260 $476,467 $242,467
Number of Contracts
Originated . . . . . 6,719 8,346 9,230 10,880 12,401 13,857 16,910 8,569
Average Contract
Size(1) . . . . . . . $ 17,722 $ 18,732 $ 19,210 $ 21,207 $ 23,582 $24,916 $28,177 $28,250
Average Interest
Rate(1) . . . . . . . 13.95% 13.74% 13.40% 11.61% 10.84% 12.24% 10.72% 11.24%
</TABLE>
___________________
(1) As of period end.
* Quarter Ended December 31, 1996.
The following table shows the size of the portfolio of manufactured
housing contracts serviced by the Company on the dates indicated:
CONTRACT SERVICING PORTFOLIO
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1996*
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Number of
Contracts Being
Serviced(1) . . . . . 28,745 41,346 46,623 52,433 60,165 66,960 74,154 77,811
Originated by the
Company . . . . . . . 24,565 31,007 36,335 42,656 47,944 55,923 64,298 68,753
Acquired from other
institutions . . . . 4,180 10,339 10,288 9,777 12,221 11,037 9,856 9,058
</TABLE>
_____________________
(1) Excludes contracts serviced by the Company on behalf of the Resolution
Trust Corporation trust and other trusts previously serviced by First
Manufactured Housing Credit Corporation.
* Quarter Ended December 31, 1996.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1996*
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Number of Contracts
Outstanding(2)(3) . . . . . . . . . . 28,745 41,346 46,623 52,433 60,165 66,960 74,154 77,811
Company Originations . . . . . . 24,565 31,007 36,335 42,656 47,944 55,923 64,298 68,753
Acquisitions from other
institutions . . . . . . . . . . . . 4,180 10,339 10,288 9,777 12,221 11,037 9,856 9,058
Number of Contracts Delinquent(4):
Total 30 to 59 days
past due . . . . . . . . . . . . . 406 734 680 610 772 819 953 1,354
Company Originations . . . . . . 274 415 452 391 353 565 761 1,039
Acquisitions from other
institutions . . . . . . . . . . . . 132 319 228 219 419 254 192 315
Total 60 to 89 days past due . . . . 125 218 206 136 209 227 285 329
Company Originations . . . . . . 81 122 117 97 109 167 238 269
Acquisitions from other
institutions . . . . . . . . . . . . 44 96 89 39 100 60 47 60
Total 90 days or more past due . . . 218 452 569 407 498 625 516 639
Company Originations . . . . . . 155 239 243 213 203 315 341 418
Acquisitions from other
institutions . . . . . . . . . . . . 63 213 326 194 295 310 175 221
Total Contracts Delinquent(5) . . . . 749 1,404 1,455 1,153 1,479 1,671 1,754 2,322
Company Originations . . . . . . 510 776 812 701 665 1,047 1,340 1,726
Acquisitions from other
institutions . . . . . . . . . . . . 239 628 643 452 814 624 414 596
Total Contracts Delinquent(6) . . . . 654 1,134 1,119 857 1,184 1,208 1,511 2,075
Company Originations . . . . . . 449 669 713 595 556 873 1,211 1,601
Acquisitions from other
institutions . . . . . . . . . . . . 205 465 406 262 628 335 300 474
Total Delinquencies as a Percent(7) of
Contracts Outstanding(5) . . . . . 2.61% 3.40% 3.12% 2.20% 2.46% 2.50% 2.37% 2.98%
Company Originations . . . . . . 2.08% 2.50% 2.23% 1.64% 1.39% 1.87% 2.08% 2.51%
Acquisitions from other
institutions . . . . . . . . . . . . 5.72% 6.07% 6.25% 4.62% 6.66% 5.65% 4.20% 6.58%
Total Delinquencies as a Percent(7) of
Contracts
Outstanding(6) . . . . . . . . . . 2.27% 2.74% 2.40% 1.63% 1.97% 1.80% 2.04% 2.67%
Company Originations . . . . . . 1.83% 2.16% 1.96% 1.39% 1.16% 1.56% 1.88% 2.33%
Acquisitions from other
institutions . . . . . . . . . . . . 4.90% 4.50% 3.95% 2.68% 5.14% 3.04% 3.04% 5.23%
</TABLE>
__________________
(1) Includes data on contracts originated by the Company and portfolios
acquired by the Company from other financial institutions, as described
under "Vanderbilt Mortgage and Finance, Inc." in the Prospectus.
(2) Excludes contracts serviced by others for which the Company is
contingently liable.
(3) Excludes contracts serviced by the Company on behalf of the Resolution
Trust Corporation trust and other trusts previously serviced by First
Manufactured Housing Credit Corporation.
(4) Including contracts that were repossessed during the prior 30-day
period, and based on number of days payments are contractually past due
(assuming 30-day months). Consequently, a payment due on the first day
of a month is not 30 days delinquent until the first day of the
following month.
(5) Including contracts that were repossessed during the prior 30-day
period; figures for Acquisitions from other institutions at June 30,
1995 also include all such repossessed contracts on hand.
(6) Excluding contracts that were repossessed during the prior 30-day
period.
(7) By number of contracts.
* Quarter Ended December 31, 1996.
The following table sets forth the loan loss/repossession experience of
the Company and its affiliates for the manufactured housing contracts
serviced by the Company.
LOAN LOSS/REPOSSESSION EXPERIENCE(1)
<TABLE>
<CAPTION>
At or for Year Ended June 30,
-------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1996*
---- ---- ---- ---- ---- ---- ---- -----
(Dollars in thousands)
<S>
Total Number of Contracts <C> <C> <C> <C> <C> <C> <C> <C>
Serviced(2)(3) . . . . . . . . . 28,745 41,346 46,623 52,433 60,165 66,960 74,154 77,811
Company Originations . . . . 24,565 31,007 36,335 42,656 47,944 55,923 64,298 68,753
Acquisitions from other
institutions . . . . . . . . . 4,180 10,339 10,288 9,777 12,221 11,037 9,856 9,058
Aggregate Principal Balance of
Contracts Serviced(4) . . . . . . $446,000 $622,675 $707,273 $812,430 $1,006,794 $1,200,893 $1,456,103 $1,599,990
Company Originations . . . . $386,176 $479,336 $569,475 $691,052 $852,536 $1,074,302 $1,351,324 $1,504,340
Acquisitions from other
institutions . . . . . $ 59,824 $143,339 $137,798 $121,378 $154,258 $126,591 $104,779 $95,650
Net Losses from Contract
Liquidations(5):
Total Dollars . . . . . $ 2,404 $ 5,075 $ 7,248 $ 5,220 $ 2,758 $2,262 $2,052 $1,362
Company Originations . . . . $ 1,478 $ 1,361 $ 2,141 $ 1,129 $ 528 $ 362 $ (442) $149
Acquisitions from other
institutions . . . . . . . . $ 926 $ 3,714 $ 5,107 $ 4,091 $ 2,230 $1,900 $2,494 $1,213
Percentage of Average Principal
Balance(6) . . . . . . . . . . . 0.59% 0.89% 1.10% 0.64% 0.30% 0.20% 0.15% 0.18%
Company Originations . . . . . . 0.42% 0.32% 0.41% 0.17% 0.07% 0.04% (0.04)% 0.02%
Acquisitions from other
institutions . . . . . . . . . . . 1.63% 2.59% 3.83% 2.96% 1.62% 1.35% 2.16% 2.42%
Total Number of Contracts in
Repossession(3) . . . . . . . . . . 312 617 652 523 565 540 709 900
Company Originations(7) . . . . . 275 349 379 333 388 422 635 778
Acquisitions from Other
Institutions . . . . . . . . . . . . 37 268 273 190 177 118 74 122
</TABLE>
___________________
(1) Includes data on contracts originated by the Company and portfolios
acquired by the Company from other financial institutions, as described
under "Vanderbilt Mortgage and Finance, Inc." in the Prospectus.
(2) As of period end. Excludes contracts serviced by others for which the
Company is contingently liable.
(3) Excludes contracts serviced by the Company on behalf of the Resolution
Trust Corporation trust and the other trusts previously serviced by
First Manufactured Housing Credit Corporation.
(4) As of period end. Includes principal balances of contracts serviced by
others for which the Company is contingently liable.
(5) Includes net losses on contracts serviced by others for which the
Company is contingently liable. The calculation of net losses is
determined after all accrued and unpaid interest is written off and does
not include repossession and other liquidation expenses. In general,
data with respect to repossession and other liquidation expenses are not
maintained by dealers on a separately identifiable basis, and,
therefore, this information is not available to the Company. The
Company believes that it would not be unusual for such expenses to be
equal to 15% of the Scheduled Principal Balance of a defaulted Contract.
However, actual expenses may be higher or lower.
(6) As a percentage of the average principal balance of all contracts being
serviced during the period.
(7) Includes repossessions from contracts serviced by others for which the
Company is contingently liable.
* Quarter Ended December 31, 1996.
The Company believes that its historical loss experience has been
favorably affected by its capacity to resell repossessed units through
dealers owned by CHI and to make needed repairs on repossessed units through
the facilities of such dealers, rather than paying the rates charged by
unaffiliated parties. If the Company is replaced as Servicer of the
Contracts, the successor Servicer may not have access to the CHI dealer
network and, as a consequence, the loss experience on the Contracts may be
adversely affected.
The data presented in the preceding tables are for illustrative purposes
only, and there is no assurance that the delinquency, loan loss and
repossession experience of Contracts in the Contract Pool will be similar to
that set forth above. The delinquency, loan loss and repossession experience
of manufactured housing contracts historically has been sharply affected by a
downturn in regional or local economic conditions. For instance, such a
downturn and higher levels of delinquency, loan loss and repossession were
experienced in areas dependent on the oil and gas industry. These regional
or local economic conditions are often volatile, and no predictions can be
made regarding future economic loss upon repossession. In addition, an
increased supply of used units in one region may in turn affect the supply in
other regions, thus affecting economic loss upon liquidation in such other
regions. Information regarding the geographic location, at origination, of
the Manufactured Homes securing the Contracts in the Contract Pool is set
forth under "The Contract Pool" herein.
RATIO OF EARNINGS TO FIXED CHARGES FOR CHI
Set forth below are CHI's ratios of earnings to fixed charges for the
past five years. For the purposes of compiling these ratios, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense and the interest portion of rent expense.
<TABLE>
<CAPTION> 1992 1993 1994 1995 1996 1996*
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges . . . . . . 3.88 6.12 10.12 21.64 36.00 32.19
</TABLE>
* Quarter ended December 31, 1996.
YIELD AND PREPAYMENT CONSIDERATIONS
The Contracts have maturities at origination from 48 to 369 months, 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 life of the Certificates. The weighted average
life of, and, if purchased at other than par, the yield to maturity on,
Offered Certificates will relate to the rate of payment of principal in the
Contracts in the related Contract Group, including, for this purpose,
prepayments, liquidations due to defaults, casualties and condemnations.
Based on the Company's experience with the portfolio of conventional
manufactured housing contracts serviced by it, the Company anticipates that a
number of Contracts will be prepaid in full 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 as described below under "Descriptions of the
Certificates--Conveyance of Contracts" will have the effect of prepayment of
such Contracts and therefore will affect the life of the Certificates. Most
of the Contracts contain provisions that prohibit the owner from selling the
Manufactured Home without the prior consent of the holder of the related
Contract. Such provisions are similar to the "due-on-sale" clauses and may
not be enforceable in some states. See "Certain Legal Aspects of the
Contracts--Transfers of Manufactured Homes; Enforceability of 'Due-on-Sale'
Clauses" in the Prospectus. The initial Servicer's policy is to permit most
sales of Manufactured Homes where the proposed buyer meets the initial
Servicer's then current underwriting standards and enters into an assumption
agreement. See "Weighted Average Life of the Offered Certificates" below and
"Maturity and Prepayment Considerations" in the Prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of Contracts with fixed rates (such as the Group I Contracts) is
affected by prevailing market rates for Contracts of a comparable term and
risk level. When the market interest rate is below the contract APR,
Obligors may have an increased incentive to refinance their contracts.
Depending on prevailing market rates, the future outlook for market rates and
economic conditions generally, some Obligors may sell or refinance their
contracts in order to realize their equity in the manufactured house, to meet
cash flow needs or to make other investments.
As is the case with conventional fixed rate obligations, adjustable rate
obligations may also be subject to a greater rate of principal prepayments in
a declining interest rate environment. For example, if prevailing interest
rates fall significantly, adjustable rate contracts could be subject to
higher prepayment rates than if prevailing interest rates remain constant
because the availability of fixed-rate contracts at competitive interest
rates may encourage Obligors to refinance their adjustable rate contract to
"lock in" a lower fixed interest rate. However, no assurance can be given as
to the level of prepayments that the Group II Contracts will experience.
The allocation of distributions to the Certificateholders in accordance
with the Agreement will have the effect of accelerating the amortization of
the Senior Certificates in the sequence indicated under "Description of the
Certificates--Distributions" from the amortization that would be applicable
if distributions in respect of the applicable Formula Principal Distribution
Amount were made pro rata according to the respective Principal Balances of
each Class of Certificates. As described under "Description of the
Certificates--Group I Certificates and the Senior/Subordinate Structure" and
"--Group II Certificates and the Senior/Subordinate Structure" herein, to the
extent that, on any Remittance Date, the Group I or Group II Available
Distribution Amount, as applicable, is not sufficient to permit a full
distribution of the applicable Formula Principal Distribution Amount or the
portion thereof due on such Remittance Date to the Class of Offered
Certificates entitled to such distribution, the effect will be to delay the
amortization of such Class of Offered Certificates. If a purchaser of a
Class of Offered Certificates purchases them at a discount and calculates its
anticipated yield to maturity based on an assumed rate of payment of
principal on such 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.
In addition to the foregoing factors affecting the weighted average life
of the Senior Certificates, the overcollateralization provisions of the Trust
result in a limited acceleration of the Group II Certificates relative to the
amortization of the Group II Contracts in early months of the transaction.
The accelerated amortization is achieved by the application of certain excess
interest to the payment of the Group II Certificate Principal Balance. This
acceleration feature creates overcollateralization which results from the
excess of the Group II Contract Balance over the Group II Certificate
Principal Balance. Once the required level of overcollateralization is
reached, the acceleration feature will cease, unless necessary to maintain
the required level of overcollateralization.
The effective yield to each holder of a Group I Certificate (other than
a Class I A-1 Certificate) will be below that otherwise produced by the
applicable Remittance Rate and the purchase price of such holder's
Certificate because, while interest will accrue in respect of each calendar
month, the distribution of such interest to such holders will be made on the
7th day (or, if such day is not a business day, the next succeeding business
day) of the month following the Due Period in which it accrues.
The rate of distributions of principal of the Offered Certificates and
the yield to maturity of the Offered Certificates also will be directly
related to the rate of payment of principal (including prepayments) of the
Contracts. The rate of principal distributions on the Offered Certificates
will be affected by the amortization schedules of the Contracts and the rate
of principal payments on the Contracts (including prepayments due to
liquidations upon default). The Contracts may be prepaid by the Obligors at
any time without payment of any prepayment fee or penalty.
The Class I B-1 Certificateholders will not receive any distributions of
principal until the Class I B Principal Distribution Test is met or the Class
I A Principal Balance is reduced to zero. The rate of principal payments on
the Class I B-1 Certificates, the aggregate amount of distributions on the
Class I B-1 Certificates and the yield to maturity of the Class I B-1
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. If a purchaser of Class I B-1 Certificates
calculates its anticipated yield based on an assumed rate of default and an
assumed amount of losses that are lower than the default rate and amount of
losses actually incurred and such amount of losses actually incurred is not
entirely covered by the subordination of the Class I B-2 Certificates, its
actual yield to maturity will be lower than that so calculated. The timing
of losses on Liquidated Contracts will also affect an investor's actual yield
to maturity, even if the rate of defaults and severity of losses are
consistent with an investor's expectations. If the protection afforded to
the Class I B-1 Certificateholders by the subordination of the Class I B-2
Certificates is exhausted, the Class I B-1 Certificateholders will bear all
losses and delinquencies on the Contracts and will incur a loss on their
investment. The Class II B Certificateholders will not receive any
distributions of principal until the Class II B Principal Distribution Test
is met or the Class II A-1 Principal Balance is reduced to zero. The rate of
principal payments on the Class II B-1 Certificates, the aggregate amount of
distributions on the Class II B-1 Certificates and the yield to maturity of
the Class II B-1 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. If a purchaser of Class II
B-1 Certificates calculates its anticipated yield based on an assumed rate of
default and an assumed amount of losses that are lower than the default rate
and amount of losses actually incurred and such amount of losses actually
incurred is not entirely covered by the subordination of the Class II B-2
Certificates and the Class II B-3 Certificates, its actual yield to maturity
will be lower than that so calculated. The timing of losses on Liquidated
Contracts will also affect an investor's actual yield to maturity, even if
the rate of defaults and severity of losses are consistent with an investor's
expectations. If the protection afforded to the Class II B-1
Certificateholders by the subordination of the Class II B-2 Certificates and
the Class II B-3 Certificates is exhausted, the Class II B-1
Certificateholders will bear all losses and delinquencies on the Contracts
and will incur a loss on their investment. The rate of principal payments on
the Class II B-2 Certificates, the aggregate amount of distributions on the
Class II B-2 Certificates and the yield to maturity of the Class II B-2
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. If a purchaser of Class II B-2 Certificates
calculates its anticipated yield based on an assumed rate of default and an
assumed amount of losses that are lower than the default rate and amount of
losses actually incurred and such amount of losses actually incurred is not
entirely covered by the subordination of the Class II B-3 Certificates, its
actual yield to maturity will be lower than that so calculated. The timing
of losses on Liquidated Contracts will also affect an investor's actual yield
to maturity, even if the rate of defaults and severity of losses are
consistent with an investor's expectations. If the protection afforded to
the Class II B-2 Certificateholders by the subordination of the Class II B-3
Certificates is exhausted, the Class II B-2 Certificateholders will bear all
losses and delinquencies on the Contracts and will incur a loss on their
investment. There can be no assurance that the delinquency or repossession
experience set forth under "Vanderbilt Mortgage and Finance, Inc." in the
Prospectus will be representative of the results that may be experienced with
respect to the Contracts. There can be no assurance as to the delinquency,
repossession or loss experience with respect to the Contracts.
As described herein under the "Description of the Certificates--Group I
Certificates and the Senior/Subordinate Structure--Subordination of the Group
I Senior/Subordinate Certificates," on any Remittance Date on or after the
Remittance Date, if any, on which the Class I A Principal Balance is greater
than the Pool Scheduled Principal Balance, if the Available Distribution
Amount is not sufficient to permit a full distribution of the Formula
Principal Distribution Amount to the Class of Class I A Certificateholders
then entitled to such amount, the Class I A-6 Certificateholders will absorb
(i) all losses on each Liquidated Contract in the amount by which its
Liquidation Proceeds (net of Liquidation Expenses and applicable Advances)
are less than its unpaid principal balance plus accrued and unpaid interest
thereon at the weighted average Remittance Rate and the percentage rate used
to calculate the monthly servicing fee and (ii) other shortfalls in the
Available Distribution Amount and will incur a loss on their investments.
See "Description of the Certificates--Distributions" herein.
On any Remittance Date on or after the Remittance Date, if any, on which
the Principal Balance of the Senior Certificates of a particular Group is
greater than the Pool Scheduled Principal Balance for such Group, if the
related Available Distribution Amount is not sufficient to permit a full
distribution of the related Formula Principal Distribution Amount to such
Senior Certificateholders, such Senior Certificateholders will absorb (i) all
losses on each Liquidated Contract in such Group in the amount by which its
Liquidation Proceeds (net of Liquidation Expenses and applicable Advances)
are less than its unpaid principal balance plus accrued and unpaid interest
thereon at the weighted average Remittance Rate and the percentage rate used
to calculate the monthly servicing fee and (ii) other shortfalls in the
related Available Distribution Amount and will incur a loss on their
investments. See "Description of the Certificates--Distributions" herein.
The Company (if it is no longer the Servicer) and the Servicer (whether
or not the Company remains the Servicer) each has the option to repurchase
the Contracts with respect to a Group and any other property constituting the
Trust Fund if on any Remittance Date the Pool Scheduled Principal Balance is
less than 10% of the Cut-off Date Pool Principal Balance, as applicable. See
"Description of the Certificates--Optional Termination" herein. The exercise
of such option would effect the early retirement of the then outstanding
Offered Certificates.
In the event that there were a sufficiently large number of
delinquencies on the Contracts in any Due Period that were not covered by
Monthly Advances as described herein, the amounts paid to Certificateholders
could be less than the amount of principal and interest that would otherwise
be payable on the Offered Certificates with respect to such Due Period. In
such event, even if delinquent payments on the Contracts were eventually
recovered upon liquidation, since the amounts received would not include
interest on delinquent interest payments, the effective yield on the
Contracts would be reduced, and under certain circumstances it is possible
that sufficient amounts might not be available for the ultimate payment of
all principal of the Offered Certificates plus accrued interest thereon at
the related Remittance Rate, thus also reducing the effective yield on the
Offered Certificates.
While partial prepayments of the principal on the Contracts are applied
on Due Dates, Obligors are not required to pay interest on the Contracts
after the date of a full prepayment of principal. As a result, full
prepayments in advance of the related Due Dates for such Contracts in any Due
Period will reduce the amount of interest received from Obligors during such
Due Period to less than one month's interest. On the other hand, when a
Contract (other than a Bi-weekly Contract) is prepaid in full during any
period, but after the Due Date for such Contract in such Due Period, the
effect will be to increase the amount of interest received from the related
Obligor during such Due Period to more than one month's interest. If a
sufficient number of Contracts are prepaid in full in a given Due Period in
advance of their respective Due Dates, interest payable on all of the
Contracts during that Due Period may be less than the interest payable on the
related Classes of Certificates with respect to such Due Period. In
addition, because the principal balance of the Bi-weekly Contracts is reduced
on a bi-weekly basis, the amount of interest due from Obligors on such
Contracts is less than that which would have accrued if such Contracts were
amortized on a monthly basis. As a result, the Trust Fund may not receive
sufficient monies to pay the interest on such Certificates in the amounts set
forth herein under "Description of the Certificates--Distributions" and to
make a full distribution to the related Certificateholders of the related
Formula Principal Distribution Amounts respectively allocable to them.
Although no assurance can be given in this matter, the Company does not
anticipate that the net shortfall of interest received because of prepayments
in full or the amortization of the Bi-weekly Contracts in any Due Period
would be great enough, in the absence of delinquencies and Liquidation
Losses, to reduce the related Available Distribution Amount for a Remittance
Date below the amount required to be distributed to the related
Certificateholders on that Remittance Date in the absence of such prepayment
interest shortfalls.
Each scheduled payment on a Bi-weekly Contract in any Due Period will
contain only two weeks of interest, rather than one month's interest. In
addition, the second, and in some Due Periods the third, scheduled payment in
each Due Period will be calculated on a principal balance that is lower than
the principal balance at the beginning of that Due Period. These
characteristics may result in the interest due on a Bi-weekly Contract in a
particular Due Period being less than thirty days' interest on the principal
balance thereof at the beginning of the Due Period.
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 the Offered
Certificates will be affected 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 Supplement ("Prepayment
Model") is based on an assumed rate of prepayment each month of the then
unpaid principal balance of a pool of new Contracts. 100% of the Prepayment
Model assumes 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
the Contracts, 100% of the Prepayment Model assumes a constant prepayment
rate of 6.00% per annum.
As used in the following tables "0% of the Prepayment Model" assumes no
prepayments on the Contracts; "100% of the Prepayment Model" assumes the
Contracts will prepay at rates equal to 100% of the Prepayment Model assumed
prepayment rates; "185% of the Prepayment Model" assumes the Contracts will
prepay at rates equal to 185% of the Prepayment Model assumed prepayment
rates; and "200% of the Prepayment Model" assumes the Contracts will prepay
at rates equal to 200% of the Prepayment Model assumed prepayment rates.
There is no assurance, however, that prepayments of the Contracts will
conform to any level of the 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 remain at or above the rates borne by such mortgage loans.
Conversely, if prevailing interest rates rise above the interest 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 payments on contracts of
the same maturity and principal balance 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.
GROUP I ASSUMPTIONS
The tables set forth below assume that there are no delinquencies on the
Group I Contracts and that there will be a sufficient Group I Available
Distribution Amount to distribute interest on the Group I Certificates and
the Group I Formula Principal Distribution Amount to the Certificateholders
then entitled thereto.
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Group I Contracts are received in a timely manner and prepayments are made at
the indicated percentages of the Prepayment Model set forth in the tables;
(ii) the Servicer or the Company exercises its right of optional termination
described above; (iii) the Group I Contracts will, as of the Cut-off Date, be
grouped into eight pools having the additional characteristics set forth
below under "Assumed Contract Characteristics"; (iv) the Class I A-1
Certificates initially represent 24.69% of the entire ownership interest in
the Trust Fund and have a Class I A-1 Remittance Rate of 5.5175% per annum,
the Class I A-2 Certificates initially represent 21.57% of the entire
ownership interest in the Trust Fund and have a Class I A-2 Remittance Rate
of 6.525% per annum, the Class I A-3 Certificates initially represent 15.77%
of the entire ownership interest in the Trust Fund and have a Class I A-3
Remittance Rate of 6.8% per annum, the Class I A-4 Certificates initially
represent 9.27% of the entire ownership interest in the Trust Fund and have a
Class I A-4 Remittance Rate of 7.075% per annum, the Class I A-5 Certificates
initially represent 11.19% of the entire ownership interest in the Trust Fund
and have a Class I A-5 Remittance Rate of 7.3% per annum, the Class I A-6
Certificates initially represent 8.00% of the entire ownership interest in
the Trust Fund and have a Class I A-6 Remittance Rate of 7.6% per annum, the
Class I B-1 Certificates initially represent 5.50% of the entire ownership
interest in the Trust Fund and have a Class I B-1 Remittance Rate of 7.5% per
annum and the Class I B-2 Certificates initially represent 4.00% of the
entire ownership interest in the Trust Fund and have a Class I B-2 Remittance
Rate of 8.125% per annum; (v) no interest shortfalls will arise in connection
with prepayment in full of the Contracts; (vi) there will be no losses on the
Group I Contracts; and (vii) the Class I B Principal Distribution Test is
satisfied. No representation is made that the Contracts will experience
delinquencies or losses at the respective rates assumed above or at any other
rates.
<TABLE>
<CAPTION> ASSUMED CONTRACT CHARACTERISTICS FOR GROUP I
REMAINING ORIGINAL
CURRENT TERM TO TERM TO
PRINCIPAL MATURITY MATURITY
POOL BALANCE APR (MONTHS) (MONTHS)
<S> <C> <C> <C> <C>
1 . . . . . . . . . . . . . . $ 22,341,086.35 11.927 98 99
2 . . . . . . . . . . . . . . 35,319,101.20 11.744 160 164
3 . . . . . . . . . . . . . . 31,494,557.55 11.068 218 219
4 . . . . . . . . . . . . . . 14,318,506.61 10.705 296 297
5 . . . . . . . . . . . . . . 1,430,235.98 9.204 343 347
6/(1)/ . . . . . . . . . . . 42,444.16 9.950 178 179
7/(2)/ . . . . . . . . . . . 9,577,874.05 11.731 203 204
8/(3)/ . . . . . . . . . . . 893,894.05 12.347 143 144
Total . . . . . . . . . $115,417,699.95
</TABLE>
- ------
(1) Initially, the Contracts in Pool 6 have a monthly scheduled payment of
$380.00. On November 1, 2001, the monthly scheduled payment increases
to $532.32 through the end of the Contracts' terms.
(2) The Contracts in Pool 7 provide for an annual increase in monthly
scheduled payments. Initially, the Contracts in Pool 7 provide for a
monthly scheduled payment of $95,053.30. On January 1, 1998, 1999,
2000, 2001 and 2002, respectively, monthly scheduled payments increase
to $96,540.54, $98,977.92, $103,669.99, $113,298.25 and $117,029.69,
respectively. From January 1, 2002 to the end of such Contracts' terms,
the monthly scheduled payment shall be $117,029.69.
(3) The Contracts in Pool 8 provide for an annual increase in monthly
scheduled payments. Initially, the Contracts in Pool 8 provide for a
monthly scheduled payment of $9,951.80. On January 1, 1998, 1999, 2000,
2001 and 2002, respectively, monthly scheduled payments increase to
$10,498.17, $10,928.59, $11,929.09, $13,004.73 and $13,200.93,
respectively. From January 1, 2002 to the end of such Contracts' terms,
the monthly scheduled payment shall be $13,200.93.
Since the tables were prepared on the basis of the assumptions in the
preceding paragraph, there are discrepancies between the characteristics of
the actual Group I Contracts and the characteristics of the Group I Contracts
assumed in preparing the tables. Any such discrepancy may have an effect
upon the percentages of the Original Class I A-1 Principal Balance, Original
Class I A-2 Principal Balance, Original Class I A-3 Principal Balance,
Original Class I A-4 Principal Balance, Original Class I A-5 Principal
Balance, Original Class I A-6 Principal Balance, Original Class I B-2
Principal Balance and Original Class I B-2 Principal Balance outstanding and
weighted average lives of the Class I A-1 Certificates, Class I A-2
Certificates, Class I A-3 Certificates, Class I A-4 Certificates, Class I A-5
Certificates, Class I A-6 Certificates, Class I B-1 Certificates and Class I
B-2 Certificates set forth in the tables. In addition, since the actual
Contracts and the Trust Fund have characteristics which differ from those
assumed in preparing the tables set forth below, the distributions of
principal on the Class I A-1 Certificates, Class I A-2 Certificates, Class I
A-3 Certificates, Class I A-4 Certificates, Class I A-5 Certificates, Class I
A-6 Certificates, Class I B-1 Certificates and Class I B-2 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 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 Prepayment Model specified even if the weighted average
remaining term to maturity of the Contracts is the same as the weighted
average remaining term to maturity of the Assumed Contract Characteristics.
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
resulting weighted average lives of the Offered Certificates and set forth
the percentage of the Original Class I A-1 Principal Balance, Original Class
I A-2 Principal Balance, Original Class I A-3 Principal Balance, Original
Class I A-4 Principal Balance, Original Class I A-5 Principal Balance,
Original Class I A-6 Principal Balance, Original Class I B-1 Principal
Balance and Original Class I B-2 Principal Balance that would be outstanding
after each of the dates shown at the indicated percentages of the Prepayment
Model.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS I A-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 125% 150% 185% 200 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 87 65 61 55 52 44
January 7, 1999 . . . . . . 73 27 18 6 1 0
January 7, 2000 . . . . . . 57 0 0 0 0 0
January 7, 2001 . . . . . . 38 0 0 0 0 0
January 7, 2002 . . . . . . 17 0 0 0 0 0
January 7, 2003 . . . . . . 0 0 0 0 0 0
January 7, 2004 . . . . . . 0 0 0 0 0 0
January 7, 2005 . . . . . . 0 0 0 0 0 0
January 7, 2006 . . . . . . 0 0 0 0 0 0
January 7, 2007 . . . . . . 0 0 0 0 0 0
January 7, 2008 . . . . . . 0 0 0 0 0 0
January 7, 2009 . . . . . . 0 0 0 0 0 0
January 7, 2010 . . . . . . 0 0 0 0 0 0
January 7, 2011 . . . . . . 0 0 0 0 0 0
January 7, 2012 . . . . . . 0 0 0 0 0 0
January 7, 2013 . . . . . . 0 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 3.2 1.3 1.2 1.1 1.0 0.8
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class I A-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-1
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-1 Principal
Balance.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS I A-2
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 125% 150% 185% 200% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 100 100 100 100 100 100
January 7, 1999 . . . . . . 100 100 100 100 100 81
January 7, 2000 . . . . . . 100 87 73 53 45 20
January 7, 2001 . . . . . . 100 46 29 6 0 0
January 7, 2002 . . . . . . 100 7 0 0 0 0
January 7, 2003 . . . . . . 91 0 0 0 0 0
January 7, 2004 . . . . . . 60 0 0 0 0 0
January 7, 2005 . . . . . . 26 0 0 0 0 0
January 7, 2006 . . . . . . 4 0 0 0 0 0
January 7, 2007 . . . . . . 0 0 0 0 0 0
January 7, 2008 . . . . . . 0 0 0 0 0 0
January 7, 2009 . . . . . . 0 0 0 0 0 0
January 7, 2010 . . . . . . 0 0 0 0 0 0
January 7, 2011 . . . . . . 0 0 0 0 0 0
January 7, 2012 . . . . . . 0 0 0 0 0 0
January 7, 2013 . . . . . . 0 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 7.3 3.9 3.5 3.1 2.9 2.5
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class I A-2 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-2
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-2 Principal
Balance.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS I A-3
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 125% 150% 185% 200% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 100 100 100 100 100 100
January 7, 1999 . . . . . . 100 100 100 100 100 100
January 7, 2000 . . . . . . 100 100 100 100 100 100
January 7, 2001 . . . . . . 100 100 100 100 96 56
January 7, 2002 . . . . . . 100 100 84 50 37 8
January 7, 2003 . . . . . . 100 67 42 9 0 0
January 7, 2004 . . . . . . 100 28 3 0 0 0
January 7, 2005 . . . . . . 100 0 0 0 0 0
January 7, 2006 . . . . . . 100 0 0 0 0 0
January 7, 2007 . . . . . . 78 0 0 0 0 0
January 7, 2008 . . . . . . 47 0 0 0 0 0
January 7, 2009 . . . . . . 13 0 0 0 0 0
January 7, 2010 . . . . . . 0 0 0 0 0 0
January 7, 2011 . . . . . . 0 0 0 0 0 0
January 7, 2012 . . . . . . 0 0 0 0 0 0
January 7, 2013 . . . . . . 0 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 10.8 6.4 5.8 5.0 4.8 4.1
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class I A-3 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-3
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-3 Principal
Balance.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS I A-4
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 125% 150% 185% 200% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 100 100 100 100 100 100
January 7, 1999 . . . . . . 100 100 100 100 100 100
January 7, 2000 . . . . . . 100 100 100 100 100 100
January 7, 2001 . . . . . . 100 100 100 100 100 100
January 7, 2002 . . . . . . 100 100 100 100 100 92
January 7, 2003 . . . . . . 100 100 100 100 94 28
January 7, 2004 . . . . . . 100 100 100 54 34 0
January 7, 2005 . . . . . . 100 84 46 0 0 0
January 7, 2006 . . . . . . 100 39 3 0 0 0
January 7, 2007 . . . . . . 100 0 0 0 0 0
January 7, 2008 . . . . . . 100 0 0 0 0 0
January 7, 2009 . . . . . . 100 0 0 0 0 0
January 7, 2010 . . . . . . 58 0 0 0 0 0
January 7, 2011 . . . . . . 15 0 0 0 0 0
January 7, 2012 . . . . . . 0 0 0 0 0 0
January 7, 2013 . . . . . . 0 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 13.2 8.7 7.9 7.0 6.7 5.6
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class I A-4 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-4
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-4 Principal
Balance.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS I A-5
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 125% 150% 185% 200% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 100 100 100 100 100 100
January 7, 1999 . . . . . . 100 100 100 100 100 100
January 7, 2000 . . . . . . 100 100 100 100 100 100
January 7, 2001 . . . . . . 100 100 100 100 100 100
January 7, 2002 . . . . . . 100 100 100 100 100 100
January 7, 2003 . . . . . . 100 100 100 100 100 100
January 7, 2004 . . . . . . 100 100 100 100 100 79
January 7, 2005 . . . . . . 100 100 100 99 84 42
January 7, 2006 . . . . . . 100 100 100 67 53 17
January 7, 2007 . . . . . . 100 99 72 40 28 0
January 7, 2008 . . . . . . 100 67 43 16 6 0
January 7, 2009 . . . . . . 100 38 17 0 0 0
January 7, 2010 . . . . . . 100 9 0 0 0 0
January 7, 2011 . . . . . . 100 0 0 0 0 0
January 7, 2012 . . . . . . 84 0 0 0 0 0
January 7, 2013 . . . . . . 53 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 15.9 11.6 10.8 9.6 9.2 7.9
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class I A-5 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-5
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-5 Principal
Balance.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS I A-6
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 125% 150% 185% 200% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 100 100 100 100 100 100
January 7, 1999 . . . . . . 100 100 100 100 100 100
January 7, 2000 . . . . . . 100 100 100 100 100 100
January 7, 2001 . . . . . . 100 100 100 100 100 100
January 7, 2002 . . . . . . 100 100 100 100 100 100
January 7, 2003 . . . . . . 100 100 100 100 100 100
January 7, 2004 . . . . . . 100 100 100 100 100 100
January 7, 2005 . . . . . . 100 100 100 100 100 100
January 7, 2006 . . . . . . 100 100 100 100 100 100
January 7, 2007 . . . . . . 100 100 100 100 100 95
January 7, 2008 . . . . . . 100 100 100 100 100 0
January 7, 2009 . . . . . . 100 100 100 0 0 0
January 7, 2010 . . . . . . 100 100 0 0 0 0
January 7, 2011 . . . . . . 100 0 0 0 0 0
January 7, 2012 . . . . . . 100 0 0 0 0 0
January 7, 2013 . . . . . . 100 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 16.6 13.3 12.7 11.8 11.3 10.3
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class I A-6 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-6
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-6 Principal
Balance.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS I B-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 125% 150% 185% 200% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 100 100 100 100 100 100
January 7, 1999 . . . . . . 100 100 100 100 100 100
January 7, 2000 . . . . . . 100 100 100 100 100 100
January 7, 2001 . . . . . . 100 100 100 100 100 100
January 7, 2002 . . . . . . 100 100 100 100 100 100
January 7, 2003 . . . . . . 100 75 73 69 68 63
January 7, 2004 . . . . . . 100 52 48 42 40 32
January 7, 2005 . . . . . . 100 29 24 18 15 6
January 7, 2006 . . . . . . 92 13 8 1 0 0
January 7, 2007 . . . . . . 76 0 0 0 0 0
January 7, 2008 . . . . . . 58 0 0 0 0 0
January 7, 2009 . . . . . . 39 0 0 0 0 0
January 7, 2010 . . . . . . 17 0 0 0 0 0
January 7, 2011 . . . . . . 2 0 0 0 0 0
January 7, 2012 . . . . . . 0 0 0 0 0 0
January 7, 2013 . . . . . . 0 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 11.3 7.1 7.0 6.7 6.7 6.4
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class I B-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I B-1
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I B-1 Principal
Balance.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS I B-2
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 125% 150% 185% 200% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 100 100 100 100 100 100
January 7, 1999 . . . . . . 100 100 100 100 100 100
January 7, 2000 . . . . . . 100 100 100 100 100 100
January 7, 2001 . . . . . . 100 100 100 100 100 100
January 7, 2002 . . . . . . 100 100 100 100 100 100
January 7, 2003 . . . . . . 100 100 100 100 100 100
January 7, 2004 . . . . . . 100 100 100 100 100 100
January 7, 2005 . . . . . . 100 100 100 100 100 100
January 7, 2006 . . . . . . 100 100 100 100 97 84
January 7, 2007 . . . . . . 100 99 91 81 77 65
January 7, 2008 . . . . . . 100 81 73 64 60 0
January 7, 2009 . . . . . . 100 64 57 0 0 0
January 7, 2010 . . . . . . 100 50 0 0 0 0
January 7, 2011 . . . . . . 100 0 0 0 0 0
January 7, 2012 . . . . . . 87 0 0 0 0 0
January 7, 2013 . . . . . . 70 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 16.1 12.3 11.8 11.1 10.7 9.9
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class I B-2 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I B-2
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I B-2 Principal
Balance.
GROUP II ASSUMPTIONS
The tables set forth below assume that there are no delinquencies on the
Group II Contracts and that there will be a sufficient Group II Available
Distribution Amount to distribute interest on the Group II Certificates and
the Group II Formula Principal Distribution Amount to the Certificateholders
then entitled thereto.
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Group II Contracts are received in a timely manner and prepayments are made
at the indicated percentages of the Prepayment Model set forth in the tables;
(ii) the Servicer or the Company exercises its right of optional termination
described above; (iii) the Group II Contracts will, as of the Cut-off Date,
be grouped into twelve pools having the additional characteristics set forth
below under "Assumed Contract Characteristics"; (iv) the Class II A-1
Certificates initially represent 75.50% of the entire ownership interest in
the Group II Contracts and have a Class II A-1 Remittance Rate of 5.6375% per
annum, the Class II B-1 Certificates initially represent 12.25% of the entire
ownership interest in the Group II Contracts and have a Class II B-1
Remittance Rate of 5.8875% per annum, the Class II B-2 Certificates initially
represent 5.25% of the entire ownership interest in the Group II Contracts
and have a Class II B-2 Remittance Rate of 6.2875% per annum and the Class II
B-3 Certificates initially represent 7.00% of the entire ownership interest
in the Group II Contracts and have a Class II B-3 Remittance Rate of 6.4875%
per annum; (v) no interest shortfalls will arise in connection with
prepayment in full of the Group II Contracts; (vi) there will be no losses on
the Group II Contracts; and (vii) the Class II B Principal Distribution Test
is satisfied. No representation is made that the Contracts will experience
delinquencies or losses at the respective rates assumed above or at any other
rates.
GROUP II
<TABLE>
<CAPTION>
ASSUMED CONTRACT CHARACTERISTICS FOR GROUP II
REMAINING ORIGINAL
CURRENT TERM TO TERM TO
PRINCIPAL MATURITY MATURITY
POOL BALANCE APR (MONTHS) (MONTHS)
<S> <C> <C> <C> <C>
1/(1)/ . . . . . . . . . . . $ 7,136,099.21 9.419 208 219
2 . . . . . . . . . . . . . . 3,805,221.50 9.578 210 220
3 . . . . . . . . . . . . . . 5,908,511.71 9.672 208 216
4 . . . . . . . . . . . . . . 6,804,061.23 9.853 202 208
5 . . . . . . . . . . . . . . 8,059,869.13 9.832 208 213
6 . . . . . . . . . . . . . . 10,199,855.05 9.907 203 207
7 . . . . . . . . . . . . . . 13,730,276.20 9.958 205 207
8 . . . . . . . . . . . . . . 13,187,178.71 10.011 201 202
9 . . . . . . . . . . . . . . 7,429,079.28 10.135 196 196
10 . . . . . . . . . . . . . 533,079.87 11.377 93 173
11 . . . . . . . . . . . . . 732,886.17 9.426 54 180
12 . . . . . . . . . . . . . 241,812.20 13.626 56 173
Total . . . . . . . . . $77,767,930.26
</TABLE>
<TABLE>
<CAPTION>
FIRST
LIFETIME PERIODIC ADJUSTMENT ADJUSTMENT
RATE RATE DATE FREQUENCY
POOL MARGIN CAP CAP (MONTHS) (MONTHS) INDEX
<S> <C> <C> <C> <C> <C> <C>
1 . . . . 3.754 15.471 1.550 3 12 CMT-5YW
2 . . . . 3.271 15.408 1.410 5 12 CMT-5YW
3 . . . . 3.169 15.425 1.413 6 12 CMT-5YW
4 . . . . 3.190 15.443 1.435 7 12 CMT-5YW
5 . . . . 3.175 15.530 1.446 8 12 CMT-5YW
6 . . . . 3.365 15.567 1.436 9 12 CMT-5YW
7 . . . . 3.565 15.676 1.466 10 12 CMT-5YW
8 . . . . 3.555 15.677 1.468 11 12 CMT-5YW
9 . . . . 3.750 15.842 1.355 12 12 CMT-5YW
10 . . . 5.287 19.681 1.415 4 6 CMT-5YW
11 . . . 4.013 N/A N/A 5 12 CMT-1YW
12 . . . 5.366 N/A N/A 4 6 PRIME RT
</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 Class II A-1 Principal Balance, Original Class II
B-1 Principal Balance, Original Class II B-2 Principal Balance and Original
Class II B-3 Principal Balance outstanding and weighted average lives of the
Class II A-1 Certificates, Class II B-1 Certificates, Class II B-2
Certificates and Class II B-3 Certificates set forth in the tables. In
addition, since the actual Contracts and the Trust Fund have characteristics
which differ from those assumed in preparing the tables set forth below, the
distributions of principal on the Class II A-1 Certificates, Class II B-1
Certificates, Class II B-2 Certificates and Class II B-3 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 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 Prepayment Model specified even if the weighted average
remaining term to maturity of the Contracts is the same as the weighted
average remaining term to maturity of the Assumed Contract Characteristics.
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
resulting weighted average lives of the Offered Certificates and set forth
the percentage of the Original Class II A-1 Principal Balance, Original Class
II B-1 Principal Balance, Original Class II B-2 Principal Balance and
Original Class II B-3 Principal Balance that would be outstanding after each
of the dates shown at the indicated percentages of the Prepayment Model.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS II A-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 150% 175% 200% 225% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 91 82 80 79 77 76
January 7, 1999 . . . . . . 87 68 65 62 59 56
January 7, 2000 . . . . . . 83 55 51 47 43 40
January 7, 2001 . . . . . . 78 44 39 34 30 25
January 7, 2002 . . . . . . 73 33 28 23 18 14
January 7, 2003 . . . . . . 68 29 24 19 15 11
January 7, 2004 . . . . . . 62 25 20 16 12 9
January 7, 2005 . . . . . . 56 21 17 13 10 7
January 7, 2006 . . . . . . 49 18 14 11 8 6
January 7, 2007 . . . . . . 41 15 11 9 6 4
January 7, 2008 . . . . . . 35 12 9 7 5 0
January 7, 2009 . . . . . . 31 10 7 0 0 0
January 7, 2010 . . . . . . 26 7 0 0 0 0
January 7, 2011 . . . . . . 20 0 0 0 0 0
January 7, 2012 . . . . . . 14 0 0 0 0 0
January 7, 2013 . . . . . . 7 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 8.6 4.6 4.1 3.6 3.3 2.9
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class II A-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class II A-1
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class II A-1 Principal
Balance.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS II B-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 150% 175% 200% 225% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 100 100 100 100 100 100
January 7, 1999 . . . . . . 100 100 100 100 100 100
January 7, 2000 . . . . . . 100 100 100 100 100 100
January 7, 2001 . . . . . . 100 100 100 100 100 100
January 7, 2002 . . . . . . 100 100 100 100 100 100
January 7, 2003 . . . . . . 100 71 71 70 68 67
January 7, 2004 . . . . . . 100 47 44 42 37 34
January 7, 2005 . . . . . . 100 26 21 17 11 7
January 7, 2006 . . . . . . 100 6 0 0 0 0
January 7, 2007 . . . . . . 100 0 0 0 0 0
January 7, 2008 . . . . . . 85 0 0 0 0 0
January 7, 2009 . . . . . . 59 0 0 0 0 0
January 7, 2010 . . . . . . 33 0 0 0 0 0
January 7, 2011 . . . . . . 4 0 0 0 0 0
January 7, 2012 . . . . . . 0 0 0 0 0 0
January 7, 2013 . . . . . . 0 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 12.3 6.9 6.8 6.7 6.6 6.5
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class II B-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class II B-1
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class II B-1 Principal
Balance.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS II B-2
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 150% 175% 200% 225% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 100 100 100 100 100 100
January 7, 1999 . . . . . . 100 100 100 100 100 100
January 7, 2000 . . . . . . 100 100 100 100 100 100
January 7, 2001 . . . . . . 100 100 100 100 100 100
January 7, 2002 . . . . . . 100 100 100 100 100 100
January 7, 2003 . . . . . . 100 100 100 100 100 100
January 7, 2004 . . . . . . 100 100 100 100 100 100
January 7, 2005 . . . . . . 100 100 100 100 100 100
January 7, 2006 . . . . . . 100 100 100 89 75 63
January 7, 2007 . . . . . . 100 72 58 45 31 19
January 7, 2008 . . . . . . 100 34 20 7 0 0
January 7, 2009 . . . . . . 100 0 0 0 0 0
January 7, 2010 . . . . . . 100 0 0 0 0 0
January 7, 2011 . . . . . . 100 0 0 0 0 0
January 7, 2012 . . . . . . 36 0 0 0 0 0
January 7, 2013 . . . . . . 0 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 14.8 10.6 10.2 9.9 9.5 9.3
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class II B-2 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class II B-2
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class II B-2 Principal
Balance.
PERCENT OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS II B-3
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
<S> <C> <C> <C> <C> <C> <C>
0% 150% 175% 200% 225% 250%
Initial Percentage . . . . 100 100 100 100 100 100
January 7, 1998 . . . . . . 100 100 100 100 100 100
January 7, 1999 . . . . . . 100 100 100 100 100 100
January 7, 2000 . . . . . . 100 100 100 100 100 100
January 7, 2001 . . . . . . 100 100 100 100 100 100
January 7, 2002 . . . . . . 100 100 100 100 100 100
January 7, 2003 . . . . . . 100 100 100 100 100 100
January 7, 2004 . . . . . . 100 100 100 100 100 100
January 7, 2005 . . . . . . 100 100 100 100 100 100
January 7, 2006 . . . . . . 100 100 100 100 100 100
January 7, 2007 . . . . . . 100 100 100 100 100 100
January 7, 2008 . . . . . . 100 100 100 100 95 0
January 7, 2009 . . . . . . 100 99 90 0 0 0
January 7, 2010 . . . . . . 100 76 0 0 0 0
January 7, 2011 . . . . . . 100 0 0 0 0 0
January 7, 2012 . . . . . . 100 0 0 0 0 0
January 7, 2013 . . . . . . 66 0 0 0 0 0
January 7, 2014 . . . . . . 0 0 0 0 0 0
January 7, 2015 . . . . . . 0 0 0 0 0 0
January 7, 2016 . . . . . . 0 0 0 0 0 0
January 7, 2017 . . . . . . 0 0 0 0 0 0
January 7, 2018 . . . . . . 0 0 0 0 0 0
January 7, 2019 . . . . . . 0 0 0 0 0 0
January 7, 2020 . . . . . . 0 0 0 0 0 0
January 7, 2021 . . . . . . 0 0 0 0 0 0
January 7, 2022 . . . . . . 0 0 0 0 0 0
January 7, 2023 . . . . . . 0 0 0 0 0 0
January 7, 2024 . . . . . . 0 0 0 0 0 0
January 7, 2025 . . . . . . 0 0 0 0 0 0
January 7, 2026 . . . . . . 0 0 0 0 0 0
Weighted Average Life 16.1 13.1 12.5 11.8 11.3 10.3
(years)(1) . . . . . . . .
</TABLE>
___________________________
(1) The weighted average life of the Class II B-3 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class II B-3
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class II B-3 Principal
Balance.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. A copy of a
general form of a Pooling and Servicing Agreement has been filed with the
Securities and Exchange Commission. A copy of the execution form of the
Agreement (without certain exhibits) will be filed with the Securities and
Exchange Commission after the initial issuance of the Certificates. The
following description supplements the description of the Agreement and the
Certificates under the caption "Description of the Certificates" in the
Prospectus and must be read together therewith. The following summaries
describe certain terms of the Agreement, do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, the
provisions of the Agreement. When particular provisions or terms used in the
Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
GENERAL
The Certificates will be issued in fully registered form only, in
denominations of $50,000 and integral multiples of $1,000 in excess thereof,
except for a denomination representing the remainder of a Class of
Certificates. The Percentage Interest of a Class I A-1, Class I A-2, Class I
A-3, Class I A-4, Class I A-5, Class I A-6, Class I B-1 or Class I B-2
Certificate is the percentage obtained from dividing its denomination by the
Original Class I A-1 Principal Balance, the Original Class I A-2 Principal
Balance, the Original Class I A-3 Principal Balance, the Original Class I A-4
Principal Balance, the Original Class I A-5 Principal Balance, the Original
Class I A-6 Principal Balance, the Original Class I B-1 Principal Balance and
the Original Class I B-2 Principal Balance, respectively. The Percentage
Interest of a Class II A-1, Class II B-1, Class II B-2 or Class II B-3
Certificate is the percentage obtained from dividing its denomination by the
Original Class II A-1 Principal Balance, the Original Class II B-1 Principal
Balance, the Original Class II B-2 Principal Balance and the Original Class
II B-3 Principal Balance, respectively. Definitive Certificates, if issued,
will be transferable and exchangeable at the corporate trust office of the
Trustee. No service charge will be made for any registration of exchange or
transfer, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge.
The Trust Fund includes (i) the Contract Pool, including all rights to
receive payments on the Contracts received on or after the Cut-off Date, (ii)
the amounts held from time to time in trust accounts (with respect to the
Group I Certificates, the "Group I Certificate Account" and with respect to
the Group II Certificates, the "Group II Certificate Account") maintained by
the Trustee pursuant to the Agreement, (iii) any property which initially
secured a Contract and which is acquired in the process of realizing thereon
and (iv) the proceeds of all insurance policies described herein.
The Company will cause the Contracts to be assigned to the Trustee or a
co-trustee. The Company, as Servicer, will service the Contracts pursuant to
the Agreement. The Contract documents will be held for the benefit of the
Trustee by the Servicer.
Distributions of principal and interest on the Certificates will be made
on the 7th day of each month, or, if such day is not a business day, the next
succeeding business day (each, a "Remittance Date") beginning in February
1997, to the persons in whose names the Certificates are registered at the
close of business on the related Record Date. If definitive Offered
Certificates are issued, distributions will be made by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register, except that a holder of Offered Certificates with original
denominations aggregating at least $5 million may request payment by wire
transfer of funds pursuant to written instructions delivered to the Trustee
at least five business days prior to the Record Date. The final distribution
in retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office or agency of the Trustee
specified in the final distribution notice to Certificateholders.
CONVEYANCE OF CONTRACTS
In addition to the representations and warranties described in the
Prospectus under "Description of Certificates--Conveyance of Contracts," the
Company has also made certain warranties with respect to the Contracts in the
aggregate, including that (i) the aggregate principal amount payable by the
Obligors as of the Cut-off Date equals the Cut-off Date Pool Principal
Balance; (ii) (a) approximately 71.86% of the Cut-off Date Group I Principal
Balance is attributable to loans to purchase new Manufactured Homes and
approximately 28.14% of the Cut-off Date Group I Principal Balance is
attributable to loans to purchase used Manufactured Homes and (b)
approximately 82.80% of the Cut-off Date Group II Principal Balance is
attributable to loans to purchase new Manufactured Homes and approximately
17.20% of the Cut-off Date Group II Principal Balance is attributable to
loans to purchase used Manufactured Homes; (iii) no Contract has a remaining
maturity of more than 368 months; (iv) the date of each Contract is on or
after September 20, 1984; and (v) no adverse selection procedures were
employed in selecting the Contracts.
PAYMENTS ON CONTRACTS
The Trustee will establish and maintain the Certificate Accounts (i) at
a depository institution 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 Federal Deposit Insurance Corporation (the "FDIC") whose commercial
paper or unsecured short-term debt has a rating of P-1 by Moody's, and which
is subject to examination by federal or state authorities or a depository
institution otherwise acceptable to Moody's, (ii) in the corporate trust
department of the Trustee or (iii) at an institution otherwise acceptable to
Moody's (an "Eligible Institution"). Funds in each Certificate Account will
be invested in Eligible Investments (as defined in the Agreement) that will
mature or be subject to redemption 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; commercial paper rated P-1 by Moody's; money
market funds acceptable to Moody's; and other obligations acceptable to
Moody's.
All payments in respect of principal and interest on the Contracts
received by the Servicer, including Principal Prepayments and Liquidation
Proceeds (net of Liquidation Expenses), will be paid into the applicable
Certificate Account no later than the second business day following receipt
thereof. Amounts received as late payment fees, extension fees, assumption
fees or similar fees will be retained by the Servicer as part of its
servicing fees. See "Description of Certificates--Servicing Compensation and
Payment of Expenses" in the Prospectus. In addition, amounts paid by the
Company for Contracts repurchased as a result of breach of a representation
or warranty under the Agreement and amounts required to be deposited upon
substitution of an Eligible Substitute Contract because of breach of a
representation or warranty, as described under "Conveyance of Contracts"
above, will be paid into the applicable Certificate Account. The Servicer
will deposit the Monthly Advance (described under "Advances" below), if any,
in the applicable Certificate Account on or before each Determination Date.
On the fifth business day prior to each Remittance Date (the
"Determination Date"), the Servicer will determine the Available Distribution
Amount and the amounts to be distributed on the Certificates for the
following Remittance Date. The Group I Available Distribution Amount is the
sum of (a) the Monthly Advance relating to the Group I Contracts for such
Remittance Date and (b) the amount in the Group I Certificate Account on the
close of business on the last day of the immediately preceding Due Period
less the sum of (i) scheduled payments for Group I Contracts that are due in
a Due Period subsequent to such Due Period; (ii) payments on Group I
Contracts that have been repurchased as a result of a breach of a
representation or warranty and any other payments not required to be
deposited in the Group I Certificate Account; (iii) reimbursements to the
Servicer in the amount of Liquidation Expenses incurred and taxes and
insurance premiums advanced by the Servicer in respect of Group I Contracts;
(iv) if Vanderbilt is no longer the Servicer, the Group I Monthly Servicing
Fee equal to 1/12th of the product of 1.25% and the Group I Pool Scheduled
Principal Balance for the immediately preceding Remittance Date; (v)
reimbursements to the Servicer for Nonrecoverable Advances and Monthly
Advances relating to the Group I Contracts in respect of Liquidated
Contracts, to the extent permitted by the Agreement; and (vi) certain
expenses reimbursable to the Company as provided in the Agreement. The Group
II Available Distribution Amount is the sum of (a) the Monthly Advance
relating to the Group II Contracts for such Remittance Date and (b) the
amount in the Group II Certificate Account on the close of business on the
last day of the immediately preceding Due Period less the sum of (i)
scheduled payments for Group II Contracts that are due in a Due Period
subsequent to such Due Period; (ii) payments on Group II Contracts that have
been repurchased as a result of a breach of a representation or warranty and
any other payments not required to be deposited in the Group II Certificate
Account; (iii) reimbursements to the Servicer in the amount of Liquidation
Expenses incurred and taxes and insurance premiums advanced by the Servicer
in respect of Group II Contracts; (iv) if Vanderbilt is no longer the
Servicer, the Group II Monthly Servicing Fee equal to 1/12th of the product
of 1.25% and the Group II Pool Scheduled Principal Balance for the
immediately preceding Remittance Date; (v) reimbursements to the Servicer for
Nonrecoverable Advances and Monthly Advances relating to the Group II
Contracts in respect of Liquidated Contracts, to the extent permitted by the
Agreement; and (vi) certain expenses reimbursable to the Company as provided
in the Agreement.
The Trustee or its Paying Agent will withdraw funds from the applicable
Certificate Account (but only to the extent of the related Available
Distribution Amount) to make payments to Certificateholders as specified
under "Distributions" below. From time to time, as provided in the
Agreement, the Servicer will also withdraw funds from the Certificate Account
to make payments to it as permitted by the Agreement and described in clauses
(ii), (iii), (iv), (v) and (vi) in the previous paragraph.
DISTRIBUTIONS
Distributions of principal and interest to holders of a Class of
Certificates will be made on each Remittance Date in an amount equal to the
respective Percentage Interests multiplied by the aggregate amount
distributed on such Class of Certificates on such Remittance Date. With
respect to each Remittance Date, the Fixed Rate Certificates will accrue
interest in respect of each calendar month preceding such Remittance Date.
With respect to each Remittance Date (other than the first Remittance Date),
the Floating Rate Certificates will accrue interest from the Remittance Date
in the preceding calendar month through the day preceding the Remittance Date
in the current calendar month. With respect to the first Remittance Date,
the Floating Rate Certificates will bear one day's interest. Distributions
to a Class of Certificateholders will be applied first to the payment of
interest and, if any payment is then due, then to the payment of principal.
Interest on the Fixed Rate Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Interest on the Floating
Rate Certificates will be calculated on the basis of the number of actual
days elapsed during the Due Period and a 360-day year.
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 Book-Entry Certificates are to be made by DTC and the
Participants in accordance with DTC's rules.
A. On each Remittance Date on which the Class I B Principal
Distribution Test is not met, the Group I Available Distribution Amount will
be distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period on the Class
I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates, at their respective Remittance Rates on the outstanding
Class I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Principal Balances, respectively, together with any previously
undistributed shortfalls in interest due on the Class I A-1, Class I
A-2, Class I A-3, Class I A-4 and Class I A-5 Certificates,
respectively, in respect of prior Remittance Dates; if the Group I
Available Distribution Amount is not sufficient to distribute the full
amount of interest due on the Class I A-1, Class I A-2, Class I A-3,
Class I A-4 and Class I A-5 Certificates, the Group I Available Distri-
bution Amount will be distributed on such Classes of Certificates pro
rata on the basis of the interest due thereon;
(ii) the Group I Formula Principal Distribution Amount in the
following order of priority:
(a) to the Class I A-1 Certificates until the Class I A-1
Principal Balance is reduced to zero;
(b) to the Class I A-2 Certificates until the Class I A-2
Principal Balance is reduced to zero;
(c) to the Class I A-3 Certificates until the Class I A-3
Principal Balance is reduced to zero;
(d) to the Class I A-4 Certificates until the Class I A-4
Principal Balance is reduced to zero; and
(e) to the Class I A-5 Certificates until the Class I A-5
Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period on the
Class I A-6 Principal Balance to the Class I A-6 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I A-6 Certificates in respect of
prior Remittance Dates;
(iv) the remainder of the Group I Formula Principal Distribution
Amount, if any, to the Class I A-6 Certificates until the Class I A-6
Principal Balance is reduced to zero;
(v) interest accrued during the related Interest Period on the
Class I B-1 Principal Balance to the Class I B-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-1 Certificates in respect of
prior Remittance Dates;
(vi) the remainder of the Group I Formula Principal Distribution
Amount, if any, to the Class I B-1 Certificates until the Class I B-1
Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period on the
Class I B-2 Principal Balance to the Class I B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-2 Certificates in respect of
prior Remittance Dates;
(viii) the remainder of the Group I Formula Principal Distribution
Amount, if any, to the Class I B-2 Certificates until the Class I B-2
Principal Balance is reduced to zero;
(ix) any Group I Monthly Excess Spread (as defined below) to fund
any Group II Available Funds Shortfall;
(x) any remaining Group I Monthly Excess Spread to fund any
unfunded Accelerated Principal Payment (as defined below) on the Group
II Certificates after giving effect to the distribution described in
clause C(ix) or D(ix), as applicable, below;
(xi) so long as the Company is the Servicer, any remaining
available funds up to the amount equal to 1/12th of the product of 1.25%
and the Group I Pool Scheduled Principal Balance for the immediately
preceding Remittance Date (the "Group I Monthly Servicing Fee"), to the
Servicer;
(xii) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in the
Agreement;
(xiii) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group II Monthly Servicing Fee
(as defined herein), if any, remaining unpaid after giving effect to the
distribution described in clause C(xii) or D(xii), as applicable, below,
to the Servicer;
(xiv) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement, which remains unpaid after giving effect to the
distribution described in clause C(xiii) or D(xiii), as applicable,
below; and
(xv) any remaining available funds to the holder of the Class R
Certificate, which will initially be a special purpose subsidiary of the
Company.
B. On each Remittance Date on which the Class I B Principal
Distribution Test is met, the Group I Available Distribution Amount will be
distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period on the Class
I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates, at their respective Remittance Rates on the outstanding
Class I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Principal Balances, respectively, together with any previously
undistributed shortfalls in interest due on the Class I A-1, Class I
A-2, Class I A-3, Class I A-4 and Class I A-5 Certificates,
respectively, in respect of prior Remittance Dates; if the Group I
Available Distribution Amount is not sufficient to distribute the full
amount of interest due on the Class I A-1, Class I A-2, Class I A-3,
Class I A-4 and Class I A-5 Certificates, the Group I Available Distri-
bution Amount will be distributed on such Classes of Certificates pro
rata on the basis of the interest due thereon;
(ii) the Class I A Percentage of the Group I Formula Principal
Distribution Amount in the following order of priority:
(a) to the Class I A-1 Certificates until the Class I A-1
Principal Balance is reduced to zero;
(b) to the Class I A-2 Certificates until the Class I A-2
Principal Balance is reduced to zero;
(c) to the Class I A-3 Certificates until the Class I A-3
Principal Balance is reduced to zero;
(d) to the Class I A-4 Certificates until the Class I A-4
Principal Balance is reduced to zero; and
(e) to the Class I A-5 Certificates until the Class I A-5
Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period on the
Class I A-6 Principal Balance to the Class I A-6 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I A-6 Certificates in respect of
prior Remittance Dates;
(iv) the remainder of the Class I A Percentage of the Group I
Formula Principal Distribution Amount, if any, to the Class I A-6
Certificates until the Class I A-6 Principal Balance is reduced to zero;
(v) interest accrued during the related Interest Period on the
Class I B-1 Principal Balance to the Class I B-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-1 Certificates in respect of
prior Remittance Dates;
(vi) the Class I B Percentage of the Group I Formula Principal
Distribution Amount to the Class I B-1 Certificates until the Class I B-
1 Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period on the
Class I B-2 Principal Balance to the Class I B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-2 Certificates in respect of
prior Remittance Dates;
(viii) the remainder of the Group I Formula Principal Distribution
Amount to the Class I B-2 Certificates until the Class I B-2 Principal
Balance is reduced to zero;
(ix) any Group I Monthly Excess Spread to fund any Group II
Available Funds Shortfall;
(x) any remaining Group I Monthly Excess Spread to fund any
unfunded Accelerated Principal Payment (as defined below) on the Group
II Certificates after giving effect to the distribution described in
clause C(ix) or D(ix), as applicable, below;
(xi) so long as the Company is the Servicer, any remaining
available funds up to the Group I Monthly Servicing Fee, to the
Servicer;
(xii) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in the
Agreement;
(xiii) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group II Monthly Servicing Fee,
if any, remaining unpaid after giving effect to the distribution
described in clause C(xii) or D(xii), as applicable, below, to the
Servicer;
(xiv) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement, which remains unpaid after giving effect to the
distribution described in clause C(xiii) or D(xiii), as applicable,
below; and
(xv) any remaining available funds to the holder of the Class R
Certificate.
C. On each Remittance Date on which the Class II B Principal
Distribution Test is not met, the Group II Available Distribution Amount will
be distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period on the Class
II A-1 Principal Balance to the Class II A-1 Certificates, together with
any previously undistributed shortfalls in interest due on the Class II
A-1 Certificates in respect of prior Remittance Dates;
(ii) the Group II Formula Principal Distribution Amount, net of any
portion of the Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, to the Class II A-1 Certificates until
the Class II A-1 Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period on the
Class II B-1 Principal Balance to the Class II B-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-1 Certificates in respect
of prior Remittance Dates;
(iv) the remaining Group II Formula Principal Distribution Amount,
if any, to the Class II B-1 Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then applicable to such
Certificates, until the Class II B-1 Principal Balance is reduced to
zero;
(v) interest accrued during the related Interest Period on the
Class II B-2 Principal Balance to the Class II B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-2 Certificates in respect
of prior Remittance Dates;
(vi) the remaining Group II Formula Principal Distribution Amount,
if any, to the Class II B-2 Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then applicable to such
Certificates, until the Class II B-2 Principal Balance is reduced to
zero;
(vii) interest accrued during the related Interest Period on the
Class II B-3 Principal Balance to the Class II B-3 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-3 Certificates in respect
of prior Remittance Dates;
(viii) the remainder of the Group II Formula Principal Distribution
Amount, if any, to the Class II B-3 Certificates, net of any portion of
the Overcollateralization Reduction Amount, if any, then applicable to
such Certificates, until the Class II B-3 Principal Balance is reduced
to zero;
(ix) any remaining Group II Available Distribution Amount to fund
any Accelerated Principal Payment on the Group II Certificates;
(x) any Group II Monthly Excess Spread, together with any
Overcollateralization Reduction Amount, to fund any Group I Available
Funds Shortfall;
(xi) any remaining available funds up to the Class II A-1 Net Funds
Cap Carryover Amount, Class II B-1 Net Funds Cap Carryover Amount, Class
II B-2 Net Funds Cap Carryover Amount and Class II B-3 Net Funds Cap
Carryover Amount to the applicable Certificateholder; if such available
funds are not sufficient to distribute the total Net Funds Cap Carryover
Amount to the applicable Classes of Certificates, such remaining
available funds will be distributed on such Classes of Certificates pro
rata based on the amount of the Net Funds Cap Carryover Amount owing to
each such Class of Certificates;
(xii) so long as the Company is the Servicer, any remaining
available funds up to the amount equal to 1/12th of the product of 1.25%
and the Group II Pool Scheduled Principal Balance for the immediately
preceding Remittance Date (the "Group II Monthly Servicing Fee"), to the
Servicer;
(xiii) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement;
(xiv) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group I Monthly Servicing Fee,
if any, remaining unpaid after giving effect to the distribution
described in clause A(xi) or B(xi), as applicable, above, to the
Servicer;
(xv) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in the
Agreement, which remains unpaid after giving effect to the distribution
described in clause A(xii) or B(xii), as applicable, above; and
(xvi) any remaining available funds to the holder of the Class R
Certificate.
D. On each Remittance Date on which the Class II B Principal
Distribution Test is met, the Available Distribution Amount will be
distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period on the Class
II A-1 Principal Balance to the Class II A-1 Certificates at the related
Remittance Rate, together with any previously undistributed shortfalls
in interest due on the Class II A-1 Certificates, in respect of prior
Remittance Dates;
(ii) the Class II A Percentage of the Group II Formula Principal
Distribution Amount, net of any portion of the Overcollateralization
Reduction Amount, if any, then applicable to such Certificates, to the
Class II A-1 Certificateholders until the Class II A-1 Principal Balance
is reduced to zero;
(iii) interest accrued during the related Interest Period on the
Class II B-1 Principal Balance to the Class II B-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-1 Certificates in respect
of prior Remittance Dates;
(iv) the Class II B Percentage of the Group II Formula Principal
Distribution Amount to the Class II B-1 Certificates, net of any portion
of the Overcollateralization Reduction Amount, if any, then applicable
to such Certificates, until the Class II B-1 Principal Balance is
reduced to zero;
(v) interest accrued during the related Interest Period on the
Class II B-2 Principal Balance to the Class II B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-2 Certificates in respect
of prior Remittance Dates;
(vi) the remainder of the Class II B Percentage, if any, of the
Group II Formula Principal Distribution Amount to the Class II B-2
Certificates, net of any portion of the Overcollateralization Reduction
Amount, if any, then applicable to such Certificates, until the Class II
B-2 Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period on the
Class II B-3 Principal Balance to the Class II B-3 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-3 Certificates in respect
of prior Remittance Dates;
(viii) the remainder of the Group II Formula Principal Distribution
Amount to the Class II B-3 Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then applicable to such
Certificates, until the Class II B-3 Principal Balance is reduced to
zero;
(ix) any remaining Group II Available Distribution Amount to fund
any Accelerated Principal Payment on the Group II Certificates;
(x) any Group II Monthly Excess Spread, together with any
Overcollateralization Reduction Amount, to fund any Group I Available
Funds Shortfall;
(xi) any remaining available funds up to the Class II A-1 Net Funds
Cap Carryover Amount, Class II B-1 Net Funds Cap Carryover Amount, Class
II B-2 Net Funds Cap Carryover Amount and Class II B-3 Net Funds Cap
Carryover Amount to the applicable Certificateholder; if such available
funds are not sufficient to distribute the total Net Funds Cap Carryover
Amount to the applicable Classes of Certificates, such remaining
available funds will be distributed on such Classes of Certificates pro
rata based on the amount of the Net Funds Cap Carryover Amount owing to
each such Class of Certificates;
(xii) so long as the Company is the Servicer, any remaining
available funds up to the Group II Monthly Servicing Fee, to the
Servicer;
(xiii) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement;
(xiv) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group I Monthly Servicing Fee,
if any, remaining unpaid after giving effect to the distribution
described in clause A(xi) or B(xi), as applicable, above, to the
Servicer;
(xv) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in the
Agreement, which remains unpaid after giving effect to the distribution
described in clause A(xii) or B(xii), as applicable, above; and
(xvi) any remaining available funds to the holder of the Class R
Certificate.
The "Class I B Principal Distribution Test" is met in respect of a
Remittance Date on which each of the following requirements is satisfied:
(i) such Remittance Date is on or after the February 2002 Remittance
Date;
(ii) the Class I B Percentage for such Remittance Date is equal
to at least 16.625% (which is 1.75 times the original Class I B
Percentage);
(iii) the Group I Performance Tests are satisfied; and
(iv) the Class I B-2 Principal Balance is not less than
$2,308,354 (which represents approximately 2% of the Group I Cut-off
Date Principal Balance).
The "Class II B Principal Distribution Test" is met in respect of a
Remittance Date on which each of the following requirements is satisfied:
(i) such Remittance Date is on or after the February, 2002
Remittance Date;
(ii) the Class II B Percentage for such Remittance Date is equal
to at least 50% (which is 2 times the original Class II B Percentage
plus 1%);
(iii) the Group II Performance Tests are satisfied; and
(iv) the Group II Junior Subordinate Certificate Principal
Balance and the Overcollateralization Amount is not less than $1,555,358
(which represents approximately 2% of the Group II Cut-off Date
Principal Balance).
The "Group I Performance Tests" are satisfied in respect of a Remittance
Date if all of the following conditions with respect to Group I are met:
(i) the Average Sixty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 5% for the Group I
Contracts;
(ii) the Average Thirty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 7% for the Group I
Contracts;
(iii) the Cumulative Realized Losses (as defined in the Agreement)
for the Group I Contracts as of such Remittance Date do not exceed a
certain specified percentage of the Group I Cut-off Date Principal
Balance, depending on the year in which such Remittance Date occurs; and
(iv) the Current Realized Loss Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 2.75% for Group I
Contracts.
The "Group II Performance Tests" are satisfied in respect of a
Remittance Date if all of the following conditions with respect to the Group
II Contracts are met:
(i) the Average Sixty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 5% for the Group
II Contracts;
(ii) the Average Thirty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 7% for the Group
II Contracts;
(iii) the Cumulative Realized Losses (as defined in the Agreement)
for the Group II Contracts as of such Remittance Date do not exceed a
certain specified percentage of the Group II Cut-off Date, depending on
the year in which such Remittance Date occurs; and
(iv) the Current Realized Loss Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 2.75% for the
Group II Contracts.
The Principal Balance of each Class of Certificates is its original
Principal Balance reduced by all distributions on such Class in respect of
principal. The Class I A Principal Balance is the sum of the Class I A-1,
Class I A-2, Class I A-3, Class I A-4, Class I A-5 and Class I A-6 Principal
Balances. The Class I B Principal Balance is the sum of the Class I B-1
Principal Balance and the Class I B-2 Principal Balance. The II B Principal
Balance is the sum of the Class II B-1 Principal Balance, the Class II B-2
Principal Balance and the Class II B-3 Principal Balance.
The Class I A Percentage for a Remittance Date is the percentage derived
from the fraction (which shall not be greater than 1), the numerator of which
is the aggregate Principal Balance of the Class I A Certificates immediately
prior to such Remittance Date and the denominator of which is the Pool
Scheduled Principal Balance for Group I Contracts. The Class I B Percentage
is 100% less the Class I A Percentage.
The Class II A Percentage for a Remittance Date is the percentage
derived from the fraction (which shall not be greater than 1), the numerator
of which is the aggregate Principal Balance of the Class II A-1 Certificates
immediately prior to such Remittance Date and the denominator of which is the
Pool Scheduled Principal Balance for Group II Contracts. The Class II B
Percentage is 100% less the Class II A Percentage.
The Average Sixty-Day Delinquency Ratio and the Average Thirty-Day
Delinquency Ratio are, in general, the ratios of the average of the aggregate
principal balances of Contracts in the applicable Group delinquent 60 days or
more and 30 days or more, respectively, for the preceding three Due Periods
(determined as of the last day of each such Due Period) to the average Pool
Scheduled Principal Balance for such periods. Cumulative Realized Losses
are, in general, the aggregate net liquidation losses (calculated as
specified in the Agreement) in respect of Liquidated Contracts since the
Cut-off Date. The Current Realized Loss Ratio is, in general, the ratio of
the aggregate net liquidation losses in respect of Liquidated Contracts for
the periods specified in the Agreement to an average Pool Scheduled Principal
Balance specified in the Agreement.
The "Formula Principal Distribution Amount" in respect of a Remittance
Date and a Group equals the sum of (i) all scheduled payments of principal
due on each outstanding Contract in such Group during the Due Period
preceding the month in which the Remittance Date occurs, (ii) the Scheduled
Principal Balance (as defined below) of each Contract in such Group which,
during the Due Period preceding the month of such Remittance Date, was
purchased by the Company pursuant to the Agreement on account of certain
breaches of its representations and warranties, (iii) all Partial Prepayments
(as defined in the Agreement) of Contracts in such Group received during such
preceding Due Period, (iv) the Scheduled Principal Balance of each Contract
in such Group that was prepaid in full during such preceding Due Period, (v)
the Scheduled Principal Balance of each Contract in such Group that became a
Liquidated Contract during such preceding Due Period and (vi) any previously
undistributed shortfalls in the amounts in clauses (i) through (v) in respect
of the prior Remittance Dates (other than any such shortfall with respect to
which an Enhancement Payment has been made to the related
Certificateholders).
The "Scheduled Principal Balance" of a Contract as of any Remittance
Date is its principal balance (before any adjustment by reason of bankruptcy,
moratorium or similar waiver or grace period) as of the Due Date (or latest
occurring Due Date, in the case of a Bi-weekly Contract) in the Due Period
next preceding such Remittance Date, after giving effect to any previous
Partial Prepayments and after giving effect to all previous scheduled
principal payments and to the scheduled payment of principal due on such Due
Date (whether or not paid and before any adjustment by reason of bankruptcy,
moratorium or similar waiver or grace period).
The "Pool Scheduled Principal Balance" for a Group for any Remittance
Date is equal to (i) the Cut-off Date Pool Principal Balance for such Group
less (ii) the aggregate of the Formula Principal Distribution Amounts for
such Group (exclusive of the amounts in clause (vi) of the definition
thereof) for all prior Remittance Dates.
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 any real property securing such Contract have been
received.
In no event will the aggregate distributions of principal to the Class I
A-1, Class I A-2, Class I A-3, Class I A-4, Class I A-5, Class I A-6, Class I
B-1, Class I B-2, Class II A-1, Class II B-1, Class II B-2 or Class II B-3
Certificateholders (including, in the case of the Class I B-2 and Class II B-
3 Certificateholders, any principal amounts included in any Enhancement
Payments) exceed the Original Class I A-1 Principal Balance, the Original
Class I A-2 Principal Balance, the Original Class I A-3 Principal Balance,
the Original Class I A-4 Principal Balance, the Original Class I A-5
Principal Balance, the Original Class I A-6 Principal Balance, the Original
Class I B-1 Principal Balance, the Original Class I B-2 Principal Balance,
the Original Class II A-1 Principal Balance, the Original Class II B-1
Principal Balance, the Original Class II B-2 Principal Balance or the
Original Class II B-3 Principal Balance, respectively.
Notwithstanding the prioritization of the distribution of the Group I
Formula Principal Distribution Amount among the Class I A-1, Class I A-2,
Class I A-3, Class I A-4 and Class I A-5 Certificates pursuant to clauses
A(ii) and B(ii) above, on each Remittance Date on and after the Remittance
Date, if any, on which the Deficiency Event occurs, the Group I Available
Distribution Amount remaining after making the distributions of interest to
the Senior Certificateholders required by clauses A(i) and B(i) above will be
applied to distribute the Group I Formula Principal Distribution Amount on
each Class of Class I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I
A-5 Certificates pro rata in accordance with the outstanding Principal
Balance of such Class. The "Deficiency Event" will occur if the sum of the
Principal Balances of the Classes of Class I A-1, Class I A-2, Class I A-3,
Class I A-4 and Class I A-5 Certificates becomes equal to or greater than the
Pool Scheduled Principal Balance for Group I.
The Class I A-1 Remittance Rate for a Remittance Date will equal the
lesser of (a) the sum of (i) the London Interbank offered rate for one-month
United States dollar deposits ("LIBOR") appearing on the Telerate Screen Page
3750 as of the second LIBOR Business Day prior to the first day of such
Interest Period (or as of two LIBOR Business Days of the Closing Date in the
case of the first Interest Period) and (ii) 0.08% and (b) the Group I
Weighted Average Net Contract Rate for Group I, computed on the basis of the
actual number of days elapsed and a 360-day year. The Class I A-2 Remittance
Rate for a Remittance Date is the lesser of (i) 6.525% per annum, computed
on the basis of a 360-day year of twelve 30-day months, or (ii) the Group
I Weighted Average Net Contract Rate for such Remittance Date for Group I.
The Class I A-3 Remittance Rate for a Remittance Date is the lesser of (i)
6.80% per annum, computed on the basis of a 360-day year of twelve 30-day
months, or (ii) the Group I Weighted Average Net Contract Rate for such
Remittance Date for Group I. The Class I A-4 Remittance Rate for a
Remittance Date is the lesser of (i) 7.075% per annum, computed on the
basis of a 360-day year of twelve 30-day months, or (ii) the Group I
Weighted Average Net Contract Rate for such Remittance Date for Group I.
The Class I A-5 Remittance Rate for a Remittance Date is the lesser of
(i) 7.30% per annum, computed on the basis of a 360-day year of twelve
30-day months, or (ii) the Group I Weighted Average Net Contract Rate
for such Remittance Date for Group I. The Class I A-6 Remittance Rate for a
Remittance Date is the lesser of (i) 7.60% per annum, computed on the basis
of a 360-day year of twelve 30-day months, or (ii) the Group I Weighted
Average Net Contract Rate for such Remittance Date for Group I. The Class I
B-1 Remittance Rate for a Remittance Date is the lesser of (i) 7.50% per
annum, computed on the basis of a 360-day year of twelve 30-day months, or
(ii) the Group I Weighted Average Net Contract Rate for such Remittance Date
for Group I. The Class I B-2 Remittance Rate for a Remittance Date is the
lesser of (i) 8.125% per annum, computed on the basis of a 360-day year of
twelve 30-day months, or (ii) the Group I Weighted Average Net Contract Rate
for such Remittance Date for Group I. The "Group I Weighted Average Net
Contract Rate" for a Group for a Remittance Date is equal to (i) the weighted
average of the Contract Rates applicable to the scheduled payments due on the
outstanding Group I Contracts in the Due Period preceding such Remittance
Date less (ii) 1.25%. Any undistributed interest shortfalls which are
carried forward will, to the extent legally permissible, bear interest at the
Remittance Rate applicable to the affected Class or Classes of Certificates.
"LIBOR Business Day" means a day on which banks are open for dealing in
foreign currency and exchange in London and New York City; "Telerate 3750"
means the display page currently so designated on the Dow Jones Telerate
Service (or such other page as may replace that page on that service for the
purpose of displaying comparable rates or prices). With respect to the Class
I A-1 Certificates and the Group II Certificates and any Remittance Date, the
"Interest Period" shall be the period from the Remittance Date preceding such
Remittance Date (or in the case of the first Remittance Date, from the
Closing Date) through the day preceding such Remittance Date. With respect
to each Class of Offered Certificates (other than the Class I A-1
Certificates and the Group II Certificates) and any Remittance Date, the
"Interest Period" shall be the period from the first day of the calendar
month preceding the month of such Remittance Date through the last day of
such calendar month on the basis of a 360-day year consisting of twelve 30-
day months.
The Class II A-1 Remittance Rate shall be the lesser of (a) the Class II
A-1 Formula Rate (as defined below) and (b) the Net Funds Cap (as defined
below) for such Remittance Date. The Class II A-1 Formula Rate shall be a
per annum rate equal to the sum of (a) LIBOR (as defined herein) plus (b) (i)
with respect to any Remittance Date which occurs on or prior to the Call
Option Date (as defined herein), 0.20% or (ii) with respect to any Remittance
Date which occurs after the Call Option Date, 0.40% (2 times the original
LIBOR rate). The Class II B-1 Remittance Rate shall be the lesser of (a) the
Class II B-1 Formula Rate (as defined below) and (b) the Net Funds Cap for
such Remittance Date. The "Class II B-1 Formula Rate" shall be a per annum
rate equal to the sum of (a) LIBOR (as defined herein) plus (b) (i) with
respect to any Remittance Date which occurs on or prior to the Call Option
Date, 0.45% or (ii) with respect to any Remittance Date which occurs after
the Call Option Date, 0.90%. The Class II B-2 Remittance Rate shall be the
lesser of (a) the Class II B-2 Formula Rate (as defined below) and (b) the
Net Funds Cap for such Remittance Date. The "Class II B-2 Formula Rate"
shall be a per annum rate equal to the sum of (a) LIBOR (as defined herein)
plus (b) (i) with respect to any Remittance Date which occurs on or prior to
the Call Option Date, 0.85% or (ii) with respect to any Remittance Date which
occurs after the Call Option Date, 1.35%. The Class II B-3 Remittance Rate
shall be the lesser of (a) the Class II B-3 Formula Rate (as defined below)
and (b) the Net Funds Cap for such Remittance Date. The Class II B-3 Formula
Rate shall be a per annum rate equal to the sum of (a) LIBOR (as defined
herein) plus (b) (i) with respect to any Remittance Date which occurs on or
prior to the Call Option Date, 1.05% or (ii) with respect to any Remittance
Date which occurs after the Call Option Date, 1.55%.
The Net Funds Cap for any Remittance Date shall equal the per annum rate
equal to a fraction, expressed as a percentage, the numerator of which equals
the sum of (a) the aggregate amount of interest due on the Group II Contracts
on the related Due Date and (b) the Overcollateralization Reduction Amount,
if any, for such Distribution Date less (c) one-twelfth of (if the Company is
the Servicer) 0.50% of the Group II Pool Scheduled Principal Balance on the
first day of the Due Period or (if the Company is no longer the Servicer)
1.75% of the Group II Scheduled Pool Principal Balance on the first day of
the Due Period and the denominator of which is equal to the Certificate
Principal Balance of the Group II Certificates (adjusted to reflect the
actual number of days elapsed in the Interest Period divided by 360). The
"Call Option Date" shall be the day on which the outstanding balance of the
Contracts in the Trust Fund has declined to 10% or less of the Cut-off Date
Pool Principal Balance.
GROUP II CERTIFICATES; OVERCOLLATERALIZATION PROVISIONS
The Group II Weighted Average Contract Rate for the Group II Contracts
is expected generally to be higher than the weighted average of the
Remittance Rates applicable to the Group II Certificates, thus generating
certain excess interest collections which in the absence of losses and
delinquencies, will not be needed to fund distributions on the Group II
Certificates. The Agreement provides that this excess interest is to be
applied, to the extent available, to make accelerated payments of principal
to the Class or Classes of Group II Certificates then entitled to receive
distributions of principal. Such accelerated payments are expected to cause
the aggregate Principal Balance of the Group II Certificates to amortize more
rapidly than the principal balance of the Group II Contracts, resulting in
"overcollateralization" (i.e., the excess of the Group II Pool Scheduled
Principal Balance over the aggregate Principal Balance of the Group II
Certificates). This interest for a Due Period, together with interest on the
Overcollateralization Amount itself, remaining after distributions in clauses
C(i) to C(ix) or D(i) to D(ix) above is the "Group II Monthly Excess Spread"
for the Remittance Date immediately following the applicable Due Period. On
any Remittance Date, the "Overcollateralization Amount" will be an amount
equal to the difference between the Group II Pool Scheduled Principal Balance
as of the end of the immediately preceding Due Period and the aggregate
Certificate Principal Balance of the Group II Certificates on such Remittance
Date (after taking into account all other distributions to be made on such
Remittance Date).
The Group II Monthly Excess Spread will be applied to make accelerated
payments of principal on each Remittance Date until the Overcollateralization
Amount is equal to approximately $3,305,137 (the "Initial Required
Overcollateralization Amount" which represents approximately 4.25% of the
initial Group II Contract Pool Balance). Thereafter, the Group II Monthly
Excess Spread will not be applied to further increase the
Overcollateralization Amount unless, due to losses, the Overcollateralization
Amount is decreased, in which event such applications will commence to the
extent necessary to increase the actual Overcollateralization Amount to the
Required Overcollateralization Amount. The level of the Required
Overcollateralization Amount is equal to, for any Remittance Date, (x) prior
to the date on which the Class II B Principal Distribution Test is satisfied,
the Initial Required Overcollateralization Amount and (y) on and after the
date on which the Class II B Principal Distribution Test is satisfied, the
lesser of (i) the Initial Required Overcollateralization Amount and (ii) the
greater of (a) 8.5% of the then current Group II Pool Scheduled Principal
Balance and (b) 0.75% of the Group II Cut-off Date Pool Principal Balance.
If, on any Remittance Date, the level of Required Overcollateralization
Amount is permitted to be reduced, the "Excess Overcollateralization Amount"
(the excess of (x) the actual Overcollateralization Amount on such Remittance
Date (after taking into account all other distributions on such Remittance
Date) over (y) the Required Overcollateralization Amount for such Remittance
Date) will be deducted from the Group II Formula Principal Distribution
Amount (but only to the extent of such Group II Formula Principal
Distribution Amount) otherwise distributable to the holders of the Group II
Certificates on such Remittance Date (any such amount so deducted, an
"Overcollateralization Reduction Amount") and will be applied as provided
herein under "Description of the Certificates--Distributions". The
Overcollateralization Reduction Amount, if any, on any Remittance Date shall
be funded, first,
----
from that portion of the Group II Formula Principal Distribution Amount
otherwise distributable to the holders of the most junior class of Group II
Certificates on such Remittance Date, and, if such amount is insufficient to
fund in full the Overcollateralization Reduction Amount on such Remittance
Date, then, second, from that portion of the Group II
-----
Formula Principal Distribution Amount otherwise distributable to the holders
of each succeeding class of Group II Certificates in ascending order of
seniority, until such Overcollateralization Reduction Amount is completely
funded. The Agreement provides that in no event shall an
Overcollateralization Reduction Amount be deducted from the Group II Formula
Principal Distribution Amount if, after deducting such amount, the sum of the
aggregate Principal Balance of the Group II Junior Subordinate Certificates
and the Overcollateralization Amount, taken together, would be less than 2.0%
of the Group II Cut-off Date Principal Balance.
The amount, if any, actually applied as an accelerated payment of
principal on any Remittance Date is referred to herein as the "Accelerated
Principal Payment" for such Remittance Date. The Accelerated Principal
Payment, if any, on any Remittance Date will be an amount equal to the lesser
of (x) the excess of (i) the Required Overcollateralization Amount over (ii)
the actual Overcollateralization Amount on such Remittance Date and (y) the
sum of the Group II Monthly Excess Spread, if any, and the Group I Monthly
Excess Spread, if any, remaining after payment of all then applicable prior
requirements for such Remittance Date. The Accelerated Principal Payment
will be distributed to the holders of the Class of Group II Certificates then
entitled to receive distributions in respect of principal on such date.
CROSS COLLATERALIZATION PROVISIONS
The Agreement provides for cross collateralization through the
application of excess amounts generated by one Contract Group to fund
shortfalls in available funds in the other Contract Group, subject to certain
prior requirements of such Contract Group. Therefore, as to any Remittance
Date, the amount, if any, of Group I Monthly Excess Spread remaining after
payment of all then applicable prior requirements relating to the Group I
Certificates will be used to fund, first, any Group II Available Funds
Shortfall and, second, to the extent of any remaining Group I Monthly Excess
Spread, any unfunded Accelerated Principal Payment on the Group II
Certificates for such Remittance Date. Likewise, as to any Remittance Date,
the amount, if any, of Group II Monthly Excess Spread (together with any
Overcollateralization Reduction Amount) remaining after payment of all then
applicable prior requirements relating to the Group II Certificates
(including any Accelerated Principal Payment for such Remittance Date) will
be used to fund any Group I Available Funds Shortfall for such Remittance
Date. The payment of any amounts in respect of cross collateralization will
be applied in the order specified above under "--Distribution." See,
"Description of Certificates--Distributions" and "--Group II Certificates--
Overcollateralization Provisions".
Additional funds resulting from the cross-collateralization provisions
described herein shall not be available to Group II Certificateholders to pay
the Net Funds Cap Carryover Amount.
GROUP I CERTIFICATES AND THE SENIOR/SUBORDINATE STRUCTURE
SUBORDINATION OF THE GROUP I SENIOR SUBORDINATE CERTIFICATES
The rights of the holders of the Group I Senior Subordinate Certificates
to receive distributions of amounts collected on the Group I Contracts will
be subordinated, to the extent described herein, to such rights of the Group
I Senior Certificates. This subordination is intended to enhance the
likelihood of receipt by the holders of the Group I Senior Certificates of
the full amount of their scheduled monthly payments of interest and the
ultimate receipt by such holders of principal equal to the applicable
Original Certificate Principal Balance or the Group I Senior Certificates.
The protection afforded to the Group I Senior Certificates by means of
the subordination of the Group I Senior Subordinate Certificates will be
accomplished by the application of the Group I Available Distribution Amount
in the order specified under "--Distributions" above. In addition, if the
Group I Available Distribution Amount on any Remittance Date is not
sufficient to permit the distribution of the entire specified portion of the
Group I Formula Principal Distribution Amount, as applicable, to the Group I
Senior Certificateholders, the subordination feature will protect the Group I
Senior Certificateholders, by the right of such Certificateholders to
receive, until, if ever, any such shortfall is distributed, a portion of the
future distributions of Group I Available Distribution Amounts that would
otherwise have been distributable to the holders of the Group I Subordinate
Certificates.
SUBORDINATION OF THE GROUP I JUNIOR SUBORDINATE CERTIFICATES AND CLASS R
CERTIFICATES
The rights of holders of the Group I Junior Subordinate Certificates and
Class R Certificates to receive distributions of amounts collected on the
Group I Contracts will be subordinated, to the extent described herein, to
such rights of the holders of the Group I Senior Certificates and Group I
Senior Subordinate Certificates. This subordination is intended to enhance
the likelihood of receipt by the holders of the Group I Senior Certificates
and Group I Senior Subordinate Certificates of the full amount of their
scheduled monthly payments of interest and the ultimate receipt by such
holders of principal equal to the applicable Original Certificate Principal
Balance.
The protection afforded to the holders of the Group I Senior
Certificates and Group I Senior Subordinate Certificates by means of the
subordination, to the extent provided herein, of the Group I Junior
Subordinate Certificates and Class R Certificates will be accomplished (i) by
the application of the Group I Available Distribution Amount in the order
specified under "/__/Distributions" above and (ii) if the Group I Available
Distribution Amount on such Remittance Date is not sufficient to permit the
distribution of the entire specified portion of the Group I Formula Principal
Distribution Amount, as applicable, to the Class of Group I Senior
Certificateholders and Group I Senior Subordinate Certificateholder then
entitled to such distribution, by the right of such Group I Senior and Group
I Senior Subordinate Certificateholders to receive, until, if ever, any such
shortfall is distributed, a portion of future Available Distribution Amounts
that would otherwise have been payable to the holders of the Group I Junior
Subordinate Certificates or the Class R Certificate. On each Remittance Date
before the Class I A Principal Balance is reduced to zero, the holders of the
Class I B Certificates will receive the amounts specified under "--
Distributions" above.
SUBORDINATION OF THE CLASS I B-2 CERTIFICATES
The rights of the holders of the Class I B-2 Certificates to receive
distributions of amounts collected on the Contracts in the Trust Fund will be
subordinated, to the extent described herein, to such rights of the Class I
B-1 Certificates. This subordination is intended to enhance the likelihood
of receipt by the holders of the Class I A and Class I B-1 Certificates of
the full amount of their scheduled monthly payments of interest and the
ultimate receipt by such holders of principal equal to the applicable
Original Certificate Principal Balance.
The protection afforded to the Class I B-1 Certificates by means of the
subordination of the Class I B-2 Certificates will be accomplished by the
application of the applicable Available Distribution Amount in the order
specified under "--Distributions" above. In addition, if the applicable
Available Distribution Amount on any Remittance Date is not sufficient to
permit the distribution of the entire specified portion of the related
Formula Principal Distribution Amount, as applicable, to the Class I B-1
Certificateholders and the subordination provided by the Class I B-2
Certificates has not been exhausted, the subordination feature will protect
the Class I B-1 Certificateholders by the right of the Class I B-1
Certificateholders to receive, until, if ever, any such shortfall is
distributed, a portion of the future distributions of Available Distribution
Amounts that would otherwise have been distributable to the holders of the
Class I B-2 Certificates or the Class R Certificate.
However, the Class I B-2 Certificates will have the benefit of the
Limited Guarantee from CHI or the Alternate Credit Enhancement. Neither the
Limited Guarantee nor the Alternate Credit Enhancement will benefit or result
in any payments on any other Offered Certificates (other than the Class II B-
3 Certificates to the limited extent described below).
GROUP II CERTIFICATES AND THE SENIOR/SUBORDINATE STRUCTURE
SUBORDINATION OF THE CLASS II B-1 CERTIFICATES
The rights of the holders of the Class II B-1 Certificates to receive
distributions of amounts collected on the Contracts in the Trust Fund will be
subordinated, to the extent described herein, to such rights of the Class II
A-1 Certificates. This subordination is intended to enhance the likelihood
of receipt by the holders of the Class II A-1 Certificates of the full amount
of their scheduled monthly payments of interest and the ultimate receipt by
such holders of principal equal to the Original Class II A-1 Certificate
Principal Balance.
The protection afforded to the Class II A-1 Certificates by means of the
subordination of the Class II B-1 Certificates will be accomplished by the
application of the applicable Available Distribution Amount in the order
specified under "--Distributions" above. In addition, if the applicable
Available Distribution Amount on any Remittance Date is not sufficient to
permit the distribution of the entire specified portion of the Group II
Formula Principal Distribution Amount, as applicable, to the Class II A-1
Certificateholders, the subordination feature will protect the Class II A-1
Certificateholders, by the right of such Certificateholders to receive,
until, if ever, any such shortfall is distributed, a portion of the future
distributions of Available Distribution Amounts that would otherwise have
been distributable to the Class II B-1 Certificates.
SUBORDINATION OF THE GROUP II JUNIOR SUBORDINATE AND CLASS R CERTIFICATES
The rights of holders of the Group II Junior Subordinate and Class R
Certificates to receive distributions of amounts collected on the Contracts
will be subordinated, to the extent described herein, to such rights of the
holders of the Class II A-1 and Class II B-1 Certificates. This
subordination is intended to enhance the likelihood of receipt by the holders
of Class II A-1 and Class II B-1 Certificates of the full amount of their
scheduled monthly payments of interest and the ultimate receipt by such
holders of principal equal to the applicable Original Certificate Principal
Balance.
The protection afforded to the holders of the Class II A-1 and Class II
B-1 Certificates by means of the subordination, to the extent provided
herein, of the Group II Junior Subordinate and Class R Certificates will be
accomplished (i) by the application of the applicable Available Distribution
Amount in the order specified under "/__/Distributions" above and (ii) if the
applicable Available Distribution Amount on such Remittance Date is not
sufficient to permit the distribution of the entire specified portion of the
Formula Principal Distribution Amount, as applicable, to the Class of Class
II A-1 Certificateholders then entitled to such distribution, by the right of
such Class II A-1 Certificateholders to receive, until, if ever, any such
shortfall is distributed, a portion of future Available Distribution Amounts
that would otherwise have been payable to the holders of the Class II B
Certificates or the Class R Certificate. On each Remittance Date before the
Class II A Principal Balance is reduced to zero, the holders of the Class II
B Certificates will receive the amounts specified under "--Distributions"
above.
SUBORDINATION OF THE CLASS II B-2 AND CLASS II B-3 CERTIFICATES
The rights of the holders of the Class II B-2 and the Class II B-3
Certificates to receive distributions of amounts collected on the Contracts
in the Trust Fund will be subordinated, to the extent described herein, to
such rights of the Class II B-1 Certificates. This subordination is intended
to enhance the likelihood of receipt by the holders of the Class II A-1 and
Class II B-1 Certificates of the full amount of their scheduled monthly
payments of interest and the ultimate receipt by such holders of principal
equal to the applicable Original Certificate Principal Balance.
The protection afforded to the Class II B-1 Certificates by means of the
subordination of the Class II B-2 and the Class II B-3 Certificates will be
accomplished by the application of the applicable Available Distribution
Amount in the order specified under "--Distributions" above. In addition, if
the applicable Available Distribution Amount on any Remittance Date is not
sufficient to permit the distribution of the entire specified portion of the
applicable Formula Principal Distribution Amount, as applicable, to the Class
II B-1 Certificateholders and the subordination provided by the Class II B-2
and the Class II B-3 Certificates has not been exhausted, the subordination
feature will protect the Class II B-1 Certificateholders by the right of the
Class II B-1 Certificateholders to receive, until, if ever, any such
shortfall is distributed, a portion of the future distributions of Available
Distribution Amounts that would otherwise have been distributable to the
holders of the Class II B-2, the Class II B-3 Certificates or the Class R
Certificate.
In addition, the protection afforded to the Class II B-2 Certificates by
means of the subordination of the Class II B-3 Certificates will be
accomplished by the application of the applicable Available Distribution
Amount in the order specified under "--Distributions" above. In addition, if
the applicable Available Distribution Amount on any Remittance Date is not
sufficient to permit the distribution of the entire specified portion of the
applicable Formula Principal Distribution Amount, as applicable, to the Class
II B-2 Certificateholders and the subordination provided by the Class II B-3
Certificates has not been exhausted, the subordination feature will protect
the Class II B-2 Certificateholders by the right of the Class II B-2
Certificateholders to receive, until, if ever, any such shortfall is
distributed, a portion of the future distributions of Available Distribution
Amounts that would otherwise have been distributable to the holders of the
Class II B-3 or the Class R Certificate.
However, the Class II B-3 Certificates will have the benefit of the
Limited Guarantee from CHI or the Alternate Credit Enhancement. Neither the
Limited Guarantee nor the Alternate Credit Enhancement will benefit or result
in any payments on any other Offered Certificates (other than the Class I B-2
Certificates to the limited extent described above).
LOSSES ON LIQUIDATED CONTRACTS
As described above, the distribution of principal to the holders of the
Senior Certificates in each Group is intended to include the Scheduled Prin-
cipal Balance of each Contract in the related Group that became a Liquidated
Contract during the Due Period immediately preceding the month of such
distribution. If the Liquidation Proceeds, net of related Liquidation
Expenses, from such Liquidated Contract are less than the Scheduled Principal
Balance of such Liquidated Contract, and accrued and unpaid interest thereon,
then to the extent such deficiency is not covered by any excess interest
collections on non-defaulted Contracts, the deficiency may, in effect, be
absorbed by the Subordinate Certificates since a portion of future Available
Distribution Amounts funded by future principal collections on the Contracts,
up to the aggregate amount of such deficiencies, that would otherwise have
been distributable to them may be paid to the holders of the Senior
Certificates. If the protection afforded to the holders of a Class of Sub-
ordinate Certificates by the subordination of one or more Classes of more
junior Subordinate Certificates is exhausted, the holders of such Class of
Subordinate Certificates will incur a loss on their investment.
If the Group I or Group II Available Distribution Amount, as applicable,
for any Remittance Date is not sufficient to cover, in addition to interest
distributable to the Senior Certificateholders, the entire specified portion
of the applicable Formula Principal Distribution Amount distributable to the
Senior Certificateholders then entitled to such payment on such Remittance
Date, then the amount of the Pool Scheduled Principal Balance available to
the Class B Certificates (i.e., such Pool Scheduled Principal Balance less
the Class A Principal Balance) on future Remittance Dates will be reduced.
With respect to each Group of Certificates, if, because of liquidation
losses, the Pool Scheduled Principal Balance for such Group were to decrease
proportionately faster than distributions to the related Senior
Certificateholders and Senior Subordinate Certificateholders reduce the
Principal Balance of such Certificates, the level of protection afforded by
the subordination of the Subordinate Certificates (i.e., the percentage of
the Pool Scheduled Principal Balance for the applicable Group available to
the Certificates) would be reduced. On each Remittance Date, if any, on or
after the date on which the Senior Certificate Principal Balance equals or
becomes greater than the Pool Scheduled Principal Balance for such Group and
so long as the Senior Subordinate Certificates are outstanding, the Senior
Subordinate Certificates will bear all losses on Liquidated Contracts (with
no ability to recover the amount of any liquidation loss from future
principal collections on the Contracts) and incur a loss on their investment
in the Senior Subordinate Certificates. On each Remittance Date, if any, on
or after the date on which the Deficiency Event occurs, the Group I or Group
II Senior Certificateholders, as applicable, will receive only their
respective percentage interest of Liquidation Proceeds (net of Liquidation
Expenses) realized in respect of Liquidated Contracts, rather than the
Scheduled Principal Balances thereof, and will therefore bear all losses on
Liquidated Contracts (with no ability to recover the amount of any
liquidation loss from future principal collections on the Contracts) and
incur a loss on their investment in the Group I or Group II Senior
Certificates, as applicable. See "Description of the Certificates--Group I
Certificates and the Senior/Subordinate Structure, and "-- Group II
Certificates and the Senior/Subordinate Structure" and "Yield and Prepayment
Considerations."
On each Remittance Date, if any, on or after the date on which the sum
of the Principal Balances of the Senior Certificates in either Group equals
or becomes greater than the Pool Scheduled Principal Balance for such Group,
the related Senior Certificateholders will receive only their respective
percentage interests of Liquidation Proceeds (net of Liquidation Expenses)
realized in respect of Liquidated Contracts in such Group, rather than the
Scheduled Principal Balances thereof, and will therefore bear all losses on
Liquidated Contracts (with no ability to recover the amount of any
liquidation loss from future principal collections on the Contracts) and
incur a loss on their investment in such Certificates.
But for the subordination of the Class I B-2 Certificates, the Class I
B-1 Certificateholders would absorb (i) all losses on each Liquidated
Contract in Group I (to the extent such loss is not covered by excess
interest collections) and (ii) other shortfalls in the applicable Available
Distribution Amount. If, on any Remittance Date, the sum of the Class I A
Principal Balance and the Class I B-1 Principal Balance becomes equal to or
greater than the Pool Scheduled Principal Balance for Group I, then the Class
I B-1 Certificateholders will bear all losses on Liquidated Contracts in
Group I (with no ability to recover the amount of any Liquidation Loss from
future principal collections on the Contracts) and incur a loss on their
investment in the Class I B-1 Certificates.
But for the subordination of the Class II B-3 Certificates, the Class II
B-2 Certificateholders would absorb (i) all losses on each Liquidated
Contract in Group II (to the extent such loss is not covered by excess
interest collections or the Overcollateralization Amount) and (ii) other
shortfalls in the applicable Available Distribution Amount. If, on any
Remittance Date, the sum of the Class II A Principal Balance, the Class II
B-1 Principal Balance and the Class II B-2 Principal Balance becomes equal to
or greater than the Pool Scheduled Principal Balance for Group II, then the
Class II B-2 Certificateholders will bear all losses on Liquidated Contracts
in Group II (with no ability to recover the amount of any Liquidation Loss
from future principal collections on the Contracts) and incur a loss on their
investment in the Class II B-2 Certificates.
LIMITED GUARANTEE OF CHI
In order to mitigate the effect of the subordination of the Class I B-2
Certificates or the Class II B-3 Certificates, as applicable, and liquidation
losses and delinquencies on the Contracts in the related Group borne by the
Class I B-2 Certificates or the Class II B-3 Certificates, as applicable, CHI
will initially provide a guarantee (the "Limited Guarantee") against losses
that would otherwise be absorbed by the Class I B-2 Certificates or the Class
II B-3 Certificates, as applicable. Such Limited Guarantee may be replaced
by an Alternate Credit Enhancement. See "Alternate Credit Enhancement"
herein. Each payment required to be made under the Limited Guarantee is
referred to as an "Enhancement Payment." Prior to the Remittance Date with
respect to the Class I B-2 Certificates (the "Initial Class I B-2 Principal
Remittance Date") on which the Class I B-1 Principal Balance is reduced to
zero, the Enhancement Payment will equal the amount, if any, by which (a) the
sum of (i) the Class I B-2 Formula Distribution Amount (which will be equal
to interest accrued during the related Interest Period on the Class I B-2
Principal Balance and an amount of principal described in the Agreement) for
such Remittance Date and (ii) the Class I B-2 Principal Liquidation Loss
Amount, if any, exceeds (b) the amount (other than the Enhancement Payment)
that will otherwise be distributed on the Class I B-2 Certificates on such
Remittance Date (the "Class I B-2 Distribution Amount"). On each Remittance
Date on or after the Initial Class I B-2 Principal Remittance Date, the
Enhancement Payment will equal the amount, if any, by which the Class I B-2
Formula Distribution Amount (which will include both interest and principal)
exceeds the Class I B-2 Distribution Amount for such Remittance Date. Prior
to the Remittance Date with respect to the Class II B-3 Certificates (the
"Initial Class II B-3 Principal Remittance Date") on which the Class II B-2
Principal Balance is reduced to zero, the Enhancement Payment will equal the
amount, if any, by which (a) the sum of (i) the Class II B-3 Formula
Distribution Amount (which will be equal to interest accrued during the
related Interest Period on the Class II B-3 Principal Balance and an amount
of principal described in the Agreement) for such Remittance Date and (ii)
the Class II B-3 Principal Liquidation Loss Amount, if any, exceeds (b) the
amount (other than the Enhancement Payment) that will otherwise be
distributed on the Class II B-3 Certificates on such Remittance Date (the
"Class II B-3 Distribution Amount"). On each Remittance Date on or after the
Initial Class II B-3 Principal Remittance Date, the Enhancement Payment will
equal the amount, if any, by which the Class II B-3 Formula Distribution
Amount (which will include both interest and principal) exceeds the Class II
B-3 Distribution Amount for such Remittance Date; provided, however, that the
Enhancement Payment with respect to the Class II B-3 Certificates will not
include amounts in respect of the Class II B-3 Net Funds Cap Carryover
Amount.
The "Class I B-2 Principal Liquidation Loss Amount" for any Remittance
Date will equal the amount, if any, by which (a) the Formula Principal
Distribution Amount (exclusive of the portion thereof specified in clause
(vi) of the definition of Formula Principal Distribution Amount) for such
Remittance Date exceeds (b) the amount (exclusive of the Guarantee Payment)
distributed on the Group I Certificates on account of principal on such
Remittance Date. The Class I B-2 Principal Liquidation Loss Amount
represents future principal payments on the Contracts that, because of the
subordination of the Class I B-2 Certificates and liquidation losses on the
Contracts, will not be paid to the Class I B-2 Certificateholders from the
assets of the Trust Fund but may be paid in the form of an Enhancement
Payment.
The "Class II B-3 Principal Liquidation Loss Amount" for any Remittance
Date will equal the amount, if any, by which (a) the Group II Formula
Principal Distribution Amount (exclusive of the portion thereof specified in
clause (vi) of the definition of Formula Principal Distribution Amount) for
such Remittance Date exceeds (b) the amount (exclusive of the Enhancement
Payment) distributed on the Group II Certificates on account of principal on
such Remittance Date. The Class II B-3 Principal Liquidation Loss Amount
represents future principal payments on the Contracts that, because of the
subordination of the Class II B-3 Certificates and liquidation losses on the
Contracts, will not be paid to the Class II B-3 Certificateholders from the
assets of the Trust Fund but may be paid to the Class II B-3 Certificate-
holders in the form of an Enhancement Payment.
In the event that, on a particular Remittance Date, the Class I B-2
Distribution Amount or the Class II B-3 Distribution Amount, as applicable,
in the applicable Certificate Account plus any amounts actually paid under
the Limited Guarantee are not sufficient to make a full distribution of
interest to the Class I B-2 Certificateholder or the Class II B-3
Certificateholders, as applicable, the amount of the deficiency will be
carried forward as an amount that the Class I B-2 Certificateholders or the
Class II B-3 Certificateholder, as applicable, are entitled to receive on the
next Remittance Date.
The Limited Guarantee will be an unsecured general obligation of CHI and
will not be supported by any letter of credit or other enhancement
arrangement.
The Limited Guarantee is for the benefit of the Class I B-2 Certificates
and Class II B-3 Certificates only and will not result in any payments on the
other Offered Certificates.
As reimbursement to CHI for Enhancement Payments made by CHI pursuant to
the Limited Guarantee, CHI will be entitled to receive on each Remittance
Date an amount equal to the lesser of (a) the Available Distribution Amount,
less the portion of the Available Distribution Amount distributed on the
Certificates (other than the Class R Certificate), and (b) the aggregate
amount of Enhancement Payments outstanding which remain unreimbursed as of
such Remittance Date.
ALTERNATE CREDIT ENHANCEMENT
In the event that, at CHI's option, Alternate Credit Enhancement (as
defined herein) is provided and, upon prior written notice to Moody's,
Moody's shall have notified CHI, the Company, the Servicer and the Trustee in
writing that substitution of such Alternate Credit Enhancement for the
Limited Guarantee will not result in the downgrade or withdrawal of the then
current rating of any class of the Certificates, and upon the delivery by CHI
to the Trustee of an opinion of counsel, acceptable to the Trustee, that such
action would not cause the Trust to fail to qualify as a REMIC, the Limited
Guarantee shall be released and shall terminate. The Alternate Credit
Enhancement may consist of cash or securities deposited by CHI or any other
person in a segregated escrow, trust or collateral account or a letter of
credit, certificate insurance policy or surety bond provided by a third party
(an "Alternate Credit Enhancement"). On each Remittance Date after delivery
of the Alternate Credit Enhancement, an amount, equal to the lesser of the
amount which would have been payable under the Limited Guarantee and the
amount available under such Alternate Credit Enhancement, shall be
transferred from such account to the applicable Certificate Account to make
payments to the Class I B-2 and Class II B-3 Certificateholders, as
applicable (the "Enhancement Payment"). CHI shall have no obligation to
replace such enhancement once it has been exhausted.
ADVANCES
On or prior to each Determination Date, the Servicer will either (i)
deposit from its own funds the Monthly Advance into the applicable
Certificate Account, (ii) cause appropriate entries to be made in the records
of the applicable Certificate Account that funds in the applicable
Certificate Account that are not part of the applicable Available
Distribution Amount for the related Remittance Date have been used to make
the Monthly Advance or (iii) make the Monthly Advance through any combination
of clauses (i) and (ii). Any funds held for future distribution and used in
accordance with clause (ii) must be restored by the Servicer from its own
funds or advance payments on the Contracts when they become part of a future
Available Distribution Amount. The Monthly Advance is the sum of delinquent
scheduled payments due in the related Due Period, exclusive of all
Nonrecoverable Advances, except that the Monthly Advance will not exceed the
amount necessary to bring the Available Distribution Amount up to the sum of
the amounts specified in clauses A(i)-(viii), B(i)-(viii), C(i)-(viii) or
D(i)-(viii), as the case may be, under "/__/Distributions" above. A
Nonrecoverable Advance is any advance made or proposed to be made that the
Servicer believes is not, or if made would not be, ultimately recoverable
from related Liquidation Proceeds or otherwise.
Monthly Advances are intended to maintain a regular flow of scheduled
interest and principal payments to Certificateholders rather than to
guarantee or insure against losses. The Servicer will reimburse itself for
Monthly Advances out of collections of the late scheduled payments. In
addition, upon the determination that a Nonrecoverable Advance has been made
in respect of a Contract or upon a Contract becoming a Liquidated Contract,
the Servicer will reimburse itself out of funds in the applicable Certificate
Account for the delinquent scheduled payments on such Contract (exclusive of
any scheduled payment (i) for which no advance was made because the Servicer
determined that such an advance would be a Nonrecoverable Advance if an
advance were made or (ii) that was recovered out of Net Liquidation Proceeds
for the related Contract).
The Servicer will also be obligated to make advances, to the extent
recoverable out of Liquidation Proceeds or otherwise, in respect of certain
taxes and insurance premiums not paid by an Obligor on a timely basis. Funds
so advanced are reimbursable to the Servicer as provided in the Agreement.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will include with each distribution to each
Certificateholder a statement as of such Remittance Date setting forth, among
other things:
(a) the aggregate amount distributed on the Class I A-1 Certificates on
such Remittance Date;
(b) the amount of such distribution which constitutes principal;
(c) the amount of such distribution which constitutes interest;
(d) the remaining Class I A-1 Principal Balance;
(e) the aggregate amount distributed on the Class I A-2 Certificates on
such Remittance Date;
(f) the amount of such distribution which constitutes principal;
(g) the amount of such distribution which constitutes interest;
(h) the remaining Class I A-2 Principal Balance;
(i) the aggregate amount distributed on the Class I A-3 Certificates on
such Remittance Date;
(j) the amount of such distribution which constitutes principal;
(k) the amount of such distribution which constitutes interest;
(l) the remaining Class I A-3 Principal Balance;
(m) the aggregate amount distributed on the Class I A-4 Certificates on
such Remittance Date;
(n) the amount of such distribution which constitutes principal;
(o) the amount of such distribution which constitutes interest;
(p) the remaining Class I A-4 Principal Balance;
(q) the aggregate amount distributed on the Class I A-5 Certificates on
such Remittance Date;
(r) the amount of such distribution which constitutes principal;
(s) the amount of such distribution which constitutes interest;
(t) the remaining Class I A-5 Principal Balance;
(u) the aggregate amount distributed on the Class I A-6 Certificates on
such Remittance Date;
(v) the amount of such distribution which constitutes principal;
(w) the amount of such distribution which constitutes interest;
(x) the remaining Class I A-6 Principal Balance;
(y) the aggregate amount distributed on the Class I B-1 Certificates on
such Remittance Date;
(z) the amount of such distribution which constitutes principal;
(aa) the amount of such distribution which constitutes interest;
(bb) the remaining Class I B-1 Principal Balance;
(cc) the aggregate amount distributed on the Class I B-2 Certificates
on such Remittance Date;
(dd) the amount of such distribution which constitutes principal;
(ee) the amount of such distribution which constitutes interest;
(ff) the amount, if any, by which the Class I B-2 Formula
Distribution Amount exceeds the Class I B-2 Remaining Amount
Available for such Remittance Date;
(gg) the Class I B-2 Liquidation Loss Amount, if any, for such
Remittance Date;
(hh) the Enhancement Payment, if any, for such Remittance Date;
(ii) the remaining Class I B-2 Principal Balance;
(jj) the aggregate amount distributed on the Class II A-1
Certificates on such Remittance Date;
(kk) the amount of such distribution which constitutes principal;
(ll) the amount of such distribution which constitutes interest;
(mm) the remaining Class II B-1 Principal Balance;
(nn) the aggregate amount distributed on the Class II B-1
Certificates on such Remittance Date;
(oo) the amount of such distribution which constitutes principal;
(pp) the amount of such distribution which constitutes interest;
(qq) the remaining Class II B-2 Principal Balance;
(rr) the aggregate amount distributed on the Class II B-3
Certificates on such Remittance Date;
(ss) the amount of such distribution which constitutes principal;
(tt) the amount of such distribution which constitutes interest;
(uu) the amount, if any, by which the Class II B-3 Formula
Distribution Amount exceeds the Class II B-3 Remaining Amount
Available for such Remittance Date;
(vv) the Class II B-3 Liquidation Loss Amount, if any, for such
Remittance Date;
(ww) the Enhancement Payment, if any, for such Remittance Date;
(xx) the number of and aggregate unpaid principal balance of Group I
and Group II Contracts with payments delinquent 31 to 59, 60 to
89 and 90 or more days, respectively; and
(yy) the amount of fees payable out of the Trust Fund.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish a report to each Certificateholder of
record at any time during such calendar year as to certain aggregate of
amounts for such calendar year.
OPTIONAL TERMINATION
The Agreement provides that on any Remittance Date after the first
Remittance Date on which the aggregate Pool Scheduled Principal Balance of
both Groups is less than 10% of the Cut-off Date Pool Principal Balance, the
Company (if it is no longer the Servicer) and the Servicer will each have the
option to repurchase, upon the Company or the Servicer giving notice mailed
no later than the first day of the month next preceding the month of the
exercise of such option, all outstanding Contracts at a price equal to the
greater of (a) the sum of (x) 100% of the outstanding principal balance of
each Contract (other than any Contract as to which the related Manufactured
Home has been acquired in realizing thereon and whose fair market value is
included pursuant to clause (y) below) as of the final Remittance Date, and
(y) the fair market value of such acquired property (as determined by the
Company or the Servicer, as the case may be) and (b) the aggregate fair
market value (as determined by the Company or the Servicer, as the case may
be) of all of the assets of the Trust Fund, plus, in each case, any unpaid
interest on the Certificates due on prior Remittance Dates as well as one
month's interest at the rate specified in the Agreement on the Scheduled
Principal Balance of each Contract (including any Contract as to which the
related Manufactured Homes has been repossessed and not yet disposed of).
Notwithstanding the foregoing, the option referred to in this paragraph shall
not be exercisable unless there will be distributed to the Certificateholders
an amount equal to 100% of the outstanding principal balance of each
Certificate plus one month's interest thereon at the related Remittance Rate,
and any previously undistributed shortfalls in interest due thereon.
THE TRUSTEE
The Chase Manhattan Bank, has its corporate trust offices at 450 West
33rd Street, 15th Floor, New York, New York 10001. The Company and its
affiliates may have commercial transactions with the Trustee from time to
time.
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. In such circumstances, the
Company will also be obligated to appoint a successor Trustee. 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.
REGISTRATION OF THE OFFERED CERTIFICATES
The Offered Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests
in the Offered Certificates ("Certificate Owners") will hold their Offered
Certificates through the DTC in the United States, or Cedel or Euroclear (in
Europe) if they are participants of such systems, or indirectly through
organizations which are participants in such systems. The Book-Entry
Certificates will be issued in one or more certificates which equal the
aggregate principal balance of the Offered Certificates and will initially be
registered in the name of Cede & Co., the nominee of DTC. Cedel and Euroclear
will hold omnibus positions on behalf of their participants through
customers' securities accounts in Cedel's and Euroclear's names on the books
of their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of
DTC. Citibank will act as depositary for Cedel and The Chase Manhattan Bank
will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries").
Investors may hold such beneficial interests in the Book-Entry Certificates
in minimum denominations of $50,000. Except as described below, no person
acquiring a Book-Entry Certificate (each, a "beneficial owner") will be
entitled to receive a physical certificate representing such Certificate (a
"Definitive Certificate"). Unless and until Definitive Certificates are
issued, it is anticipated that the only "Certificateholder" of the Offered
Certificates will be Cede & Co., as nominee of DTC. Certificate Owners will
not be Certificateholders as that term is used in the Agreement. Certificate
Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that
maintains the beneficial owner's account for such purpose. In turn, the
Financial Intermediary's ownership of such Book-Entry Certificate will be
recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on
the records of DTC, if the beneficial owner's Financial Intermediary is not a
DTC participant and on the records of Cedel or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of and
interest on the Offered Certificates from the Trustee through DTC and DTC
participants. 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 "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 and indirect participants with whom Certificate
Owners have accounts with respect to 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 representing their
respective interests in the Offered Certificates, the Rules provide a
mechanism by which Certificate Owners will receive distributions and will be
able to transfer their interest.
Certificateholders will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless
and until Definitive Certificates are issued, Certificateholders who are not
Participants may transfer ownership of Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Offered Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Certificateholders.
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Euroclear or Cedel Participants on such business
day. Cash received in Cedel or Euroclear as a result of sales of securities
by or through a Cedel Participant (as defined below) or Euroclear Participant
(as defined below) to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC. For
information with respect to tax documentation procedures relating to the
Certificates, see "Certain Federal Income Tax Consequences--REMIC Series--
Taxation of Certain Foreign Investors" and "--Backup Withholding" in the
Prospectus and "Global Clearance, Settlement and Tax Documentation
Procedures--Certain U.S. Federal Income Tax Documentation Requirements" in
Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to
the Relevant Depositary to take action to effect final settlement on its
behalf by delivering or receiving securities in DTC, and making or receiving
payment in accordance with normal procedures for same day funds settlement
applicable to DTC. Cedel Participants and Euroclear Participants may not
deliver instructions directly to the European Depositaries.
DTC which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the
Book-Entry Certificates, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the Rules, as in effect from time to time.
Cedel Bank, soci t anonyme, 67 Bd Grande-Duchesse Charlotte, L-1331
Luxembourg, was incorporated in 1970 as a limited company under Luxembourg
law. Cedel is owned by banks, securities dealers and financial institutions,
and currently has about 100 shareholders, including U.S. financial
institutions or their subsidiaries. No single entity may own more than five
percent of Cedel's stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institute Monetaire Luxembourgeois, "IML", the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its customers ("Cedel Participants") and
facilitates the clearance and settlement of securities transactions by
electronic book-entry transfers between their accounts. Cedel provides
various services, including safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedel also deals with domestic securities markets in several
countries through established depository and custodial relationships. Cedel
has established an electronic bridge with Morgan Guaranty Trust as the
Euroclear Operator in Brussels to facilitate settlement of trades between
systems. Cedel currently accepts over 70,000 securities issues on its books.
Cedel's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Cedel's United States customers are limited to
securities brokers and dealers and banks. Currently, Cedel has approximately
3,000 customers located in over 60 countries, including all major European
countries, Canada, and the United States. Indirect access to Cedel is
available to other institutions which clear through or maintain a custodial
relationship with an account holder of Cedel.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Transactions may be settled in any of 29 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms
and Conditions only on behalf of Euroclear Participants, and has no record of
or relationship with persons holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Remittance Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC
participants in accordance with DTC's normal procedures. Each DTC participant
will be responsible for disbursing such payments to the beneficial owners of
the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary
will be responsible for disbursing funds to the beneficial owners of the
Book-Entry Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede. Distributions with
respect to Certificates held through Cedel or Euroclear will be credited to
the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences--REMIC Series--
Taxation of Certain Foreign Investors" and "--Backup Withholding" in the
Prospectus. Because DTC can only act on behalf of Financial Intermediaries,
the ability of a beneficial owner to pledge Book-Entry Certificates to
persons or entities that do not participate in the Depository system, or
otherwise take actions in respect of such Book-Entry Certificates, may be
limited due to the lack of physical certificates for such Book-Entry
Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the
secondary market since certain potential investors may be unwilling to
purchase Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust will be provided to Cede, as
nominee of DTC, and may be made available by Cede to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose
DTC accounts the Book-Entry Certificates of such beneficial owners are
credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by
the holders of the Book-Entry Certificates under the Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are
taken on behalf of Financial Intermediaries whose holdings include such
Book-Entry Certificates. Cedel or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a Certificateholder under
the Agreement on behalf of a Cedel Participant or Euroclear Participant only
in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary to effect such actions on its behalf
through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Offered Certificates which conflict with
actions taken with respect to other Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a)
DTC or the Company advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the Book-Entry Certificates and the
Company or the Trustee is unable to locate a qualified successor, (b) the
Company, at its sole option, with the consent of the Trustee, elects to
terminate a book-entry system through DTC or (c) after the occurrence of an
Event of Default, beneficial owners having Percentage Interests aggregating
not less than 51% of the Book-Entry Certificates advise the Trustee and DTC
through the Financial Intermediaries and the DTC participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto)
is no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Offered Certificates among
participants of DTC, Cedel and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Neither the Company, the Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held
by Cede & Co., as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
the Offered Certificates will be added to the general funds of the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust Fund as a "real estate
mortgage investment conduit" (a "REMIC") for federal income tax purposes.
The Senior and Subordinate Certificates will constitute "regular interests"
in the REMIC, and the Class R Certificate will constitute the sole class of
"residual interest" in the REMIC.
ORIGINAL ISSUE DISCOUNT
The Offered Certificates may be issued with original issue discount for
federal income tax purposes. For purposes of determining the amount and the
rate of accrual of original issue discount and market discount, the Company
intends to assume that there will be prepayments on the Contracts at a rate
equal to 185% of the Prepayment Model (as defined herein) for the Group I
Contracts and 200% of the Prepayment Model for the Group II Contracts. No
representation is made as to whether the Contracts will prepay at that rate
or any other rate. See "Yield and Prepayment Considerations" herein and
"Certain Federal Income Tax Consequences" in the Prospectus.
EFFECT OF LOSSES AND DELINQUENCIES
As described above under "Description of the Certificates," with respect
to each Group of Certificates, the Subordinate Certificates are subordinated
to the Senior Certificates. In the event there are losses or delinquencies
on the Contracts in a certain Group, amounts that otherwise would be
distributed on the Subordinate Certificates of such Group may instead be
distributed on the Senior Certificates of such Group. Holders of the
Subordinate Certificates nevertheless will be required to report interest
with respect to such Subordinate Certificates under an accrual method without
giving effect to delays and reductions in distributions on such Certificates
attributable to losses and delinquencies on the Contracts in such Contract
Group, except to the extent it can be established, for tax purposes, that
such amounts are uncollectible. As a result, the amount of income reported
by holders of the Subordinate Certificates in any period could significantly
exceed the amount of cash distributed to such holders in that period. The
holders of the Subordinate Certificates will eventually be allowed a loss (or
will be allowed to report a lesser amount of income) to the extent that the
aggregate amount of distributions on such Certificates is reduced as a result
of losses and delinquencies on the Contracts in the Contract Pool. However,
the timing and character of such losses or reductions in income are
uncertain. Although not entirely clear, it appears that holders of the
Subordinate Certificates that are corporations should in general be allowed
to deduct as an ordinary loss any loss sustained during the taxable year on
account of any such Certificates becoming wholly or partially worthless, and
that, in general, holders of Certificates that are not corporations should be
allowed to deduct as short-term capital loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly worthless.
Although the matter is unclear, non-corporate holders of Certificates may be
allowed a bad debt deduction at such time that the principal balance of any
such Certificate is reduced to reflect realized losses resulting from any
liquidated Contracts. The Internal Revenue Service, however, could take the
position that non-corporate holders will be allowed a bad debt deduction to
reflect realized losses only after all Contracts remaining in the related
Trust Fund have been liquidated or the Certificates have been otherwise
retired. Potential investors and Holders of the Certificates are urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any loss sustained with respect to such Certificates, including
any loss resulting from the failure to recover previously accrued interest or
discount income. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such
taxpayers are advised to consult their tax advisors regarding the treatment
of losses on Certificates.
A reasonable application of the principles of the OID Regulations to the
Class II A-1 Certificates generally would be to report all income with
respect to such Certificates as original issue discount for each period,
computing such original issue discount (i) by assuming that the value of the
applicable index with respect to such Certificates will remain constant for
purposes of determining the original yield to maturity of each such Class of
Certificates and projecting future distributions on such Certificates,
thereby treating such Certificates as fixed rate instruments to which the
original issue discount computation rules described in the Prospectus can be
applied, and (ii) by accounting for any positive or negative variation in the
actual value of the applicable index in any period from its assumed value as
a current adjustment to original issue discount with respect to such period.
See "Certain Federal Income Tax Consequences" in the Prospectus.
The Offered Certificates will be treated as regular interests in a REMIC
under section 860G of the Code. Accordingly, the Offered Certificates will
be treated as (i) assets described in section 7701(a)(19)(C) of the Code, and
(ii) "real estate assets" within the meaning of section 856(c)(5) of the
Code, in each case to the extent described in the Prospectus. Interest on
the Offered Certificates will be treated as interest on obligations secured
by mortgages on real property within the meaning of section 856(c)(3)(B) of
the Code to the same extent that the Offered Certificates are treated as real
estate assets. See "Certain Federal Income Tax Consequences" in the
Prospectus.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Offered Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fails to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fails to provide the Trustee or their broker with a certified
statement, under penalty of perjury, that they are not subject to backup
withholding.
The Trustee will be required to report annually to the IRS, and to each
Offered Certificateholder of record, the amount of interest paid (and OID
accrued, if any) on the Offered Certificates (and the amount of interest
withheld for federal income taxes, if any) for each calendar year, except as
to exempt holders (generally, holders that are corporations, certain tax-
exempt organizations or nonresident aliens who provide certification as to
their status as nonresidents). As long as the only "Class A
Certificateholder" of record is Cede, as nominee for DTC, Certificate Owners
and the IRS will receive tax and other information including the amount of
interest paid on such Certificates owned from Participants and indirect
Participants rather than from the Trustee. (The Trustee, however, will
respond to requests for necessary information to enable Participants,
indirect Participants and certain other persons to complete their reports.)
Each non-exempt Certificate Owner will be required to provide, under penalty
of perjury, a certificate on IRS Form W-9 containing his or her name,
address, correct federal taxpayer identification number and a statement that
he or she is not subject to backup withholding. Should a nonexempt
Certificate Owner fail to provide the required certification, the
Participants or indirect Participants (or the Paying Agent) will be required
to withhold 31% of the interest (and principal) otherwise payable to the
holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Such amounts will be deemed distributed to the affected Certificate
Owner for all purposes of the Certificates and the Agreement.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income tax
treatment of holders that are not United States persons ("Foreign
Investors"). The term "Foreign Investors" means any person other than (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 any state
or political subdivision thereof, (iii) an estate the income of which is
includible in gross income for United States federal income tax purposes,
regardless of its source or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more United States trustees have authority to control all
substantial decisions of the trust.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate were
changed by an applicable treaty). The withholding tax, however, is
eliminated with respect to certain "portfolio debt investments" issued to
Foreign Investors. Portfolio debt investments include debt instruments
issued in registered form for which the United States payor receives a
statement that the beneficial owner of the instrument is a Foreign Investor.
The Offered Certificates will be issued in registered form, therefore if the
information required by the Code is furnished (as described below) and no
other exceptions to the withholding tax exemption are applicable, no
withholding tax will apply to the Offered Certificates.
For the Offered Certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the Certificate Owner an executed IRS Form W-8 signed under
penalty of perjury by the Certificate Owner stating that the Certificate
Owner is a Foreign Investor and providing such Certificate Owner's name and
address. The statement must be received by the withholding agent in the
calendar year in which the interest payment is made, or in either of the two
preceding calendar years.
A Certificate Owner that is a nonresident alien or foreign corporation
will not be subject to United States federal income tax on gain realized on
the sale, exchange, or redemption of such Offered Certificate, provided that
(i) such gain is not effectively connected with a trade or business carried
on by the Certificate Owner in the United States, (ii) in the case of a
Certificate Owner that is an individual, such Certificate Owner is not
present in the United States for 183 days or more during the taxable year
in which such sale, exchange or redemption occurs and (iii) in the
case of gain representing accrued interest, the conditions described in
the immediately preceding paragraph are satisfied.
For further information regarding the federal income tax consequences of
investing in the Certificates, see "Certain Federal Income Tax Consequences"
in the Prospectus.
STATE TAX CONSIDERATIONS
The Company makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Offered Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans that are
subject to ERISA ("Plans") and on persons who are fiduciaries with respect to
such Plans. See "ERISA Considerations" in the Prospectus.
SENIOR CERTIFICATES
As discussed in the Prospectus under "ERISA Considerations" and subject
to the limitations discussed thereunder, the Company believes that the
Exemption (as defined in the Prospectus) granted to Prudential Securities
Incorporated, will apply to the acquisition and holding by Plans of Senior
Certificates sold by the Underwriters and that all conditions of the
Exemption other than those within the control of the investors have been met.
See "ERISA Considerations" in the Prospectus. In addition, as of the date
hereof, no obligor with respect to Contracts included in the Trust Fund
constitutes more than five percent of the aggregate unamortized principal
balance of the assets of the Trust Fund.
Employee benefit plans that are governmental plans (as defined in
section 3(32) of ERISA) and 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 described above, subject to applicable provisions of other
federal and state laws.
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 Internal Revenue Code of 1986, as
amended (the "Code") of the Plan's acquisition and ownership of 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 Fund 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.
SUBORDINATE CERTIFICATES
As discussed in the Prospectus, because the Subordinate Certificates are
subordinated to the Senior Certificates, the Exemption will not apply to the
Subordinate Certificates. See "ERISA Considerations--Subordinated
Certificates" in the Prospectus.
As such, no transfer of a Subordinate Certificate shall be registered
unless the prospective transferee provides the Trustee and the Company with
(a) a certification to the effect that (1) such transferee is neither an
employee benefit plan subject to section 406 or section 407 of ERISA, or
section 4975 of the Code, the trustee of any such plan nor a person acting on
behalf of any such plan nor a person using the assets of any such plan and
(2) if such transferee is an insurance company, it is purchasing such
certificates with funds contained in an "insurance company general account"
(as such term is defined in section v(e) of the Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60")) and that the purchase and holding of such
certificates are covered under PTCE 95-60; or (b) an opinion of counsel (a
"benefit plan opinion") satisfactory to the Trustee and the Company, and upon
which the Trustee and the Company shall be entitled to rely, to the effect
that the purchase or holding of such Subordinate Certificate by the
prospective transferee will not result in the assets of the Trust Fund being
deemed to be plan assets and subject to the prohibited transaction provisions
of ERISA or the Code and will not subject the Trustee or the Company to any
obligation in addition to those undertaken by such entities in the agreement,
which opinion of counsel shall not be an expense of the Trustee or the
Company. Unless such certification or opinion is delivered, Certificate
Owners of the Subordinate Certificates will be deemed to make the
representations in clause (a)(1). See "ERISA Considerations" in the
Prospectus.
LEGAL INVESTMENT CONSIDERATIONS
The Senior Certificates and Senior Subordinate Certificates will
constitute "mortgage related securities" under the Secondary Mortgage Market
Enhancement Act of 1984 and, as such, will be "legal investments" for certain
types of institutional investors to the extent provided in that Act.
The Junior Subordinate Certificates will not constitute "mortgage
related securities" under the Secondary Mortgage Market Enhancement Act of
1984. The appropriate characterization of the Junior Subordinate
Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase the Junior
Subordinate 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 Junior Certificates will constitute legal investments
for them.
The Company makes no representation as to the proper characterization of
the Junior Subordinate Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase Junior 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 Junior Certificates) may adversely affect
the liquidity of the Junior Subordinate Certificates.
See "Legal Investment Considerations" in the Prospectus.
UNDERWRITING
Each of the Underwriters has severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
respective principal amounts of the Offered Certificates set forth opposite
its name below.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS I A-1 CLASS I A-2 CLASS I A-3 CLASS I A-4 CLASS I A-5 CLASS I A-6
UNDERWRITER CERTIFICATE CERTIFICATES CERTIFICATE CERTIFICATE CERTIFICATE CERTIFICATE
<S> <C> <C> <C> <C> <C> <C>
Prudential Securities $14,250,000 $12,450,000 $ 9,100,000 $ 5,350,000 $ 6,460,000 $4,617,000
Incorporated . . . . . . . .
Goldman, Sachs & Co.. . . . . $14,250,000 $12,450,000 $ 9,100,000 $ 5,350,000 $ 6,459,000$4,616,000
Total . . . . . . . . . $28,500,000 $24,900,000 $18,200,000 $10,700,000 $12,919,000$9,233,000
</TABLE>
<TABLE>
<CAPTION> PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS I B-1 CLASS I B-2 CLASS II A-1 CLASS II B-1 CLASS II B-2 CLASS II B-3
UNDERWRITER CERTIFICATE CERTIFICATES CERTIFICATE CERTIFICATE CERTIFICATE CERTIFICATE
<S> <C> <C> <C> <C> <C> <C>
Prudential Securities $3,174,000 $2,309,000 $29,357,000 $4,763,000 $2,041,000 $2,723,000
Incorporated . . . . . . . .
Goldman, Sachs & Co.. . . . . $3,173,000 $2,309,000 $29,357,000 $4,763,000 $2,041,000 $2,722,000
Total . . . . . . . . . $6,347,000 $4,618,000 $58,714,000 $9,526,000 $4,082,000 $5,445,000
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Offered
Certificates offered hereby if any Offered Certificates are purchased. In
the event of default by an Underwriter, the Underwriting Agreement provides
that, in certain circumstances, the Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that they propose
initially to offer the Offered Certificates to the public at the respective
offering prices set forth on the cover page hereof and to certain dealers at
such price less a concession not in excess of the respective amounts set
forth in the table below (expressed as a percentage of the relative
Certificate Principal Balance). The Underwriters may allow and such dealers
may reallow a discount not in excess of the respective amounts set forth in
the table below to certain other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
<S> <C> <C>
I A-1 . . . . . . . . . . . . . . . . . .225% .125%
I A-2 . . . . . . . . . . . . . . . . . .225% .125%
I A-3 . . . . . . . . . . . . . . . . . .225% .125%
I A-4 . . . . . . . . . . . . . . . . . .225% .125%
I A-5 . . . . . . . . . . . . . . . . . .225% .125%
I A-6 . . . . . . . . . . . . . . . . . .225% .125%
I B-1 . . . . . . . . . . . . . . . . . .325% .175%
I B-2 . . . . . . . . . . . . . . . . . .325% .175%
II A-1 . . . . . . . . . . . . . . . . .225% .125%
II B-1 . . . . . . . . . . . . . . . . .225% .125%
II B-2 . . . . . . . . . . . . . . . . .325% .175%
II B-3 . . . . . . . . . . . . . . . . .325% .175%
</TABLE>
After the initial public offering of the Offered Certificates, the
public offering price and such concessions may be changed.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may require to make in respect
thereof.
The Company has agreed that for a period of 30 days from the date of
this Prospectus Supplement it will not offer or sell publicly any other
manufactured housing contract pass-through certificates without the
Underwriters' consent.
LEGAL MATTERS
The validity of the Offered Certificates will be passed upon for the
Company by Boult, Cummings, Conners & Berry, PLC. Certain legal matters will
be passed upon for the Underwriters by Brown & Wood LLP, New York, New York.
The material federal income tax consequences of the Offered Certificates will
be passed upon for the Company by Brown & Wood LLP.
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates,
Series 1997A (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of The Depository Trust Company ("DTC"), Cedel or Euroclear. The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel
and Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts
as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or
restricted period. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global
security and no 'lock-up' or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
manufactured housing contract pass-through certificates issues in same-day
funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a Cedel Participant or a Euroclear Participant, the
purchaser will send instructions to Cedel or Euroclear through a Cedel
Participant or Euroclear Participant at least one business day prior to
settlement. Cedel or Euroclear will instruct the respective Depositary, as
the case may be, to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, on the basis
of the actual number of days in such accrual period and a year assumed to
consist of 360 days. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. Payment will then be made by the respective Depositary of
the DTC Participant's account against delivery of the Global Securities.
After settlement has been completed, the Global Securities will be system and
by the clearing system, in accordance with its usual procedures, to the Cedel
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade
fails), the Cedel or Euroclear cash debt will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to
preposition funds for settlement, either from cash on hand or existing lines
of credit, as they would for any settlement occurring within Cedel or
Euroclear. Under this approach, they may take on credit exposure to Cedel or
Euroclear until the Global Securities are credited to their accounts one day
later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedel Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for
one day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially
reduce or offset the amount of such overdraft charges, although this result
will depend on each Cedel Participant's or Euroclear Participant's particular
cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Cedel Participants
or Euroclear Participants. The sale proceeds will be available to the DTC
seller on the settlement date. Thus, to the DTC Participants a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases
Cedel or Euroclear will instruct the respective Depositary, as appropriate,
to deliver the Global Securities to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Securities from
and including the last coupon payment to and excluding the settlement date on
the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day
of the following month. The payment will then be reflected in the account of
the Cedel Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the Cedel Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedel Participant or
Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in
the Cedel Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant
is at least one day prior to the value date for the sale to the Cedel
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status).
If the information shown on Form W-8 changes, a new Form W-8 must be filed
within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business
in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternatively files Form W-8. Form 1001 may be filed by
the Certificate Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any political subdivision thereof or (iii) an estate or
trust the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all
aspects of U.S. Federal income tax withholding that may be relevant to
foreign holders of the Global Securities. Investors are advised to consult
their own tax advisors for specific tax advice concerning their holding and
disposing of the Global Securities.
PROSPECTUS
- ----------
VANDERBILT MORTGAGE AND FINANCE, INC.,
SELLER AND SERVICER
MANUFACTURED HOUSING CONTRACT PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
Manufactured Housing Contract Pass-Through Certificates ("Certificates")
of one or more series (each, a "Series") may be offered and 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 (each, a "Class"), 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 offered and sold under this Prospectus, and there
may be separate Prospectus Supplements for one or more of such Classes so
offered and sold (the "Offered Certificates"). 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, installment loan agreements
and mortgage loans (the "Contracts"), as more particularly described herein,
and in certain other property conveyed by Vanderbilt Mortgage and Finance,
Inc. (the "Company"). The Contracts included in any Contract Pool will be
described in the related Prospectus Supplement. The Contracts will have been
originated or purchased in the ordinary course of business by the Company.
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. In addition, if so
specified in the related Prospectus Supplement, the property of the Trust
Fund will include monies on deposit in a trust account (the "Pre-Funding
Account") to be established with the Trustee, which will be used to purchase
additional manufactured housing installment sales contracts and installment
loan agreements (the "Subsequent Contracts") from the Company from time to
time during the Funding Period specified in the related Prospectus
Supplement. A pool insurance policy, letter of credit, limited guarantee of
Clayton Homes, Inc., surety bond, cash reserve fund, or other form of credit
enhancement, or any combination thereof, may be provided with respect to a
Series of Certificates, or one or more Classes of such Series, evidencing
interests in the Contracts. The Company will act as Servicer (in such
capacity referred to herein as the "Servicer") of 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
(the "Senior Certificates") and one 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 hereby.
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.
The related Prospectus Supplement will describe the limited
representations and warranties of the Company in the Pooling and Servicing
Agreement applicable to each class or series of Certificates. 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 Fund 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.
Capitalized terms used herein and not defined shall have the respective
meanings assigned to such terms in the Glossary.
CERTAIN FACTORS SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
CERTIFICATES. SEE "RISK FACTORS" HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
COMPANY OR, UNLESS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT,
ANY OF ITS AFFILIATES. THE CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF A SERIES OF
CERTIFICATES, UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
_______________
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.
_______________
The date of this Prospectus is January 30, 1997.
REPORTS TO CERTIFICATEHOLDERS
The Company will cause to be provided to the holders of the Certificates
of each Class or Series certain monthly and annual reports concerning such
Certificates and the related Trust Funds as further described in the related
Prospectus Supplement under "Description of the Certificates -- Reports to
Certificateholders."
AVAILABLE INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Class
or 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. Statements contained in this Prospectus and any
Prospectus Supplement describing a provision of any contract or other
document referred to 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, each such statement being
qualified in all respects by reference to the actual provision being
described. Copies of the Registration Statement can be inspected and, upon
payment of the Commission's prescribed charges, copied at the public
reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its Regional
Offices located as follows: Northeast Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048, and Midwest Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
In addition, the Commission maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with
the Commission.
INCORPORATION OF CERTAIN DOCUMENTS OF THE COMPANY BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to
the date of this Prospectus and prior to the termination of the offering of
the Certificates shall be deemed to be incorporated by reference into this
Prospectus and the Prospectus Supplement and to be a part thereof from the
respective dates of filing of such documents, except that reports relating to
the operation of a specific Trust Fund shall not be incorporated by reference
hereinto or made part hereof. 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. The Company is subject to informational requirements of the
Securities Exchange Act of 1934 Act, as amended, and in accordance therewith
files reports and other information with the Commission.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by
reference (other than certain exhibits to such documents). Requests for such
copies should be directed to David Jordan, Controller, 4726 Airport Highway,
Louisville, Tennessee 37777, telephone number (423) 970-7200, the above
mailing address and telephone number being that of the Company's principal
executive office.
INCORPORATION OF CERTAIN DOCUMENTS OF CHI BY REFERENCE
With respect to any Class of Offered Certificates that is supported by a
guarantee of CHI, CHI's Annual Report on Form 10-K for the year ended June
30, 1996, as amended by Form 10-K/A, which have been filed with the
Commission, are hereby incorporated by reference in this Prospectus and the
related Prospectus Supplement. CHI is subject to informational requirements
of the Securities Exchange Act of 1934, as amended, and in accordance
therewith files reports and other information with the Commission.
With respect to any Class of Offered Certificates that is supported by a
guarantee of CHI, all documents filed by CHI pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Certificates shall be deemed to be incorporated by reference
into this Prospectus and the related Prospectus Supplement and to be a part
thereof from the respective dates 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.
CHI will provide without charge to any person to whom this Prospectus is
delivered, upon the written or oral request of such person, a copy of any or
all of the foregoing documents incorporated herein by reference (other than
certain exhibits to such documents). Requests for such copies should be
directed to Joseph H. Stegmayer, President, 1105 North Market Street, Suite
1300, Wilmington, Delaware 19899, telephone number (423) 595-4700, the above
mailing address and telephone number being that of CHI's principal executive
office.
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the accompanying
Prospectus Supplement. Capitalized terms used herein shall have the
respective meanings assigned them in the "Glossary."
Securities Manufactured Housing Contract Pass-Through Certificates
evidencing interests in pools of Contracts (defined
below) issuable in series pursuant to separate Pooling
and Servicing Agreements (each, an "Agreement") among
Vanderbilt Mortgage and Finance, Inc. (the "Company"),
as servicer (in such capacity, together with any
successor servicer, the "Servicer") and the Trustee (the
"Trustee") specified in the related Prospectus
Supplement for such Series of Certificates (the
"Certificates").
Seller Vanderbilt Mortgage and Finance, Inc. (in such capacity
referred to herein as the "Company"), an indirect sub-
sidiary of Clayton Homes, Inc. ("CHI").
Servicer Vanderbilt Mortgage and Finance, Inc. (in such
capacity referred to herein as the "Servicer").
Risk Factors Certain factors are particularly relevant to a
decision to invest in any Certificates sold
hereunder. See "Risk Factors" herein.
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 and may include modular
home installment sales contracts and installment
loan agreements. The Contracts will be conventional
contracts or 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) or Modular
Home (as defined herein). Each Contract secured by
a Modular Home, and some of the Contracts secured by
Manufactured Homes, will be further secured by a
mortgage or deed of trust on the real estate to
which the Modular Home or the Manufactured Home is
affixed (a "Land-and-Home Contract").
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 prin-
cipal balance of the Contracts as of the Cut-off Date;
(vii) the range of Loan-to-Value Ratios; and (viii) the
geographic location of Manufactured Homes securing the
Contracts.
The Contracts will have been originated or purchased by
the Company in the ordinary course of its business.
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 Fund").
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 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
Fund, 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 Certif-
icates 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
instrumentality.
Subordinated
Certificates
and Reserve Fund One or more Classes of any Series may be
Subordinated Certificates, as specified in the
related Prospectus Supplement. The rights of the
Subordinated Certificateholders to receive any or a
specified portion of distributions with respect to
the Contracts will be subordinated to the rights of
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 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 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 Certificate-
holders against losses. The Available Subordination
Amount, if any, for each Class of Subordinated
Certificates of a Series will be dependent upon
certain Contract Pool characteristics which will be
set forth in the related Prospectus Supplement.
The protection afforded to the Senior Certificateholders
by the subordination feature described above may be
effected both by the preferential right of the Senior
Certificateholders to receive current distributions from
the Contract Pool and, to the extent specified in the
related Prospectus Supplement, by the establishment of a
reserve fund (the
"Reserve Fund"). The Reserve Fund may be funded, to the
extent specified in the related Prospectus Supplement,
by one or more of an initial cash deposit, the retention
of specified periodic distributions of principal or
interest or both otherwise payable to Subordinated
Certificateholders, or the provision of a letter of
credit, limited guarantee of CHI, insurance policy or
other form of credit enhancement or any combination
thereof. Unless otherwise specified in the related
Prospectus Supplement, the Reserve Fund will be part of
the Trust Fund.
The subordination features and the Reserve Fund
described above are intended to enhance the likelihood
of timely payment of principal and interest and to
protect the Senior Certificateholders and, to the extent
specified in the related Prospectus Supplement,
Subordinated Certificateholders against loss. However,
in certain circumstances the Reserve Fund could be
depleted and shortfalls could result. If, on a
particular date when a distribution is due such
Certificateholders, the aggregate amount of payments
received from the obligors on the Contracts and Advances
by the Servicer (as described below), if any, and from
the Reserve Fund of a Series, if any, do not provide
sufficient funds to make full distributions to such
Certificateholders of a Series, the amount of the
shortfall may be added to the amount such
Certificateholders are entitled to receive on the next
Remittance Date. In the event the Reserve Fund, if any,
is depleted, such Senior Certificateholders and, to the
extent specified in the related Prospectus Supplement,
Subordinated Certificateholders nevertheless will have a
preferential right to receive current distributions from
the Contract Pool. Such Certificateholders will bear
their proportionate share of losses realized on
Contracts to the extent such Reserve Fund and subordina-
tion feature are exhausted.
Credit Enhancement As an alternative, or in addition, to the credit
enhancement afforded by subordination of the
Subordinated Certificates, credit enhancement with
respect to a Series of Certificates may be provided
by pool insurance, letters of credit, surety bonds,
a limited guarantee of CHI, cash reserve funds or
other forms of enhancement acceptable to each
nationally recognized rating agency rating a Series
of Certificates, in each case as described in the
related Prospectus Supplement.
Advances If the amount eligible for distribution to the
Certificateholders of a Series of Certificates (or
to Senior Certificateholders only if so specified in
the case of a Series of Certificates having a Class
of Subordinated Certificates) on any Remittance Date
is less than the amount which is due such
Certificateholders on such Remittance Date, the
related Agreement will provide that the Servicer is
obligated to make advances of cash (the "Advances")
to such Certificateholders subject to the
limitations described in the applicable Prospectus
Supplement, to the extent that such deficiency is
due to delinquent payments of principal and interest
during the immediately preceding Due Period (as
defined herein) and 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."
Interest 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) Principal collected on each Contract, including any
principal prepayments, will be passed through on
each Remittance Date, unless such principal has
previously been passed through. See "Maturity and
Prepayment Considerations" and "Description of the
Certificates." With respect to a Class or sub-class
of a Series having a Stated Balance, such
distributions may be made in the reduction of the
Stated Balance, or 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 The Company or the Servicer 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. See "Description of the Certificates --
Termination of the Agreement."
Global Certificates If so specified in the related Prospectus
Supplement, the Certificates of a Series, or of one
or more Classes within a Series, will be issuable in
the form of one or more global certificates (each, a
"Global Certificate") to be held by a depositary
(each, a "Depositary") on behalf of the beneficiay
owner of the Certificates, as described herein under
"Description of the Certificates -- Global Certifi-
cates." 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 Certificate-
holder," 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 the Company As a condition to the Company's conveyance of any
Contract Pool to the Trust Fund, the Company will be
required to make certain representations and
warranties in the related Agreement regarding the
Contracts. Under the terms of the Agreement, if the
Company becomes aware of a breach of any such
representation or warranty that materially adversely
affects the Trust Fund's interest in any Contract or
receives written notice of such a breach from the
Trustee or the Servicer, then the Company 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 the
Trust Fund 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 are
offered hereby may constitute "regular interests" or
"residual interests" in such REMIC under the Code,
with the tax consequences under the Code described
herein and in such Prospectus Supplement.
Generally, holders of Certificates that are REMIC
regular interests will be treated as if they hold a
debt obligation for federal income tax purposes.
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 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 Fund 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 Fund 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."
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 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,
subject, in any case, to any other regulations that
may govern investments by such institutional
investors. 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.
Ratings of the Certificates address the likelihood of
the receipt of all distributions on the contracts by the
related certificateholders under the agreements pursuant
to which such certificates are issued. The ratings take
into consideration the credit quality of the related
contract pool, including any credit support providers,
structural and legal aspects associated with such
certificates, and the extent to which payment stream on
such contract pool is adequate to make payments required
by such certificates. The ratings on such certificates
do not, however, constitute a statement regarding
frequency of prepayments on the related contracts. See
"Ratings" herein.
RISK FACTORS
Prospective investors in the Certificates should consider, among other
things, the following risk factors in connection with the purchase of the
Certificates:
1. General. An investment in the 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. Moreover, regardless of its location, manufactured housing
generally depreciates in value. Consequently, the market value of certain
Manufactured Homes could be or become lower than the outstanding principal
balances of the Contracts that they secure. To the extent that losses on the
Contracts are not covered by the subordination of other Classes of
Certificates, if any, or by any other form of 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 Fund -- The Contract Pools."
2. Prepayment Considerations. The prepayment experience on the
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
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.
3. Limited Obligations. The Certificates will not represent an interest
in or obligation of the Company. The Certificates will not be insured or
guaranteed by any governmental agency or instrumentality, the Underwriter or
any of its affiliates, or by the Company or (except as otherwise specified in
the related Prospectus Supplement) any of its affiliates, and will be payable
only from amounts collected on the Contracts.
4. 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 remain for the term of any Series of Certificates.
Liquidity of investment in the Certificates would be adversely affected by,
among other factors, the failure of a Trust Fund that has made a REMIC
election to continue to qualify as a REMIC and may be adversely affected by,
among other things, the absence of Certificates in physical form.
5. Security Interests and Mortgages on the Manufactured Homes.
Substantially all Contracts are secured by a separately evidenced security
interest in a Manufactured Home. Perfection of such 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 each state's certificate of title
statutes, but generally not its real estate laws. The steps necessary to
perfect the security interest in a Manufactured Home will vary from state to
state. Because of the expense and administrative inconvenience involved, the
Company will not amend any certificates of title to change the lienholder
specified therein from the Company (or the applicable originator in the case
of an Acquired Contract) to the Trustee or file any UCC-3 assignments and
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, the assignment to 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 may not be
effective against creditors of the Company (or the applicable originator in
the case of an Acquired Contract) or a trustee in bankruptcy of the Company
(or the applicable originator in the case of an Acquired Contract). Certain
Contracts (as specified herein and in the related Prospectus Supplement) may
be secured by a mortgage or deed of trust on the property on which a
Manufactured Home or Modular Home is placed. Because of the expense and
administrative inconvenience involved, the Company will not deliver to the
Trustee assignments in recordable form of the mortgage or deed of trust
(each, a "Mortgage") securing each Land-and-Home Contract. The Company will,
however, deliver to the Trustee a power of attorney enabling the Trustee to
effect such assignments. In some states in the absence of the recordation of
such an assignment to the Trustee of the Mortgage securing a Land-and-Home
Contract, the assignment of the Mortgage to the Trustee may not be effective
against creditors of or purchasers from the Company (or the applicable
originator in the case of an Acquired Contract) or a trustee in bankruptcy of
the Company (or the applicable originator in the case of an Acquired
Contract).
6. Consumer Protection Laws and Other Limitations on Lenders. Numerous
federal and state consumer protection laws impose requirements on lending
under installment sales contracts and installment loan agreements such as the
Contracts, and the failure by the lender or seller of goods to comply with
such requirements could give rise to liabilities of assignees for amounts due
under such agreements and the right of set-off against claims by such
assignees. From time to time the Company is involved in litigation under
consumer protection laws. These laws would apply to the Trust Fund as
assignee of the Contracts. Pursuant to the Agreement, the Company 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 of any such warranty that materially adversely affects
any Contract may, subject to certain conditions described under "Description
of Certificates -- Conveyance of Contracts," create an obligation by the
Company to repurchase, or at its option substitute another contract for, such
Contract unless such breach is cured within 90 days after notice thereof. If
the Company 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, such as the bankruptcy
of an obligor or the application of equitable principles by a court, may
limit the ability of the Certificateholders to receive payments on the
Contracts or 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" herein.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
the court's decision included 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 (or the dealer that sold the related Manufactured Home) 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 in or
reduction of distributions (in the case of the dealer, only with respect
to the Contracts in respect of which it sold the related Manufactured Home).
7. Certain Matters Relating to Insolvency. The Company intends that
each transfer of Contracts to the related Trust Fund constitutes a sale,
rather than a pledge of the Contracts to secure indebtedness of the Company.
However, if the Company were to become a debtor under the federal bankruptcy
code, it is possible that a creditor or trustee in bankruptcy of the Company
or the Company as debtor-in-possession may argue that the sale of the
Contracts by the Company was a pledge of the Contracts rather than a sale.
This position, if presented to or accepted by a court, could result in a
delay in or reduction of distributions to the Certificateholders.
8. Priority of Possible Tennessee Tax Lien. Under Tennessee law, a tax
is due in connection with the public recordation of instruments evidencing
indebtedness. The Company will treat the transfers of the Contracts to the
Trustee as sales rather than secured financings, and therefore will not pay
any tax in respect of the recordation of instruments evidencing such
transfers. See "Certain Legal Aspects of the Contracts -- Certain Matters
Relating to Insolvency". Nonpayment or underpayment of the Tennessee
indebtedness tax does not affect or impair the effectiveness, validity,
priority or enforceability of the security interest created or evidenced by
the instrument, but (a) subjects the holder of the indebtedness to a penalty,
in addition to the tax, in the amount of the greater of $250 or double the
unpaid tax due, (b) results in the imposition of a tax lien in favor of the
Tennessee Department of Revenue, in the amount of any tax and penalties
unpaid and owing that attaches to the collateral until the lien or security
interest is released and thereafter attaches to the proceeds, and
(c) precludes the holder of the indebtedness from maintaining an action on
the indebtedness (other than an action limited to the enforcement of the
security interests or lien) against the debtor until the nonpayment is cured.
In such event, and in addition to the statutory disability described above,
collections on the Contracts could be applied to pay such tax and penalty
prior to being applied to make distributions to Certificateholders and the
Tennessee Department of Revenue would have a lien on the Contracts prior to
the security interests and liens of the Trustee.
9. Louisiana Law. Any Contract secured by a Manufactured Home located
in the State of Louisiana will be governed by Louisiana law in addition to
Article 9 of the UCC. Louisiana law provides special mechanisms for the
enforcement of security interests in manufactured housing used as collateral
for an installment sales contract or installment loan agreement. Under
Louisiana law, so long as a manufactured home remains subject to the
Louisiana motor vehicle laws, repossession can be accomplished by voluntary
consent of the obligor, executory process (repossession proceedings which
must be initiated through the courts but which involve minimal court
supervision) or a civil suit for possession. In connection with a voluntary
surrender, the obligor must be given a full release from liability for all
amounts due under the contract. In executory process repossessions, a
sheriff's sale (with court supervision) is permitted, unless the owner brings
suit to enjoin the sale, and the lender is prohibited from seeking a
deficiency judgment against the obligor unless the lender obtained an
appraisal of the manufactured home prior to the sale and the property was
sold for at least two-thirds of its appraised value.
10. Limitations on Subordination. With respect to Certificates of a
Series having a Class of Subordinated Certificates, while the subordination
feature is intended to enhance the likelihood of timely payment of principal
and interest to the Senior Certificateholders, the Available Subordination
Amount may be limited, as specified in the Prospectus Supplement, and the
Reserve Fund, if any, could be depleted in certain circumstances. In either
case, shortfalls could result for both the Senior Certificates and the
Subordinated Certificates. Prospective purchasers of a Class of Certificates
should carefully review the credit risks to be absorbed by such Class of
Certificates on account of its subordination or the timing of the
distributions intended to be made on such Class of Certificates.
11. Limited Guarantee of CHI. If the related Prospectus Supplement so
specifies, the Certificates may be entitled to the benefits of a limited
guarantee of CHI which would be an unsecured general obligation of CHI and
would not be supported by any letter of credit or other enhancement
arrangement.
THE TRUST FUND
GENERAL
Each Trust Fund will include (i) a Contract Pool or Contract Pools,
(ii) the amounts held from time to time in trust accounts (each, a
"Certificate Account") maintained by the Trustee pursuant to the Agreement,
and (iii) proceeds from certain hazard insurance on individual Manufactured
Homes and Manufactured Homes acquired by repossession, and may include a
letter of credit, limited guarantee of CHI, surety bond, insurance policy,
cash reserve fund or other credit enhancement security payment of all or part
of a series of Certificates or other property. If so specified in the
related prospectus supplement, a limited guarantee of CHI may exist and may
not be a part of the Trust Fund.
Each Certificate will evidence the interest specified in the related
Prospectus Supplement in one Trust Fund, 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.
All of the Contracts will have been purchased by the Company or an
affiliate of the Company in the open market or in privately negotiated
transactions, including transactions with affiliates of the Company. The
following is a brief description of the Contracts expected to be included in
the Trust Fund. Specific information respecting the Contracts will be
provided in the Prospectus Supplement or in a report on Form 8-K to be filed
with the Securities and Exchange Commission 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 Fund,"
"Agreement" or "Remittance Rate" are used, those terms respectively apply,
unless the context otherwise indicates, to one specific Contract Pool, Trust
Fund, each Agreement and the Remittance Rate applicable to the related Series
of Certificates.
THE CONTRACT POOLS
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 and may include modular home
installment sales contracts and installment loan agreements (collectively,
the "Contracts") originated by a manufactured housing dealer or a lender in
the ordinary course of business and purchased by the Company. The Contracts
will be conventional manufactured housing contracts or contracts insured by
the FHA or partially guaranteed by the VA. Each Contract will be secured by
a new or used Manufactured Home or Modular Home. Each Contract secured by a
Modular Home will, and some of the Contracts secured by Manufactured Homes
may, be further secured by a mortgage or deed of trust on the real estate to
which the Modular Home or the Manufactured Home is affixed (a "Land-and-Home
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") or at a
Contract Rate which steps up on a particular date (a "step-up rate").
The Company, as seller of the Contracts, 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"). The Company, 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 (including the documents relating to Land-and-Home Contracts) will
be held for the benefit of the Trustee by the Servicer.
Each Contract Pool will be composed of Contracts bearing interest at the
annual fixed or variable Contract Rates or step-up rates specified in the
Prospectus Supplement. The Monthly Payments for Contracts bearing interest
at a step-up rate (sometimes referred to herein as "step-up rate Contracts")
will increase on the dates on which the Contract Rates are stepped up. Each
registered holder of a Certificate will be entitled to receive periodic
distributions, which will typically be monthly, 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 disclose in summary form for the
Contracts contained in the related Contract Pool, among other things, the
year of origination of the contracts; the range of Contract Rates on the
Contracts; the range of Loan-to-Value Ratios; the minimum and maximum out-
standing principal balances as of the Cut-off Date and the average
outstanding principal balance; the range of 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. The Trust Fund may
include a Pre-Funding Account which would be used to purchase additional
Contracts ("Subsequent Contracts") from the Company during the Funding Period
specified in the related Prospectus Supplement. The related Prospectus
Supplement will specify the conditions that must be satisfied prior to any
transfer of Subsequent Contracts, including the requisite characteristics of
the Subsequent Contracts.
The Company 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, the Company 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 the
Company. See "Description of the Certificates -- Conveyance of Contracts."
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
each Series of Certificates will be used by the Company for general corporate
purposes, including the purchase of the Contracts, cost of carrying the
Contracts until sale of the related Certificates and to pay other expenses
connected with pooling the Contracts and issuing the Certificates.
VANDERBILT MORTGAGE AND FINANCE, INC.
Vanderbilt Mortgage and Finance, Inc. (the "Company") was incorporated
in 1977 in the State of Tennessee. As of June 30, 1996, the Company had
total assets of approximately $461 million and stockholder's equity of
approximately $157 million. The Company, an indirect subsidiary of Clayton
Homes, Inc. ("CHI"), is engaged in the business of, among other things,
purchasing, originating, selling and servicing installment sales contracts
and installment loan agreements for manufactured housing and modular housing
(hereinafter referred to as "contracts" or "manufactured housing contracts").
CHI manufacturers and sells manufactured homes and modular homes, and owns,
manages and markets manufactured housing communities. The Company's
principal office is located at 4726 Airport Highway, Louisville,
Tennessee 37777 (telephone 423-970-7200). An affiliate of CHI acts as an
insurance broker for certain types of insurance, including hazard and credit
life insurance policies, some of which may cover certain of the Contracts.
Other affiliates of CHI reinsure hazard and credit life insurance policies,
including policies that may cover certain of the Contracts. Two separate
indirect subsidiaries of CHI, Vanderbilt Life and Casualty Insurance Co.,
Ltd. and Vanderbilt Property and Casualty Insurance Co., Ltd. may act as
reinsurer of insurance coverage relating to the Contracts.
The Company purchases and originates manufactured housing contracts on
an individual basis from its principal office. The Company arranges to
purchase manufactured housing installment sales contracts originated by
manufactured housing dealers located in approximately 21 states, primarily
southern and midwestern. Most of these purchases are from dealers indirectly
owned by CHI. Dealers which are not owned by CHI must make an application to
the Company for dealer approval. Upon satisfactory results of the Company's
investigation of the dealer's creditworthiness and general business
reputation, the Company and the dealer enter into a dealer agreement.
In addition to purchasing manufactured housing contracts from dealers on
an individual basis, the Company makes bulk purchases of manufactured housing
contracts and services on behalf of other owners manufactured housing
contracts that were not originally purchased or originated by the Company.
These purchases may be from, and these servicing arrangements may be made
with respect to, the portfolios of other lenders or finance companies, the
portfolios of governmental agencies or instrumentalities or the portfolios of
other entities that purchase and hold manufactured housing contracts.
The Company is actively seeking arrangements by which it would service
manufactured housing contracts originated by other lenders. The Company's
management currently anticipates it will only seek servicing responsibilities
which relate to manufactured housing contracts.
UNDERWRITING POLICIES
GENERAL
Customers desiring to obtain financing from the Company complete a
credit application form. In the case of those dealers owned by CHI, the
manager initially evaluates the application and then forwards it to the
Company for consideration. In the case of dealers that are not owned by CHI,
the application is transmitted to the Company for consideration.
Credit applications are then evaluated by the Company's credit officers.
With respect to those customers determined to be creditworthy, the Company
requires a down payment in the form of cash, the trade-in value of a
previously owned manufactured home, and/or the estimated value of equity in
real property pledged as additional collateral. For previously owned homes,
the trade-in allowance accepted by the dealer must be consistent with the
value of such home determined by the Company in light of current market
conditions. The value of real property pledged as additional collateral is
estimated by personnel of the dealer, who are not appraisers but are familiar
with the area in which the property is located. The minimum amount of the
down payment is typically 5% of the purchase price. The purchase price
includes the stated cash sale price of the manufactured home, sales or other
taxes and certain fees and set-up costs. The balance of the purchase price
and certain insurance premiums (including up to five years of premiums on
required hazard insurance) are financed by an installment sales contract
providing for a purchase money security interest in the manufactured home and
a mortgage on real property, if any, pledged as additional collateral.
Normally, the contracts provide for equal monthly payments, generally over a
period of five to twenty years at fixed rates of interest. The Company
believes the typical manufactured home purchaser is primarily sensitive to
the amount of the monthly payment, and not to the interest rate.
The Company's underwriting guidelines generally require that each
applicant's credit history, residence history, employment history and income
to debt payment ratios be examined. There are no requirements on the basis
of which, if met, credit is routinely approved; or if they are not met,
credit is routinely denied. If in the judgment of the Company's credit
manager an applicant does not meet minimum underwriting criteria, there
generally must be compensating higher ratings with respect to other criteria
in order for an applicant to be approved. Credit managers must confirm that
the credit investigation gave a complete and up-to-date accounting of the
applicant's creditworthiness. Credit managers are encouraged to obtain
second opinions on loans for relatively larger dollar amounts or those which,
in their judgment, tend to rank lower in terms of underwriting criteria.
Generally, the sum of the monthly obligation for installment obligations,
including the manufactured home loan payment and monthly site costs, should
not exceed 45% of the applicant's gross monthly income. Since January 1989
the Company has, in addition to the above considerations, used a credit
scoring system to evaluate credit applicants. The credit score of an
applicant is used as a further guide in determining whether to extend credit
to the applicant.
In the case of a Contract Pool containing Contracts originated by other
originators and acquired by the Company ("Acquired Contracts"), the related
Prospectus Supplement will describe such Contracts.
BULK TRANSACTIONS
In fiscal 1990, the Company purchased a portfolio of manufactured home
contracts originated by an unaffiliated entity. This portfolio, originally
consisting of approximately 4,000 installment sales contracts, was purchased
at a discount from its outstanding principal balance. The Company services
the contracts acquired. The Company intends to consider, from time to time,
the selective acquisition of additional portfolios of installment sales
contracts consistent with the Company's views of appropriate pricing in
return for certain portfolios and servicing capacity.
In fiscal 1991, the Company became the servicer for approximately
$100 million of installment sales contracts for manufactured homes acquired
by a REMIC trust. The trust issued approximately $70 million of senior
certificates which received the highest rating from both Standard & Poor's
Corporation and Moody's Investors Service, Inc. and are guaranteed as to
principal and interest by a financial guarantee policy issued by Financial
Security Assurance, Inc. ("FSA"). CHI purchased the junior certificates
representing the residual interest in the REMIC by establishing a
$12.5 million reserve fund for the senior certificates and by agreeing to pay
the premium on the FSA policy. Most of the homes financed by these contracts
are located in Texas and were originated by savings institutions which were
subsequently placed into receivership.
In fiscal 1992, the Company became the servicer for 15,409 installment
sales contracts for manufactured homes with an approximate current principal
balance of $148 million acquired by a REMIC trust from the Resolution Trust
Corporation. The Company did not acquire these contracts and is acting
solely as servicer with respect to these contracts.
In fiscal 1994, the Company acquired a portfolio of manufactured home
contracts originated by an unaffiliated entity. This portfolio originally
consisted of approximately 3,300 installment sales contracts and was
purchased at a discount from its outstanding principal balance of
approximately $56 million. Also in fiscal 1994, the Company became servicer
for approximately 16,500 contracts for manufactured homes with an approximate
aggregate principal balance of $222 million owned by three REMIC trusts. The
Company is acting solely as servicer with respect to these contracts.
VARIOUS FINANCING TERMS
The Company has developed financing options such as contracts with a
7 year term (compared to the industry norm of 15 to 20 years), which provides
financing to its customers at a relatively low cost. In January 1990, the
Company introduced a bi-weekly payment contract which provides for
26 payments a year, which are made by electronically drafting the purchaser's
checking account. In 1996, the Company introduced contracts (the "Escalating
Principal Payment Contracts") which provide for an annual increase in monthly
payments over the first five years of the term of the Contract. Under an
Escalating Principal Payment Contract, the original term of the contract is
36 years, providing initially for lower monthly payments than if the contract
were of a shorter term. Each year for a period of five years, the term of
the Escalating Principal Payment Contract automatically converts to a shorter
term, and the monthly payment increases accordingly. At year six, the
monthly payment increases to a level monthly payment which fully amortizes
the remaining principal over a twelve year term. There is no period in which
the Escalating Principal Payment Contracts have negative amortization. In
1989, the Company began originating variable rate Contracts. Its variable
rate program ranged from the origination of very few variable rate Contracts
from 1992 to 1994 to a high of 623 variable rate Contracts in fiscal 1996.
During the last six fiscal years, the Company has become the most
important source of financing for purchasers of CHI's homes. In fiscal 1988,
the Company originated 5,692 contracts, in fiscal 1993, the Company
originated 10,880 contracts, in fiscal 1994, the Company originated 12,401
contracts and in fiscal 1995, the Company originated 13,857 Contracts. For
fiscal year 1996, the Company originated 16,910 Contracts. At June 30, 1996,
the Company was servicing approximately 92,597 contracts and an aggregate
dollar amount of $1,638 million, of which the Company purchased from dealers
or acquired from other institutions approximately 74,154 contracts with an
aggregate dollar amount of approximately $1,456 million. The Company expects
it will continue to originate a significant portion of the financing for
purchasers of homes sold by CHI owned retail centers, consistent with the
overall level of CHI's retail sales.
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. 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 Fund are made at rates
corresponding to the various percentage of such prepayment standard or model.
MATURITY AND PREPAYMENT CONSIDERATIONS
MATURITY
The Contracts will have maturities at origination of not more than
30 years.
PREPAYMENT CONSIDERATIONS
Contracts generally may be prepaid in full or in part without penalty.
Based on the Company's experience with the portfolio of manufactured housing
contracts serviced by it, the Company 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,
repurchase 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 the Company's then-current underwriting
standards.
Information regarding the Prepayment 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 the Company's or Servicer's option to repurchase the
Contracts comprising part of a Trust Fund 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 Fund -- The Contract Pools"
for a description of the obligations of the Company to repurchase a Contract
in case of a breach of a representation or warranty relative to such
Contract.
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 and Servicer, 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, if any, 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.
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 Certificates 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 interest specified in the related Prospectus
Supplement in a separate trust fund (the "Trust Fund") created pursuant to
the related Agreement. The Trust Fund will be held by the Trustee for the
benefit of the Certificateholders. Each Trust Fund will generally include
(i) Contracts (the "Contract Pool") which are subject to the Agreement from
time to time, (ii) the amounts held in the Certificate Account from time to
time and (iii) proceeds from certain hazard insurance on individual
Manufactured Homes or Modular Homes and Manufactured Homes or Modular Homes
(or the related real estate, in the case of Land-and-Home Contracts) acquired
by repossession, and may include a letter of credit, a limited guarantee of
CHI, surety bond, insurance policy, cash reserve fund or other credit
enhancement security payment of all or part of a Series of Certificates or
other property. 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. 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.
GLOBAL CERTIFICATES
The Certificates of a Class may be issued 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 as a 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 purchasers 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 such 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 receive 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
aspect of the records relating to or payments made on account of beneficial
ownership interest 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.
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 transfer, assign, set over and otherwise convey to the
Trustee all right, title and interest of the Company in the Contracts,
including all security interests created thereby and any related mortgages or
deeds of trust, all principal and interest received on or with respect to the
Contracts (other than receipts of principal and interest due on the Contracts
before the Cut-off Date), all rights under certain hazard insurance policies
on the related Manufactured Homes or Modular Homes, all documents contained
in the Contract files and all proceeds derived from any of the foregoing. On
behalf of the Trust Fund, 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. Such list will include
the current amount of monthly payments due on each Contract as of the date of
issuance of the Certificates and the Contract Rate on each Contract. Such
list will be available for inspection by any Certificateholder at the
principal executive office of the Servicer. Prior to the conveyance of the
Contracts to the Trustee, the Company's operations department will complete a
review of all of the Contract files, including the certificates of title to,
or other evidence of a perfected security interest in, the Manufactured
Homes, confirming the accuracy of the list of Contracts delivered to the
Trustee. Any Contract discovered not to agree with such list in a manner
that is materially adverse to the interests of the Certificateholders will be
repurchased by the Company or replaced with another Contract, or, if the
discrepancy relates to the unpaid principal balance of a Contract, the
Company may deposit cash in the separate account maintained at an Eligible
Institution in the name of the Trustee (the "Certificate Account") in an
amount sufficient to offset such discrepancy.
The Agreement will designate the Servicer as custodian to maintain
possession, as the Trustee's agent, of the Contracts and any other documents
related to the Manufactured Homes or Modular Homes. To facilitate servicing
and save administrative costs, the documents will not be physically
segregated from other similar documents that are in the Company's possession.
In order to give notice of the right, title and interest of the
Certificateholders to the Contracts, the Company will cause a UCC-1 financing
statement to be executed by the Company identifying the Company as the seller
and the Trustee as the buyer of the Contracts, and the Company's accounting
records and computer systems will also reflect such sale and assignment. In
addition, within one week after the initial delivery of the Certificates, the
Contracts will be stamped to reflect their assignment to the Trustee.
However, if through fraud, negligence or otherwise, a subsequent purchaser
were able to take physical possession of the Contracts without knowledge of
the assignment, the Trustee's interest in the Contracts could be defeated.
See "Risk Factors-- Security Interests and Mortgages on the Manufactured
Homes" and "-- Consumer Protection Laws and Other Limitations on Lenders."
In general, and except as otherwise specified in the related Prospectus
Supplement, the Company 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 59 days (or such
other number of days specified in the related Prospectus Supplement); (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 or the
Land-and-Home Contract file; (c) each Contract is a legal, valid and binding
obligation of the Obligor and is enforceable in accordance with its terms
(except as may be limited by laws affecting creditors' rights generally);
(d) no Contract is subject to any right of rescission, set-off, counterclaim
or defense; (e) each Contract is covered by hazard insurance described under
"-- Servicing -- Hazard Insurance"; (f) each Contract has been originated by
a manufactured housing dealer or the Company in the ordinary course of such
dealer's or the Company's business and, if originated by a manufactured
housing dealer, was purchased by the Company in the ordinary course of
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 or an
interest therein to the Trustee pursuant to the Agreement or pursuant to the
Certificates 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
creates a valid and enforceable first priority security interest in favor of
the Company in the Manufactured Home covered thereby and, with respect to
each Land-and-Home Contract, the lien created thereby has been recorded or
will be recorded within six months, and such security interest or lien has
been assigned by the Company to the Trustee; (k) all parties to each Contract
had capacity to execute such Contract; (l) no Contract has been sold,
assigned or pledged to any other person and prior to the transfer of the
Contracts by the Company to the Trustee, the Company 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 Trustee; (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 the Company has not waived any of the foregoing; (n) as of the
Closing Date there were, to the best of the Company'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 other than a step-up rate Contract and an Escalating
Payment 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; (q) the description of each
Contract set forth in the list delivered to the Trustee is true and correct;
(r) there is only one original of each Contract; (s) none of the Contracts
had a Loan-to-Value Ratio at origination greater than 100% (or such other
percentage amount specified in the related Prospectus Supplement); (t) at the
time of origination of each Contract the Obligor was the primary resident of
the related Manufactured Home; (u) other than the Land-and-Home Contracts,
the related Manufactured Home is not 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 as would render unperfected or impair the priority of the
security interest in such Manufactured Home, and as of the Closing Date such
Manufactured Home was, to the best of the Company's knowledge, free of damage
and in good repair; (v) the related Manufactured Home is a "manufactured
home" within the meaning of 42 United States Code, Section 5402(6); and
(w) each Contract is a "qualified mortgage" under Section 860G(a)(3) of the
Code and each Manufactured Home is "manufactured housing" within the meaning
of Section 25(e)(10) of the Code.
Under the terms of the Agreement, and subject to the conditions
specified in the preceding paragraph and to the Company's option to effect a
substitution as described in the next paragraph, the Company will be
obligated to repurchase for the Repurchase Price (as defined below) any
Contract on the first business day after the first Determination Date which
is more than 90 days after the Company becomes aware, or should have become
aware, or the Company's receipt of written notice from the Trustee or the
Servicer, of a breach of any representation or warranty of the Company in the
Agreement that materially adversely affects the Trust Fund's interest in any
Contract if such breach has not been cured. The Repurchase Price for any
Contract will be the remaining principal amount outstanding on such Contract
on the date of repurchase plus accrued and unpaid interest thereon at its
Contract Rate to the date of such repurchase. This repurchase obligation
constitutes the sole remedy available to the Trust Fund 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 the
Company 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, distributions otherwise payable to Residual
Certificateholders will be applied to pay such tax. The Company will be
required to pay the amount of such tax that is not funded out of such
distributions.
In lieu of purchasing a Contract as specified in the preceding
paragraph, during the two-year period following the Closing Date, the Company
may, at its option, substitute an Eligible Substitute Contract (as defined
below) for the Contract that it is otherwise obligated to repurchase
(referred to herein as the "Replaced Contract"). An Eligible Substitute
Contract is a Contract that satisfies, as of the date of its substitution,
the representations and warranties specified 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. In the event that more than one Contract is
substituted, the above requirements with respect to Scheduled Principal
Balance, APR and remaining term to scheduled maturity may be satisfied on an
aggregate or weighted average basis, as applicable. The Company will be
required to deposit in the Certificate Account cash in the amount, if any, by
which the Scheduled Principal Balance of the Replaced Contract exceeds the
Scheduled Principal Balance of the Contract being substituted. Such deposit
will be deemed to be a Partial Principal Prepayment.
PAYMENTS ON CONTRACTS
Each Certificate Account will be a trust account established by the
Servicer as to each Series of Certificates in the name of the Trustee
(i) with a depository institution, the long-term unsecured debt obligations
of which at the time of any deposit therein are rated within the two highest
rating categories or such other rating category as will not adversely affect
the rating assigned to the Certificates by each rating agency rating the
Certificates of such Series, (ii) with the trust department of a depositary
institution, (iii) in an account or accounts the deposits in which are fully
insured by the Federal Deposit Insurance Corporation ("FDIC"), (iv) in an
account or accounts the deposits in which are insured by the FDIC (to the
limits established by the FDIC), the uninsured deposits in which are
otherwise secured such that, as evidenced by an opinion of counsel, the
Certificateholders have a claim with respect to the funds in the Certificate
Account or a perfected first priority security interest against any
collateral securing such funds that is superior to the claims of any other
depositors or general creditors of the depository institution with which the
Certificate Account is maintained or (v) otherwise acceptable to the rating
agency without reduction or withdrawal of the rating assigned to the relevant
Certificates. The collateral eligible to secure amounts in the Certificate
Account is limited to United States government securities and 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.
As described in the Prospectus Supplement, the Servicer will deposit in
the Certificate Account the following payments and collections received or
made by it subsequent to the Cut-off Date:
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts;
(iii) all amounts received and retained in connection with the
liquidation of defaulted Contracts, net of liquidation expenses ("Net
Liquidation Proceeds");
(iv) all proceeds received under any hazard or other insurance policy
covering any Contract, other than proceeds to be applied to the restoration
or repair of the Manufactured Home or released to Obligor;
(v) any Advances made as described under "Advances" and certain other
amounts required under the Agreement to be deposited in the Certificate
Account;
(vi) all amounts received from any credit enhancement provided with
respect to a Series of Certificates;
(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Servicer, or the Company, or otherwise as
described above or under "Termination" below; and
(viii) all amounts, if any, required to be transferred to the
Certificate Account from a Reserve Fund pursuant to the Agreement.
DISTRIBUTIONS ON CERTIFICATES
As described 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 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 or
collections due after the Due Period preceding the month in which the
Remittance Date occurs; (ii) all scheduled payments of principal and interest
due on a date or dates subsequent to the Due Period preceding the
Determination Date; (iii) amounts representing reimbursement for Advances,
such reimbursement being limited, as described 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 (iv) amounts representing reimbursement for any unpaid Servicing
Fee and expenses from Liquidation Proceeds, condemnation proceeds and pro-
ceeds of insurance policies with respect to the related Contracts. The
amount of principal and interest specified in the related Prospectus
Supplement to be distributed to Certificateholders is referred to herein as
the "Certificate Distribution Amount." The amounts on deposit in the
Certificate Account on a Determination Date, less the amounts specified in
(i) through (iv) above, with respect to a Series of Certificates having a
Class of Subordinated Certificates, are referred to herein as the "Available
Distribution Amount."
On each Remittance Date, the Trustee will withdraw the Available
Distribution Amount from the applicable Certificate Account and distribute
such amount to the Certificateholders of each Class or other specified
persons in the amounts and order of priority specified in the related
Prospectus Supplement.
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.
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. Unless
otherwise provided in the related Prospectus Supplement, 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, 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
subclasses 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 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.
The Prospectus Supplement with respect to a Series of Certificates having a
Class of Subordinated Certificates will set forth, among other things, the
extent to which such Class is subordinated (which may include a formula for
determining the subordinated amount or for determining the allocation of the
Available Distribution Amount among Senior Certificates and Subordinated
Certificates), the allocation of losses among the Classes of Subordinated
Certificates (which may include a reduction of the principal balance of the
Classes of Subordinated Certificates in the event of such losses), 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 such 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 of cash from its own funds or
from excess funds in the Certificate Account not then required to be
distributed to Certificateholders, for distribution to the Certificateholders
(other than Subordinated Certificateholders) in an amount equal to the
difference between the amount due to them and the amount in the Certificate
Account, eligible for distribution to them pursuant to the Agreement, but
only to the extent such difference is due to delinquent payments of principal
and interest for the preceding Due Period and 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,
be limited in amount and the Servicer may not be obligated to make Advances
until all or a specified portion of the Reserve Fund, if any, is depleted.
Advances are intended to maintain a regular flow of scheduled interest and
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 Advances
was made or from other funds in the Certificate Account.
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of the flow of funds on the
Certificates for the Remittance Date occurring in November, 1996.
September 26, 1996. . . . (A) Cut-off Date.
September 26 to October 25. . . (B) Due Period. Servicer receives
scheduled payments on the Contracts
and any Principal Prepayments made
by Obligors and applicable interest
thereon.
October 31 (C) Record Date.
November 2 (D) Determination Date. Distribution
amounts determined.
November 7 (E) Remittance Date. (Each Remittance Date
is the 7th day of each month or, if the
7th day is not a business day, the next
business day.)
Succeeding months generally follow the pattern of (B) through (E), but with
respect to any Remittance Date (other than the first Remittance Date) is the
period beginning on the 26th day of the second month preceding the month of
such Remittance Date and ending on the 25th day of the month preceding the
month of such Remittance Date.
(A) The Original Contract Pool Principal Balance will be the aggregate
Scheduled Principal Balance of the Contracts on September 25, 1996 after
deducting principal payments received before such date. Principal
payments received before September 25, and the accompanying interest
payments, are not part of the Trust Fund and will not be passed through
to Certificateholders.
(B) Scheduled payments, Principal Prepayments and Net Liquidation Proceeds
may be received at any time during this period and will be distributed
to Certificateholders on November 7. When a Contract is prepaid in
full, interest on the amount prepaid is collected from the Obligor only
to the date of payment. The Available Distribution Amount for the
distribution on November 7 is described under "/___/ Payments on
Contracts" and "/___/ Distributions on the Certificates" above.
(C) Distributions on November 7 will be made to Certificateholders of record
at the close of business on October 31.
(D) On November 2 (three business days prior to the Remittance Date), the
Servicer will determine the amounts of principal and interest which will
be passed through on November 7 to Certificateholders.
(E) On November 7, the amounts determined on November 2 will be distributed
to Certificateholders. If a payment due in the Due Period ending
October 25 is received in the Due Period ending in November, such late
payment will be taken into account in determining the Available
Distribution Amount for December 7.
INDEMNIFICATION
The Agreement requires the Servicer to defend and indemnify the Trust
Fund, the Trustee (including any agent of 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 (a) arising out of or
resulting from the use or ownership by the Servicer or any affiliate thereof
of any Manufactured Home and (b) 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 Fund (but not including any federal, state or other
tax arising out of the creation of the Trust Fund and the issuance of the
Certificates).
The Agreement also requires the Servicer, in connection with its duties
as servicer of the Contracts, to defend and indemnify the Trust Fund, 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 action taken by the Servicer with respect to any Contract
while it was the Servicer.
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, in the same manner as prudent lending institutions of manufactured
housing installment sales contracts of the same type as the contracts in
those jurisdictions where the related Manufactured Homes are located or as
otherwise specified in the Agreement. The duties to be performed by the
Servicer will include collection and remittance of principal and interest
payments, collection of insurance claims and, if necessary, repossession.
The Agreement provides that the Servicer may delegate its duties under that
agreement to one or more entities (each a "Subservicer") that agrees to
conduct such duties in accordance with the Agreement. Notwithstanding any
such delegation, the Servicer will continue to be liable for all of its
obligations under the Agreement.
The Servicer will make reasonable efforts to collect all payments called
for under the Contracts and, consistent with the Agreement and any FHA
insurance and VA guaranty, will follow such collection procedures as it
follows with respect to mortgage loans or contracts serviced by it that are
comparable to the Contracts.
Hazard Insurance. The terms of the Agreement will generally require the
Servicer to cause to be maintained with respect to each Contract 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 or Modular Home is
located, and in an amount which is not less than the maximum insurable value
of such Manufactured Home or Modular 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 coinsurance clause contained
therein. When a Manufactured Home or Modular Home's location was, at the
time of origination of the related Contract, within a federally-designated
special flood hazard area, the Servicer shall also cause such flood insurance
to be maintained, which coverage shall be at least equal to the minimum
amount specified in the preceding sentence or such lesser amount as may be
available under the federal flood insurance program. Each Hazard Insurance
Policy caused to be maintained by the Servicer 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 or
Modular 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 or Modular Home, one or more blanket
insurance policies covering losses on the Obligor's 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 this Agreement. The
Servicer shall pay the premium for such policy on the basis described therein
and shall pay any deductible amount with respect to claims under such policy
relating to the Contracts. 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 placement policy comparable to such
policy.
If the Servicer shall have repossessed a Manufactured Home on behalf of
the Trustee, the Servicer shall either (i) maintain at its expense hazard
insurance with respect to such Manufactured Home, or (ii) indemnify the
Trustee against any damage to such Manufactured Home prior to resale or other
disposition.
Evidence as to Compliance. 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
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. The Servicer will
deliver to the Trustee an annual report of a nationally recognized accounting
firm stating that such firm has examined certain documents and records
relating to the servicing of manufactured housing contracts serviced by the
Servicer under pooling and servicing agreements similar to the Agreement and
stating that, on the basis of such procedures, such servicing has been
conducted in compliance with the Agreement, except for any exceptions set
forth in such report.
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
applicable law. No such resignation will become effective until the Trustee
or a successor servicer has assumed the Servicer's obligations and duties
under such Agreement. 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 so long as such successor services at least
$100 million of manufactured housing contracts.
Each Agreement will also generally provide that neither the Servicer,
nor any director, officer, employee or agent of the Servicer, will be under
any liability to the Trust Fund or the Certificateholders for any action
taken or for restraining from the taking of any action in good faith pursuant
to the Agreement, or for errors in judgment; provided, however, that neither
the Servicer nor any such person will be protected against any liability
which would otherwise be imposed by reason of the failure to perform its
obligations in strict compliance with the standards of care set forth in the
Agreement. The Servicer may, in its discretion, undertake any such action
which it may deem necessary or desirable with respect to the Agreement and
the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs
of such action and any liability resulting therefrom will be expenses, costs
and liabilities of the Trust Fund and the Servicer will be entitled to be
reimbursed therefor out of the Certificate Account.
The Servicer shall keep in force throughout the term of this Agreement
(i) 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.
The Servicer, to the extent practicable, shall cause the Obligors to pay
all taxes and similar governmental charges when and as due. 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, the Servicer shall advance any such delinquent tax
or charge.
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 (which the Servicer may assign) 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 1.25% 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 Fund and for additional admin-
istrative services performed by the Servicer on behalf of the Trust Fund.
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 Fund include calculating distributions of
Certificateholders and providing related data processing and reporting
services for Certificateholders and on behalf of the Trustee. Expenses
incurred in connection with the servicing of the Contracts and paid by the
Servicer from its Servicing Fees include, without limitation, payment of fees
and expenses of accountants, payments of all fees and expenses incurred in
connection with the enforcement of Contracts (except Liquidation Expenses)
and payment of expenses incurred in connection with distributions and reports
to Certificateholders. The Servicer will be reimbursed out of the
Liquidation Proceeds of a Liquidated Contract for all ordinary and necessary
Liquidation Expenses incurred by it in realization upon the related
Manufactured Home.
So long as the Company is the Servicer, the Servicer, in its sole
discretion, may, but is not obligated to, liquidate a defaulted Contract by
depositing into the Certificate Account an amount equal to (i) the
outstanding principal balance of such Contract plus accrued and unpaid
interest thereon to the Due Date in the Due Period in which such deposit is
made less (ii) $2,000. The Company will not be reimbursed for any
Liquidation Expenses incurred in connection with any such Contract and will
retain any liquidation proceeds in respect thereof. The Company has such
option to liquidate defaulted Contracts in that manner because such manner of
liquidation is more compatible with its record keeping systems.
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.
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 so long
as such successor has a net worth of at least $10 million and has serviced at
least $100 million of manufactured housing contracts for at least one year.
The Servicer may assign its rights and delegate its duties under the
Agreement (with the prior written consent of the Company if the Company is
not the Servicer), provided that any rating of the Certificates then in
effect will not be reduced because of such assignment and delegation. Upon
any such assignment and delegation, the assigning Servicer will not be liable
for obligations of the Servicer after such assignment.
Events of Termination. Events of Termination under each Agreement will
include (i) any failure by the Servicer to distribute to the
Certificateholders any required payment which continues unremedied for 5 days
(or such other period specified in the related Prospectus Supplement) after
the giving of written notice; (ii) any failure by the Servicer duly to
observe or perform in any material respect any other of its covenants or
agreements in the Agreement that materially and adversely affects the
interests of Certificateholders, which, in either case, continues unremedied
for 30 days after the giving of written notice of such failure of breach;
(iii) any assignment or delegation 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 or delegation; and (iv) certain events
of insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding the Servicer. Notice as used herein shall mean
notice to the Servicer by the Trustee or the Company, or to the Company, the
Servicer, if any, and the Trustee by the Holders of Certificates representing
interests aggregating not less than 25% of the Trust Fund.
Rights Upon Event of Termination. 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 Fund, shall terminate all of the rights and obligations
of the Servicer under the related Agreement and in and to the Contracts, and
the proceeds thereof, whereupon (subject to applicable law regarding the
Trustee's ability to make advances) the Trustee or a successor Servicer under
the Agreement will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Agreement and will be entitled to
similar compensation arrangements; provided, however, that neither the
Trustee nor any successor servicer will assume any obligation of the Company
to repurchase Contracts for breaches of representations or warranties, and
the Trustee will not be liable for any acts or omissions of the Servicer
occurring prior to a transfer of the Servicer's servicing and related
functions or for any breach by the Servicer of any of its obligations
contained in the Agreement. 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 the Company's obligation to repurchase
certain Contracts 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. The
Trustee and such successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the compensation to the Servicer
under the Agreement. If the trustee in bankruptcy or similar official is
appointed for the Servicer, and no Event of Termination other than the
Servicer's insolvency has occurred, such trustee or other official may have
the power to prevent the Trustee from effecting a transfer of servicing.
No Certificateholder will have any right under an Agreement to institute
any proceeding with respect to such Agreement unless such Holder previously
has given to the Trustee written notice of default and unless the Holders of
Certificates evidencing interests aggregating not less than 25% of the
related Trust Fund requested the Trustee in writing to institute such
proceeding in its own name as Trustee and have offered to the Trustee
reasonable indemnity and the Trustee for 60 days has neglected or refused to
institute any such proceeding. The Trustee will be under no obligation to
take any action or institute, conduct or defend any litigation under the
Agreement at the request, order or direction of any of the Holders of
Certificates, unless such 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, as specified in the related Prospectus Supplement, a statement
setting forth, among other things:
(i) the amount of such distribution allocable to principal on the
Certificates;
(ii) the amount of such distribution allocable to interest on the
Certificates;
(iii) if the distribution to the Certificateholders is less than the
full amount that would be distributable to such Certificateholders if
there were sufficient eligible funds in the Certificate Account, the
difference between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds in the Certificate Account and the amounts actually distributed;
(iv) the aggregate amount of Advances, if any, by the Servicer
included in the amounts actually distributed to the Certificateholders;
(v) the outstanding principal balance of the Contracts; and
(vi) the approximate weighted average Remittance Rate of the
Contracts during the Due Period immediately preceding such Remittance
Date.
In addition, not more than 90 days 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 (a) as to the aggregate of amounts reported
pursuant to (i) and (ii) above for such calendar year or, in the event such
person was a Certificateholder of record during a portion of such calendar
year, for the applicable portion of such year, and (b) such 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 "Evidence as to Compliance"
above.
AMENDMENT
The Agreement may be amended by the Company and the Trustee without the
consent of the Certificateholders, (i) to cure any ambiguity, (ii) to correct
or supplement any provision therein that may be 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 Fund 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 Fund 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. The Agreement may also be amended by the Company, the Servicer and
the Trustee with the consent of the Certificateholders (other than holders of
Residual Certificates) evidencing interests aggregating not less than 51% of
the Trust Fund 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 delay 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 (i) the later of the
final payment or other liquidation of the last Contracts subject thereto and
the disposition of all property acquired upon foreclosure of any Land-and-
Home Contract or repossession of any Manufactured Home and (ii) the payment
to the Certificateholders of all amounts held by the Servicer or the Trustee
and required to be paid to it pursuant to the Agreement. In addition, 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. The Trustee may also be
removed at any time by the holders of Certificates evidencing interests
aggregating over 50% of the related Trust Fund as specified in the Agreement.
Any resignation or removal of the Trustee and appointment of a successor
Trustee will not become effective until acceptance of the appointment by the
successor Trustee.
The Trustee will make no representation as to the validity or
sufficiency of the Agreement, the Certificates, any Contract, Contract file
or related documents, and will not be accountable for the use or application
by the Company of any funds paid to the Company, as Seller, in consideration
of the conveyance of the Contracts, or deposited into or withdrawn from the
Certificate Account by the Company, as Servicer. If no Event of Termination
has occurred, the Trustee will be required to perform only those duties
specifically required of it under the Agreement. However, upon receipt of
the various certificates, reports or other instruments required to be
furnished to it, the Trustee will be required to examine them to determine
whether they conform as to form to the requirements of the Agreement.
Whether or not an Event of Termination has 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.
Under the Agreement, the Company, as Servicer, agrees to pay to the
Trustee on each Remittance Date (a) reasonable compensation for all services
rendered by it hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of any 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 Company has agreed to indemnify the Trustee for, and to hold
it harmless against, any loss, liability or expense incurred without negli-
gence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the Trust Fund 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.
DESCRIPTION OF FHA INSURANCE AND VA GUARANTEES
Certain of the Contracts, may be FHA-insured or VA-guaranteed, 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% annum, (iii) costs paid to a
dealer or other third party to repossess and preserve the Manufactured Home,
(iv) the amount of any sales commission paid to a dealer or other third party
for the resale of the property, (v) with respect to a Land-and-Home Contract,
property taxes, special assessments and other similar charges and hazard
insurance premiums, prorated to the date of disposition of the property,
(vi) uncollected court costs, (vii) legal fees, not to exceed $500, and
(viii) expenses for recording the assignment of the lien on the collateral to
the United States.
The insurance available to a lender under FHA Title I insurance is
subject to the limit of a reserve amount equal to ten percent of the original
principal balance of all Title I insured loans originated by the lender,
which amount is reduced by all claims paid to the lender and by an annual
reduction in the reserve amount of ten percent of the reserve amount, and
which is increased by an amount equal to ten percent of the original
principal balance of insured loans subsequently originated by the lender. As
of June 30, 1996, the Company's Title I reserve amount was approximately
$20,884,353, which amount was available to pay claims in respect of
approximately $236,505,785 of FHA-insured manufactured housing contracts
serviced by the Company. If the Company were replaced as Servicer of the
Contracts under the Agreement, it is not clear from the FHA regulations what
portion of this reserve amount would be available for claims in respect of
the FHA-insured Contracts. The obligation to pay insurance premiums to FHA
is the obligation of the Company, as servicer of the FHA-insured Contracts.
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 a 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 original guarantee.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects of
manufactured housing contracts, including Land-and-Home Contracts, which are
general in nature. Because such legal aspects are governed by applicable
state law (which laws may differ substantially), the summaries do not purport
to be complete nor reflect the laws of any particular state, nor to encompass
the laws of all states in which the security for the Contracts or Land-and-
Home Contracts is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Contracts or
Land-and-Home Contracts.
THE CONTRACTS (OTHER THAN LAND-AND-HOME CONTRACTS)
General. As a result of the assignment of the Contracts to the Trustee,
the Trust Fund will succeed collectively to all of the rights (including the
right to receive payment on the Contacts) 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 Company will retain possession of
the Contracts as custodian for the Trustee, and will make an appropriate
filing of a UCC-1 financing statement in Tennessee to give notice of the
Trustee's ownership of the Contracts. The Contracts will be stamped to
reflect their assignment from the Company to the Trustee. However, 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. The Company
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. In the event the
Company 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
Certificateholders may not have a first priority security interest in the
Manufactured Home securing a Contract. As manufactured homes have become
larger and 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, the holder
of the security interest must file either a "fixture filing" under the
provision of the UCC or a real estate mortgage under the real estate laws of
the state where the home is located. See "Land-and-Home Contracts" below.
These filings must be made in the real estate records office of the county
where the home is located. Substantially all of the Contracts contain
provisions prohibiting the borrower from attaching the Manufactured Home to
its site. So long as the borrower does not violate this agreement, a
security interest in the Manufactured Home will be governed by the
certificate of title laws or the UCC, and the notation of the security
interest on the certificate of title or the filing of the UCC financing
statement will be effective to maintain the priority of the security interest
in the Manufactured Home. If, however, a Manufactured Home becomes 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 of
the Contracts and transferred to the Company. The Company will represent
that at the date of the initial issuance of the related Certificates it has
obtained a perfected first priority security interest by proper notation or
delivery of the required documents and fees with respect to substantially all
of the Manufactured Homes securing the Contracts.
The Company will assign the security interest in the Manufactured Homes
to the Trustee on behalf of the Certificateholders. Neither the Company nor
the Trustee will amend the certificates of title to identify the Trustee as
the new secured party, and neither the Company nor the Servicer will deliver
the certificates of title to the Trustee or note thereon the interest of the
Trustee. Accordingly, the Company, or such other originator of the Contracts
as provided herein, will continue to be named as the secured party on the
certificates of title relating to the Manufactured Homes. In some states,
such assignment 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 Company's rights as the secured party.
However, in some states in the absence of an amendment to the certificate of
title, such assignment of the security interest in the Manufactured Home may
not be held effective or such security interests 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 of the Company or a trustee in bankruptcy of the Company.
In the absence of fraud, forgery or affixation of the Manufactured Home
to its site by the Manufactured Home owner, or administrative error by state
recording officials, the notation of the lien of the Company on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the Company's security interest is not perfected, such security
interest would be subordinate to, among others, subsequent purchasers for
value of the Manufactured Homes and holders of perfected security interests.
There also exists a risk in not identifying the Trustee as the new secured
party on the certificate of title that, through fraud or negligence, the
security interest of the Trustee could be released.
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 Company must surrender
possession if it holds certificate of title to such Manufactured Home or, in
the case of Manufactured Homes registered in states which provide for
notation of lien, the Company would receive notice of surrender if the
security interest in the Manufactured Home is noted on the certificate of
title. Accordingly, the Company would have the opportunity to re-perfect its
security interest in the Manufactured Home in the state of relocation. 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
Company takes steps to effect such re-perfection upon receipt of notice of
re-registration or information from the obligor as to relocation. Similarly
when an Obligor under a Contract sells a Manufactured Home, the Company 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. Under the Agreement, the Company is
obligated to take such steps, at the Company'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
perfected security interests. The Company will represent in the Agreement
that it has no knowledge of any such liens with respect to any Manufactured
Home securing payment on any Contract. However, such liens could arise at
any time during the term of the 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 definitions 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-AND-HOME CONTRACTS
General. The Land-and-Home Contracts will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the
state in which the underlying property is located. A mortgage creates a lien
upon the real property described in the mortgage. There are two parties to a
mortgage: the mortgagor, who is the borrower, and the mortgagee, who is the
lender. In a mortgage state, the mortgagor delivers to the mortgagee a note
or bond evidencing the loan and the mortgage. Although a deed of trust is
similar to a mortgage, a deed of trust has three parties: the borrower, a
lender as beneficiary, and a third-party grantee called the trustee. Under
the 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 service of legal
pleadings upon all parties having an interest of record in the real property.
Delays in completion of the foreclosure occasionally may result from
difficulties in locating necessary parties. 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 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 by 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 sale. In
addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. If the deed of trust is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place
and, in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice
of sale be posted on the property and sent to all parties having an interest
in the property.
In some states, the borrower-trustor has the right to reinstate the loan
at any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in
enforcing the obligation. Certain state laws control the amount of
foreclosure expenses and costs, including attorneys' fees, that may be
recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the receiver or other designated officer, or by the trustee, is a
public sale. However, because of the difficulty of a potential buyer at the
sale would have in determining the exact status of title and because the
physical condition of the property may have deteriorated during the
foreclosure proceedings, it is not common for a third party to purchase the
property at the foreclosure sale. Rather, the lender generally purchases the
property from the trustee or receiver for an amount equal to the unpaid
principal amount of the note, accrued and unpaid interest and the expenses of
foreclosure. Thereafter, subject to the right of the borrower in some states
to remain in possession during the redemption period, the lender will assume
the burden 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 the 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
property and pay the expenses of ownership until the redemption period has
run.
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 mortgage 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 a
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 federal Soldier's and Sailor's Civil Relief Act of 1940 and state
laws affording relief to debtors, may interfere with or affect the ability of
a secured mortgage lender to realize upon its security. For example, with
respect to a Land-and-Home Contract, in a Chapter 13 proceeding under the
federal bankruptcy code, when a court determines that the value of a home is
less than the principal balance of the loan, the court may prevent a lender
from foreclosing on the home, and, as part of the rehabilitation plan, reduce
the amount of the secured indebtedness to the value of the home as it exists
at the time of the proceeding, leaving the lender as a general unsecured
creditor for the difference between that value and the amount of outstanding
indebtedness. A bankruptcy court may grant the debtor a reasonable time to
cure a payment default, and in the case of a mortgage loan not secured by the
debtor's principal residence, also may reduce the monthly payments due under
such mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. Certain court decisions have applied such relief to
claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or the deed of trust. The laws of some states provide priority to
certain tax liens over the lien of the mortgage or the deed of trust.
Numerous federal and state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with the origination,
servicing and the enforcement of mortgage loans. These laws include the
federal Truth in Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act,
and related statutes and regulations. These federal laws and state laws
impose specific statutory liabilities upon lenders who originate or service
mortgage loans and who fail to comply with the provisions of the law. In
some cases, this liability may affect assignees of the Contracts.
CERTAIN MATTERS RELATING TO INSOLVENCY
The Company intends that each transfer of the Contracts to a Trust Fund
will constitute a sale rather than a pledge of the Contracts to secure
indebtedness of the Company. However, if the Company (or one of its
affiliates) were to become a debtor under the federal bankruptcy code, it is
possible that a creditor, receiver, conservator or trustee in bankruptcy of
the Company (or one of its affiliates) or the Company as a debtor-in-
possession may argue the sale of the Contracts by the Company (or one of its
affiliates) was a pledge of the Contracts rather than a sale. This position,
if argued or accepted by a court, could result in a delay or reduction of
distributions to the related Certificateholders.
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
Fund) 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 Fund against the 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.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF "DUE-ON-SALE" CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes or Modular 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. The Servicer expects
that it will permit most transfers of Manufactured Homes or Modular Homes and
not accelerate the maturity of the related Contracts. In certain cases, the
transfer may be made by a delinquent Obligor in order to avoid a repossession
proceeding with respect to a Manufactured Home or Modular Home.
In the case of a transfer of a Manufactured Home or Modular 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 or Modular Homes. Consequently, in some
states the Servicer may be prohibited from enforcing a "due-on-sale" clause
in respect of certain Manufactured Homes or Modular Homes.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is
secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral
fees and requiring a 30-day notice period prior to instituting any action
leading to repossession of or foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where the Title V was not so rejected, any state is authorized by law to
adopt a provision limiting discount points or other charges on loans covered
by Title V. The Company will represent in the applicable Agreement that all
of the Contracts comply with applicable usury laws.
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 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 above and below, subject
to the provisions of applicable state law. Any such plan which is qualified
and exempt from taxation under Sections 401(a) and 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), however, is subject to the
prohibited transaction rules set forth in Section 4975 of the Code.
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 composition of the Plan's investment portfolio.
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 any 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 "Regulation") concerning the definition of what
constitutes the assets of a Plan. This 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 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
Regulation, is a security that is widely held, freely transferable, and
either is (i) part of a class of securities registered under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, or (ii) sold to the Plan as
part of a securities offering to the public pursuant to an effective
registration statement under the Securities Act of 1933, and the class of
securities of which such security is a part is registered under the
Securities Exchange Act of 1934 within 120 days (or such later time as may be
allowed by the Securities and Exchange Commission) after the end of the
fiscal year of the issuer during which the offering of such securities to the
public occurred. The Certificates are not expected to be publicly-offered
securities under the terms of the Regulation.
Unless some administrative exemption under ERISA applies 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.
The U.S. Department of Labor has granted to the lead Underwriter named
in the Prospectus Supplement an exemption (the "Exemption") from certain of
the prohibited transaction rules of ERISA 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 certain conditions (certain of which are described below) are
met.
Among the conditions which must be satisfied for the Exemption to apply
to the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is on
terms (including the price for the Senior Certificates) that are at
least as favorable to the Plan as they would be in an arm's length
transaction with an unrelated party;
(2) The rights and interests evidenced by the Senior Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust Fund;
(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 other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to the Underwriter 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 Fund represents not more than the
fair market value of such Contracts; and 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 or 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, any Underwriter, the Trustee,
the Servicer, any obligor with respect to Contracts included in the Trust
Fund constituting more than five percent of the aggregate unamortized
principal balance of the assets in the Trust Fund, or any affiliate of such
parties (the "Restricted Group").
The Company believes that the Exemption will apply to the acquisition
and holding by Plans of Senior Certificates sold by the Underwriter or
Underwriters named in the Prospectus Supplement 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 Fund constitutes more than five percent of
the aggregate unamortized principal balance of the assets of the Trust Fund.
Employee benefit plans that are governmental plans (as defined in
section 3(32) of ERISA) and church plans (as defined in section 3(33) of
ERISA) are not subject to ERISA requirements. Accordingly, unless otherwise
specified in the Prospectus Supplement, assets of such plans may be invested
in the Senior Certificates without regard to the ERISA restrictions described
above, subject to applicable provisions of other federal and state laws.
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 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 Fund 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.
SUBORDINATED CERTIFICATES
Because the Subordinated Certificates are subordinated to the Senior
Certificates, the Exemption will not apply to the acquisition, holding and
resale of the Subordinated Certificates by a Plan.
Any Plan fiduciary considering whether to purchase any Subordinated
Certificates on behalf of a Plan should consult with its counsel regarding
the applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. Among other things,
before purchasing any Subordinated Certificates, a fiduciary of a Plan
subject to the fiduciary responsibility provisions of ERISA or an employee
benefit plan subject to the prohibited transaction provisions of the Code
should analyze whether any prohibited transaction exemptions are available.
In particular, there are three class exemptions issued by DOL that could
apply with respect to certain transactions involving the Certificates: PTCE
84-14 (Class Exemption for Plan Asset Transaction Determined by Independent
Qualified Professional Asset Managers), PTCE 91-38 (Class Exemption for
Certain Transactions Involving Bank Collective Investment Funds) and PTCE
90-1 (Class Exemption for Certain Transactions Involving Insurance Company
Pooled Separate Accounts). There is no assurance that these exemptions, even
if all of the conditions specified therein are satisfied, will apply to all
transactions involving the Trust Funds assets.
In light of the foregoing, unless otherwise specified in the Prospectus
Supplement, no transfer of a Subordinated Certificate will be permitted to be
made to a Plan unless such Plan, at its expense, delivers to the Trustee and
the Company an opinion of counsel to the effect that the purchase or holding
of a Subordinated Certificate by such Plan will not result in the assets of
the Trust Fund 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 in addition to those
undertaken in the Agreement. Unless such opinion is delivered, each person
acquiring a Subordinated Certificate will be deemed to represent to the
Trustee, the Company and the Servicer that such person is not a Plan subject
to ERISA or Section 4975 of the Code.
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 and is based on advice of Brown & Wood LLP, special tax counsel
to the Company. The discussion is also based upon laws, regulations,
rulings, and decisions now in effect, including Treasury Regulations issued
on December 23, 1992, and generally effective for REMICs with startup days on
or after November 12, 1991 (the "REMIC Regulations"), all of which are
subject to change or possibly differing interpretations. The discussion
below addresses all material federal income tax consequences generally
applicable to investors. However, 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
any 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 Fund 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, Brown & Wood LLP, special tax counsel to the Company, will have
advised the Company that in its opinion, assuming (i) the making of that
election in accordance with the requirements of the Code and (ii) ongoing
compliance with the applicable Agreement, at the initial issuance of the
Certificates in such series the Trust Fund will qualify as a REMIC and the
Certificates in such a 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 a 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 Fund so 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 a Contract is principally secured by an interest in
real property if the fair market value of the real property securing the
Contract is at least equal to either (i) 80% of the issue price (generally,
the principal balance) of the Contract at the time it was originated or
(ii) 80% of the adjusted issue price (the then-outstanding principal balance,
with certain adjustments) of the Contract at the time it is contributed to a
REMIC. The fair market value of the underlying real property is to be
determined after taking into account other liens encumbering that real
property. Alternatively, a Contract is principally secured by an interest in
real property if substantially all of the proceeds of the Contract 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 Contract (other than the
personal liability of the obligor). The REMIC Regulations provide that
obligations secured by manufactured housing or mobile homes (not including
recreational vehicles, campers or similar vehicles) which are "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." 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.
"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
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"). 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 three months or less,
unless such sale is necessary to prevent a default in payment of principal or
interest on Regular Certificates. In accordance with Section 860G(a)(7) of
the Code, a reserve fund must be "promptly and appropriately" reduced as pay-
ments 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 interest in the
REMIC. Consequently, it is expected that in the case of any Trust Fund 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. See "REMIC Series -- Restrictions on Transfer of
Residual Certificates" below.
If the Trust Fund fails to comply with one or more of the ongoing
requirements for qualification as a REMIC, the Trust Fund will not be treated
as 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 Fund
consist of multiple classes, failure to treat the Trust Fund as a REMIC may
cause the Trust Fund to be treated as an association taxable as a
corporation. Such treatment could result in income of the Trust Fund being
subject to corporate tax in the hands of the Trust Fund 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 as well
as a Notice issued by the Service 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
as 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 are a part of a Trust Fund 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 Fund as REMICs for federal income tax purposes (respectively,
the "Subsidiary REMIC" and the "Master REMIC"). Upon the issuance of any
such series of Certificates, Brown & Wood LLP, special tax counsel to the
Company, 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. Only REMIC
Certificates issued by the Master REMIC will be offered hereunder. 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. If a Regular
Certificate represents an interest in a REMIC that consists of a specified
portion of the interest payments on the REMIC's qualified mortgages, the
stated principal amount with respect to that Regular Certificate may be zero.
Such a specified portion may consist of a fixed number of basis points, a
fixed percentage of interest or a qualified variable rate on some or all of
the qualified mortgages. 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 Fund, 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, and regulated investment
companies. An individual, an estate, or a trust that holds a Regular
Certificate in such a 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 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 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 a threshold amount specified
in the Code ($100,000 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 or any part of the foregoing expenses.
Tax Status of REMIC Certificates. In general, (i) Regular Certificates
held by a financial institution as described in Section 593(a) of the Code
will represent interest in "qualifying real property loans" within the
meaning of Section 593(d) of the Code; (ii) Regular Certificates held by a
thrift institution taxes as 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, in each such case as long as the
portion of the assets of the Trust Fund qualifying for the corresponding
status is at least 95% of the assets of the REMIC. 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 a mobile home 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. Treasury Regulations promulgated pursuant to
Section 856 of the Code state that local law definitions are not controlling
in determining the meaning of the term "Real Property" for purposes of that
section, and the Service has ruled that obligations secured by permanently
installed mobile home units qualify as "real estate assets" under this
provision. 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. 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 interest
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 qualifying for the corresponding status that are 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.
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 the Treasury Regulations
issued thereunder in January 1994 and in June 1996 (the "OID Regulations").
The discussion herein is based in part on the OID Regulations, which
generally apply to debt instruments issued on or after April 4, 1994, but
which generally may be relied upon for debt instruments issued after
December 21, 1992. The June 1996 Regulations apply to debt instruments
issued after August 13, 1996. Moreover, 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.
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 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 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
are "self-amortizing installment obligations," i.e., Regular Certificates
that provide 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 on a self-amortizing installment
obligation is generally considered to be zero if it is less than .167% of 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 included 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
included 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 that uses the accrual method of tax accounting or that
acquired such Regular Certificate on or after April 4, 1994, 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 Regulation, 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) during the entire term of the Regular
Certificate (including short periods). It is possible that the IRS could
assert that the stated rate of interest on the Certificates is not
unconditionally payable or otherwise does not qualify as qualified stated
interest. Such position, if successful, would require all holders of
Certificates to accrue all income on the Certificates under the OID
Regulations. The Company, however, intends to treat all stated interest on
the Certificates as qualified stated interest. 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. Until
further guidance is issued concerning the treatment of such interest payable
on Regular Certificates, the REMIC will treat such interest as being payable
at a variable rate tied to a single objective index of market rates.
Prospective investors should consult their tax advisors regarding the
treatment of such interest under the OID Regulations. 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 first price at which a substantial amount of
the Regular Certificates of such class are sold for money to the public
(excluding bond houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents 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.
The amount of original issue discount included 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 same 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 period" for the Regular
Certificates corresponds to the intervals at which amounts are paid or
compounded with respect to such Regular Certificate, beginning with their
date of issuance and ending with the 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
bases 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 Fund 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, upon the advice of Brown & Wood LLP, special tax
counsel to the Company, 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. See the discussion above under
"REMIC Series -- Original Issue Discount." 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.
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 floors or ceilings
which are not fixed 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 floor or ceiling;
or (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 significantly greater than the average
value of the rate during the final half of the term of the Regular
Certificate. In these situations, as well as others, it is unclear under the
OID Regulations whether such interest payments constitute qualified stated
interest payments, or 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. The amended OID Regulations
issued on June 11, 1996 generally require the accrual of original issue
discount on contingent payment debt instruments based on the comparable yield
of fixed rate debt instruments with similar terms and conditions, followed by
adjustments to reflect the differences between the payments so projected and
the actual contingent payments. Although the new rules technically do not
adequately address certain issues relevant to, or applicable to, prepayable
securities such as REMIC regular interests, in the absence of other
authority, the Servicer intends to be guided by certain principles of the OID
Regulations applicable to variable rate debt instruments in determining
whether such Certificates should be treated as issued with original issue
discount and in adapting the provisions of Section 1272(a)(6) of the Code to
such Certificates for the purpose of preparing reports furnished to
Certificateholders and the IRS. Investors acquiring Regular Certificates
whose rates are subject to the variations outlined above should consult their
tax advisors concerning their appropriate tax treatment.
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 each
accrual period which is calculated based upon such Regular Certificate's
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. 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 sale or exchange 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 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 payment) 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 included 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.
If the Company is determined to have intended on the date of issue of
the Regular Certificates to call all or any portion of the Regular
Certificates prior to their stated maturity within the meaning of Section
1271(a)(2)(A) of the Code, any gain realized upon a sale, exchange,
retirement, or other disposition of a Regular Certificate would be considered
ordinary income to the extent it does not exceed the unrecognized portion of
the original issue discount, if any, with respect to the Regular Certificate.
The OID Regulations provide that the intention to call rule will not be
applied to mortgage-backed securities such as the Regular Certificates. In
addition, under the OID Regulations, a mandatory sinking fund or call option
is not evidence of an intention to call.
Taxation of Residual Interests. Generally, the "daily portions" of the
taxable income or net loss of a REMIC will be included as ordinary income or
loss in determining the taxable income of holders of Residual Certificates
("Residual Holders"), and will not be taxed separately to the REMIC. The
daily portions are determined by allocating the REMIC's taxable income or net
loss for each calendar quarter ratably to each day in such quarter and by
allocating such daily portion among the Residual Holders in proportion to
their respective holdings of Residual Certificates in the REMIC on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting except
that (i) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will
be deductible as business bad debts, and (iii) the limitation on the
deductibility of interest and expenses related to tax-exempt income will
apply. REMIC taxable income generally means a REMIC's gross income,
including interest, original issue discount income, and market discount
income, if any, on the Contracts, plus income on reinvestment of cash flows
and reserve assets, minus deductions, including interest and original issue
discount expense on the Regular Certificates, servicing fees on the
Contracts, other administrative expenses of a REMIC, and amortization of
premium, if any, with respect to the Contracts.
The taxable income recognized by a Residual Holder in any taxable year
will be affected by, among other factors, the relationship between the timing
of interest, original issue discount or market discount income, or
amortization of premium with respect to the Contracts, on the one hand, and
the timing of deductions for interest (including original issue discount) on
the Regular Certificates, on the other hand. In the event that an interest
in the Contracts is acquired by a REMIC at a discount, and one or more of
such Contracts is prepaid, the Residual Holder may recognize taxable income
without being entitled to receive a corresponding cash distribution because
(i) the prepayment may be used in whole or in part to make distributions on
Regular Certificates, and (ii) the discount on the Contracts which is
included in a REMIC's income may exceed its deduction with respect to the
distributions on those Regular Certificates. When there is more than one
class of Regular Certificates that receive payments sequentially (i.e., a
fast-pay, slow-pay structure), this mismatching of income and deductions is
particularly likely to occur in the early years following issuance of the
Regular Certificates, when distributions are being made in respect of earlier
classes of Regular Certificates to the extent that such classes are not
issued with substantial discount. If taxable income attributable to such a
mismatching is realized, in general, losses would be allowed in later years
as distributions on the later classes of Regular Certificates are made.
Taxable income may also be greater in earlier years than in later years as a
result of the fact that interest expense deductions, expressed as a
percentage of the outstanding principal amount of Regular Certificates, may
increase over time as distributions are made on the lower yielding classes of
Regular Certificates, whereas interest income with respect to any given
Contract will remain constant over time as a percentage of the outstanding
principal amount of that loan (assuming it bears interest at a fixed rate).
Consequently, Residual Holders must have sufficient other sources of cash to
pay any federal, state, or local income taxes due as a result of such
mismatching, or such holders must have unrelated deductions against which to
offset such income, subject to the discussion of "excess inclusions" below
under "REMIC Series -- Limitations on Offset or Exemption of REMIC Income."
The mismatching of income and deductions described in this paragraph, if
present with respect to a series of Certificates, may have a significant
adverse effect upon the Residual Holder's after-tax rate of return.
The amount of any net loss of a REMIC that may be taken into account by
the Residual Holder is limited to the adjusted basis of the Residual
Certificate as of the close of the quarter (or time of disposition of the
Residual Certificate if earlier), determined without taking into account the
net loss for the quarter. The initial adjusted basis of a purchaser of a
Residual Certificate is the amount paid for such Residual Certificate. Such
adjusted basis will be increased by the amount of taxable income of the REMIC
reportable by the Residual Holder and decreased by the amount of loss of the
REMIC reportable by the Residual Holder. A cash distribution from the REMIC
also will reduce such adjusted basis (but not below zero). Any loss that is
disallowed on account of this limitation may be carried over indefinitely by
the Residual Holder for whom such loss was disallowed and may be used by such
Residual Holder only to offset any income generated by the same REMIC.
If a Residual Certificate has a negative value, it is not clear whether
its issue price would be considered to be zero or such negative amount for
purposes of determining the REMIC's basis in its assets. The REMIC
Regulations imply that residual interest cannot have a negative basis or a
negative issue price. However, the preamble to the REMIC Regulations
indicates that, while existing tax rules do not accommodate such concepts,
the Service is considering the tax treatment of these types of residual
interest, including the proper tax treatment of a payment made by the
transferor of such a residual interest to induce the transferee to acquire
that interest. Absent regulations or administrative guidance to the
contrary, the Company does not intend to treat a class of Residual
Certificates as having a value of less than zero for purposes of determining
the basis of the related REMIC in its assets.
Further, to the extent that the initial adjusted basis of a Residual
Holder(other than an original holder) in the Residual Certificate is greater
than the corresponding portion of the REMIC's basis in the Contracts, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC unless Treasury Regulations yet to be issued provide for periodic
adjustments to the REMIC income otherwise reportable by such holder.
Treatment of Certain Items of REMIC Income and Expense. Generally, a
REMIC's deductions for original issue discount will be determined in the same
manner as original issue discount income on Regular Certificates as described
above under "REMIC Series -- Original Issue Discount" and "--- Variable Rate
Regular Certificates," without regard to the de minimis rule described
therein.
The REMIC will have market discount income in respect of the Contracts
if, in general, the basis of the REMIC in such Contracts is exceeded by their
unpaid principal balances. The REMIC's basis in such Contracts is generally
the fair market value of the Contracts immediately after the transfer thereof
to the REMIC (which may equal a proportionate part of the aggregate fair
market value of the REMIC Certificates). In respect of the Contracts that
have market discount to which Code Section 1276 applies, the Market discount
income generally should accrue in the manner described above under "REMIC
Series -- Market Discount."
Generally, if the basis of a REMIC in the Contracts exceeds the unpaid
principal balances thereof, the REMIC will be considered to have acquired
such Contracts at a premium equal to the amount of such excess. As stated
above, the REMIC's basis in the Contracts is the fair market value of the
Contracts immediately after the transfer thereof to the REMIC. Generally, a
person that holds a Contract as a capital asset may elect to amortize premium
on the Contracts under a constant interest method. See the discussion under
"REMIC Series -- Amortizable Premium."
Limitations on Offset or Exemption of REMIC Income. If the aggregate
value of the Residual Certificates relative to the aggregate value of the
Regular Certificates and Residual Certificates is considered to be
"significant," as described below, then a portion (but not all) of the
REMIC taxable income included in determining the federal income tax
liability of a Residual Holder will be subject to special treatment.
That portion, referred to as the "excess inclusion," is equal to the
excess of REMIC taxable income for the calendar quarter allocable to a
Residual Certificate over the daily accruals for such quarterly period of
(i) 120% of the long-term applicable Federal rate that would have applied
to the Residual Certificate (if it were a debt instrument) on the Startup
Day under Section 1274(d) of the Code, multiplied by (ii) the adjusted issue
price of such Residual Certificate at the beginning of such quarterly
period. For this purpose, the adjusted issue price of a Residual
Certificate at the beginning of a quarter is the issue price of the Residual
Certificate, plus the amount of such daily accruals of REMIC income described
in this paragraph for all prior quarters decreased by any distributions made
with respect to such Residual Certificate prior to the beginning of such
quarterly period. The value of the Residual Certificates would be
significant in cases where the aggregate issue price of the Residual
Certificates is at least 2% of the aggregate issue price of the Regular
Certificates and Residual Certificates, and the anticipated weighted average
life of the Residual Certificates is at least 20% of the anticipated weighted
average life of the REMIC.
The portion of a Residual Holder's REMIC taxable income consisting of
the excess inclusions generally may not be offset by other deductions on such
Residual Holder's tax return, including net operating loss carry forwards.
Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Section 511 of the Code, the Residual
Holder's excess inclusions will be treated an unrelated business taxable
income of such Residual Holder for purposes of Section 511. Finally, if a
real estate investment trust or regulated investment company owns a Residual
Certificate, a portion (allocated under Treasury Regulations yet to be
issued) of dividends paid by such real estate investment trust or regulated
investment company could not be offset by net operating losses of its share-
holders, would constitute unrelated business taxable income for tax-exempt
shareholders, and would be ineligible for reduction of withholding to certain
persons who are not U.S. persons.
An exception to the inability of a Residual Holder to offset excess
inclusions with unrelated deductions and net operating losses applies to
certain financial institutions described in Section 593 of the Code ("thrift
institutions"). For purposes of applying this rule, all members of an
affiliated group filing a consolidated return are treated as one taxpayer,
except the thrift institutions to which Section 593 applies and each of their
subsidiaries formed to issue REMICs are treated as separate corporations.
Furthermore, the Code provides that regulations may be issued to disallow the
ability of a thrift institution to use deductions to offset excess inclusions
if necessary or appropriate to prevent the avoidance of tax. A thrift
institution may not so offset its excess inclusions unless the Residual
Certificates have "significant value," which requires that (i) the Residual
Certificates have an issue price that is at least equal to 2% of the
aggregate of the issue prices of all Residual Certificates and Regular
Certificate with respect to the REMIC, and (ii)the anticipated weighted
average life of the Residual Certificates is a least 20% of the anticipated
weighted average life of the REMIC. The anticipated weighted average life of
the Residual Certificates is based on all anticipated payments to be received
with respect thereto (using the Prepayment Assumption). The anticipated
weighted average life of the REMIC is the weighted average of the anticipated
weighted average lives of all classes of Certificates in the REMIC (computed
using all anticipated payments on a Regular Certificate with nominal or no
principal). Finally, an ordering rule under the REMIC Regulations provides
that a thrift institution may only offset its excess inclusion income with
deductions after it has first applied its deductions against income that is
not excess inclusion income. If applicable, the Prospectus Supplement with
respect to the series will set forth whether the Residual Certificates are
expected to have "significant value."
Restrictions on Transfer of Residual Certificates. As described above
under "REMIC Series -- Qualification as a REMIC," an interest in a Residual
Certificate may not be transferred to a Disqualified Organization. If any
legal or beneficial interest in a Residual Certificate is, nonetheless,
transferred to a Disqualified Organization, a tax would be imposed in an
amount equal to the product of (i) the present value of the total anticipated
excess inclusions with respect to such Residual Certificate for periods after
the transfer, and (ii) the highest marginal federal income tax rate
applicable to corporations. The anticipated excess inclusions are based on
actual prepayment experience to the date of the transfer and projected
payments based on the Prepayment Assumption. The present value rate equals
the applicable federal rate under Section 1274(d) of the Code as of the date
of the transfer for a term ending on the close of the last quarter in which
excess inclusions are expected to accrue. Such rate is applied to the
anticipated excess inclusions from the end of the remaining calendar quarters
in which they arise to the date of the transfer. Such a tax generally would
be imposed on the transferor of the Residual Certificate, except that where
such transfer is through an agent (including a broker, nominee, or other
middleman) for a Disqualified Organization, the tax would instead by imposed
on such agent. However, a transferor of a Residual Certificate would in no
event be liable for such tax with respect to a transfer if the transferee
furnishes to the transferor an affidavit, under penalties of perjury, that
the transferee is not a Disqualified Organization and, as of the time of the
transfer, the transferor does not have the actual knowledge that such
affidavit is false. The tax also may be waived by the Treasury Department if
the Disqualified Organization promptly disposes of the residual interest and
the transferor pays such amount of tax as the Treasury Department may require
(presumably, a corporate tax on the excess inclusion for the period the
residual interest is actually held by the Disqualified Organization).
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of
(i) the amount of excess inclusions on the Residual Certificate that are
allocable to the interest in the Pass-Through Entity during the period such
interest is held by such Disqualified Organization, and (ii) the highest
marginal federal income tax rate imposed on corporations. Such tax would be
deductible from the ordinary gross income of the Pass-Through Entity during
the period such interest is held by such Disqualified Organization, and
(iii) the highest marginal federal income tax rate imposed on corporations.
Such tax would be deductible from the ordinary gross income of the Pass-
Through Entity for the taxable year. The Pass-Through Entity would not be
liable for such tax if it has received an affidavit from such record holder
that it is not a Disqualified Organization and, during the period such person
is the record holder of the Residual Certificate, the Pass-Through Entity
would not be liable for such tax if it has received an affidavit from such
record holder that it is not a Disqualified Organization and, during the
period such person is the record holder of the Residual Certificate, the
Pass-Through Entity does not have actual knowledge that such affidavit is
false.
For these purposes, a "Pass-Through Entity" means any regulated
investment company, real estate investment trust, common trust fund,
partnership, trust or estate and certain corporations operating on a
cooperative basis. Except as may be provided in Treasury Regulations, any
person holding an interest in a Pass-Through Entity as a nominee for another
will, with respect to such interest, be treated as a Pass-Through Entity.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor
would continue to be treated as the owner of the Residual Certificates and
thus would continue to be subject to tax on its allocable portion of the net
income of the REMIC. Under the REMIC Regulations, a transfer of a
"noneconomic residual interest" (as defined below) to a Residual Holder is
disregarded for all federal income tax purposed if a significant purpose of
the transfer is to enable the transferor to impede the assessment or
collection of tax. A residual interest in a REMIC (including a residual
interest with a positive value at issuance) is a "noneconomic residual
interest" unless, at the time of transfer, (i) the present value of the
expected future distributions on the residual interest at least equals the
product of the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which the
transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The anticipated excess inclusions
and the present value rate are determined in the same manner as set forth
above. The REMIC Regulations explain that a significant purpose to impede
the assessment or collection of tax exists if the transferor, at the time of
the transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of
the REMIC. A safe harbor is provided if (i) the transferor conducted, at the
time of the transfer, a reasonable investigation of the financial condition
of the transferee and found at the time of the transferor that it understands
that, as the holder of a non-economic residual transferee represents to the
transferor that it understands that, as the holder of a non-economic residual
interest, the transferee may incur tax liabilities in excess of any cash
flows generated by the interest and that the transferee intends to pay taxes
associated with holding the residual interest as they become due. The Pool-
ing and Servicing Agreement with respect to each series of REMIC Certificates
will require the transferee of a Residual Certificate to certify to the
statements in clause (ii) of the preceding sentence as part of the affidavit
described above under "Restrictions on Transfer of Residual Certificates."
Mark-to-Market Rules. On December 28, 1993, the Service released
temporary regulations (the "Temporary Mark-to-Market Regulations") relating
to the requirement that a securities dealer mark to market securities held
for sale to customers. This mark-to-market requirement applies to all
securities owned by a dealer, except to the extent that the dealer has
specifically identified a security as held for investment. The Temporary
Mark-to-Market Regulations provide that, for purposes of this mark-to-market
requirement, a "negative value" REMIC Residual Certificate is not treated as
a security, and thus may not be marked to market. In general, a REMIC
Residual Certificate has negative value if, as of the date a taxpayer
acquires the REMIC Residual Certificate, the present value of the tax
liabilities associated with holding the REMIC Residual Certificate exceeds
the sum of (i) the present value of the expected future distributions on the
REMIC Residual Certificate, and (ii) the present value of the anticipated tax
savings associated with holding the REMIC Residual Certificate as the REMIC
generates losses. The amounts and present values of the anticipated tax
liabilities, expected future distributions and anticipated tax savings are
all to be determined using (i) the prepayment and reinvestment assumptions
adopted under Section 1272(a)(6) of the Code, or that would have been adopted
had the REMIC's regular interests been issued with original issue discount,
(ii) any required or permitted clean-up calls, or required qualified
liquidation, provided for in the REMIC's organizational documents, and (iii)
a discount rate equal to the "applicable Federal rate" (as specified in
Section 1274(d)(1) of the Code) that would apply to a debt instrument issued
on the date of acquisition of the REMIC Residual Certificate. The Temporary
Mark-to-Market Regulations apply to taxable years ending on or after December
31, 1993. Furthermore, the Temporary Mark-to-Market Regulations provide the
Service with the authority to treat any REMIC Residual Certificate having
substantially the same economic effect as a "negative value" residual
interest. In addition, the Service recently released proposed regulations
(the "Proposed Mark-to-Market Regulations") which provide that a REMIC
Residual Certificate acquired after January 3, 1995 cannot be marked-to-
market. The Proposed Mark-to-Market Regulations change the Temporary Mark-to-
Market Regulations which, as noted above, permit a REMIC Residual Certificate
to be marked-to-market provided that it was not a "negative value" residual
interest and did not have the same economic effect as a "negative value"
residual interest. In addition, the Service could issue subsequent
regulations which could apply retroactively, providing additional or
different requirements with respect to such deemed negative value residual
interests. Any such regulations could also limit the applicability of the
mark-to-market requirements to residual interests having economic value at
the time of their acquisition. Prospective purchasers of a REMIC Residual
Certificate should consult their tax advisors regarding the possible
application of the Temporary Mark-to-Market Regulations and Proposed Mark-to-
Market Regulations to REMIC Residual Certificates.
Sale or Exchange of a Residual Certificate. Upon the sale or exchange
of a Residual Certificate, the Residual Holder will recognize gain or loss
equal to the excess, if any, of the amount realized over the adjusted basis
as described above of such Residual Holder in such Residual Certificate at
the time of the sale or exchange. In addition to reporting the taxable
income of the REMIC, a Residual Holder will have taxable income to the extent
that any cash distribution to him from the REMIC exceeds such adjusted basis
on that Distribution Date. Such income will be treated as gain from the sale
or exchange of the Residual Certificate. It is possible that the termination
of the REMIC may be treated as a sale or exchange of a Residual Holder's
Residual Certificate, in which case, if the Residual Holder has and adjusted
basis in his Residual Certificate remaining when his interest in the REMIC
terminates, and if he holds such Residual Certificate as a capital asset,
then he will recognize a capital loss at that time in the amount of such
remaining adjusted basis.
The Conference Committee Report to the Tax Reform Act of 1986 provides
that, except as provided in Treasury Regulations, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six
months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Code Section 1091) any
residual interest in any REMIC or any interest in a "taxable mortgage pool"
(such as a non-REMIC owner trust) that is economically comparable to a
Residual Certificate.
Certain Other 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. In the event that a REMIC holds Convertible ARM Loans which
are convertible at the option of the Obligor into fixed-rate, fully
amortizing, level payment Contracts, a sale of such Contracts by the REMIC
pursuant to a purchase agreement or other contract with the Company or other
party, if and when the Obligor elects to so convert the terms of the
Contract, is not expected to result in a prohibited transaction for the
REMIC. The Code also imposes a 100% tax on contributions to a REMIC made
after the Startup Day, unless such contributions are payments made to
facilitate a cleanup call or a qualified liquidation of the REMIC, payments
in the 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 foreclosure property that
the REMIC derives 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 REMIC 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 (which
may be accomplished by designating in the REMIC's final tax return a date on
which such adoption is deemed to occur) 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 (including all cash),
less amounts retained 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 included 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 and does not own
actually or constructively 10% or more of the voting stock of the Company.
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 it either of the
two preceding years. The 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 regular graduated rates. Foreign Holders
should consult their own 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 included in the estate of a Foreign
Holder who does not own actually or constructively 10% or more of the voting
stock of the Company.
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 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 Certificates. 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 Company 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 REMICs "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.
The Company will be designated as 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 Fund. In the case of a Trust Fund 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"),
Brown & Wood LLP, special tax counsel to the Company, will have advised the
Company that, in their 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. See the discussions of such Code provisions above under "REMIC Series
Tax Status of REMIC Certificates." 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 payments charges received by the
Company, and any gain upon disposition of such Contracts. (For purposes of
this discussion, the term "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
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
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 a threshold amount specified in the Code ($100,000 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. Accordingly, the Company expects to offer
subordinated Non-REMIC Certificates for sale to investors. 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.
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 market discount and amortizable premium
will apply to the Contracts comprising a Contract Pool to the extent that the
loans were originated after July 18, 1984 and September 27, 1985,
respectively. 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
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 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 price; 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 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.
Recharacterization of Servicing Fees. The servicing compensation to be
received by the Servicer may be questioned by the Service with respect to
certain Certificates or Contracts as exceeding a reasonable fee for the
services being performed in exchange therefor, and a portion of such
servicing compensation could be recharacterized as an ownership interest
retained by the Servicer or other party in a portion of the interest payments
to be made pursuant to the Contracts. In this event, a Certificate might be
treated as a Stripped Certificate subject to the stripped bond rules of
Section 1286 of the Code and the original issue discount provisions rather
than to the market discount and premium rules. See the discussion above
under "Non-REMIC Series -- Stripped Non-REMIC Certificates."
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. Such
Non-REMIC Certificateholder will be entitled to receive interest payments and
original issue discount on the Non-REMIC Certificates free of United States
federal income 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. For
additional information concerning interest or original issue discount paid by
the Company to a Foreign Holder and 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 Company 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 Company 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 Company 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 expected 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.
STATE AND LOCAL TAX CONSIDERATIONS
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 specified 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 such Certificates will constitute legal investments for
entities subject to such legislation only to the extent provided therein.
SMMEA provides, however, that in no event will the enactment of any such
legislation affect the validity of any contractual commitment to purchase,
hold or invest in Certificates, or require the sale or other disposition of
Certificates, so long as such contractual commitment was made or such
Certificates were acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in Certificates; and national banks may
purchase Certificates for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. 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, or may not otherwise satisfy the
requirements of SMMEA, 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
interest, 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.
Ratings of the Certificates address the likelihood of the ultimate
receipt of all distributions on the contracts by the related
certificateholders under the agreements pursuant to which such certificates
are issued. The ratings take into consideration the credit quality of the
related contract pool, including any credit support providers, structural and
legal aspects associated with such certificates, and the extent to which
payment stream on such contract pool is adequate to make payments required by
such certificates. The ratings on such certificates do not, however,
constitute a statement regarding frequency of prepayments on the related
contracts.
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.
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 discounts, 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,
concluding liabilities under the Act.
The Company may 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 contracts 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 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 in the ordinary course
of business.
LEGAL MATTERS
The validity of the Certificates will be passed upon for the Company by
Boult, Cummings, Conners & Berry, PLC. The material federal income tax
consequences of the Certificates will be passed upon for the Company by Brown
& Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements of CHI as of June 30, 1995 and
1996 and for each of the three years in the period ended June 30, 1996,
incorporated by reference herein, have been incorporated herein in reliance
on the report of Coopers & Lybrand, L.L.P., independent accountants, given on
the authority of that firm as experts in accounting and auditing.
GLOSSARY
There follows abbreviated definitions of certain capitalized terms used
in this Prospectus and the Prospectus Supplement. The Agreement may contain
a more complete definition of certain of the terms defined herein and
reference should be made to the Agreement for a more complete definition of
all such terms.
"Accrual Remittance Amount" means, with respect to the Compound Interest
Certificates of a Series of Certificates providing for sequential
distributions in reduction of the Stated Balance of the Classes of such
Series, as any Remittance Date, the amount of interest, calculated at the
Interest Rate, which has accrued on such Compound Interest Certificates from
the prior Remittance Date.
"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, the Trustee, the Servicer and any other party specified in the
related Prospectus Supplement.
"APR" means, with respect to any Contract and any time, the per annum
rate of interest then being borne by such Contract, as set forth on the face
thereof.
"Asset Value" means the Asset Value of the Contracts included in a Trust
Fund, determined in the manner set forth in the related Agreement.
"Available Distribution Amount" means, with respect to each Series of
Certificates, certain amounts on deposit in the Certificate Account on a
Determination Date.
"Available Subordination Amount" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, as of any
Remittance Date, the excess, if any, of the then applicable Maximum
Subordination Amount over the Cumulative Subordination Payments as of the
preceding Remittance Date.
"Certificate Account" means the account maintained by the Servicer or
the Trustee, as specified in the related Prospectus Supplement.
"Certificate Distribution Amount" means with respect to a Series of
Certificates evidencing an interest in a Contract Pool the amount of interest
(calculated as specified in such Prospectus Supplement) and the amount of
Principal (calculated as specified in such Prospectus Supplement) to be
distributed to Certificateholders on each Remittance Date.
"Certificates" means the Manufactured Housing Contract Pass-Through
Certificates issued pursuant to an Agreement.
"CHI" means Clayton Homes, Inc.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
"Company" means Vanderbilt Mortgage and Finance, Inc.
"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 Certificate, the
pool of manufactured housing conditional 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 manufactured housing installment sales contracts and
installment loan agreements, including any an all rights to receive payments
due thereunder on and after the Cut-off Date and security interest in
Manufactured Homes purchased with the proceeds of such contracts.
"Cumulative Subordination Payments" means, with respect to a Series of
Certificates having a class of Subordinated Certificates, as of any
Remittance Date, the cumulative amount equal to (i) the total of all amounts
distributed to the Senior Certificateholders, exclusive of Advances made by
the Servicer and the Initial Deposit to the Reserve Fund, up to and including
such Remittance Date minus (ii) the Senior Percentage times the Available
Distribution Amount for all Remittance Dates up to and including such
Remittance Date.
"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 Fund.
"Determination Date" means, unless otherwise specified in the related
Prospectus Supplement, the third Business Day immediately preceding the
related Remittance Date.
"Due Period" means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Remittance Date, the period beginning on the
26th day of the second month preceding the month of the Remittance Date and
ending on the 25th day of the month preceding the month of the Remittance
Date.
"Eligible Investments" means one or more of the investments specified in
the Agreement in which moneys in the Certificate Account and certain other
accounts are permitted to be invested.
"Excess Interest or Excess Interest Rate" means, with respect to any
Contract, the per annum percentage of the principal balance from time to time
outstanding, which may be retained by the Company or the Servicer or
allocated to a designated Class of Certificates, as specified in the related
Prospectus Supplement.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"Final Scheduled Remittance Date" means, with respect to a Series of
Certificates providing for sequential distributions in reduction of the
Stated Balance of the Classes of each Series, the date, based on the
assumptions set forth in the related Prospectus Supplement, on which the
Stated Balance of all Certificates of each Class shall have been reduced to
zero.
"HUD" means the United States Department of Housing and Urban
Development.
"Initial Deposit" means, with respect to a Series of Certificates, the
amount, if any, deposited into the Reserve Fund on the date of the initial
issuance of the Certificates.
"Interest Rate" means, with respect to a Series of Certificates
providing for sequential distributions in reduction of the Stated Balance of
the Classes of such Series, the interest payable on the Principal Balance
outstanding of each such Class.
"Liquidation Proceeds" means cash (including insurance proceeds)
received in connection with the repossession of a Manufactured Home.
"Loan-to-Value Ratio" means the loan-to-value ratio at the time of
origination of the Contract.
"Manufactured Home" means a unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Obligor under the
related Contract.
"Maximum Subordination Amount" means, with respect to a Series of
Certificate having a Class of Subordinated Certificates, the amount specified
in the related Prospectus Supplement, representing the maximum amount of
Cumulative Subordination Payments which may be required to be made over the
term of the related Agreement.
"Modular Home" means a unit of manufactured housing that does not meet
the requirements of a "manufactured home" under 42 United States Code,
Section 5402(6), and which is further defined in a related Prospectus
Supplement.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Contract.
"Obligor" means each person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract.
"Record Date" means the date specified in the related Prospectus
Supplement for the list of Certificateholders entitled to distributions on
the Certificates.
"REMIC" means a "real estate mortgage investment conduit" as defined in
the Code.
"Remittance Date" means the date specified in the related Prospectus
Supplement for payments on the Certificates.
"Remittance Rate" means, as to a Certificate, the rate or rates of
interest thereon specified in the related Prospectus Supplement.
"Seller" means, with respect to a Series of Certificates evidencing
interest in Contracts, the Seller specified in the Prospectus Supplement.
"Senior Certificates" means, with respect to each Series of
Certificates, the Class or Classes which have rights senior to another Class
or Classes in such Series.
"Servicer" means, with respect to each Series of Certificates evidencing
interests in Contacts, 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, for each Class of Certificates of any
Series, the initial principal amount of Contracts evidenced by a single
Certificate of such Class.
"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 dollars amount (exclusive of
interest at the related Interest Rate) to which the Holder thereof is
entitled from the cash flow of the Trust Fund.
"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.
"Subordinated Percentage" means, with respect to a Series of
Certificates, the Class or Classes with rights subordinate to another Class
or Classes of such Series.
"Trust Fund" means, with respect to each Series of Certificates, the
corpus of the trust created by the related Agreement, to the extent described
in such Agreement, consisting of, among other things, Contracts, such assets
as shall from time to time be identified as deposited in the Certificate
Account, the Manufactured Home which secured a Contract, insurance, a reserve
fund and other forms of credit enhancement, if any.
"Trustee" means the Trustee for a Series of Certificates specified in
the related Prospectus Supplement.
"VA" means the Veterans' Administration.
"Variable Rate Regular Certificates" means Certificates which evidence
the right to receive distributions of income at a variable Remittance Rate.
NO PERSON HAS BEEN AUTHORIZED TO $193,184,000
GIVE ANY INFORMATION OR TO MAKE ANY (APPROXIMATE)
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, VANDERBILT MORTGAGE
IF GIVEN OR MADE, SUCH INFORMATION AND FINANCE, INC.
OR REPRESENTATIONS MUST NOT BE
RELIED UPON. THIS PROSPECTUS SELLER AND SERVICER
SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY MANUFACTURED HOUSING CONTRACT
ANY SECURITIES OTHER THAN THE SENIOR/SUBORDINATE
OFFERED CERTIFICATES OFFERED PASS-THROUGH CERTIFICATES,
HEREBY, NOR AN OFFER OF THE OFFERED SERIES 1997A
CERTIFICATES IN ANY STATE OR
JURISDICTION IN WHICH, OR TO ANY
PERSON TO WHOM, SUCH OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR ANY $28,500,000 (APPROXIMATE) CLASS I A-1
PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT INFORMATION HEREIN OR $24,900,000 (APPROXIMATE) CLASS I A-2
THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE; HOWEVER, IF $18,200,000 (APPROXIMATE) CLASS I A-3
ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS SUPPLEMENT OR THE $10,700,000 (APPROXIMATE) CLASS I A-4
PROSPECTUS IS REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS $12,919,000 (APPROXIMATE) CLASS I A-5
SUPPLEMENT OR THE PROSPECTUS WILL
BE AMENDED OR SUPPLEMENTED $9,233,000 (APPROXIMATE) CLASS I A-6
ACCORDINGLY.
$6,347,000 (APPROXIMATE) CLASS I B-1
TABLE OF CONTENTS
PAGE $4,618,000 (APPROXIMATE) CLASS I B-2
----
Summary of Terms of the $58,714,000 (APPROXIMATE) CLASS II A-1
Certificates . . . . . . . S-4
Risk Factors . . . . . . . . S-35 $9,526,000 (APPROXIMATE) CLASS II B-1
The Contract Pool . . . . . . S-37
Vanderbilt Mortgage and Finance, $4,082,000 (APPROXIMATE) CLASS II B-2
Inc. . . . . . . . . . . . . S-79
Ratio of Earnings to Fixed $5,445,000 (APPROXIMATE) CLASS II B-3
Charges for S-52 CHI
Yield and Prepayment
Considerations . . . . . . . . S-52
Description of the Certificates S-72
Use of Proceeds . . . . . . . S-96
Certain Federal Income Tax
Consequences . . . . . . . S-96
State Tax Considerations . . S-99
ERISA Considerations . . . . S-99
Legal Investment Considerations
S-100
Underwriting . . . . . . . . S-100
Legal Matters . . . . . . . . S-101
Annex I . . . . . . . . . . . . I-1
PROSPECTUS
Reports to Certificateholders . . 2
Available Information . . . . . . 2
Incorporation of Certain Documents
of the Company by Reference . 2
Incorporation of Certain Documents
of CHI by Reference . . . . . 2
Summary of Terms . . . . . . . . 4
Risk Factors . . . . . . . . . . 9
The Trust Fund . . . . . . . . 11
Use of Proceeds . . . . . . . . 12
Vanderbilt Mortgage and Finance,
Inc. . . . . . . . . . . . . . 13
Underwriting Policies . . . . . 14
Yield Considerations . . . . . 15
Maturity and Prepayment
Considerations . . . . . . . . 15
Description of the Certificates 16
Description of FHA Insurance and VA
Guarantees . . . . . . . . . 28
Certain Legal Aspects of the
Contracts . . . . . . . . . . . 29 PRUDENTIAL SECURITIES INCORPORATED
ERISA Considerations . . . . . 34
Certain Federal Income Tax
Consequences . . . . . . . . . 37 GOLDMAN, SACHS & CO.
State and Local Tax Consequences 52
Legal Investment Considerations 52
Ratings . . . . . . . . . . . . 53 PROSPECTUS SUPPLEMENT
Underwriting . . . . . . . . . 53 DATED JANUARY 30, 1997
Legal Matters . . . . . . . . . 54
Experts . . . . . . . . . . . . 54
Glossary . . . . . . . . . . . 54